SPECULATION LEGISLATION & INCENTIVES OR NOT, THE SMART MONEY IS ON NEW ENERGY

The price of oil is finally dropping. Could the threat of action against speculators have moved them out of the futures market?

A deadlocked Congress now teeters on the brink of a deal. Legislators may vote to do something about speculation and to extend the vital New Energy incentives or may leave D.C. for their summer break and the presidential conventions still yapping about oil drilling.

Congressional inaction would be in spite of advice from experts like economist Hazel Henderson that speculation regulation is the only effective short-term action possible against high pump prices. Congressional inaction would also be in spite of predictions from New Energy entrepreneurs in the booming solar and wind industries that a failure to extend vital production tax credits (PTCs) and investment tax credits (ITCs) will likely cause a downturn in one of the nation’s few expanding sectors, a downturn expected to last well into 2009.

The good news, sort of: If this nearly paralyzed-by-partisanship Congress does manage to find its way to legislative compromise, the deal looks like it will include New Energy incentives (PTCs and ITCs) and oil speculation regulation - in exchange for expanded oil drilling in protected areas.

Senate majority leader Harry Reid (D-Nev) seems focused on getting the vital New Energy incentives: "The number one issue for the American people is to do something about energy…And the number one thing we can do about energy that is meaningful, that will create lots of jobs, improve the economy and help the environment, is to do something with the renewables."

Senate Minority Leader Mitch McConnell’s (R-Ky) office says there could be a deal by the end of the week. Senator McConnell is unlikely to give up anything without getting some oil drilling in return.

President Bush was his usual conciliatory, constructive, penetrating self on Tuesday: "If we got a problem with not having enough oil, let's go after some oil right here in the United States of America in environmentally friendly ways…"

The bad news, sort of: It is not at all clear these people are as interested in making a deal as they are in making speeches and positioning themselves for the fall election. Leaving this decision to the voters might seem to them the best solution (and it might very well be).

In a new essay, economist Henderson offers further insights into the oil speculation tribulations and explains why the smart money will move to New Energy when speculating on oil is effectively controlled.

Henderson: “We have lived through bubbles in art, antiques, jewelry, junk bonds, dot.coms and housing, as investors continually search for safety and diversification…Today, it's commodities – oil, corn, wheat, rice – that are in the news…”

With a deep understanding of how the markets work, Henderson describes the way speculation has skewed the ability of traders to use commodities futures markets for what they evolved to do, which is to allow businesses to invest against future vicissitudes.

In a classic case of politics making strange bedfellows, Henderson uses conservative Republican Alaska Senator Ted Stevens’ call for criminal prosecution of oil speculators to demonstrate how really dangerous unregulated speculation is. Stevens, now under investigation and threatened with criminal prosecution himself, would seem to have unique authority as to who or what is a threat requiring prosecution.

Henderson wants regulation, not prosecution, regulation that will not disrupt commodities trading, only guide it to a higher level of effectiveness.

Where will smart money go if speculating in oil futures is put off-limits?

Not to currencies, Henderson predicts, not with the dollar in freefall.

Not to corn, wheat, rice and other food crop futures, also seen as "immoral" and off-limits to speculation.

Not, the daily headlines make it obvious, to real estate or banks.

Yet institutional investors don’t have the option of putting fund money in their mattresses.

Where should the money go?

Henderson: “…my candidate for the best new asset class is all the entrepreneurial companies that make up the Sustainability Sector. Many of these have quietly out-performed the Dow and S&P indexes…”

What she means is a variety of “…companies geared to the ecological and social sustainability of human societies and providing a healthier planet for our children…” Sounds like New Energy to NewEnergyNews. The kind of New Energy investments traded on small exchanges and, Henderson says, as yet unrecognized by investors.

Henderson: “Obsolete accounting methods used by traders, asset managers and security analysts keep their minds hypnotized by the indicators of the dying, fossil-fueled Industrial Era.”

The old “sectors” ( “Energy,” “Retail,” “Military,” “Health,” etc.) are incapable of categorizing investments in the “Sustainability” sector. The market has even failed to account for the shift of the newer “Technology” sector from digital investments to New Energy venture funding. The market's traditional “Energy” sector is still mainly taxpayer-subsidized oil, coal, gas and nuclear projects.

Henderson: “…wind power (which added 35% of newly installed electricity in the US in 2007); solar (growing at 35% per year); geothermal (which is gearing up to power millions of homes in the US) are overlooked and have been largely ignored by mainstream financial media. Similarly, Whole Foods Markets and the growth of organics are buried under Wal-Mart, Target and Costco in ‘Retail’...”

Henderson’s piece ends by pointing to information about “Sustainability” sector investing at Ethical Markets.

Henderson has spent a lifetime ahead of the curve. She was responsible for the first U.S. air quality index notices – in the late 1960s. She was writing about solar energy in the 1970s and 80s. She has been involved in socially responsible investing for decades. Here again, with this idea about the “Sustainability” sector, she is taking the lead. But this time there is a market full of investors hungry for the information she is offering.

Full disclosure: Ethical Markets is a NewEnergyNews sponsor.

From StopOilSpeculationNow. (click to enlarge)

Nervous Investors Searching For New Asset Classes
Hazel Henderson, July 23, 2008 (© 2008 Other News)
and
Senate deadlocked over energy speculation bill
Ayesha Rascoe (w/Marguerita Choy), July 29, 2008 (Reuters)

WHO
Paper players in the real commodities markets (ETFs (exchange-traded funds), hedge funds, pension funds, university endowments, etc.); Hedgers in real commodities

WHAT
While paper players speculate on commodities creating the impression of scarcity and driving prices up, players attempting to use the commodities as hedges against tempestuous business circumstances struggle to cope with markets that defy logic.

From StopOilSpeculationNow. (click to enlarge)

WHEN
- Institutional investors never expect to take delivery on commodities.
- Hedgers buy and sell according to their real anticipated need for the commodities.
- 2008 survey: 65% want more regulation of oil futures trading; 80% believe there is price manipulation.
- Since 2002: The US dollar has lost ~1/3 of its value

WHERE
- StopOilSpeculationNow is a website dedicated to organizing opposition to the unregulated speculation and demanding action from the Commodity Futures Trading Commision (CFTC) and Congress.
- Henderson’s nominated best new asset class is “hidden in plain sight,” obscured by a system that has not yet recognized their value, traded over-the-counter, on Nasdaq or smaller exchanges.

WHY
- Regulations that would control speculators without interrupting futures trading: (1) raise margins to 50% on contract purchases; (2) limit the amount of futures contracts; (3) add staff and enforcement measures for CFTC oversight.
- Paper players are looking for the next good investment.
- Food commodity speculation will be widely seen as immoral and off limits.
- Currency trading is $2+ trillion/day, 90% speculation, volatile and with inflation rising worldwide.
- Bonds are questionable investments due to rising inflation.

From StopOilSpeculationNow. (click to enlarge)

QUOTES
- Henderson: “Sure, demand is growing worldwide while supply may be peaking. The world is transitioning from the fossil-fueled Industrial Age to the emerging Solar Age as I predicted in my The Politics of the Solar Age (1981). But, the current price spike is also due to the $200 billion from speculators.”
- Henderson: “Thankfully, all this is changing rapidly with the birth of new indexes for clean technology, renewable energy and other "green" and "ethical" mutual funds as well as new ETFs in wind energy, the fastest growing, cheapest new electricity source (one third the cost of building equivalent nuclear power plants). You can find all the best new newsletters and indexes at Ethical Markets”