Decapitation thru Cap & Trade
Research for Online Investors

by John Dalt

6/25/09

The house is working on “cap and trade”, ready to ram it through by the end of the week.  The proponents have written a bill that does not have many teeth in it, until after the CBO cost scoring expires.  CBO estimates a low cost in 2020, the costs escalate after that date!

You might think it can be changed if new technology does not lower carbon while providing low cost power before the targets become onerous. You would be wrong, Republicans offered three amendments. The law would be suspended if any of the following happened:

• gasoline cost over $5 per gallon
• electricity prices increased over 10% over 2009 levels
• unemployment rates hit 15%

They all failed. So much for everyone making less than $250,000 Have you noticed it is not called global warming anymore. Now it is climate change. Why? The climate actually cooled the last 18 months! The Wall Street Journal has a good article on Cap and Trade.

Ok, so everything costs more.  But you didn't raise taxes?

I invest in oil exploration and production.  I ran into another "oily" last night at the grocery store.  They have stopped exploration until they are sure Washington is not going to take more taxes.  The risk is not worth it if the government wants to be your partner in good times.  Less exploration this year means less oil next year!  Get ready to pay more at the pump, that is why I have called oil the trade of the year.  And probably next year.  And maybe the year after that.

Twelve percent of the U.S. population is expected to take a trip of 50 miles or more over the Fourth of July holiday. This is a 1.9% drop from last year, and 12% less than 2007 according to AAA. They cited rising unemployment and sagging incomes for the drop in travel.

I noticed weeds in my drive this morning, and thought I need to get some Roundup this weekend. Monsanto (MON) manufactures Roundup. They announced a 14% drop in profit for the third quarter. Roundup is used on many row crops to control weeds, Roundup profits are expected to drop by half this year. According to CEO Hugh Grant that accounts for a $1 billion drop in gross profit. Shares are down almost 5% in the last two days.

Here is a statistic that should make the socialists hearts skip a beat. Business Week reports that people with assets between $1 million and $30 million fell by 14.9% The recession has reduced the total wealth of the world’s millionaires by 19.5% to $32.8 trillion. Wow, if our government took all the personal wealth over $1 million in the world, they could pay for all the bailouts, and Social Security/Medicare could go on for a few more years. Do we need to know anymore? What do you think taxes and inflation are going to do? Write me at feedback@galtstock.com

California's State Controller is preparing to issue IOU’s to pay the state’s debt starting July 1. The state legislature failed to pass an $11 billion bill that would cut state services.

The state’s treasurer will tap a reserve fund to pay interest on “economic recovery sales tax bonds”. These bonds were approved in 2004 in the midst of another fiscal crisis. A state sales tax secures them, but receipts are down. Reuters has the latest update on the California budget crisis.

For some long-term perspective, today's chart illustrates the Dow adjusted for inflation since 1925. There are several points of interest. For one, when adjusted for inflation, the bear market that concluded in the early 1980s was almost as severe as the one that concluded in the early 1930s. Also, the inflation-adjusted Dow is now less than double where it was at its 1929 peak and trades a mere 30% above its 1966 peak – not that spectacular of a performance considering the time frames involved. It is also interesting to note that the Dow is up 30.7% from its March 9, 2009 low, which is actually slightly more than what the inflation-adjusted Dow gained from its 1966 peak to today.

The information presented in this newsletter is based on generally available news releases, corporate filings, current events, interviews and the editor’s opinions.  It may contain errors and you should not make investment decisions based solely on what you believe you have read here.  Do your own research, it is your money.  If you lose it, it is your responsibility, not ours or your grandmothers!  The editor may or may not have a position in any securities discussed.  The editor may have held a position in a security earlier, or in the future.

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