Environmental Collectivism Plus Hedge Funds Equal a Huge Energy Tax on Ordinary People

Environmental Collectivism Plus Hedge Funds Equal a Huge Energy Tax on Ordinary People

November 2, 2004 (News Release)

Energy is essential for the lifestyles of ordinary people. Therefore, it is a very convenient tool for the political and financial gratification of wealthy elites on the East and West Coasts.

Environmental collectivism is the prevailing cultural ethic and, indeed, new religion of the most of the wealthy inner suburbs of major East and West cities. Environmental collectivism is the doctrine that only the anointed few know what is best for the environment and the ecology of our planet, that all economic progress comes at the expense of the environment and planetary ecology and that this wisdom must be forced on the vast majority of humanity too ignorant or venal to know what is good for them and the planet.

This collectivism provides the same gratifications and sources of power to wealthy elites today that organized religion provided 60 to 100 years ago or the New Deal provided 30 to 60 years ago. In the energy market, environmental collectivism means fanatical opposition to energy production and energy infrastructure of any kind (including offshore wind farms) while professing ritual belief in renewable energy (as long as no one actually tries to produce it near the vacation homes of the suburban elites) and conservation (which means doing without for ordinary people or installing very expensive and meretricious control systems in luxury homes).

Determined opposition to offshore oil and gas systems in the U.S. and to LNG handling infrastructure anywhere on the East and West coasts is an integral part of the belief systems of the wealthy suburban elites. This, of course, quite deliberately creates severe choke points in global energy systems, preventing U.S. consumers from accessing enormous and growing global oil and gas reserves. The so-called "shortage" of oil and gas in the U.S. is an artificial and quite unnecessary constraint on logistics (import facilities, refineries, LNG terminals handling systems, oil and gas transportation). If the logistics are choked then supply is choked (e.g., the biggest constraint on expanding gas supply in the U.S. is building LNG import terminals and pipelines in Alaska, the Canadian Artic and Rocky Mountains). There is more than enough gas production capacity in gas exporting nations to easily meet U.S. needs at below $4.50/mmBtu FOB U.S. LNG terminal. Even in Russia, the biggest constraint on large increases in Siberian oil production is the lack of take away capacity, not lack of reserves.

It is laughably easy for the wealthy environmental collectivists to create logistical choke points. They have the money to influence and intimidate politicians and the editorial boards of local and national media, finance any number of "grassroots" campaigns, buy advertising, spread disinformation and hire legions of lawyers. They understand every political, regulatory and emotional pressure point and know that a few million dollars a year can readily thwart billions of dollars in capital projects to ease logistical constraints. Environmental collectivism is the most self indulgent fun money can buy today in the U.S. It is a vast source of power, prestige and snobbery.

The logistical choke points result, naturally, in oil and gas (and hence, coal and electricity) prices being much higher than warranted by the abundance of global oil and gas reserves and the economic costs of bring those reserves to market. In turn, these high prices afford a very nice opportunity to make a lot of money for the environmental collectivists. The money making instrument, as one might expect, is the exclusive and exclusionary hedge fund. These funds are accessible only to the top 5% of income earners and wealth owners in the U.S., many of whom live in the wealthiest suburban zip codes on the East and West coasts.

Hedge funds profit mightily from the price momentum and volatility of oil and gas. Huge sums of cash and credit have flowed into hedge funds very quickly in 2004. This sudden surge of money is being poured into oil and gas markets that are heavily constrained by choke points. Moreover, the cost of capital facing the hedge funds is very low because real interest rates are very low. A pyramid of debt can be readily built on the slender base of equity allowing hedge funds to print their own currency. This is awfully close to "free" money. Enormous quantities of very cheap money chasing a fairly fixed (in the immediate short term) supply of oil and gas globally naturally results in rapid price inflation. This price inflation rebounds to the benefit of hedge fund operators and investors.

The phenomenon of money driven rapid energy price escalation is reminiscent of the tech equities bubble of Spring 1998 through Spring 2000. It lasted only two years but it felt like a lifetime. It had very similar wealth effects. It was just as unreal. It made a few clever operators and elite insiders, especially favored venture fund and IPO investors very rich indeed. It caused a huge transfer of wealth from retail or ordinary investors to a privileged few with privileged access. It was compounded by deception, vanity and overwhelming lust for money and status. The tidal wave of very cheap money hurled at technology overwhelmed the absorptive capacity of both technologists and consumers. The tidal wave passed over and in its wake left behind the broken portfolios of retail investors and the broken careers of ordinary people.

The same thing is happening today in energy markets. An enormous and enormously distorting tidal wave of privileged capital is flooding over oil and gas. Unlike the more fantastic and dysfunctional products of the tech boom everyone has to use energy for daily living. People can use less but not a lot less energy. People can adapt but not in days. Over the course of a year, ordinary Americans do not have a practical choice about spending on energy: they have to pay more while using less. This is a brutal and pervasive unlegislated tax on ordinary Americans imposed by the wealthy suburban elites.

The income transfer underway from ordinary people to the elites is staggering. The elites hardly care if they double or triple their own energy spending; the extra money means little to them and elite hedge fund investors are making hundreds or thousands of times more money from the rise in energy prices than they are paying in the unlegislated energy tax. Moreover, since these investors are clever at shielding their income from taxes, they will keep a great fraction of their winnings.

For these people it truly is a great racket. Use environmental collectivism to engineer a scarcity and then use hedge funds to mightily profit. First the insult to ordinary people and then the injury. It is all perfectly legal, of course. How do we know? Well, the lawyers who inspired Enron, Tyco, WorldCom, Marsh and McLennan say it is. Wall Street, which gave us crooked financial analysts and mutual fund managers, says it is. The trial lawyers in the U.S. Congress who made their fortunes bankrupting entire industries say it is.

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