STWR - Share The World's Resources

The typical activist approach of trying to get rich countries and companies to 'share the world's resources' fails to take into consideration how these individuals got rich to begin with. The process of accumulating wealth is rarely a rational, direct path. Trying to appeal to the rich to act rationally, therefore is, in most cases, folly, argues Max Keiser.

Activists need to get into the heads of the rich and understand that in order to create above-average wealth it is necessary for the rich to think in ways no average (read: poor) person is thinking. Financiers and speculators call this form of antagonism-for-profit 'contrarianism' and it forms the basis of an entire school of finance that attempts to figure out where the 'crowd' is heading, and then do the opposite.

Some quick examples of how this works; 1) the put-call ratio in the options markets. What this number tells contrarians is where most of the speculators are making bets in the markets, and as most speculation ends up in losses it makes sense, according to the contrarian doctrine, to bet the other way. 2) Another contrarian speculating strategy is to look at where professional money managers are placing their bets with their professionally managed funds. Again, since most professional money managers fail to 'beat the market,' it makes sense to do the opposite of whatever they're doing.

Probably the king of contrarianism is the most successful investor in the history of Wall Street: George Soros. He's taken the contrarian concept and developed it even further into what he calls his theory of 'reflexivity' or the 'human uncertainty principle.'

What Soros has observed about markets is that contrarianism itself can breed second and third generations of contrarianism that is self referential or 'reflexive' that, instead of doubling back and ending up where it started, has the power to change the underlying market fundamentals in ways that make the contrarian assumption the de factor market norm. When such situations develop, it's only a matter of time before the market realizes it’s 'smoking its own belly button lint' (my expression) and we get what Soros calls, a 'return to equilibrium' i.e., a crash, like we saw in stocks in 1929, 1987 and 2000. For the professional trader, identifying these inflection points where the market suddenly realizes that its assumptions are worth zero, great fortunes can be made betting the other way. Soros caught the crash in the English pound back in 1992 using this technique and pocketed over 1 billion dollars in one day.

The point I'm making here for activists is that activists' approach to changing the way business treats the environment relies almost entirely on trying to get business people to act more rationally. And yet, to get to where they got, these business leaders have relied mostly on obeying the voices in their head that the status quo claims are irrational. This has set up a paradox making NGO’s lives more difficult. Whatever an NGO thinks is a good idea, is probably a terrible way to make money in the minds of most businessmen. They'll listen to what an NGO has to say, but only to know what not to do if they want to continue making money. It's like what Milton Friedman advises corporations to do when an NGO walks into their office with a list of demands, and I paraphrase; 'listen politely, then figure out if there's any money to be made with what's been said, if not – use the meeting as a PR opportunity, but that's all.'

So does this mean NGO's should give up? No. What it does mean ,however, is that NGO's should consider adopting new strategies that will tap into businessmen's love of the irrational.

For environmentalists, I think carbon trading offers a huge opportunity to turn the tables on business and use the power of irrationality for a positive change.

Take a group like Greenpeace for example. They have over 100 million dollars sitting in the bank collecting money market interest. For all intents and purposes, this money is what Wall Street would call, 'dead money.' I propose the following. Greenpeace should start organizing a banking crusade with their money and other NGO money (NGO's combined operating budgets are worth 1 trillion dollars) and start buying Carbon Credits in the open market for the current price of approximately 8 dollars a ton. (the EU has started a program of capping carbon emissions for corporations; but giving them the opportunity to go over their cap by buying 'credits' from companies whose carbon output is below the cap).

This would set up an irrational chain reaction, each part of which represents a net positive for the environment. First, the price of carbon credits will be pressured upward thanks to the speculative buying of a new force in the market, NGO's. Corporations who are banking on the price of carbon credits to remain in a certain range will be forced to recalculate their assumptions and in many cases will be forced to buy more credits than they had planned to in the short term to give themselves the kind of hedging protection these carbon credits offer for their carbon abuse.

This will drive the price even higher. As demand goes up, so does the price and now we get to the irrational part; higher carbon prices will incentivize companies across the business spectrum to put forward various carbon-efficiency schemes as a way to make money with their excess credits. The money a company makes chasing carbon efficiencies could equal if not eclipse the profits made burning carbon. The government in turn, has the ability to lower the carbon caps greasing this contrarian cycle even more by making carbon more expensive, thus providing more incentive to produce greater efficiencies.

On paper, activists will look at this and balk. They don't like the idea of commoditizing nature. They don't understand why a company would engage in such a scheme. They don't like the fact that the whole thing seems irrational, but that's the point. Business today runs on irrationality and until NGO's adapt, they'll always be behind the curve. You would think NGO's would have already figured this out. They know for example that ExxonMobil's business model is irrational to the bone. ExxonMobil extract irreplaceable natural resources for virtually nothing, sell them for a fraction of their replacement costs and then we burn them without ever having to pay the environmental costs; all this resulting in parts of CO2 per million in the atmosphere breaching the 'can't go back' levels where the species (ours) is put on the extinction watch list. ExxonMobil's business model is irrational and suicidal. NGO's know this, so why do they insist in trying to get Exxon to act rationally when nothing in Exxon corporate DNA suggests they even understand what that word means.

Exxon is not rational, but they are profitable. For NGO's to attack their rationale is a non-starter because the company knows it's irrational and doesn't care. Environmentalists, to win against this insanity, must tear a page out of the irrational's handbook in order to effectively combat the current trends blighting our futures. The carbon trading scheme mentioned above is a step in that direction. As distasteful as it must seem for NGO's to drink the 'Koolaide' that runs business, not to do so at this point is completely irrational.

Max Keiser is the creator of the first patented virtual stock market, the hollywood Stock Exchange; the financial columnist for the Ecologist Magazine; the co-sponsor of the world's 'first activist hedgefund;' host of "The Truth About Markets" on Resonancefm 104.4 London; and, founder of KarmaBanque. This e-mail address is being protected from spam bots, you need JavaScript enabled to view it

Subscribe to this comment's feed

Write comment