Investment Opportunity Hidden in Cash for Clunkers Program
In the Prosperity Dispatch we’re always looking for investment opportunities which offer better returns with low risk.
Normally that means scouring the stock market, but not always.
That’s because every once in a while the government practically hands you free money. Right now, they’re about to do exactly that.
As I write, there is a bill on its way to the U.S. Senate popularly referred to as the “Cash for Clunkers” bill. The popular bill (it passed the House by 298-119 margin) is on its way to the Senate. But with such strong approval in the House, it surely won’t be held up for long or get modified too heavily before sending it over to the White House to be signed into law.
The details are pretty simple (well, as simple as you can get for any government regulation). If you are willing to scrap an old car which gets less than 18 miles per gallon and buy a new one, you get between $3,500 and $4,500.
The goal of the $4 billion program is to jump start new car sales and get old less efficient cars off the road. The CBO expects the program to help sell an additional 625,000 cars.
Overall, it sounds like a pretty good deal – especially if you’re in the market for a new car. And it may be. More importantly, there’s actually a way you can make money off of it too regardless of what you’re currently driving.
For instance, if you are able to find an old clunker of a car – a genuine clunker, like the first car – and buy it for less than the $3,500 or $4,500 rebate, it’s well worth it. Basically, if you spend $1,000 to save $4,500, it’s an instant 350% return on your money.
From an investment perspective, it’s like buying 100 shares of a $10 stock and selling those 100 shares for $45 a piece. I don’t know too many investors who would be willing to pass up a low risk, $3,500 gain overnight.
It might be gaming the system a bit, but it’s helping achieve what the lawmakers intended to achieve.
Now, we can move onto the less obvious problems here. First, it won’t help solve the oversupply problems. As it stands, there is more than one car for every licensed driver in the U.S. And then there’s trying to figure out how a $4 billion program is used to help rebate $4,500 each for 625,000 cars. That’s only a total of $2.81 billion in subsidies.
Figuring out how to make money from sound investment opportunities created by the U.S. government policies is something we do in Q1 Publishing’s Premium Services: Andrew Mickey’s Prudent Investing and our 100% free e-letter the Prosperity Dispatch.
