Despite the onset of the latest high energy price era, it goes without saying that the car will remain the main mode of transportation in the United States as the 21st century progresses.
First mass-produced on a national scale by Henry Ford, subsidized by the construction and expansion of the public interstate highway system after World War II, and immortalized by such films as George Lucas's American Graffiti (1973), the car and car culture is intrinsic to modern American life.
The car fuel alternatives
Cheap oil is not intrinsic, however, and that's a major reason why the nation is exploring car / vehicle fuel alternatives. Many options exist, each with strengths / weaknesses, and currently there's no clear winner.
Hence, in a very real sense, your say in the matter will play an important role in determining what fuel most Americans will use for car transportation in the decades ahead.
There's an upside and a downside regarding major auto companies and the quest to develop vehicles with increased fuel-efficiency.
The upside: Auto makers are positioning themselves to carve out niches in fuel-efficient technology and design, The Wall Street Journalreported Monday (subscription required).
The downside: Auto makers appear to be exhibiting a 'herd mentality' on the current propulsion technology -- hybrid engine cars with both a modest electric power source and a mainstay internal combustion engine. An electric hybrid focus
Following up on its successful electric-gasoline Prius hybrid, Toyota (NYSE: TM) announced it will make hybrid engine systems available on all models by 2020, The Journal reported. Meanwhile, Honda said it would import new hybrid technology to the U.S. to compete with Toyota and Ford (NYSE: F) plans to double its hybrid lineup next year, and Chevrolet's (NYSE: GM) Volt hybrid that will go on sale in 2010.
Economist David H. Wang said investors and consumers should not be overly optimistic or pessimistic regarding the sector's concentration on electric-fuel hybrids.
The press is making a big deal about the extent to which oil and commodities prices dropped during July. The reporting is misleading.
According to the FT, "Commodities prices suffered their largest monthly drop in 28 years in July as crude prices nose-dived more than $20 from an all-time high of $147.27 a barrel." Prices on agricultural commodities fell sharply as well.
Oil at $125 is still disastrous for the global economy, and corn and wheat prices are still fairly near historic highs. In other words, the fact that these costs have come down is purely relative. Consumers and businesses cannot face the sort of inflation that even slightly lower prices create.
In terms of commodities' prices, it is much better to look forward than to look back. Oil production may have peaked -- that has not changed. Exports from large producing nations including Mexico and Indonesia have dropped sharply. Meanwhile, demand for oil may be off a bit, but developing nations, especially India and China, are not going to curtail their use of gas and diesel. Too much of their GDP depends on transporting goods for export.
The idea that agricultural product costs will drop much further is nonsense. Hundreds of thousand of farmers in Africa have been displaced by political turmoil. The U.S. and Canada can only produce so much. The competition between food and ethanol is not going away, and consequently, corn prices will stay high.
Near-record oil and commodities prices are here to stay. The underlying economics are simply too compelling for costs to come down much more.
Douglas A. McIntyre is an editor at 247wallst.com.
Here's the answer every hedge fund knows: It will not let you raise numbers in the out years.
Right now there is a tremendous struggle going on about near-term and far-term earnings growth and what we can expect to see. Everyone knows when Mosaic and Potash report next week that the numbers will be beaten and the estimates raised.
But so what? If you scrap the ethanol mandate or if people even think that it will be scrapped, you will see grains collapse just as quickly as oil collapsed when we found a level we didn't need it -- remember, we don't "need" ethanol, but it is mandated.
We had the internet bubble and the real estate bubble and now, there is the ethanol bubble. Recently, I ran some numbers on ethanol and to my amazement realized that it is – too use a catch phrase from the environmental world -- not sustainable. Turning food into fuel is just plain silly; and when oil prices come down the ethanol bubble could pop big.
I ran did a little research and found some numbers:
47% of the Mexician' diet is corn
it takes 2.4 pounds of corn a day to feed a hungry person
it takes 22 pounds of corn to make one gallon of ethanol
there are 42 gallons of refined gas in one barrel of oil
Now, a little basic math can be very enlightening. To replace one barrel of oil, it takes 42 gallons of ethanol or (42x22)=924 pounds of corn. That is enough corn to feed one hungry person for (924/2.4) 385 days – a little more than one year.
A few weeks ago, amid concerns about Midwest flooding, corn futures exploded. For a brief period, in fact, they nudged over $8 a bushel for May 2009, a four-fold jump over their 2006 prices, and were expected to go higher.
On June 30, however, a report by the Department of Agriculture put things into perspective. While the Midwest floods destroyed roughly 9% of the corn crop, this loss should be largely offset by the fact that farmers planted more corn than expected. Inspired by the rising prices of the grain and the promise of ethanol, farmers cultivated more than a million extra acres, which means that the U.S.'s corn supply should remain relatively steady.
This should be a boon to the ethanol industry, which lost no time in pointing out that the forecasted harvest should be more than sufficient to supply its needs, while leaving a sufficient quantity for food use. Of course, just because we are once again able to make corn ethanol doesn't mean we should. However, it still remains to be seen whether policymakers will ignore this scare or accept it as an indicator of the dangers that we face when we put all our eggs in one basket -- or all our ears in one bushel!
Sometimes during a crisis the United States rushes toward a solution, only to find that the action was not only not a panacea, it was, in fact, ill-conceived and harmful.
The late British Prime Minister Winston Churchill alluded to this when he noted that, "In the end, America will do the right thing . . . after she's exhausted all other possibilities."
That may very well be the case with corn-based ethanol.
Initially heralded as a renewable fuel that reduces foreign oil imports, it now appears that a powerful coalition is building against corn-based ethanol -- a problematic energy source, in economist Glen Langan's interpretation.
A ' tax dollar not well spent'
The U.S. Government (which means you, the taxpayer) heavily subsidies ethanol from corn production via payments to farmers, Langan said. "The tax dollar is not well spent, either from an environmental standpoint or an energy policy standpoint," he said.
While many of us may think that ethanol companies are not a reliable investment, Barron's asks us to reconsider our thoughts, pointing out to a bright futures for those stocks. People's worries about ethanol companies came as a result of soaring crude oil prices. Thus, the general tendency was to use corn-based alcohol as a substitute for gasoline. The negative reaction was an immediate consequence, and a top official of the United Nations has named ethanol as a "crime against a great part of humanity" as it lead to higher food costs.
Barron's points out three ethanol producers, VeraSun Energy Corp. (NYSE: VSE), Aventine Renewable Energy (NYSE: AVR), and Pacific Ethanol Inc. (NASDAQ: PEIX), which faced difficult time over the past year, although they saw a nice rebound recently after reporting first-quarter operating profits, and Congress passed a farm bill.
Looking ahead, the companies showed optimism related to their further production based on projected 2009 capacity. This takes into account the completion of plants under construction when talking about Aventine and VeraSun. Thus, VeraSun has a projected production of 1.6 billion gallons, Aventine came with 433 million, while Pacific Ethanol has a projected production of 220 million.
Corn is used both in food for humans and as cattle feed. It is also the main ingredient of most ethanol-based fuels. There has been real hope that this kind of alternative energy will cut US reliance on gas. But, the price of corn is up 47% this year. That undercuts the value of ethanol as its price rockets.
The corn harvest in the US could be relatively poor this year, putting more pressure on food prices, both here and in countries where large numbers of people are under-nourished. Another run-up in corn could help drive yet another commodity inflation spiral.
According toBloomberg, "Rainstorms sweeping the biggest corn states in the U.S. are damaging a crop that's already failing to keep pace with global demand."
The trouble with corn crops is that they cannot be easily replaced by any other agricultural product. And, there is pressure on wheat and soybean prices already.
The solutions to corn yields, are, unfortunately, long-term. Companies, led by Monsanto (NYSE: MON) are increasing research and production of genetically altered seed which will grow in harsh climates and poor soil.
But, that fix to the problem is several years off, and the acute problem is now.
Douglas A. McIntyre is an editor at 247wallst.com.
In light of oil's rise to triple-digit prices, the United States' inability to pass an energy policy aimed at increased efficiency, renewable energy, and energy independence, represents an opportunity squandered -- on two fronts: transportation and power generation.
True, oil has retreated from the $135 range to the $125-128 range, but the nation now faces record-high gasoline/diesel prices, along with high prices for heating oil, natural gas, and coal. As a result, the broad-based disposable income -- so essential for U.S. economic growth -- has been squeezed, with many economists now arguing adequate GDP growth is not possible, if energy prices remain at current levels.
At minimum, the U.S. faces a period of economic and social adjustment -- corporate, public, personal -- as it copes with the brave new world of $4 gasoline ... and that's if gasoline remains in the $4 per gallon range. A variety of scenarios could quickly send gasoline over $5 per gallon and higher in 2009.
Monsanto (NYSE: MON) shares are trading higher after oil and gasoline prices jumped to record levels yet again today. With oil so expensive, alternative bio-fuels are pushing agricultural futures higher as well, which is good for Monsanto. If you think that the stock won't fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on MON.
After hitting a one-year low of $58.50 in August, the stock rose to hit its one-year high of $132.36 in April. MON opened this morning at $121.60. So far today the stock has hit a low of $121.23 and a high of $124.91. As of 11:05, MON is trading at $124.34, up 4.44 (3.7%). The chart for MON looks neutral but deteriorating slightly, while S&P gives the stock a positive 4 STARS (out of 5) buy rating.
For a bullish hedged play on this stock, I would consider a June bull-put credit spread below the $105 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make an 8.7% return in just four weeks as long as MON is above $105 at June expiration. Monsanto would have to fall by more than 15% before we would start to lose money. Learn more about this type of trade here.
MON hasn't been below $105 since March and has shown support around $110 recently. This trade could be risky if the price of oil starts to relax, but even if that happens, this position could be protected by the support the stock might find at its 200-day moving average, which is currently around $102 and rising.
DISCLOSURE: Mr. Archer owns and/or controls diversified portfolios of long and short stock and option positions that may include holdings in companies he writes about. At publication time, Brent neither owns nor controls positions in MON.
While Al Gore is busy preaching about global warming and environmentalists around the world hail ethanol as a solution to the "global warming" problem, the less fortunate, poorer countries in the world are in the midst of political turmoil as citizens riot and protest over soaring food prices.
As reported by Marketwatch: "In Egypt, headline inflation jumped to 14.4% in March, with the pace of food price rises soaring to 20.5% year-on-year from 16.8% in February. In addition, the country is suffering from shortages of bread, which is heavily subsidized by the government."
As global demand for soft commodities soars, Egypt, like many other countries, is confronting surging food prices, which have stirred popular discontent and demonstrations." We have seen demonstrations as well in Haiti, and we all know about surging food inflation in China. Countries like India, Vietnam and Cambodia, have limited rice exports as well. Why? Because farmers, heavily subsidized, have turned over crops in order to grow corn for ethanol production. Funny how environmentalists say climate change is a problem that in 25-30 years could cause significant destruction to the earth. Of course global hunger and starvation could cause more havoc, in the very near term, but they don't mention that.
Pacific Ethanol (NASDAQ: PEIX) has announced the completion of a $40 million equity investment by Lyles United, LLC. The investment included 2,051,282 shares of class B stock convertible to 6,153,846 shares of common stock and a warrant to purchase another 3,076,923 shares of common stock at $7.00 per share. The original Securities Purchase Agreement was dated March 18, 2008.
Normally we do not cover such small financings, nor do we cover financing being completed from part of a prior pact. Ethanol stocks in the U.S. have been in trouble, and Pacific Ethanol is no exception as shares have traded north of $17.00 over the last year.
If any company needed the funding in the ethanol sector, it was Pacific Ethanol. Gone are the days that Bill Gates owned a large portion of the company, and gone are the days that everyone believes that the current method of domestic ethanol will act to help the energy issues today if subsidies didn't exist.
Despite the onset of the latest high energy price era, it goes without saying that the car will remain the main mode of transportation in the United States as the 21st century progresses. 
We had the internet bubble and the real estate bubble and now, there is the ethanol bubble. Recently, I ran some numbers on ethanol and to my amazement realized that it is – too use a catch phrase from the environmental world -- not sustainable. Turning food into fuel is just plain silly; and when oil prices come down the ethanol bubble could pop big.
A few weeks ago, amid concerns about Midwest flooding, 
Sometimes during a crisis the United States rushes toward a solution, only to find that the action was not only not a panacea, it was, in fact, ill-conceived and harmful. 
In light of oil's rise to triple-digit prices, the United States' inability to pass an energy policy aimed at increased efficiency, renewable energy, and energy independence, represents an opportunity squandered -- on two fronts: transportation and power generation.
Here are some highlights from this past week's 
While Al Gore is busy preaching about global warming and environmentalists around the world hail ethanol as a solution to the "global warming" problem, the less fortunate, poorer countries in the world are in the midst of political turmoil as citizens riot and protest over soaring food prices. 
Closing Bell: Dow stages comeback as bulls battle bears
Investor confidence in global growth continues to decline
Can Jerry Seinfeld improve Microsoft's brand equity?
