Wednesday, June 13, 2007

Take it to the bank...

I have been nattering on for some time that the ethanol business is not amenable to economic analysis because it is driven by politics, not value. A critic agrees with me:
Except - there is no ethanol "market." The ethanol business is driven by government planners, not freely acting buyers and sellers.

I didn't consider opportunities to portray ethanol distilleries as weapons in the global war on terror. I forgot about the 2008 presidential election, in which farm-state pandering will be crucial. In short, I forgot about the politicians, who show every sign of expanding the boondoggle to legendary dimensions and ensuring that investors pile into corn likker for years.

Things look bullish for ethanol projects whether or not they make economic sense. [More]
Regardless of whether you appreciate his reflections or not, it is the realization of the power of myth involved in the ethanol story. This is why, gentle readers, I am not waiting for the bubble to burst or land prices to plummet. Indeed, I consider this moment the time to double down on our corn bets.

I know, I know - I'm looking at a drought too.

But this thing is not going away.
It's true that the ethanol stocks I wrote about last summer have declined on fears of a glut. Under current law, most gas can't contain more than 10 percent ethanol, and at some point all the gas will be blended. Most cars aren't supposed to use richer blends. A fall in gas prices would also hurt ethanol producers.

But have faith in the politicians, who still haven't found a limit on how often they can play the al-Qaida card. Ethanol investments are indeed a bubble, but with government's aid there's no guessing how big it'll get.
It is not necessary to agree with every aspect of a business to profit by it.

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