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Dallas, TX
April 23, 2008, 08:00 EST |
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Dr. Joe Duarte's Market I.Q. |
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The Internet's Intelligence Digest
Intelligence, Market Timing, And Trading Strategy For Traders and Investors
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Ethanol Dreams Go Bust
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What's Hot Today: |
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Global stock markets did not follow Wall Street's lead to the down side. Hong
Kong rallied nicely and Europe was trading higher in very early pre-U.S. action.
Today's Economic Calendar: 7:00a.m. Apr 18 MBA Mortgage Application Survey Refinancing Index. Previous: +5.2%. Sources: The Wall Street Journal and Marketwatch.com.
News For Thought
Clinton won the Pennsylvania primary extending the Democrats' nomination dance further.
Syria was building a nuclear reactor with North Korea's help. According to the Los Angeles Times: "CIA officials will tell Congress on Thursday that North Korea had been helping Syria build a plutonium-based nuclear reactor, a U.S. official said, a disclosure that could touch off new resistance to the administration's plan to ease sanctions on Pyongyang. The CIA officials will tell lawmakers that they believe the reactor would have been capable of producing plutonium for nuclear weapons but was destroyed before it could do so, the U.S. official said, apparently referring to a suspicious installation in Syria that was bombed last year by Israeli warplanes."
Housing bust persists in the U.K. According to the Associated Press: "The number of house mortgages approved by the major banks in the United Kingdom fell to an 11-year-low in March, the British Bankers Association said Wednesday."
Left Coast Limits: Wholesale retailer Costco is limiting the amount of rice that can be purchased by any one customer at some of its California stores, according to CNBC. |
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Ethanol Dreams Go Bust
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Up In Smoke And Mirrors
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Biofuels were going to end the world's dependence on oil, but so far all we've seen is what a handful of experts predicted, that using corn as the feedstock for the fuel would lead to food shortages and rising prices.
But with food riots in the streets of Haiti and Egypt some world governments are starting to rethink the move toward biofuels as an alternative to oil, despite the potential for crude to cross the $120 per barrel price area.
According to the Financial Times, U.K. Prime Minister Gordon Brown "said on Tuesday the country could push for a change in a European Union target to increase the proportion of biofuel to 10 per cent of road fuels by 2020," while "Malcolm Wicks, the UK energy minister, went further, telling the Financial Times that the targets should be reviewed because of mounting concern that they are contributing to food shortages."
To be sure, this seems to be early in this discussion, as President Bush, whose state of the Union addresses in 2006 and 2007 stressed the U.S.'s support for ethanol as a primary substitute for Middle East oil, has not publicly budged from his support for the fuel alternative. Yet, the transition to ethanol has done little to stem the pressures of OPEC's control on the global oil market, or the dynamics of the markets brought on by increased demand for oil in emerging economies.
The only place in the world that seems to have a successful program for ethanol production is Brazil, where a significant number of vehicles are powered by sugar cane based ethanol/gasoline mixture which is 20% ethanol. In fact, in Brazil most new cars are equipped with engines that can only run with gasoline/ethanol mixtures. Yet, even in Brazil, there are often concerns about the supply of ethanol to blend with gasoline.
The debate is now centered on whether land that is being used to grow crops for biofuels should instead be used for growing food, with many heads of state weighing in on the issue. Germany's Chancellor Merkel seems to think that higher food prices have "nothing" to do with biofuels. Yet, the U.K.'s Brown, whose North Sea oil rigs are declining in production is not likely to go along with Merkel, whose country has no significant oil reserves.
According to the Financial Times 'Mr Brown said in a statement on Tuesday, ahead of a meeting on food prices with industry leaders and development experts, that if a UK government review of the impact of biofuels now under way “shows that we need to change our approach, we will also push for change in EU biofuels targets”.'
Indeed, the issue is gathering steam in some circles, as some U.N. officials and leaders of the developing world are calling for an end to the use of biofuels, blaming their use for rising world hunger.
Wall Street lost its enthusiasm for ethanol stocks a long time ago, as the chart of Pacific Ethanol (Nasdaq: PEIX, below) clearly shows.
Chart Courtesy of StockCharts.com
Conclusion
Unintended consequences are the normal results of a Chaotic universe. Simple analogies such as the Butterfly Effect, and the uncertain results of ripples in a pond, are clear enough examples of how things can turn out to be predictably unpredictable.
It's a tough call on whether biofuels are the major source of world hunger, but it's also hard to argue against their potential to adversely effect the situation.
If farmland is a limited resource, then it's logical to conclude that anything that reduces that resource will lead to significant changes in the supply of the final product from that resource.
But there are other contributors to world hunger that have been in place for much longer than biofuels and that should be considered and dealt with as well, such as fraud, indifference, and lack of planning from heads of governments and officials throughout the chain of command in some of the countries affected by the food shortages.
In other words, it seems as if biofuels are the proverbial final straw on a very tired camel's back. What remains to be seen is how this will all turn out.
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Technical Summary: |
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Chart Courtesy of StockCharts.com
New Highs In Foreign Currencies Raise Questions
The U.S. Dollar index could make a new all time low in the short term, which
raises the question about whether global central banks are going to do something
about it.
That means that despite the temptation to move back into the foreign currencies, being patience makes sense. If global central banks start buying dollars, it could be a rout for those long the market.
As of 4-1-08, we are in cash in this section. We remain in cash and will do so until we see signs of a trend emerging, up or down for the dollar. Right now (4-13) it's moving sideways.
Chart Courtesy of StockCharts.com
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Market Moves - Stock Of The Day
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Exxon Mobil (NYSE: XOM) Tests Top Of Trading Range
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Exxon Mobil (NYSE: XOM) is testing the top of its recent trading range as oil approaches the $120 per barrel price area.
Chart Courtesy of StockCharts.com
Oil bulls like to see the stocks of major oil companies move either along with or ahead of oil prices. And the most recent jump in crude has clearly taken Exxon Mobil along for the ride, qualifying the rally in both as a confirmation of the recent up trend.
To be sure, the rally in both can stop and even reverse at any time. And that time could be as early as today, as Exxon shares are running up against the 93-96 area, where they've run into trouble three times previously since July 2007.
In fact, we're seeing the old chicken and egg game being played by crude and oil stocks, as they vie for opportunities to lead one another higher. So far the oil exploration stocks have taken over the leadership in the energy sector, with crude and natural gas moving along for te ride.
Still, it's hard to ignore Exxon's climb, as the big ship is sailing right along with the trend, suggesting that the big money is not giving up on energy just yet. |
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