Wednesday, March 26, 2008

Is Ethanol Overrated? I think so!

Ethanol has two major factors to consider when looking at the overall industry.

One is to see it as a pure investment play, and no matter what you feel about how the industry has emerged, and some of the negative impacts it's already producing, it's still a legitimate business to you.

Second, is the way the industry has come about; whether it's really producing much benefit, is a true alternative fuel, and if in reality it can survive over the long haul.

To honestly study the industry, one must cut through a lot of misinformation and punditry to reach the facts; especially with proponents of the alternative fuel, who have close to a religious affiliation with it, to the point where to attack it is similar to attacking someone's true religious beliefs.

To me, we have to be willing to look at all aspects and sides of the industry to get a true picture of its long-term possibility as an investment, as well as if it has real possibilities in its present form to be both fuel and cost efficient.

The fact that it has to be subsidized with tax dollars to even be an industry, and mandated by law, shows the public in general doesn't care one way or the other if it is successful or used for fuel in the way proposed. It's obviously been used as a fuel additive for some time.

Now that it's causing major disruptions in the agriculture industry, and generating a lot of food inflation, people are already starting to question if it's worth the effort and cost; and rightly so.

It's the key source of inflation at the grocery store, and is having that impact all over the world. In other words, it's the poor people that will suffer again because of the unintended consequences that always come from government initiated programs like this.

Not only is there the artificial demand generated by the law to grow more corn to feed the ethanol beast, but it is causing wheat growers to move more corn into their fields, which is causing the price of wheat to rise because of a lower supply.

So, the idea is to look at these two sides of the issue as we go forward. Someone may invest in ethanol without necessarily believing it does any good - and even may cause more harm than any potential benefit - yet still make money because of the way the whole industry is set up.

At the same time, we can put it under the microscope and find out if it really is worth the time and effort to pursue. I personally think in the long term this is going to be another government program eventually dropped after billions of dollars are spent and lost because of someone bypassing the facts and turning it into a cause.

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