The Rude Awakening
Laguna Beach, California
Tuesday, August 8, 2006 ------------------------- - How to best play the newest energy craze without
getting punch-drunk on the way to the bank,
- Producing profits under the pale glow of the moon,
- Crude inches higher still, the market data,
globetrotting investments and much more...
------------------------- [Joel's Note: While in Canada a couple of weeks back (was
it really that long ago?) a young Cambridge globetrotter
treated your Rude team to a very charismatic presentation.
They call her the Profit Hunter. Sala Kannan had just arrived back from Indonesia, one of
the world's best surfing destinations. But, while your
antipodean editor may have spent the days there enjoying
the many reef breaks on offer, Sala put her time to good
use uncovering investment opportunities for her readers. Because she is a top-notch financial analyst (and perhaps
because she doesn't waste her hours surfing) Sala is able
to travel the globe and hunt down the investments that go
largely unnoticed by Wall Street. So, before we get stuck into today's Rude column all about
energy, I thought you might be interested in an energy
report Sala prepared before the conference. Read on here: OPEC Stomping With The Next Big Energy Boom
http://www.isecureonline.com/Reports/TPH/ETPHG810 --- Investment Alert ---
The Maniac Trader's on an Incredible Sugar High And His Privileged Market-Watchers Banked a Sweet 379%
Profit – In Just 43 Days Sugar could be YOUR best bet for an overdose of rapid
gains. And the Maniac Trader can show you how. The
commodities experts' expert is running the streak of his
life – with every pick so far in 2006 a winner! Here's how you can profit from his amazing streak http://www.isecureonline.com/Reports/RTA/ERTAG808 ---------------------------- The New Moonshine
By Chris Mayer It's happening across the vast belly of the United States,
in little towns like Coon Rapids, Iowa, and Plainview, Neb.
Across the breadbasket states, in Indiana, the Dakotas, and
Minnesota: Farmers are gearing up to produce more and more
of the new moonshine. But unlike the old bootleggers' white lightning, produced
from hidden stills under the pale glow of the moon, this
shine is legal — and you don't drink it. Your car does.
It's ethanol, a fuel additive made from corn. You can also
use sorghum (another feed grain) or sugar cane. Other
potential sources include wood fibers, switch grass and
much more. It is all part of an energy source called
biofuels. Ethanol may or may not be a part of the long-term energy
picture. Today, it accounts for only about 3% of the
nation's gasoline. It may never make a meaningful impact on
energy supply. Most estimates show we'll never grow enough
corn to account for more than 10–12% of our fuel supply.
(By contrast, in Brazil, ethanol accounts for 40% of fuel —
though Brazil uses sugar cane.) Yet there is no doubt that
ethanol is reshaping the agricultural landscape. In the U.S., corn is the favored ingredient for ethanol.
Large distilleries grind up the corn and mix it with water,
producing the familiar sweet-smelling mash. Heat up the
mash, add enzymes and convert it to sugar. Add yeast and
let it ferment to make the "shine." You boil off the water,
and it's essentially ready to go. That's a quick and dirty
recipe for the country's hottest new fuel. Ethanol is profitable for farmers, and production is
rapidly growing. The Associated Press reports that in the
United States, "Ethanol production is growing so quickly
that for the first time, farmers expect to sell as much
corn to ethanol plants as they do overseas" (emphasis
added). In fact, if you believe the USDA's numbers, the
amount of corn used for ethanol this year will eat up about
20% of the nation's entire corn crop. So you see, whatever you make of ethanol, the fact is
economic patterns are changing, forced into new channels
like a surging river flooding its banks. The stock market has responded. Archer Daniels Midland, a
company big on ethanol production, has seen its stock price
more than double over the past 52 weeks. But that pales in
comparison with Pacific Ethanol, one of the biggest pure-
play ideas on ethanol. That stock soared more than sixfold
from its low in September 2005 to its peak in May of 2006. 
There may be a tinge of madness in it, a whiff of
irrational exuberance. Pacific Ethanol is losing money
right now. It trades for 21 times book value and 6 times
sales! Analysts project earnings of 45 cents a shares in
2007, which means Pacific is trading for more than 50 times
2007 earnings. Those are rich prices in any era and reflect
investor euphoria. But it's not all crazy and drunken
revelry. The high price of gasoline is surely driving the
boom. Scientists estimate we could one day make ethanol for
as little as 60 cents a gallon and sell it for a couple of
dollars per gallon at the pump. Government mandates also
push things along faster, like a jockey's whip on a
thoroughbred's rear end. As of last July, congressional
legislation requires we use about 7.5 billion gallons in
ethanol and biodiesel by 2012. That means consumption of
ethanol will double over the next seven years. So what does all this mean for investors? Should you buy
ethanol stocks? My recommendation is not to invest in
ethanol production directly. The speculative flavor is too
strong for me. With the story playing out in the front
pages of newspapers and magazines everywhere, it's no
secret. The masses are onto that idea, which is why stocks
like Pacific Ethanol shot up so much (and have come down
equally hard). As always, I prefer the backdoor play.
Basically, I prefer a cheaper, less obvious way to gain
entry to the coveted party. Corn itself, is a compelling backdoor play. Booming ethanol
production portends a higher price for corn. And corn is
still relatively cheap, especially compared with other
commodities. For example, a barrel of oil buys you about 28
bushels of corn today, compared with only five bushels in
June 1998. An ounce of gold buys you about 238 bushels,
compared with only 105 in 1998. As gold and oil have become
more valuable, so corn has lost some ground. It has lagged
other commodities. But this valuation differential is
narrowing rapidly... The price of corn is up 26% from its
December lows, a performance topping oil, the metals and
the S&P 500. As corn supplies tighten and demand for
biofuels continues, corn could go a lot higher. Now to the backdoor play... We know ethanol is booming. We know it usually takes a lot
of corn — at least when it's brewed in the U.S. We know
something else about corn. It has the highest fertilizer
application rate of any row crop. Farmers will need more
fertilizer as more of their acreage is devoted to the
production of corn. Agrium (AGU:nyse) may be that backdoor
play. Agrium generates $4.5 billion in sales. The Wall
Street Transcript recently interviewed Mike Wilson, the
president and CEO. His comments were interesting and give a
good idea of the breadth of capabilities this company
brings to the table. Wilson describes Agrium as "the only global company today
that crosses the entire agricultural input value chain." It
makes over 8 million tons of fertilizer, with significant
operations in Argentina and Chile. The plant in Argentina
is one of the lowest-cost producers in the world. Agrium
sells into Brazil, China, India and all over the world.
Production from its Alaska facility goes into Northeast
Asia. Its operations in Western Canada enjoy low-cost
natural gas and freight-cost advantages, as they are close
to their markets. In addition to making fertilizer, Agrium owns the largest
retail operation in North America. Its businesses benefit
from the new demand for grains. As Wilson says, "The
increase in corn, sugar cane and other crops production for
ethanol and biodiesel production will be positive for both
our wholesale and retail operations." Invest in the new moonshine...It's legal. --- Special --- BLUE GOLD: The $661 Billion Market Your Broker Didn't See It's not oil...it's not gas... Even in the face of skyrocketing energy prices, its
outperformed them both -
Raking in 49 times better gains than the S&P 500. This global industry is set to grow 500% over the next
decade. And it's just one brand-new "Special Situation" that can
net you 300% gains this year - guaranteed! http://www.isecureonline.com/Reports/MSS/EMSSG731 -------------------------- 
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