Energy Update

Why is PEIX off 62% in less than 3 months? Oil is up 15% over the same time frame, we just mandated ethanol usage in a broad range of gasoline blends and FBR just gave the industry a general blessing on Thursday (although rated PEIX just “market perform”). Ethanol costs roughly $1.40/gallon to produce and has been selling for over $4 recently yet AVR is off about 40% from its July IPO and VSE has gone nowhere since going public in June even though they actually made a nice profit this quarter. This is not about trading PEIX (which I called a short on way back at $37.88 on May 16th) but about the odd way alternative energy has been behaving during our “energy crisis.” It’s not all about the higher corn prices eroding margins or ADM would be doing better as would CAG (its their corn). Ethanol has its own special problems as there are physical limitations (as in physics) to improve the process so effectively you are just running widget factories here, they are the middlemen who literally turn straw into oil but it’s a process that was used in WW1 so it is doubtful they will get better margins than any toll manufacturer. But it is not just ethanol that is getting no respect from wall street: No one is taking ESLR seriously, down 50% from its March high, or QTWW ($3?) or FCEL (-50%)… Does this seem a little odd to anyone else? Even mighty BTU is down 40% in the past few months, matched by ACI and FDG (who finally found a bottom at $25). Worst of all, GE is going nowhere and they are one of the only people you can go to for nuclear energy – you would think their phone would be ringing off the hook! Something about the price of oil looks very temporary to alternate energy investors… Remember this when you see all the “experts” on TV telling you how dire the oil situation is and how we need to get used to $80 oil from now on. Not even Suncor investors seem to be buying it and that company made a Billion dollars last year. It takes Exxon 9 full days to pull in that kind of money!