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The Ethanol Boondoggle
One of my biggest disappointments with President Obama so far is his continued support of the ethanol boondoggle. The program was ramped up by the Bush administration to achieve energy independence by subsidizing the production of alcohol from domestically grown corn. Add clean burning moonshine (yes, it's the same alcohol - C2H5OH), whose combustion products are carbon dioxide (CO2) and water (H2O), to gasoline and emissions also go down. The irony is that if you include all the upstream and downstream inputs, the process consumes far more energy than it produces. It also demands massive quantities of fresh water, which someday will become more valuable than the oil the ethanol is supposed to replace, turning it into toxic waste. Few consumers are aware of how big the ethanol industry has grown in such a short period. Ethanol consumption of corn (CORN) has soared from 1.6 billion bushels in 2006 to an anticipated 4.3 billion bushels this year. Ethanol's share of our total corn crop has skyrocketed from 14% to 33% during the same period. Corn grown for ethanol now occupies 10% of the total arable land in the US! Ethanol's impact on food prices has been huge. It is the sole reason why corn is trading at the $3 handle, instead of $2, and soybeans is trading at $10, instead of $4. You also have to add in the inflationary effects on downstream grain consumers, like the food manufacturers and the cattle industry. While spendthrift, obese Americans burn food so they can drive chrome wheeled black Hummers to Wal-Mart, much of Africa and Asia starve. A global food crisis will be the major international political issue of the next decade. This ignores the reality that Brazil, the world's largest ethanol producer, can ferment all the ethanol it wants at one third our cost because they make it from much more efficient sugarcane, which has five times the caloric content of corn. They also have ideal weather. However, protective import quotas and tariffs prevent meaningful quantities of foreign ethanol imports. Bush financed all of this wasteful pork, because Iowa has an early primary, giving it an outsized influence in selecting presidential candidates, and has two crucial Senate seats as well. Well, it turns out that Obama needs Iowa even more than Bush, where the Democrats are ahead 3-2 in the House, and have a tie in the Senate (1-1), so the ethanol program not only lives on, it is prospering. Ethanol has become such of big industry that it now commands a fairly large footprint in Washington, fielding armies of lobbyists to keep the subsidies and tax breaks flowing from the appropriate agricultural committees. When you hear people complain about corruption in Washington, this is a classic example. The problem for the rest of this is that once these lobbies become entrenched they are almost impossible to get rid of. Think of an advanced case of scabies. Remember the tobacco lobby? Shame, and double shame. I say better to drink ethanol than burn it, and damn the hangovers!
The Mad Hedge Fund Trader graduated from the University of California at Los Angeles (UCLA) with a degree in Biochemistry and a minor in Mathematics in 1974. He moved to Tokyo, Japan to join Dai Nana Securities as a research analyst of Japanese companies, becoming fluent in Japanese. In 1976 he was appointed the Tokyo correspondent for The Economist magazine and the Financial Times. For the next seven years he published thousands of articles about the economies, companies, and leaders of every country in Asia. He was one of the first American correspondents to cover China during the cultural revolution. He reported on the American attempt to climb Mount Everest and guerilla wars throughout Southeast Asia. The major figures he interviewed included China's Premier Deng Xiaoping, Ferdinand Marcos of the Philippines, the UK's Margaret Thatcher, the PLO's Yassir Arafat, and of course President Ronald Reagan. In 1982 the Mad Hedge Fund Trader moved to New York as the US editor of Euromoney magazine. As a member of the White House Press Corps he covered the early years of the Reagan administration. In 1983 he was hired by a top investment bank to build a new division in international equities. In 1985 he was promoted to vice president and transferred to London to head up the sales and trading of Japanese equity derivatives in Europe and the Middle East. In 1989 the Mad Hedge Fund Trader was appointed a director of the Swiss Bank Corp responsible for its then vast portfolio of Japanese equity derivatives. A year later he left to set up the first ever dedicated international hedge fund, which became a top performer in the industry. In 1999 the Mad Hedge Fund Trader sold his hedge fund to concentrate on managing his personal investments. He focused on natural gas exploration and development in Texas and Colorado, as well as other commodities. Seeing the incredible inefficiencies and severe mispricing offered by the popping of multiple bubbles during the Great Crash of 2008, and missing the adrenaline of the marketplace, he returned to active hedge fund management. The Mad Hedge Fund Trader has always devoted his life to understanding global capital markets not because of money he could make there, but because of the limitless intellectual challenge it offered. He created this website to air his iconoclastic, out of consensus, and often radical ideas in public, as well as to vent on the matters of the world at large. In his free time, the Mad Hedge Fund Trader climbs mountains, does long distance backpacks, practices karate, performs aerobatics in vintage aircraft, collects vintages wines, reads the Japanese classics, and engages in a wide variety of public service and philanthropic activities. Why they call him “mad” he will never understand. |
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