Money & Investing - Banks.com

Right now, the stock market news is all about soaring energy prices. And this may part of what could undo corn ethanol.

Earlier this year, corn ethanol looked to be in a sweet position. The government offers huge subsidies to the Big Ag companies (like Archers-Daniels-Midland Co.) who produce corn for ethanol. Additionally, rising oil prices were making alternatives (like corn ethanol) more desirable. Politicians were out there stumping on increased support for ethanol so that we could break ties to foreign oil.

Now, however, as things are liable to do on the stock market, things have changed. Corn ethanol is no longer looking profitable. Indeed, ethanol producers are seeing their profit margins shrink as two, rather large, new factors are introduced:

1. Price of natural gas.
2. Flooding in the Midwest.

Back in January, it was unforeseen that all energy prices would be surging to the levels that they are at now. And natural gas plays a big role in the production of corn ethanol. With natural gas prices following oil prices ever higher, it is costing more to produce corn ethanol.

The flooding in the Midwest isn’t helping, either. Corn that was meant to be turned into ethanol is being washed away, and in some cases the land it was growing on is being ruined by the things that floodwaters bring (toxins from chemicals and pesticides, excessive animal waste, debris, etc.).

Investing Blog offers some insight into what is happening with ethanol:

Flooding in the Midwest is likely to wipe out much of the corn crop intended for ethanol. As prices rise for corn, the chance of profit is diminished as the gains in oil are neutralized by the gains in ethanol. Both fuels are extremely exposed to wild price swings, something that could have never been predicted early in what appears to be the ethanol bubble.

What once looked like a promising investment is now starting look rather bleak. Indeed, this might herald the end of corn ethanol as an alternative to gas for cars. Which means that other fuel sources will have to be found. On the other hand, though, some might see it as an opportunity to get in while the prices are low and hope that Congress steps in save the budding ethanol industry. It’s been known to happen with increasing frequency.

Disclaimer: I am not an investment professional. Nothing in this piece or on this Web site should be construed as investment advice. Before making investment decisions, do your own research and/or consult with an investment professional. All investment comes with the risk of loss. You are responsible for your own investment decisions.

Tags: stock market, stock market news, investing blog, corn ethanol,
flooding Midwest, investments, oil prices

The news this week has been a return, after a brief respite, to surging oil prices. These oil prices are causing serious damage to the stock market, as Bloomberg reports:

“This week the news on earnings is that the second quarter is probably going to be worse than we thought,” said Ron Sweet, vice president of equity investments at USAA Investment Management Co., which oversees $100 billion in San Antonio. “The old news keeps sticking around: it’s energy prices, it’s writeoffs at banks, it’s the slow economy.”

Indeed, oil prices cut into the earnings of many companies. As energy costs rise, so do the costs that companies pay to get such things as electricity, fuel for company vehicles, heating (although this isn’t as big a concern in the summer) and other costs. Higher oil prices mean that company profits are shrinking.

Oil prices have another indirect effect on the stock market. Psychologically, rising oil prices make investors nervous. They beginning selling and soon stocks are dropping rather rapidly — especially stocks that rely heavily on energy prices, like airlines and trucking companies.

Oil prices and other investments

Other investments are also affected by the rising oil prices. The US dollar weakens as oil prices rise. This gives other currencies, like the euro, the advantage in currency trading.

Commodities are also affected by oil prices. Obviously, the surging oil prices invite increased speculation, since everyone wants a piece of the pie. But other commodities are tied to oil prices. Gold prices often (but not always) move in tandem with oil prices. Many investors buy gold as a safe haven to protect against a weakening dollar and inflation.

Disclaimer: I am not an investment professional. Nothing in this piece or on this Web site should be construed as investment advice. Before making investment decisions, do your own research and/or consult with an investment professional. All investment comes with the risk of loss. You are responsible for your own investment decisions.

Tags: stock market, stock market news, investing blog, oil prices,
economy, investments, US dollar

With the volatility in the US stock market — and in other investments — many are wondering if something more tangible would make a better investment. Gold prices have been trending higher overall since last summer, and that is leading many to use gold as a safe haven investment. And some are making this transfer easy, through e-gold. Indeed, that is the subject of this reader question:

I have been hearing about e-gold from a friend of mine. Should I invest in e-gold?

E-gold is a way of transferring gold, via the Internet, between different owners. Users can transfer gold ownership — the metal itself is stored elsewhere. This is an interesting way to invest in something tangible. And for some people it can work. But you need to be very careful.

E-gold is subject to a high number of scams. These are often known as high yield investment programs (HYIPs), and they are actually very similar to pyramid schemes. The idea is for you to invest, and the refer friends, and then get even more.

Additionally, you should be wary of unsolicited emails, offering such “investment opportunities” as alluvial gold and other similar programs. (Note: Any unsolicited emails offering “great investment opportunities” should be ignored — no matter the market or investment.)

E-gold can work for some people. But it is still a risk. And you should never invest in e-gold — or anything else — merely because a friend asked you to. And certainly not if there is a “referral program” involved for an individual investment.

Disclaimer: I am not an investment professional. Nothing in this piece or on this Web site should be construed as investment advice. Before making investment decisions, do your own research and/or consult with an investment professional. All investment comes with the risk of loss. You are responsible for your own investment decisions.

Tags: e-gold, invest e-gold, investing blog, investment opportunities,
HYIPs, investments, investment scams