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PEIX Drops Below $2

Wow! I just checked a few stocks that I tend to watch, and Pacific Ethanol (PEIX) has now fallen to $1.85 a share. It is now down more than 95% off its high, and down more than 90% from the first time I warned that the company was overvalued. Once boasting a market cap of almost $2 billion, that has now fallen to $82 million.

Now, where are all of those posters who kept telling me what a deal this was after it fell to $10? Like our friend James, who cited PEIX investor Bill Gates’ “ability to see into the future” as a reason to invest in PEIX, and told me I was “very, very stupid” if I thought the price would continue to fall. Of course Gates has recently been dumping his shares as quickly as he can (at a huge loss). Personally, as I have said before, if I want some insights into the future of computing, I would listen to Gates. On the topic of Pacific Ethanol, or for that matter any topic far-removed from his area of expertise, not so much.

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June 24, 2008 - Posted by | Bill Gates, ethanol, ethanol prices, investing, Pacific Ethanol, PEIX

21 Comments

  1. hahaha, NICE!

    Comment by cta | June 24, 2008

  2. everyone is allowed to speculate–stocks, horse races, football pools, etc. some of our brightest POLS[Ms. Clinton specifically] was one of the “great” futures traders[won $100,000 i’ve heard ].

    some win, some lose–of course those knowing the market tend to do best.

    i’m told the “weather speculators” are going to drive up the heat on Congress this election.

    fran

    Comment by Anonymous | June 25, 2008

  3. Well said. Big Ethanol is on the ropes.

    BTW, there’s an interesting article over on Market Watch.

    Gas could fall to $2 if Congress acts, analysts say
    http://www.marketwatch.com/news/story/gas-could-fall-2-if/story.aspx?guid=%7B2673C102-68E0-41D9-9C9A-10EE2E723948%7D&dist=msr_13

    “Record oil prices are inflated by speculation and not justified by market fundamentals… Based on supply and demand fundamentals, crude-oil prices should not be above $60 per barrel.”

    OK, I’m not an energy expert, but it seems to me the fundamentals certainly justify a higher price than $60/bbl.

    Comment by Rice Farmer | June 25, 2008

  4. Rice Farmer-
    You may see $60 a barrel, or even less, in two years.
    How?
    In the early 1980s, global oil demand fell 11 percent after the 1979-80 price spike. Back then oil hit a little more than $40 a barrel, or about $100 in today’s dollars.
    Now, we are above $136. If demand falls by 10 percent in next two years, that will leave about 8 mbd unclaimed on the market.
    Nothing ever repeats itself exactly. Maybe demand will not contract as much this go ’round. On the other hand, this spike may be more sustained, causing an even larger and sustained reduction in demand, resulting in a huge glut.
    Will the Saudis ramp down production by several mbd to sustain oil above $60? Time will tell.
    If the Saudis keep pumping, you may see $30 oil again, or even less. If the speculative funds start unloading positions, maybe a short-term bath…..

    Comment by benny "peak demand" cole | June 25, 2008

  5. Well, I suppose that is possible (although I don’t think it’s likely, but that’s another story). Still, I’m talking about the fundamentals at this present moment. Demand is still very strong.

    Comment by Rice Farmer | June 25, 2008

  6. Benny, you previously mentioned Germany’s huge 2007 drop in oil consumption. Do you know what happened? After no drop from 2003-2006 their consumption suddenly fell 8-10% last year. IEA shows consumption up 8% in Jan/Fed 2008 vs. 2007, though, so it doesn’t seem to be a permanent reduction. I’d usually guess a warm winter reduced heating oil usage, but their consumption doesn’t show the seasonality I usually associate with heavy heating oil usage. In fact peak consumption is often in summer.

    This IEA spreadsheet has some monthly data.

    Comment by doggydogworld | June 25, 2008

  7. My bicycle is ethanol powered on monday nights, happy hour!….Funny, it’s not that cheap. I pedal about 16 miles out of my way for a few pints, and spend like 6 bucks. Beer has so much water in it, why can’t beer be as cheap as e-85? Duh, beer is not subsidized by agricultural lobbyists.

    Comment by evan | June 25, 2008

  8. Doggy-You know, both the EIA and the BP numbers have inexplicable variations. I wonder about their data collection techniques.
    In general, it appears the developed world crude demand has flatlined in the last several years, even decades.
    I still hold out hope for large declines in demand in the next two years, as the serious run-up in crude prices is still a bit fresh.
    If the developed world has a recession, we may see such declines more quickly then otherwise.
    JP Morgan is predicting smallish declines this year and next. I suspect next year will see larger declines than this year, and then accumulating declines for years to come, if oil prices hold.
    Mostly, I fear a replay of the decade of the 1980s. Demand weakens, then prices collapse. We go back to fat and happy, and set ourselves up for a painful gouge in another generation, and another generation of transferring wealth to Thug Oil States.
    Some say as OPEC nations are consuming more, and thus exporting relatively less, so prices will never go back down. If so, then we have Peak Demand now.

    Comment by benny "peak demand" cole | June 25, 2008

  9. Benny, I wonder if Germany uses oil for peaking electricity. Unlike the US, European prices for oil and NG are pretty close on a BTU basis. Peaking needs are generally greater in the summer, which might explain higher oil consumption in summer months.

    If you had a bunch of oil-fired peakers and you had a really good hydro year I could see oil consumption falling quite a bit.

    Comment by doggydogworld | June 25, 2008

  10. I remember when this stock was up to like $50 a share or something ridiculous. I actually made a couple hundred by selling it around 20 after buying it in the low teens when it was still on its way up. Invest in wind and solar power folks.

    Comment by Energy Efficient Lighting | June 25, 2008

  11. Here’s an example of what I mean when I say we cannot feel unreserved joy for demand reductions.

    http://mikefolkerth.com/2008/06/24/tourism-feeling-the-pain/

    A whole industry is being slowly put to death.

    Comment by Rice Farmer | June 25, 2008

  12. Hey Robert,
    Got a premade post for ya

    TITLE: Another McCain Oil Gimmick, Offshore/Alaska Drilling.

    A new report issued by the EIA in reference to OCS/ANWR Drilling:
    “Any impact on average wellhead prices (of oil, now through 2030,) is expected to be insignificant.”

    McCain on his own support for OCS/ANWR drilling:
    “The fact that we are exploiting those reserves would have a psychological impact that I think is beneficial”
    http://thinkprogress.org/2008/06/24/mccain-psychological-offshore/

    As compared to McCain’s previous gas tax gimmick:
    “A little psychological boost. Lets have some straight talk, it’s not a huge ammount of money. “

    Apparently the new talking point for this “psychological boost”, is that it would have an noticeable effect on the oil futures market. Even though the “price of a barrel of oil”, is now a global commodity, traded at a global price. And if you want to change that global price you have to affect supply on a global scale.

    Whats more, just like the Tax Holidy Gimmick, this Drilling Gimmick has the issue of the global oil market acting to cancel out the benefit of this drilling. Simply by reducing the global inventories of oil by the same ammount that this drilling would increase it. Effectively canceling out even the razor thin margin of benefit thats even theoretically possible.

    McCain is hoping that this issue is complex enough that the general public can’t see it for what it is. A complete gimmick.

    Comment by GreyFalcon | June 26, 2008

  13. By the way.
    I remember someone mentioning to me that Oil wells have a really weird depreciation method.

    Such that you end up writing off a huge amount of the value of a domestic oil well in deferred taxes.

    Apparently the Oil Depletion Allowance was out by 1974.

    But “In 1980 George Bush became vice president under Ronald Reagan. The following year Reagan signed a bill giving $6 billion in tax breaks to the oil industry. The oil depletion allowance was back in another name.”
    http://educationforum.ipbhost.com/index.php?showtopic=3704

    Any idea what the current status of domestic oil well depreciation schedule loopholes there are?

    _

    Hell, one teacher even mentioned something along the lines of Oil companies getting more tax breaks out of the loophole than they would get in raw profit from the oil.

    Wondering if there’s any truth to that.

    Comment by GreyFalcon | June 26, 2008

  14. Oil companies getting more tax breaks out of the loophole than they would get in raw profit from the oil.

    The thing about tax breaks is you can value them at any level you want. You make $80k in salary and paid $20k in taxes? Sounds like a $60k tax break to me!

    XOM paid $30b of income taxes last year, $80b over the last three years. Net profit for the three years was $116b.

    Comment by doggydogworld | June 26, 2008

  15. One thing about Bill Gates — I wouldn’t trust him on the future of computing either. What was it he said?…. “the future will be more digital”?? LOL! Here’s an equally useful one you can take to the bank … the future will have higher year numbers. 🙂

    Comment by okily geekily | June 26, 2008

  16. rice farmer-

    I used to sell furniture into a lot of resort towns. Retailers are feeling the pinch, no doubt.
    My whole theme is energy smartness is necessary to obtain higher living standards, not that we have to be doomers, or go to lower living standards.
    Some isolated resorts towns might get crunched, while the old grand railroad stop resorts might get a second life.
    Maybe a super-duper jumbo jet will save international air travel…

    Comment by benny "peak demand" cole | June 26, 2008

  17. Benny said: ~ “You may see $60 a barrel, or even less, in two years.”

    Don’t bet your mortgage on it. The difference between now and the early 1980s is that this time there will soon be more than 100 million new autos on the road in China and India — almost all running on fossil fuel-derived motor fuels.

    What you say would probably be true if it were only North America and Western Europe in the calculus, but that’s no longer the case.

    Comment by Hawkshaw | June 26, 2008

  18. hawkshaw–
    As a typical American, I will bet my mortgage…I am upside down on it anyway…
    Your point is strong; but remember, in the last go ’round, oil ultimately hit $10 a barrel in 1998, years and years after it spiked to $40….a 75 percent decline, and more when adjusted for inflation…so $140 to $60 is not as big a fall…
    And specualtion was a lot less in days of yore…

    Comment by benny "peak demand" cole | June 26, 2008

  19. Figure out a way to convince the Chinese and Indians they don’t deserve to drive cars and should keep biking or walking and I’ll bet my mortgage too.

    But I don’t know how you can do that.

    If everyone consumed oil at the rate Americans do, we would need 2 1/2 world’s worth of resources. Unfortunately, we have only one world’s worth. Either we tell them, “Sorry, you don’t get to reach our standard.” or we lower ours. Something will have to give.

    Comment by Hawkshaw | June 26, 2008

  20. Well. Chindia may in fact drive EVs…if oil stays at $140, then they will buy Volts (or similar) and build nuke plants..we will too..

    Comment by benny "peak demand" cole | June 26, 2008

  21. Your point is strong; but remember, in the last go ’round, oil ultimately hit $10 a barrel in 1998, years and years after it spiked to $40.

    Oil actually crashed below $10 in 1986, only six years after the peak. But world oil consumption declined dramatically in those six years. So far $140 oil has caused enough pain to reduce world oil consumption. It is falling in OECD but growing in China and OPEC.

    Even if world oil consumption does start to decline this year a repeat of history would indicate no oil price crash until 2014.

    Comment by doggydogworld | June 27, 2008


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