Risk Factors...

How could anyone feel comfortable with a PEIX common equity/convertible debt investment? I've never seen a more terrifying "Business Risks" portion of an annual filing.

From "Risks Related to our Business," 2011 PEIX 10-K...
"The results of operations of the Pacific Ethanol Plants and their ability to operate at a profit is largely dependent on managing the spreads among the prices of corn, natural gas, ethanol and WDG, the prices of which are subject to significant volatility and uncertainty."

If only 2006 wasn't the peak...
"In early 2006, the spread between ethanol and corn prices was at an historically high level, driven in large part by oil companies removing a competitive product, methyl tertiary butyl ether (MTBE), from the fuel stream and replacing it with ethanol in a relatively short time period. However, since that time, this spread has fluctuated widely and narrowed significantly. Fluctuations are likely to continue to occur."

Terrifying chart for PEIX investors...
Extracted from CBOT/CRB's 7/9/12 Ethanol Outlook Report, this chart bluntly exhibits the soaring input costs (corn) alongside near-month ethanol futures. Sep corn prices +36% in just 3 weeks, touching a 10-month high of $7.14. Severe heat and drought conditions have shattered the summer's corn supply outlook: Sep ethanol-corn margin remains negative at -11.5c/gallon.

Absolutely Stunning

Zero Hedge via NY Fed

Of course, Professor X mentored Emanuel Moench as a doctoral student at Penn. I've been thinking about the significance of this study nearly all day, and have yet to fully comprehend the results. I've shared with coworkers with 20+ years of market/investing experience, all of whom are stunned.

Hedge Funds!

Via Seeking Alpha's Market Currents:

10:01 AM Pension funds might consider going back to the old days of holding 60% of assets in equities and 40% in bonds as the classic strategy has whipped hedge fund performance for the last 5 years. Nevertheless, Citi sees institutional investors continuing to pour money into hedge funds. It's tough for a Vanguard brochure to compete with fancy dinners and a round at Shinnecock.

If only Malkiel's advice was more glamorous...

Quotable 7/9

“Effectively, there is no money to give back.”

- José Ciscar Bolufer, vice president of Valencia’s current regional government, on why the publicly-financed Ciudad de la Luz is struggling to repay taxpayers' $325 million.

“As long as you offer any kind of support to terrorists, you are partner.”

- Bashar al-Assad blaming the US, Saudis, and Qatar for promoting violence in Syria.

Unexpected Decree

"The announcement on Sunday suggested that Mr. Morsi was willing to stake his credibility on a challenge to the military’s version of power sharing, which left the president’s legislative agenda and even his budget dependent on the generals."
                - Kareem Fahim, NYT

This seems to make sense, however. If a president is freely elected, he should have reasonable authority above and beyond a related military council. Unfortunately for Morsi, the move may look like a greedy grab for power. But, after all, "the people and the president are one hand.”

Emmanuel and Savage on Roberts' Medical Condition

Given John Robert's susceptibility to seizures, it is interesting to wonder how his own medical condition weighed on his mind while deciding the constitutionality of ACA.

Ezekiel Emmanuel (brother to the infamous Ari and Rahm) explores just that topic:

"Chief Justice Roberts has a pre-existing condition but is just 57, and thus not eligible for Medicare. Remember his unexplained seizure soon after he became chief justice? If he did not have employer-provided insurance and had to get his own coverage on the individual market, he would be denied health insurance coverage at almost any price. Maybe the appreciation for his precarious insurance status made Chief Justice Roberts more sensitive to the need for the Affordable Care Act and its requirement that insurance be available to all of those with pre-existing conditions."

And then, there is Michael Savage, who ponders whether Roberts' condition contributed to his thought process in other, more subversive ways: 

"It's well known that Roberts, unfortunately for him, has suffered from epileptic seizures. Therefore he has been on medication. Therefore neurologists will tell you that medication used for seizure disorders, such as epilepsy, can introduce mental slowing, forgetfulness and other cognitive problems. And if you look at Roberts' writings you can see the cognitive dissociation in what he is saying."

Politics on the Bench

More on the ACA SCOTUS decision later, but in skimming the Opinion, I came across the below qoute, delivered by Chief Justice Roberts:

"We do not consider whether the Act embodies sound policies. That judgment is entrusted to the Nation’s elected leaders. We ask only whether Congress has the power under the Constitution to enact the challenged provisions."

This passage - especially in light of Scalia's rambling 22 page politically charged Arizona dissent on Monday - strikes me as particularly powerful, and on point.