Market Report: Trade in your Seat on the Blue Chip Roller Coaster for a Ride on Monsanto's Ethanol Rocket

The latest WSJ survey of 55 practitioners of the dark art notes that they have edged their bet on a recession over the next 12 months about two notches higher, from August’s 28% to 36% today.

Now statistics like this are a funny thing. You should be aware that this simple number - 37% - the Journal is peddling about hides a remarkable disparity within the polled community.

In reality (if indeed that word can be ascribed to economists), a few of these August prognosticators pegged the odds of the economy slowing further at just this side of nil, while some of their less sanguine fellows see recession as a lock at 95%.

Excluding the unlikely tails, even the core group split the top of the bell curve neatly in half, with 11 respondents placing the odds at even up or slightly better, and nine putting their chips down below the one-out-of-three line.

When pressed for details, they gave all sorts of reasons for a recession, but mostly they blamed the spread of the housing shutdown into banking, and the retention of high oil prices later into fall than previously calculated (although at least a couple specified high oil as a reason for optimism).

Now you know why we in the biz call it the “Dark Art:” the more economists talk, the less light is actually shed on the subject.

But what does $80 oil mean to you? I mean besides the most obvious things like expensive gasoline for the wife’s minivan and sky-high electric bills.

Properly addressed, it could mean a substantial opportunity. And, once again, I don’t mean that you should pursue the obvious: While I do have a few favorite oil companies (Chevron (CVS: NYSE) springs immediately to mind), most are still too darn close to their seasonal highs. A patient investor should wait until late fall before even beginning to look for entry points here.

Rather, I would advise you to look into a few of the energy trade’s “back doors.” Specifically, you should take a gander at corn-seed genius Monsanto (MON: NYSE). Much like the oil stocks, MON shares too are at a bit of a high. In fact, on a day when the rest of the blue chips sit in quivering trepidation of a disappointing outcome at the approaching FOMC meeting, MON is at an all-time high, having just declared expected 2007 earnings of about $1.79 a share.

Apparently, the demand for ethanol has made the corn seed, fertilizer and herbicide biz a great place to be: Monsanto has also rounded up its estimate for ongoing earnings for the year some 14% to about $2 a share, citing better-than-expected pricing for its Round Up herbicides business. (A joke eh: “rounded up?” They make Round Up herbicide… okay, fine: no more jokes this column.)

But with prices this high, why buy now? Because, as good as the stateside market might be, MON has been focusing for years on diversifying out of same. So now, when it’s harvest time in the U.S. and Canadian breadbaskets, it is planting time in India and Brazil, ensuring a darn smooth flow of cash.

Simply put, now it’s always spring at Monsanto’s St Louis headquarters. And while shares may or may not match the last 12 month’s 72% gain––A mere 60% plus is perhaps a bit more probable––proper deployment of call options would allow you to take that much on the table in a fraction of that time: witness WOW readers’ 90% gains on MON October 70 calls achieved over only the past eight weeks.

Now picture doing that five or six––or even 10 or 12 times––over the next few months…

Adam

Outside links:

Monsanto increases earnings guidance

Forecasters Boost Odds of Recession

Gasoline prices rise