Not long ago Air Force One touched down at São Paulo’s Guarulhos airport ... President Bush signed a land-breaking ethanol deal with President Lula ... and the ethanol profit explosion we’ve been writing about was launched.

For most investors, this came as a huge surprise: Few believed the Bush administration would defy the corn-based ethanol producers in the United States. Nor was it known that the President would launch this monumental initiative so personally and so quickly.

But for anyone who had been following our Money and Markets, it was the natural outcome of quiet — but dramatic — events we have been bringing to readers’ attention week after week.

In the spring of 2007, for example, on Weiss Research’s first live global teleconference, my brother, on the scene in Brasilia, gave a clear heads up.

He told listeners that U.S. State Department officials were in Brasilia on that very day. And he alerted you to the news, unreported on this side of the equator, that they were negotiating a critical strategic alliance with the U.S. for the production of ethanol. (See Gala Edition: Immediate Global Opportunities.)

Were you listening? I hope so. Because soon thereafter, the big news broke in New York: On the front page of Saturday’s New York Times, under the headline “U.S. and Brazil Seek to Promote Ethanol in West,” reporters Edmund L. Andrews and Larry Rohter, wrote ...

“The agreement could lead to substantial growth in the ethanol industry in Brazil as technology and manufacturing equipment developed there is exported to other countries in the region.

“Much of the ethanol produced there is made from sugar cane and is far cheaper to produce than the corn-based ethanol that has been nurtured by protective tariffs and government mandates in the United States.

“By increasing ethanol production and consumption, particularly in countries that produce sugar, officials of the Bush administration hope to reduce the region’s overall dependence on foreign oil and to take some of the pressure off oil prices....

“‘This is more than a document, it’s a point of convergence in the relationship that is denser and more intense than anything we’ve seen in the last 20 or 30 years,’ Antonio Simões, the director of the energy division of the Foreign Ministry of Brazil, said in a telephone interview from New York. ‘Brazil will profit, the United States will profit, and so will third countries. It’s a win-win situation for everyone involved.’”

My Family Has Have Been Waiting for This for a Long Time.
Now It’s Finally Happening

Since the 1940s, sugar cane and the future of ethanol have been the entire focus of our family in Brazil.

Elisabeth’s father, the former president of the Sugar Cane Growers’ Association in the largest sugar cane region of São Paulo state, was a vigorous early proponent of ethanol before it was even known by that name.

And since he passed away, Elisabeth’s sister, the current president of the association, has picked up the mantel, lobbying for ethanol in Brasilia, speaking out for ethanol at the United Nations in New York, and traveling the world for the cause.

All told, we’ve been harvesting, cutting, eating and virtually breathing sugar cane for many decades, always with an eye toward ethanol.

Now, this industry, still in its infancy, is finally taking off from the launch pad. But the big growth has barely begun.

The Advantages of
Ethanol Are Overwhelming

Unlike crude oil, the supply of ethanol is renewable and is not depleted.

And unlike gasoline, the refining and consumption of the fuel can be relatively clean.

Long term, ethanol is a partial answer to global warming and could be a very substantial answer to America’s over-reliance on supply chains from the Middle East and Persian Gulf.

Shorter term, the U.S.-Brazil ethanol alliance can even help reduce the growing influence of Hugo Chavez, the president of oil-rich Venezuela.

In my January 2007 article, Ethanol Explosion! How to Profit, I explained it this way:

Suddenly and silently, the world’s demand for ethanol is about to explode, creating a global business that could make early investors wealthy.

Consider the facts:

Fact #1. Every country on the planet wants to see more of its automobiles running on renewable fuels like ethanol. And with 600 million gas- and diesel-burning cars and trucks on the road today, that implies the most massive transformation since the industrial revolution.

Fact #2. Every major government is implementing policies that stimulate ethanol consumption. And with hundreds of billions of public money pouring into research and development, this is not exactly a temporary fling.

Fact #3. Wealthy individuals, large banks, and major mutual funds are now going to be looking much more seriously at ethanol. And yet, the big flows of investment money into ethanol have barely begun.

A New Mega-Industry Is Born

For at least two decades — from the early 1980s to the early 2000s — the ethanol industry was largely stagnant.

Ethanol production in the U.S. and Canada was growing, but only gradually. Brazil’s ethanol output was actually sliding. And worldwide output was stagnating.

Then, at the turn of the new millennium, two things happened: The U.S. government and industry began to push ethanol more forcefully. And Brazil, still the world’s leading producer despite the earlier decline, took off.

Result: Worldwide ethanol production has nearly doubled in five years ... the surge in volume has triggered the development of new, more efficient technologies ... and a new mega-industry has been born.

Right now, the only country with cars running on pure ethanol is Brazil. But a mix of ethanol and gasoline is used in the U.S., the European Union, Mexico, India, Argentina, Columbia and, now, Japan.

Brazilian Ethanol:
World’s Richest Investors
Are Starting to Pile In!

George Soros’s Adeco has recently bought a major ethanol plant in Brazil. Bill Gates acquired a share in three new plants in Brazil’s western state of Mato Grosso do Sul. Even Google’s Larry Page and Sergei Brin have revealed plans to invest in Brazilian ethanol.

International companies are one step ahead of them: Infinity Bio-Energy, which trades on the London exchange, already operates Brazilian ethanol plants valued at $200 million and plans to invest another $500 million in five more plants by year-end. Evergreen, a British group, has recently bought Cridasa, a major ethanol producer in Minas Gerais. And the French group Tereos bought 6% of Brazilian ethanol producer Cosan and owns three plants.

Overall, investments in Brazil’s ethanol industry are surging. In 2005, they were about $6 billion, including new plants, acquisitions and expansions. In 2006, they’ve surged to nearly $10 billion. And by 2010, even if there’s a recession in the U.S., they should hit at least $15 billion.

The main attraction: Ethanol is transforming Brazil’s economy and, propelled by the upcoming deal between the U.S. and Brazil, Brazil’s ethanol technology is about to transform the world.

The key factor: Innovative ways of lowering the cost of production.

Back in 1980, it cost Brazil’s ethanol producers over $2.60 to make just one gallon — not exactly competitive with gasoline! But now, Brazil is churning out ethanol for a meager 75 cents per gallon. And Brazil’s science agencies are funding a raft of new R&D to drive the cost down even further. So even if petroleum and gasoline prices fall further, Brazil’s ethanol will remain extremely competitive.

Moreover, we are now on the verge of ...

The Flex-Fuel Revolution

Nearly 100% of the cars rolling off of Brazil’s assembly lines today has a new engine that’s starting to revolutionize the world of autos, transform the markets for energy, and open up massive opportunities for investors.

I’m talking about the flex-fuel engine.

It senses the combustion pattern of the fuel — ethanol, gasoline, or any mixture of the two — and automatically adjusts the piston speed accordingly. If it’s ethanol, which burns more quickly, the pistons slow down. If it’s gasoline, they speed up.

But if you think this is just another expensive, experimental shot at an alternative car that’s going nowhere, think again.

Brazil’s flex-fuel revolution is not in economy cars ... but also sedans, SUVs and high-powered sports cars.

It’s not just in Brazilian made Fiats, VWs and Toyotas ... but also in Brazilian made Chevys and GMs.

Right now, Brazil’s the world’s most advanced country in flex-fuel engines and ethanol infrastructure. But sooner rather than later, other major industrial countries are also bound to catch on.

Remember: The auto industry is global in all aspects. For Brazil’s VW, Fiat and Toyota to share their flex-fuel technology with their home divisions in Europe and Japan is a no-brainer. Ditto for Brazil’s GM division which is already porting its flex-fuel technology back to the U.S.

In fact, with precisely that concept in mind, President Bush recently met with GM chief executive Rick Wagoner, Ford Motor’s Alan Mulally and Chrysler’s Tom LaSorda.

He touted the benefits of flex-fuel vehicles. He urged Congress to move expeditiously on legislation mandating the consumption of 35 billion gallons of alternative fuels by 2017. And the Detroit execs committed to doubling production of flex fuel engines to reduce gas consumption by 20% in ten years.

Also in Detroit, Chrysler recently unveiled a new 291 horsepower V-8 flex-fuel engine that gives customers the ability to use up to an 85% concentration of ethanol. The Chrysler Sebring Convertible is now available with a flex-fuel engine. And you can even get the hefty GM Silverado truck equipped with a flex-fuel V8 engine.

In South Africa, Fiat’s new flex-engine, Uno, was unveiled at the Durban auto show.

In the U.K., Swedish automaker Saab is turning competitors green with envy because its entire model line, including the flashy Saab 9-3 Convertible, is offered with its new “BioPower” flex-fuel engines.

Industry experts say you’ll soon even see flex-fuel engines in every NASCAR racing car.

There are only two remaining obstacles: U.S. ethanol is made mostly from corn, which is far less efficient than the ethanol made from sugar cane in Brazil. And American consumers can rarely buy Brazilian ethanol because of import barriers.

That’s too bad.

But ...

The Barriers to Ethanol Are
Likely to Come Down Far More
Swiftly Than Most People
Now Believe Possible.

Throughout history, superior, more efficient technology has inevitably broken down political and geographic barriers. And this situation is no different.

Suddenly and with growing momentum, every country on the planet is starting to shift gears. Suddenly, everyone is searching for alternative fuels.

Bottom line: Ethanol is coming to a gas station near you. Flex-engines will eventually be in every car in America. Our potentially fatal reliance on crude oil — especially from the Persian Gulf and from Venezuela — could be history.

Sound far-fetched? Then, Join Me
For a Typical Day in This Modern,
Prosperous Sugar Cane Region ...

The name of our farm is Fazenda Milhã — not only a good-sized sugar cane plantation, but also a favorite resting stop in the Caminho do Sol, a popular trail for hikers from all over the world.

The giant São Paulo metropolis is just 90 minutes away by car. Campinas, the state’s second largest city with 3.2 million people, is 40 minutes.

Just down the road is also the booming industrial city of Americana, a town founded by Confederate generals fleeing from the feared vengeance of the Union Army in the wake of their Civil War defeat.

Overall, this is one of the most modern and prosperous sugar cane growing areas in the world; and now, with the surging demand for ethanol, it’s becoming even more so.

On just this farm alone, the harvest will be 20,000 tons this year; and just in this Central-South region of Brazil, about 472 million tons.

Rolling hills, made bright green by the millions of cane leaves, stretch as far as the eye can see. The cane seems to grow like wildfire. It’s easy to harvest, provided you know how. (Elisabeth says I don’t.) And it’s also easy to transform into ethanol.

Within just a few miles from here, for example, there are five sugar mills making ethanol, with the biggest at the nearby town of Rafard.

Sound like a brand new development? It’s not.

The Rafard mill, which churns out 550,000 liters of ethanol per day, was founded by the French 124 years ago, around the same time the fleeing Civil War generals were building their homes in nearby Americana. And it’s been producing ethanol for decades.

The only things that have changed: The name (most Brazilians still call it alcohol) ... the octane (much higher than gasoline’s) ... the efficiency of the technology (evolving rapidly) ... and the quantities now being produced (huge).

All told, Brazil has 350 mills that are currently making ethanol. And this year, total production should hit 19 billion liters.

Meanwhile, global warming is already having a big impact right here:

Rain in Brazil is scarcer. Our central pivots, which we bought to strictly irrigate potatoes, eggplants and legumes, is now needed for sugar cane. The water level of our reservoir, where I swim each day, is declining.

And not long ago, Brazil suffered its first hurricane in recorded history. We’re so shell-shocked, we still haven’t figured out what to call it — “furacão” (hurricane) or “ciclone.”

And as always, our family’s children have some of the more interesting ideas on how to fix the problem.

Some, like little Clara, would probably prefer to go back to the horse and buggy.

But most, like Arthur, prefer the ethanol solution, especially when he gets to help me test drive the new, sportier flex-engine models.

And for good reason: Saab, the Swedish auto maker, reports that its new flex-fuel cars reduce fossil CO2 emissions by between 50% and 70%, compared to gasoline-powered cars. And other flex-fuel engines should soon be able to match that performance.

Most important, ethanol is abundantly available at the pump. Everywhere.

In fact, there’s no such thing as a “gas station” in Brazil any more. They’re fuel stations, giving equal access to gasoline AND ethanol.

Remember the Esso stations we used to see everywhere when we were kids?

Well, like elsewhere around the globe, Esso is still ExxonMobil’s brand name in Brazil. And the Esso station we filled up at last week had more “alcool” (ethanol) pumps than gas pumps. Ditto for Shell stations and Petrobras stations.

The inescapable and undeniable fact ...

If They Can Do It in Brazil, They Can
Do It in the United States! Period.

That’s true for the entire complex — from the fuel distribution systems to the manufacture of flex engines ... from the biofuel fields to the biofuel pumps.

The only thing still missing is the political will ... and the investment dollars. But as you can see from the brewing buzz in Washington and Detroit, that’s also changing quickly.

For starters, I recommend just investing in Brazil as a whole. The flex-engine-and-ethanol boom alone justifies it.

Plus, as I’ve been telling you frequently, we also see a boom in resources (exported in huge quantities to China and Japan) ... a boom in aircraft manufacturing (the world’s third largest) ... and a continuing surge in Brazil’s currency, the real, which just hit its highest level of the decade last week.

One of the most convenient vehicles: EWZ, the easy-to-buy exchange-traded fund that’s tied to Brazil’s leading stock index, Bovespa.

Look. Flex engines are just beginning to spread to the rest of the world. Ethanol is just at the very first stage of becoming a global commodity. And Brazil is the far-away leader in both technologies. So if you’re not yet on board, you’re certainly not too late.