One thing we like to try and do at this blog is point out arguments that go against current conventional wisdom. Two separate items came to our attention that make a reasonable case against what are well-established themes on Wall Street.

For quite some time it has become fashionable to bash the U.S. dollar. Eleanor Laise in the Wall Street Journal reports that Wall Street is emphasizing currency related funds to individual investors. While this may very well represent good old fashioned diversification it could also indicate that we have reached the bandwagon stage of this move.

With many strategists expecting the U.S. dollar to continue to weaken in foreign-exchange markets, a number of Wall Street firms, including Morgan Stanley and Lehman Brothers Holdings Inc., have begun advising individual investors to put a small portion of their assets into euros, yen and other currencies that are likely to increase in value as the dollar declines. Spurring the strategy in part are concerns that a falling dollar could boost inflation, which in turn could hurt prices of bonds and some stocks. Holding foreign currencies in a portfolio could help investors hedge against problems a falling dollar could create, these strategists say.

In contrast Mark Hulbert at spoke with a long-time dollar bear who is re-examining his position on the U.S. dollar. Noted writer Peter Bernstein notes some items that put into better perspective the economic backdrop.

A third piece of good news is that our current account deficit isn't being financed solely by foreign central banks willing to purchase U.S. Treasury securities. Those purchases are indeed occurring, of course, but in the popular press they are being given all the credit for financing our current account deficit.

That is an oversimplification, according to data Bernstein compiled. A sizeable chunk of our current account deficit is also being financed by private capital flows. In fact, according to Bernstein, in 2005 "the inflow of private capital … exceed(ed) our investments abroad" by a half a trillion dollars.

Hulbert emphasizes that Bernstein is still bearish over the long term, but notes the case is not all one way. That is indeed important in that it is rarely the case that an investment case is a 'no-brainer.' The last time we talked about no-brainers the Internet bust came as a surprise to many an investor.

One other area we have been following closely is the concept that ethanol could make a meaningful dent in the energy needs of the U.S. Indeed the most recent report from agricultural giant, and ethanol producer, Archer Daniels Midland (ADM) highlighted the current and potential impact ethanol could have on its earnings.

Alex Halperin at analyzes the blowout earnings at the ag giant. While ethanol (and biodiesel) are not as of yet a substantial part of ADM's earnings it seems that future growth hinges in part on the expansion of their ethanol business. Current ethanol prices are strong and expected to stay strong.

And price strength looks like it will continue. In its conference call, ADM said it expects the rise in ethanol prices to continue in the current quarter.

Because ethanol is becoming more prevalent in gasoline, "I think a lot of people don't realize that there are two ways to [interrupt] our gasoline supply" Routt says. "The one is the one everyone thinks of: [oil supply]; the other is ethanol."

Robert Cyran at thinks the currently high prices for oil and ethanol have seduced investors (and producers) alike in thinking that the good times will continue. This has lead to an ethanol bubble, where investors are confusing the current market with the long term potential for cellulosic ethanol.

It's unlikely the current ethanol boom will last a decade. Over-investment in distilling plants looks likely. Gas prices could fall and drag ethanol along. And higher ethanol production will raise the price a corn. There will surely be a better time to invest in cellulose ethanol in the coming decade.

The dollar and ethanol have generated a great deal of attention because they represent seemingly unassailable cases. However a little contrary thinking can help put the future into perspective. It may very well be the case that the future holds for us a markedly weaker dollar and abundant ethanol supplies, but then again, maybe not.

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