Novozymes Breakfast Notes--CdeR

Notes from Chris' Novozymes breakfast last week

States See Pickup in Tax Revenue

By CONOR DOUGHERTY

State tax revenue rose in the second quarter, as higher taxes and the slowly improving economy led to an increase in collections.

Overall tax revenue increased 2.2% in 47 states that have reported their receipts for the three months ended June 30, compared with the same period a year ago, according to a report to be released Monday by the Nelson A. Rockefeller Institute of Government at the State University of New York.

This marks the second quarter in a row of recovering tax collections—and follows five quarters of declines in revenue that hammered local-government budgets. The latest figures are still a mixed bag: Some states continue to see declining revenue, but those were offset by states that saw increases.

States continue to face financial pressure, in part because tax collections remain below the levels of two years ago. In addition, aid to state income provided by federal stimulus funds is starting to fall away. Signs that the economy is flagging add to the gloomy outlook for state coffers.

"Most states still show a mismatch between revenue and spending trend lines," said Robert B. Ward, deputy director of the Rockefeller Institute. "It's not time to put away the red ink yet."

Declining expenditures by state and local governments shaved 0.1 percentage point from second-quarter gross domestic product, according to a Commerce Department report on Friday. The nation's 89,000 local governments, everything from states to cities and school boards, have seen persistent layoffs over the last two years.

State and local governments shed 48,000 jobs in July, the biggest number in a year, according to the Labor Department. The sector, which now employs about 19.5 million people, has cut 169,000 jobs this year, including 102,000 in the past three months.

President Barack Obama recently signed legislation that will provide some $26 billion in budget assistance for states. Still, many economists think crimped local-government budgets will continue to drag on growth this year and next. Most state and local governments require a balanced budget, so weak revenue forces spending cuts or tax increases.

"Federal help will buy them more time, but doesn't change the fact that they've got to cut expenses," said Nigel Gault, chief U.S. economist at forecasting firm IHS Global Insight.

The second-quarter gains were driven by growth in sales and income taxes, both of which have been raised in many states. Second-quarter sales-tax revenue increased 5.9% in the 47 states surveyed by the Rockefeller Institute, while the take from personal income taxes grew 1.6%. Collections from corporate income taxes, which tend to be volatile and are just a small slice of most states' collections, fell nearly 19% over the period.

Some 30 states saw tax revenue in the second quarter rise from a year earlier. Many of the strongest performers were places where collections were hard-hit by the recession. Florida saw a nearly 14% increase. Arizona—which, like Florida, has been among the states most affected by falling real-estate prices and lackluster construction activity—saw a 3.9% increase.

Still, revenue declined in several big states. In California, tax revenue declined 0.9%, despite a nearly 12% increase in income-tax collections largely driven by higher taxes, according to the Rockefeller Institute. Illinois saw revenue decline 7%, while Michigan's collections fell 3.8%.

Excellent Piece on Rails in the USA

Economist - Rails

This is worth the time!!!

DJ Credit Suisse Unveils Roster Of Dividend-Paying Stocks To Consider (DJ)

Credit Suisse has come up with a list of relatively stable stocks offering dividends yields that exceed miniscule bond yields. In a research note Friday, Credit Suisse's U.S. equity strategist Douglas Cliggott looked at companies with a market capitalization exceeding $15 billion, firms that offer yields of 2.75% or greater, and a volatility beta that is 0.75 compared with the rest of the Standard & Poor's 500 index.

"We believe the sharp decline in long-dated U.S. Treasury yields is an important event," Cliggott wrote. The trend toward higher prices for government debt continued into Friday, with yields on the 10-year Treasury note and the 30-year bond plumbing multi-month lows at 2.53% and 3.60%, respectively. Bond prices move inversely to their yields. "We believe the demand for U.S. financial assets with relatively high yields and relatively low volatility could remain elevated for several years," Cliggott said.

He found 24 companies that met the three criteria and, on average, offered twice the yield and 60% of the volatility. They also trade at 10% less than the trailing operating earnings of the S&P 500. The bottom line: cellphones and tobacco are the hot commodities in this department; pharmaceuticals and power companies are next on the list.

At the top of Cliggott's list is Verizon Communications Inc. (VZ), which offers yields of 6.5%, according to FactSet Research data. Verizon shares, part of the Dow Jones Industrial Average, have been trading at the top end of the volatility metric, but the shares are trading
generally within a range of $25 to $30. Cliggott, however, looked at returns over the last three months and found that Verizon's are among the highest, though that took a hit with Friday's down market. The cellphone company also has a market cap of $82.7 billion
and a price/earnings ratio of 13.2, according to FactSet.

The next two companies are tobacco giants Reynolds American Inc. (RAI), parent of R.J. Reynolds Tobacco Co., and Altria Group (MO), parent of Philip Morris. Reynolds is paying a dividend of 6.4% while Altria weighs in at 6.2%, according to FactSet. Reynolds' shares have steadily risen from the mid-$40 range a year ago to the mid- to high-$50 level now. With a P/E ratio of 11.3, its market cap is $16.5 billion. Altria's stock ride has been bumpier than that of Reynolds, but shares are up from around $18 a year ago to nearly $23 now. Total company market value is $47.5 billion with a P/E ratio of 12.

Those offering yields in the 5% range are Eli Lilly & Co. (LLY) and utility operators Duke Energy (DUK) and Southern Co. (SO).

The rest of the list is a who's who of Dow 30 and other top names, regardless of whether investors have profited from the stock price in the last 90 days. They include a number of names that have been down of late, such as Johnson & Johnson (JNJ), Kellogg Co (K), Lockheed Martin (LMT) and Colgate-Palmolive Co. (CL)

Also on Cliggott's list: Bristol-Myers Squibb Co. (BMY), American Electric Power Co. (AEP), Dominion Resources Inc. (D), Kimberly-Clark Corp. (KMB), PG&E Corp. (PCG), Kraft Foods Inc. (KFT), NextEra Energy Inc. (NEE), Abbott Laboratories (ABT), Sysco Corp. (SYY), Procter & Gamble Co. (PG), General Mills Inc. (GIS), Coca-Cola Co. (KO), McDonald's Corp. (MCD) and
PepsiCo Inc. (PEP).

The yields range from Verizon's 6.5% to Colgate-Palmolive's 2.8%, averaging more than 4%.

But there certainly are others for the dividend-minded to consider, according to MarketWatch columnist Mark Hulbert. In his newsletter, Hulbert says there also are considerable yields from such names as AT&T Inc. (T), now paying at 6.4%. There is also Exelon Corp. (EXC), with a dividend yield of 5.2%, as well as blue chips Pfizer Inc. (PFE) at 4.5% and E.I. du Pont de Nemours & Co. (DD), at 4.1%, according to FactSet.

ISI: OXY: STRONGER OPERATIONS, GOVERNANCE PLAN AHEAD $100 PX. OBJ (DAB)

* Equity Market Underperformance Transitory?
Occidental underperformed every US Integrated Oil company in recent weeks. Concerns relate to: 1) operational and 2) corporate governance issues. The latter item is vastly more important to investors and will likely extend the share price weakness if left unaddressed.

* E&P Results to Gain Momentum
Production rose by 3% in 1H 2010. However, results would have been stronger absent operational constraints in the US. Momentum is likely in 2H 2010, with output to rise by 6% in 2010 and 2011. We maintain projections for 7% annual gains during 2010-2012, the fastest growth rate in the group.

* Compensation Adjustments Ahead
OXY equity performed well last decade and with variable compensation significant, CEO Irani was rewarded. However, performance adjusted compensation appears 45% too high with significant modifications likely in coming months.

* New Management Succession/Development Plan Needed
OXY's succession and senior management development plan lacks clarity versus all of its other Integrated Oil peers. With CEO Irani and another 6 of 13 board members within 3 yrs. of OXY's stated retirement age; the loss of a senior leader due to lack of visibility in this area would be very negative for the company and its future equity value.

* Resolution on Governance Ahead, Price Target $100
Our top picks in Integrated Oils remain OXY, COP (PT-$65/sh) and CVX (PT-$92/sh.). We arrive at our $100/share price objective for OXY by applying 100% relative P/E and 60% relative dividend yield multiples. We are buyers of OXY at current levels.

JMP: ADBE, Maintain MO, PT $46

Adobe Systems, Inc. (1) (ADBE - $27.95; $14.6B market cap): We maintain our Market Outperform rating and $46 price target on Adobe Systems. On Wednesday, August 18, we are visiting with Adobe’s CEO, Shantanu Narayen, at the company's headquarters in San Jose. Areas we intend to explore include the tone of business, the status of the CS5 product cycle, operating margin expansion potential, and, most important, in our view, the drivers for the next stage of Adobe’s growth including monetizing Flash and expanding in the enterprise. We like Adobe’s leadership position in the creative software space and find current valuation levels attractive. We maintain our above-consensus non-GAAP EPS estimates of $1.93 in FY10 (consensus is $1.86) and $2.24 in FY11 (consensus is $2.15). Adobe is reasonably valued, trading at a 2011 PE of 13x while our price target implies a 2011 PE of 24, in line with the five-year average for Adobe.

Cowen on LIFE acquisition of Torrent

$375MM+ Ion Torrent Acquisition. Consideration is 60% cash 40% stock (offset by new buyback). $350MM in technical milestone payments could be made through 2012.

Based on recent comparable deals, we believe LIFE is likely expecting Ion Torrent to contribute at least $40-70MM in sales over the next 12 months. The deal is expected to be only $0.02/share dilutive in 2010, neutral in 2011. 2010 & 2011 EPS guidance was reiterated.

Barclay's Portfolio Strategy Report

Though we continue to believe that deflation will not happen, in this week's US Equity Strategy note, we discuss what could happen in a deflationary environment.
One thing that caught my eye is that the price-to-book multiple on the Nikkei 225 is 1.2x, while the S&P500 is almost double at 2x.

We believe that elevated economic and regulatory uncertainties will keep the markets volatile, and as such we continue to recommend our more defensive stance instituted in the last couple of weeks. Our favorite sectors are Utilities, Telecom, Healthcare and Staples, while avoiding Materials and Discretionary.

Barclay's Weekly Credit Call

Last week spreads weakened across the board even as overall volatility remained subdued.

In investment grade, yields touched record lows, however spreads remain wide which indicates that yields could move even lower.

Investors should consider new issues in the high yield market as a potential source of relative outperformance.

In the macro front, fiscal policies that complement and support monetary stimulus will be key to avoiding unfavorable broad market outcomes that negatively impact risk asset returns.

As corporate fundamentals remain on stable footing, we maintain our constructive stance on credit in the medium term. However risks linked to poor economic growth have risen of late, and we recommend hedging these risks through selective cyclical shorts or tail risk trades.

Full report via the article titile link.

LIFE: Barclay's Positive on Ion Torrent acquisition

LIFE (1-OW/Pos, $44.11, PT $60, $8.1b) T Butler - Positive on Acquisition - To acquire private sequencing co for $375m in cash & stock plus $350m in milestones through '12; structure provides optionality, new technology provides reduced cost of instruments & size of data output; cut eps '10 $3.46 to $3.43 (inline), '11 $3.82 to $3.79 (v $3.81).

Do-it-yourself solar power for your home

By Cody McCloy, CNN

STORY HIGHLIGHTS
System plugs directly into electrical outlet
Doesn't require professional installation
System should pay for itself in 4 years

(CNN) -- Imagine outfitting your house with small, affordable solar panels that plug into a socket and pump power into your electrical system instead of taking it out.

That's the promise of a Seattle, Washington-based start-up that is working to provide renewable energy options -- solar panels and wind turbines -- for homes and small businesses. The panels cost as little as $600 and plug directly into a power outlet.

The company, Clarian Power, aims to be the first to bring a plug-in solar power system to the market, in 2011.

Clarian's president, Chad Maglaque, says the company's product is different from existing micro-inverters, which convert solar panels' power into AC current. Maglaque says his system has built-in circuit protection, doesn't require a dedicated electrical panel and plugs directly into a standard electrical outlet.

CNN talked with Maglaque to find out more about this system. Here's a transcript of our conversation, edited for length and clarity.

CNN: Can you give us some background on Clarian Power?

Maglaque: Clarian's mission is solar and wind power for every home. Renewable energy is completely out of reach for the average homeowner. For example, systems today cost $20,000 or $30,000. What we found is that homeowners really want to make a difference; they want to do something green; they want to offset their power bill, but these systems are just too expensive.

So what we've put together is a system where they can go down to their local [home improvement store] or work with their local utilities, if there are programs like that, and bring home two or three solar panels or a wind turbine -- if they have wind -- and plug that in without the parade of contractors or installers.

What makes your product line unique?

It comes down to simplicity and cost. We're talking the same cost as a home appliance vs. a home-equity loan.

It's also about the simplicity. Our system plugs into your existing wiring and can actually be up and running within an hour or two. So you bring that home from [your home improvement store], plug in the web access point, place the solar panel wherever you would like, whether it's in your home, your patio, or your garden.

You can put it on your roof, but unlike other systems where you have 20 to 30 solar panels and the only option is to put them on your roof, here's a situation where you have two or three and you can put them wherever you like. Once you're done with that you're able to plug them in and generate power from the get-go.

Normally the barrier of entry just to start, to generate a single watt of power, is $20,000 to $30,000 and that's just completely out of reach [for most homeowners]. Here's a product that we're looking to have priced between $599 and $799 [for a basic installation].

Currently the biggest problem [for conventional solar systems] is that fixed upfront cost of $5,000 to $8,000 worth of installation expenses that ... you have to amortize against the power savings. What we're saying is you can do it yourself or have a handyman help and within an hour you can actually have it up and running.

A $600 entry fee is relatively low. Was that a major factor in the design, and how do government rebates factor in?

Certainly price was a factor in design, but we've turned the problem on its head. We've solved the problem of the upfront cost of installation. You're simply paying for the cost of the solar panel and the power module itself.

Our cost is largely driven by the cost of a solar panel today -- we're looking at $599 to $799, and if the price of solar continues to come down, that price will continue to drop. Whereas [with] the turnkey systems you're still going to have that $8,000 minimum.

We expect the average homeowner to buy around two or three solar panels. In terms of tax rebates -- based on a typical $799 installation -- it's a 30 percent tax credit, so that's a $240 credit off the top. And then depending on the state you're in -- we use California because they are the most typical in terms of solar and renewables, $2 per watt -- that's another $400 credit. So we're talking a net cost of being able to do this for under $200. Of course you have to wait for those tax rebates.

How expandable is this system?

A two- to three-panel setup will cost in the $1,800 to $2,400 range -- even that is a significant investment. Based on our research and the feedback we've had, we think that's where the sweet spot is.

Our power module will support up to 1 kilowatt, so 1,000 watts. The wiring in your home will support 1,600 watts -- what space heaters and air conditioners are limited to. The way we've designed this it's fully modular and you can daisy-chain them [together] -- so you can go down to [a home-improvement store] and buy just one, and then next spring [if] you and your partner decide you want get two more, you can do that as well.

So you can start out with as little as 200 watts and grow the system from there.

When will these be available?

We're going into production this fall and we hope to have our power modules available in spring of 2011.

Who do you think will be your main customers?

Our target market is homeowners and small-business owners. There are a lot of homeowners who want to do this. This is a product that I want; there are a lot of people just hungry to do something like this. We've been talking about this for 30 years and there's never been a solution for that.

What about renters?

Absolutely. One of the keys to this product is that it is portable. Similar to your cable in terms of installation, you bring it in, you plug it in and set that up as a renter, and if you move you can take it with you.

This is a powerful point for homeowners as well -- not only do they have to pay $20,000 to 30,000 [with a conventional system] now they're looking at a payback time frame as much as 15 years. There's not a lot of homeowners who can guarantee they're going to be in their home that long.

Here's something instead that when you move you can take it with and set it up when you get there.

The photo you sent was of an awning set up over the door -- would the unit come like that?

What we are putting together, and talking with solar panel manufacturers about, is a "Power in a box" solution. What that will come with is a solar panel, the mount, the power module and the web access point, which allows you to upload the data and track and monitor things.

What we're working on [design reflected in above photo] is a mounting that would go on the side of your home. With 20 or 30 solar panels, the only place to put that is on your roof, if you're talking two or three solar panels, that's something you could put on your home as an awning, put in your garden, or on a fence, wherever you choose.

The other thing is that by definition half the roofs in the country are facing the wrong direction, whereas every home or yard, typically, has a south-facing wall or some south-facing location where they could put that. We think a nice little spot is an awning over your deck, patio or in the garden.

Will you have a wind solution that is similarly easy to install?

We recognize that solar is the larger market, but wind is kind of sexy right now. So what we looked at is developing a wind solution: a 400-watt turbine about 48 inches tall. There are 13 million homes in the U.S. that have a viable wind resource (12 mph or greater), compared to about 110 million that have solar. We think wind is an option for some, so it is certainly something we want to offer and hope to offer a wind power in a box solution for late 2011.

How long until these units pay for themselves?

Four years or less. That includes tax cuts and rebates, and will obviously depend on the cost of your electricity. We've used California as a model; in states like Hawaii, where electricity [cost] is higher, the payback will be faster. Larger [conventional] systems are 8 to 15 years. Our installed [cost] is about $3.50 -$4 per watt where larger turnkey systems are $5-$6 per watt.

With the base model, the $600 single-panel setup, what's the monthly dip in energy cost? How much would it offset an electricity bill?

Thirty to 40 kilowatt hours per month translates to around $50 a year in energy cost savings. That's about the same energy to light your home if you're using high-efficiency lightbulbs. If you expanded that out to three or four or more solar panels, you could actually offset the cost of your electronics, or some appliances such as your microwave.

To be clear, this is not about net metering or sending power to the grid -- all the power is consumed within your home. It's really about slowing the meter down. It will make a material difference in what you are paying for on your power bill.

So how exactly does this work?

There are two primary components: We have our circuit monitor and web access point, which has to be on the same circuit as the power module. Then you can plug your solar panel on any outlet on that circuit in your home. That power can then be used anywhere in your home. That power will flow where needed, if your refrigerator comes on, it will go there. You are just supplementing the power coming into your home.

Are there any concerns about wiring capacity or issues that customers should be aware of?

These will be UL-certified devices, the same certification required for any device you plug into your home. It cannot generate power without the power grid in place, without that it won't send power back up the line, same if you unplug it -- you're not going to get electrocuted, or anything like that.

What makes our technology different from others is that we have built-in circuit protection. The circuit monitor checks that circuit to make sure we're not overloading that wiring. And we're limiting the power modules, at least initially, to 1,000 watts, which is well within the range of the wiring in your home.

What future applications are there for this technology? Could someone plug an electric car into this to charge it?

There are applications where you could plug this into your car. Of course, the power consumption of your car is many orders of magnitude compared to what this system could produce.

Wind and solar are the top ones we see coming into play, but there could be other options in the future. If Honda eventually comes out with a fuel cell generator you could use that, for example. We've built it to be agnostic to the power source -- it could be a fuel cell, a plug-in hybrid, or backup storage [like you might have for your computer]. And if someone comes up with cold fusion, that would work, too.

Stock meeting 8/5/2010

Stock meeting 8/5/2010

Telnor on the watch list (if we can get data from Baseline)

ITRI:
-DS looking into it, very expensive presently. Concerns that competition is catching up and the premium could be uncalled for. ENOC is a competitor, as is Silver Spring.

Inflation/deflation: how to position portfolios.
-Sean sent a GE bond, inflation linked. Priced at par. In a year, resets to 3 month libor plus 75 bp. 1% floor, resets each quarter.

China:
-Tough ahead. More internal competition with Chinese manufacturers.
-Next year some pundits see it as slowing
-Hard to know what will happen since the gov't can control so much
-Chinese more likely to buy RE than equities

Barrons: Africa: The Final Fronteir

Barron's: Uncle Sam: Depending on the Kindness of Strangers

EVEN AS U.S. INVESTORS AND companies ramp up investments in faster growing emerging economies like Brazil, Russia, India and China, these countries are reciprocating by snapping up record amounts of U.S. Treasuries. Total foreign ownership of Treasuries has grown to 48%, from 29% a decade ago. And, in a sign of their rising power, the BRICs now account for nearly a third of the foreign ownership, with China by far the biggest holder.

Barron's: Ford's Better Ideas

The auto maker's strong results reflect a changed mindset and a new willingness to take risks. Sticking to the Mulally plan is paying off. Ahead: even better days.

GLW: 'Gorilla' glass may be new face of touch-screen tablets, high-end TVs

CORNING, N.Y. — An ultra-strong glass that has been looking for a purpose since its invention in 1962 is poised to become a multibillion-dollar bonanza for Corning Inc.

The 159-year-old glass pioneer is ramping up production of what it calls Gorilla glass, expecting it to be the hot new face of touch-screen tablets and high-end TVs.

Gorilla showed early promise in the '60s, but failed to find a commercial use, so it's been biding its time in a hilltop research lab for almost a half-century. It picked up its first customer in 2008 and has quickly become a $170 million-a-year business as a protective layer over the screens of 40 million-plus cell phones and other mobile devices.

Now, the latest trend in TVs could catapult it to a billion-dollar business: Frameless flat-screens that could be mistaken for chic glass artwork on a living-room wall.

Because Gorilla is very hard to break, dent or scratch, Corning is betting it will be the glass of choice as TV-set manufacturers dispense with protective rims or bezels for their sets, in search of an elegant look.

Gorilla is two to three times stronger than chemically strengthened versions of ordinary soda-lime glass, even when just half as thick, company scientists say. Its strength also means Gorilla can be thinner than a dime, saving on weight and shipping costs.

Corning is in talks with Asian manufacturers to bring Gorilla to the TV market in early 2011 and expects to land its first deal this fall. With production going full-tilt in Harrodsburg, Ky., it is converting part of a second factory in Shizuoka, Japan, to fill a potential burst of orders by year-end.