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SKY News Summary 4-28-08

USA Today has an article by Adam Shell on tax expectations and their effect on the stock market. Mr. Shell quotes Dan Clifton, head of policy research at Startegas Research Partners as saying, “ If the current 15% tax rate on both capital gains and dividends, which has been in force since President Bush pushed them through in 2003, are made permanent beyond the 2010 expiration date, the estimated fair value of the Standard & Poor’s 500-stock index would be 1523, nearly 9% higher than Friday’s close of 1398. In contrast,if Democrat Barack Obama wins and boosts the capital gains tax rate to 28% and dividends to pre-Bush levels of 39.6%, the fair value dips to 1375, or 1.6% below the market’s current level.”

http://www.usatoday.com/money/perfi/taxes/2008-04-27-tax-capital-gains-stocks_N.htm

Farmers switched from planting soybeans to planting corn last year, increasing prices for soybeans by 97.3%. Corn prices rose by 41.2% for different reasons. Many of these farmers are switching back to soybeans, which cost less per acre to produce than corn. This rotation should lower soybean prices, but increase corn prices, which, in turn, will increase food prices further. Food prices are expected to rise 5% in 2008, on top of the 4.5% increase in 2007. Food inflation averaged about 2.4% in 2000-2004.

http://www.usatoday.com/money/industries/food/2008-04-27-eggs-prices_N.htm

Members of the House and Senate are putting together a mammoth, $280 billion nutrition/farm policy bill, paid for by increases in fees on imports. Corn-based ethanol subsidies will be reduced, allowing for tax credits for biofuels made from wood chips, switch grass and agricultural waste.

http://online.wsj.com/article/SB120915315026145569.html

Mars, with the help of Berkshire Hathaway, may purchase Wrigley for $22 billion. Berkshire may provide the financing and retain a stake in Wrigley. Mars is the largest chocolate maker by sales, with a market share of 15%. Wrigley, which bought Kraft’s candy business in 2003 for $1.5 billion generates most of its sales outside the U.S..

http://online.wsj.com/article/SB120935192240148985.html?mod=todays_us_nonsub_page_one

In his interview with The Wall Street Journal, Paul Otellini, CFO of Intel, sees Intel’s future in Netbooks, that cost $300 or less. He notes that this generation uses the laptop as its student device, but complains that Apple is benefiting from the fact that his daughter has gone through four laptops because she keeps dropping them. Netbooks will be phones and mobile Internet devices (MIDs) small enough to fit in the pocket, and inexpensive. He thinks Intel will prosper in this market because the company is “good at small, we’re good at integration, we’re good at high performance. The Internet all runs on Intel architecture.”

http://online.wsj.com/article/SB120933812530448269.html?mod=todays_us_nonsub_marketplace

Sources: The Wall Street Journal, USA Today, and Hartford Courant

SKY News Summary 4-25-08

Entrepreneurship is alive and well according to report by the Ewing Marion Kauffman Foundation and Robert Fairlie, an economics professor at the University of California at Santa Cruz. Last year, 300 out of every one hundred thousand adults created a new business each month. 495,000 businesses were created each month. The rate of new businesses increased over that of 2006. The new businesses tended to be either in the construction or service industries. Most of the growth in entrepreneurship was in the Midwest and West, while the rate of increase declined in the Northeast.
http://www.kauffman.org/item.cfm?item=1037
USA Today, Edward Iwata, “No Slowing for Start-ups”.

British Prime Minister Gordon Brown stated before the opening of the world food crisis summit in London that the EU may have to “back off its goal of having ethanol account for 20% of motor vehicle fuel burned on Europe’s roads by 2020.” His statement comes on the heels of a similar statement, in a commentary in Monday’s Financial Times, by the head of International Monetary Fund, Dominique Strauss-Kahn, that the biofuel effort is “well-intentioned, but yet misguided.”

http://www.ft.com/cms/s/0/2a7621ae-0f3d-11dd-9646-0000779fd2ac.html

http://www.usatoday.com/money/industries/energy/2008-04-24-biofuels_N.htm

Commercial banks’ usage of the Federal Reserve’s discount window increased to $13.46 billion from last week’s $8.83 billion. Average daily borrowings were $10.73 billion, which was the highest rate since just after the attacks of Sept. 11, 2001. However, investment banks reduced their usage of the credit facility to $18.56 billion, down from $25.66 billion the previous week.
http://online.wsj.com/article/SB120908104038343315.html?mod=hps_us_whats_news

Sources: The Wall Street Journal, the Hartford Courant, USA Today, Financial Times, and the Ewing Marion Kauffman Foundation web site.

SKY News Summary 4-24-08

Medtronic purchased Pillar Palatal Implant System, maker of an implantable device to treat the soft palate component of sleep breathing disorders, for $29 million.
http://wwwp.medtronic.com/Newsroom/NewsReleaseDetails.do?itemId=1208882503881&lang=en_US

The Union of Concerned Scientists reported that, according to their survey of 1,600 Environmental Protection Agency scientists, 60% of the scientists felt “…their scientific findings are tossed aside when it comes time to write regulations.”
http://ucsusa.org/assets/documents/scientific_integrity/Interference-at-the-EPA.pdf
http://www.courant.com/news/nationworld/hc-epa0424.artapr24,0,4467169,print.story

Praxair and Samsung announced that Praxair will build a new air separation plant with a 2,000 ton-per-day capacity in order to provide Samsung with enough nitrogen, oxygen, argon, helium and hydrogen to increase Samsung’s production of thin film transistor, liquid crystal displays to 3,300 tons per day.
http://www.praxair.com/praxair.nsf/AllContent/0E15070116C553A08525742F005FED59?OpenDocument

GE and Conoco Phillips will collaborate in Qatar to provide water for petroleum and petrochemical sectors, as well as treated water for irrigation, livestock watering, and industrial cooling, leaving more fresh water for domestic use. According to ConocoPhillips, “Our vision is for the Water Sustainability Center in Qatar to become ConocoPhillips’ global corporate center of excellence for water-related research and expertise. GE’s leading-edge technologies in chemicals, equipment and advanced membranes, coupled with ConocoPhillips’ industrial applications and test facilities, will help us achieve this goal.”
http://www.ge.com/news/index.html

GE has been chosen by Petroleum Development Oman to supply 16 electric motor-driven centrifugal compressors for high-pressure injection of gas into four depleted wells in Oman. Last year, the company received two contracts from PDO for centrifugal compressors in two other fields. This contract, which lasts seven years, is worth about $250 million.
http://www.ge.com/news/index.html

CBS acquired International Outdoor Advertising Group, with outdoor advertising business in Argentina, Brazil, Chile, and Uruguay, for $110 million in cash. South America is a fast-growing market, and these four countries account for more than 2/3 of the continent’s population, GDP and advertising-spending growth.
http://www.cbscorporation.com/news/prdetails.php?id=3183

Sources: Wall Street Journal, USA Today, Hartford Courant, and CBS, GE, Praxair, UCSUSA, and Medtronic web sites.

SKY News Summary 4-22-08

Carbon credits are facing a more difficult road to approval. The United Nations body that grants the credits, according to the Kyoto Protocol’s Clean Development Mechanism (CDM) has become increasingly stringent about approving only projects that would not be done anyway. A CDM credit is worth about $25 and every credit granted represents a ton of Carbon Dioxide emitted. A British company, Agrinergy Ltd., is one of the brokers that puts projects together, end-to-end, to qualify for CDMs.

http://online.wsj.com/article/SB120882900634733527.html
http://ec.europa.eu/environment/climat/kyoto.htm
http://www.agrinergy.com/index.htm

Halliburton is involved in Aramco’s highly technical gas project, Khurais. The company is drilling more than 300 wells, over a mile deep, that connect horizontally. Each drill can be guided electronically within a few feet of the oil reserve. The company will also drill 125 water-injection wells and install dozens of electric submersible pumps to flush 2.4 million barrels of seawater a day through the well.
http://online.wsj.com/article_print/SB120881050953632313.html

Sources: Wall Street Journal, USA Today, Hartford Courant

SKY News Summary 4-17-08

The index of leading indicators rose (by 0.1% in March) for the first time in five months, according to the New York-based Conference Board. However, the index has dropped 3.3% since March of last year. The index is based on ten economic components including stock prices, building permits and initial claims for unemployment benefits. http://www.courant.com/business/nationworld/wire/sns-ap-leading-economic-indicators,0,6343514,print.story
http://www.reuters.com/article/comktnews/idUKN1742974820080417?rpc=77

About 35 of sub-Saharan Africa’s 53 countries have recurring power outages, according to the World Bank. The outages, as well as the rising prices of electricity and food have spawned large protests, especially in South Africa, where the energy company, Eskom, plans to increase its prices by up to 53%. The outages are the result of growing economies, without a corresponding increase in the production of power plants. Only recently have African governments sought to rectify this situation. Botswana, for example, will be expanding its sole, coal-fired, power plant and is soliciting bids from independent power producers. http://online.wsj.com/article/SB120838247003120827.html?mod=hps_us_pageone
http://news.bbc.co.uk/2/hi/africa/7352756.stm

India is formulating a gas-use policy. The country’s demand of natural gas grossly exceeds its supply. Natural gas is used to power India’s power plants. It is also needed to produce nitrogen fertilizer used heavily for corn and wheat crops. (Natural gas is the main input used to produce ammonia, which in turn is the main input used to make all nitrogen fertilizers). http://www.upi.com/International_Security/Energy/Briefing/2008/04/17/india_to_formulate_gas-use_policy/3108/

A report by Wen-yuan Huang, of the U.S. Department of Agriculture, called “The Impact of Rising Natural Gas Prices on U.S. Ammonia Supply” dated August 2007, explains why the cost of fertilizer is so high, and may go higher. The abstract reads, “The volatile and upward trend in U.S. natural gas prices from 2000-2006 has led to a 17-percent decline in the Nation’s annual aggregate supply of ammonia, During the period, U.S. ammonia production declined 44 percent, while U.S. ammonia imports increased 115 percent…. Ammonia prices paid by farmers increased from $227 per ton in 2000 to $521 per ton in 2006, an increase of 130 percent….Additional increases in U.S. natural gas prices could lead to a further decline in domestic ammonia production and an even greater rise in ammonia imports.”
http://www.ers.usda.gov/publications/WRS0702/wrs0702.pdf

The national debt is expected to jump from $11 trillion to $61 trillion in the next twenty years, according to David M. Walker, who is resigning as comptroller general and head of the federal Government Accountability Office.
http://www.courant.com/news/opinion/editorials/hc-walker.artapr17,0,7730209.story

Foreign tourists visiting the U.S. rose about 10%, to 24 million last year. This is a 32% increase since 2003.
http://www.courant.com/business/hc-tourism0417.artapr17,0,2207645.story

Museums have been especially hit by recent problems in the bond market where the large museums get their financing. The museums have relied on auction rate securities, which were initially an inexpensive way for them to borrow, gave investors tax advantages and were backed by bond insurers. Prices on these bonds were reset in auctions every week or month. But when investors discovered that the bond insurers were saddled with the subprime mortgage mess, they were unwilling to bid at auction and museums have ended up paying much higher interest rates. According to Roger Goodman of Moody’s, 90% of the borrowers are trying to get out of the auction-rate market, and 25% are out already.
http://www.usatoday.com/money/economy/2008-04-16-art-museum-bonds_N.htm

Cisco is changing its acquisition tactics. It is no longer acquiring many small start-ups, but rather acquires large companies, which it tends to keep autonomous. The company’s quarterly growth rate has slowed to 15% year-to-year, from between 30% to 40% or more early this decade, according to the Wall Street Journal.
http://online.wsj.com/article/SB120839835016421829.html?mod=hps_us_pageone

EnergySolutions, a Salt Lake City-based disposal company is hoping to get Congressional approval to import nuclear waste from Italy to dump into the western-Utah desert. The company already imports small amounts of nuclear waste, but passage of a bill to be brought before Congress this year, would ban the importation of low-level radioactive foreign waste.
http://www.iht.com/articles/ap/2008/04/16/america/NA-GEN-US-Nuclear-Waste.php

Sources: Wall Street Journal, Forbes, USA Today, Hartford Courant, United Press International, Associated Press, International Herald Tribune, British Broadcasting Corp., and a report by Wen-yuan Huang, of the U.S. Department of Agriculture, called “The Impact of Rising Natural Gas Prices on U.S. Ammonia Supply”, dated August 2007.

SKY News Summary 4-15-08

China has quietly become a 1% shareholder (a $2 billion interest) of BP. The country already owns a $2.9 billion stake in France’s Total, the third-largest oil company in Europe. There is speculation that the country wants to raise its bargaining power as an importer, as shortages of gasoline and diesel fuel aroused public discontent in some areas in the country. Imported oil rose in China, by 9.5% to 28.23 million metric tons last year.
http://www.forbes.com/markets/2008/04/15/bp-china-investment-markets-equity-cx_vk_0415markets03.html?feed=rss_markets

UPS employees, represented by the Teamsters, ratified a five-year contract, covering 9,900 dockworkers and drivers.
http://pressroom.ups.com/ups.com/us/press_releases/print_friendly/0,1937,4992,00.html

Roche acquired a privately-owned biotech company, called Piramed, for $160 million plus a one-time payment of $15 million. Piramed had been working with Genentech, in whom Roche has a majority interest, on P13K alpha, a program that is in the clinical development stage. Roche acquires not only the P13K-alpha program, which has potential for treating major cancers, but also the P13K-delta program, which could be important in treating inflammatory diseases such as rheumatoid arthritis. The delta program is in the pre-clinical stage.
http://www.roche.com/home/media/med-cor/med-cor-2008/med-cor-2008-04-15.htm?printout=1

Boeing’s wholly-owned subsidiary, Spectrolab, is one of the world’s leading suppliers of photovoltaic cells, solar panels, searchlight and solar simulators and has been supplying NASA with solar array panels for 50 years. Recently, it has won three contracts from Solar Systems PTY, based in Australia, to provide 360 megawatts-worth of concentrator photovoltaic cell assemblies for Solar System’s Victoria, Australia project, as well as its other projects.
http://www.boeing.com/news/releases/2008/q2/080414a_nr.html
http://www.solarsystems.com.au/154MWVictorianProject.html

ExxonMobil will invest $75 million to evaluate the production capacity of the Mako Trough in Hungary. In return, Falcon Oil and Gas, the owner, will give Exxon 67% interest in the area and Exxon will be the field’s operator.
http://www.businesswire.com/portal/site/exxonmobil/index.jsp?ndmViewId=news_view&ndmConfigId=1001106&newsId=20080410006378&newsLang=en

Joseph Brandon, Chairman and CEO of General Re, owned by Berkshire Hathaway, will resign immediately. Tad Montross, President of Gen Re will succeed him.
http://www.berkshirehathaway.com/news/apr1408.pdf

Wachovia announced that it is raising $7 billion in capital, reducing its dividends by 41% and shows a $393 million loss. There is some debate over whether the company is over-reserved, anticipating further hits. Regardless, 3.8% of its “pick-a-pay” ARM’s are non-performing, up from 0.8% last year, and $12 billion of its loans are in the troubled residential construction market.
http://online.wsj.com/article/SB120816862098112435.html?mod=todays_us_money_and_investing

Sources: Wall Street Journal, Forbes, USA Today, Hartford Courant, ExxonMobil, Berkshire Hathaway, UPS, Roche, Boeing, and Solar Systems websites.

SKY News Summary 4-14-08

Berkshire Hathaway’s Municipal bond insurance unit received a triple-A rating from Standard & Poor’s in contrast to other bond insurers’ ratings deterioration.
http://online.wsj.com/article/SB120813079412211549.html?mod=todays_us_money_and_investing

What do J&J, Pfizer, Lilly, Wyeth, and Merck have in common? In the past few months, each of these companies have created a new position, director of strategy, that can look outside the corporate “box” to find new business opportunities, as generic products squeeze the margins of their drug products. For example, J&J sees potential opportunity in health-care information technology. Merck sees its growth coming from global human-health, a new unit.
http://online.wsj.com/article/SB120813765079611893.html?mod=todays_us_marketplace

Mexico’s President, Felipe Calerón, introduced legislation last week that would allow private companies to drill, store, and transport oil from the Petroleos Mexicanos (Pemex). These companies would build and own pipelines, but the government would own the oil and its derivatives. Apparently, the reserves in the Gulf of Mexico are likely to dry up within nine years and the government needs the expertise of firms that can drill deeper. (Mexico provides the U.S. with 11.4% of its oil, and the country gets 40% of its budgetary revenue from Pemex) Protest to the legislation is strong. Private oil firms (standard Oil, Sinclair Perce Oil, and London Trust Oil-Shell) were expelled from the country on March 18, 1938, amongst charges of tax evasion and exploitation. This day is still celebrated as a national holiday.
http://www.usatoday.com/news/world/2008-04-13-mexico_N.htm?loc=interstitialskip

Sources: Wall Street Journal, USA Today, Hartford Courant

SKY News Summary 4-11-08

Molecular geneticist, Andrei Gudkov reports in this week’s Science, that he has found a drug, Protectan, that can keep cells from self-destructing during radiation. This could be very helpful to cancer patients undergoing chemotherapy. Also, the U.S. Department of Defense has signed a contract with Gudkov’s Cleveland BioLabs, based in Buffalo, to research the drug as a radiation countermeasure. So far, the tests have been successful in mice, but human safety tests are scheduled to begin in a few months.

http://www.sciam.com/article.cfm?id=new-drug-protects-against-radiation-damage

Lady Barbara Thomas Judge, chair of the U.K. Atomic Energy Authority announced at the State of the Planet conference at Columbia University last month that the chair of the U.S. Nuclear Regulatory Commission said the NRC will approve three applications for nuclear reactors it is currently reviewing.

http://www.sciam.com/article.cfm?id=us-will-approve-new-nuclear-reactors

Sources: The Wall Street Journal, the Hartford Courant, USA Today, Financial Times, Scientific American

SKY Initiates Position in the Boeing Company

We recently established a position in the Boeing Company.

Boeing is in the process of introducing one of the most important innovations in the commercial aircraft industry since the invention of the jet engine. Specifically, they are now using composite materials instead of metal to build the fuselage and wing systems of commercial jet aircraft. These materials are lighter and reduce the fuel cost of operating airplanes. The use of composites has been extensive in the newer generations of military aircraft like the B-2 Stealth Bomber. Now the aerospace industry is in the process of migrating this technology to the commercial aviation market.

Not surprisingly, the migration has been difficult. The manufacture of these new components has required new skills and assembly techniques to construct the final product. As with any major new technological innovation, there are kinks that must be worked out. But the plane has had the largest and fastest order ramp-up of any commercial airplane in history. Its use of composites lightens the plane, making it significantly more fuel efficient than the current technology. Given high oil prices, customers have been anxious to place their orders, so Boeing’s backlog is at record levels. Interestingly, because of their financial problems, U.S. airlines have not been overly aggressive placing orders for the new aircraft. But with fuel costs high, we expect that all carriers will need to place orders in the not-too-distant future.

Current production snags are being worked out and once plane deliveries begin in 2009, sales and production volumes will steadily increase.

In the last several years, Boeing’s CEO, James McNerney, has done a wonderful job of restructuring the company to operate more efficiently. This has substantially improved free-cash flow and the company’s financial strength. So with good fundamentals, a reasonable price and improving operating metrics, we think the stock offers good prospects for growth at a reasonable value. As a result, we have initiated the position with a 1 ½% weighting in our clients’ equity accounts.

GE Earnings Disappoint Investors on Weakness in GE Money

GE reported first quarter earnings today on Friday, April 11th, and the results disappointed investors. The company reported $.44 versus the $.38 (adjusted) they reported in last year’s first quarter, but $.07 below the $.51 in expectations. In response, the stock fell over 11% on the opening to $32.50.

Results were weak for several reasons, but the most noticeable disappointment was in their financial services business. This unit was not able to sell the maturing real estate investments that they had expected in March because of increased volatility in the capital markets. Like many financial companies, GE was negatively impacted by this spring’s challenging markets and disappointed investors as a result.

However, GE’s financial services group still earned $2.2 billion in the quarter and the company’s core business, infrastructure sales, continued to grow strongly. Yet, the company did lower its earnings guidance for 2008 since the capital markets remain volatile and uncertain. But GE remains one of America’s best and most reliable companies, and current trends are only a blip on a strong story. We continue to like GE and will be buying the stock on weakness.