Archive for July 23rd, 2009

NEW YORK: A government watchdog raised questions about the Obama administration’s estimate that up to four million people could be helped by the president’s mortgage modification program. Also, the Government Accountability Office said Thursday the Treasury Department must develop better procedures to ensure loan servicers are equipped to participate in the 75 billion program and adhere to its rules.The report comes as the pressure mounts on the administration to address growing complaints about the program, including that some servicers are violating the rules.The GAO stressed that it is “critically important” to implement effective controls since Treasury is using 50 billion from the Troubled Asset Relief Program to fund the effort. The remaining 25 billion is coming from Fannie Mae (FNM, Fortune 500), Freddie Mac (FRE, Fortune 500) and the Department of Housing and Urban Development.When it announced its loan modification plan in February, the administration said it could help up to four million troubled borrowers. The program allows eligible borrowers who are in or at risk of default to lower their monthly payments to no more than 31% of their pre-tax income through a loan modification. The adjustments are made permanent after the homeowner makes three on-time payments. Homeowners, servicers and mortgage investors receive incentive payments in hopes of increasing participation.0:00
/3:57Hope Now’s foreclosure fightBorrowers and housing counselors, however, have been complaining about the program since it began. Many say their servicers are not responsive — losing paperwork, not returning calls and never making decisions on applications. Some charge that servicers are violating the rules, such as denying modifications to those who are still current with payments. The outcry has become so great that the administration has called servicers to a meeting in Washington D.C. on Tuesday to determine how to improve the application process and increase the volume. Officials will release reports detailing each servicer’s progress in offering modifications by Aug. 4.Thursday’s GAO report is the second this week that criticizes the administration’s handling of the 700 billion rescue program. On Monday, the bailout’s top cop warned that federal officials were ignoring his proposals for preventing taxpayer dollars from being wasted or pilfered.Projections too rosy?Treasury officials may have overestimated the number of servicers who will participate in the modification program and borrowers who will respond, according to the GAO. The agency said that Treasury is forecasting that servicers covering 90% of distressed loans would join the program and 65% of eligible borrowers would likely apply. So far, only servicers representing 85% of loans have signed up. And only 50% of targeted borrowers are participating in the IndyMac Federal Bank modification effort, which the GAO said was most like the Obama initiative.”All these factors suggest that Treasury’s estimate of the participation rate may well be optimistic,” the report found.The Treasury Department, however, said it is on track to meet its goal of up to 4 million modifications. So far, servicers in the program have extended more than 350,000 modification offers, according to a Treasury official. More than 180,000 three-month trial adjustments are underway.”Our estimates reflect our best understanding when the program was begun and will be updated to reflect what we learn about the program and economic developments,” the official said.Better oversight neededThe GAO also critiqued the administration for not having the controls in place to properly monitor the program. Specifically, the agency is concerned that Treasury is not evaluating servicers’ capacity to meet the plan’s requirements and guidelines. Also, the agency has failed to fully staff the Homeownership Preservation Office, which is responsible for overseeing the modification program.And, though Treasury has hired Freddie Mac to review servicers’ performance, it has not put established procedures to address those servicers who don’t comply.Already, reports have surfaced that financial institutions are not adhering to the program’s rules. At a Senate Banking Committee hearing last week, a consumer advocate said some servicers are violating the guidelines by demanding upfront payments, denying borrowers not in default and initiating foreclosures while borrowers’ applications are being reviewed. Senator Christopher Dodd, D-Conn., has asked the administration to look into these allegations.Separately, the GAO questioned whether Treasury needed to pay investors additional incentives to agree to modify loans in areas experiencing steep home price declines. This payment would be on top of the money investors would already receive for modifying a loan. The watchdog noted that funds should be spent to encourage adjustments that would not be made without an incentive.The Treasury Department said it would address GAO’s concerns, though it defended its rollout of the program.”We recognize that challenges remain in implementation and scaling of the program and are committed to working with the servicers to overcome those challenges to reach as many borrowers as possible,” a spokeswoman said. “Treasury has implemented and continues to adapt an extensive and robust internal control system for the program.”How has President Obama’s 787 billion stimulus program affected you or your community? Are you seeing a benefit from the Making Work Pay tax cuts or the additional 25 in unemployment benefits? Are you seeing construction jobs or other stimulus-funded work in your neighborhood? Do you still have a job because of stimulus funds? We want to hear your experiences. E-mail your story to realstories@cnnmoney.com and you could be part of an upcoming article. For the CNNMoney.com Comment Policy, click here.

Source:CNN

NEW YORK (Fortune) — The Dow Jones industrials stormed past the 9,000 mark Thursday for the first time since January, as traders delighted in surprising corporate profits and a rise in housing sales. But are the markets getting ahead of themselves?Many analysts say they’re not — at least by too muchSince their lows on March 9, the Dow (INDU) has climbed 37% while the S&P 500 (SPX) has gained 43%. Strategists say losses may come in the next two months as stocks fall back to normal valuations. The average stock in the S&P 500 trades at 17 times earnings compared to 13.5 just three months ago.”The Dow has come very far and very fast,” says Hugh Johnson, chief investment officer of Johnson Illington Advisors, who oversees more than 1.5 billion in assets. “On a short-term basis it is somewhat overvalued.”0:00
/3:02How strong is the bull?Johnson says the Dow could decline 5% to 10% before year’s end to fall in line with historical valuations and market history. Even so, he predicts the U.S. is in the fourth month of a cyclical bull market. According to Johnson’s analysis, cyclical bull markets since 1890 have had an average duration of 38 months and sent their stock up by 130%.”If you look at the history of the bull market — both in duration and magnitude — this one is the early stages,” he says. “This one has longer and further to go.”Others market watchers agree. Deutsche Bank chief U.S. equities strategist Binky Chadha says gains in the Dow and S&P 500 are sustainable with the rise in the greater economy.”There’s no doubt that the earnings we’ve seen for far have come in better than expected,” says Chadha, who notes that 75% of the S&P 500 companies already reporting earnings have beaten analysts’ expectations. That’s notably higher than the historical average over the last 10 years of 62%.Chadha notes that stocks are trading above historical levels on a price-to-earnings basis. The S&P 500 index has traded at 17 times earnings for the past four quarters, compared with the historical average of 15. Yet he believes the economy will continue to improve gradually, noting that 8 of the 11 economic indicators in a Deutsche Bank index have been positive since July 10. “I think that there’s upside on the equity markets on a whole,” Chadha says.And J.P. Morgan Funds chief market strategist David Kelly expects the Dow to stay above 9,000 as the economy shows increasingly signs of recovery.”I think the most likely scenario is the market has a very good second half of the year and it builds in these gains,” says Kelly. “There’s nothing dramatic going on in the economy, but the economy is doing what it’s supposed to do.”"There’s a gathering body of evidence that the economy is on the road to recovery,” he says. “It could be a long bull market if the economy can get to positive economic growth and stay there for a few years.”

Source:CNN

NEW YORK: American Express said Thursday that earnings fell by nearly half in the second quarter as a big piece of its profits were wiped out to pay back the loan it received from the government in last year’s financial sector bailout.The New York City-based credit card company said it earned 337 million in the second quarter, or 9 cents a share, down 48% from 660 million during the same period a year ago.Excluding costs related to its purchase of the preferred shares the government invested in the company last year as part of the Troubled Asset Relief Program, or TARP, AmEx said it would have earned 27 cents a share during the quarter.That was a touch better than expected, as consensus estimates were for the firm to post a profit of 26 cents a share, excluding the TARP payback costs, according to Thomson Reuters.Still it was not enough to excite investors. Shares of American Express (AXP, Fortune 500) shares fell nearly 4% in after hours trading after finishing Thursday 2% higher.Many have viewed AmEx, which both issues cards directly to consumers in addition to making money from its card network, as a proxy for the broader credit card industry.Rival Capital One (COF, Fortune 500) also took a hit from its decision to return TARP funds. It reported a loss for the second quarter after Thursday’s closing bell, but the loss was less than what analysts were forecasting.

Source:CNN

SAN FRANCISCO (Reuters) — Amazon.com Inc posted a quarterly net profit Thursday that fell by 10% as foreign currency fluctuations and a legal settlement hit earnings at the world’s largest online retailer, sending shares down more than 5% in after-hours trading.Amazon (AMZN, Fortune 500), fresh from announcing Wednesday it would acquire online shoe store Zappos.com for some 928 million, said net profit in the second quarter fell 10% to 142 million, or 32 cents per share, from 158 million, or 37 cents per share, a year earlier.Operating profit was 159 million, a 27% drop, caused by changes in foreign exchange rates and a settlement with Toysrus.com.Revenue rose 14% to 4.65 billion — shy of the 4.69 billion analyst estimate. Excluding currency fluctuations, revenue rose 20%.Amazon had forecast second-quarter revenue of 4.3 billion to 4.75 billion and an operating profit of 110 million to 190 million.Looking ahead, Amazon forecast third-quarter revenue of 4.75 billion to 5.25 billion — compared with the 4.92 billion expected by analysts — with operating profit between 120 million and 210 million.Shares fell 5.6% to 88.62 after closing on the Nasdaq at 93.87, up 5.7%.

NEW YORK: Microsoft Corp. blamed weakness in the global PC and server markets for a sharp drop in quarterly revenue that missed Wall Street’s forecasts. Sales fell 17% to 13.1 billion in the company’s fourth-quarter ended June 30, badly missing analysts’ forecasts of 14.4 billion. It was the second consecutive quarter in which sales fell from year-ago levels. In the company’s previous quarter, sales fell for the first time in Microsoft’s 23-year history as a public company.Microsoft’s chief operating officer, Kevin Turner, said in a statement that “economic conditions presented challenges this year.” Shares of Microsoft (MSFT, Fortune 500) fell 8% after hours.The company’s profit also declined, but managed to beat analysts’ forecasts. The Redmond, Wash.-based software giant said its fourth-quarter net income fell 29% to 3.1 billion, or 34 cents per share. Results included a deferred revenue of 2 cents per share, or 276 million, from sales of its new Windows 7 operating system, and charges of 2 cents a share on job cuts and other one-time events. Excluding the deferral and charges, Microsoft earned 38 cents per share. Analysts polled by Thomson Reuters, who typically exclude one-time items from their estimates, had projected earnings of 36 cents per share.0:00
/3:06Google, Microsoft turf warResults came as competition grows between Microsoft and its rivals. Google (GOOG, Fortune 500) announced in early July that it will unveil an operating system for netbooks next year — a market of which Microsoft controls about 90%. Last week, Microsoft announced it would offer a free Web version of its Office suite early next year, which would compete with Google Docs.And most notably, Microsoft unveiled its Bing search engine in early June, which immediately stopped Google’s search market growth and ate into Yahoo’s. Analysts widely expect a long-awaited deal to be struck in the coming days between Microsoft and Yahoo (YHOO, Fortune 500) for Yahoo’s search advertising business.

Source:CNN

NEW YORK (Fortune) — Bank of New York Mellon is not a name familiar to retail customers, but its role in the financial system is important enough that it was one of the first nine banks persuaded to accept billions of dollars last October from the Troubled Asset Relief Program — in Bank of New York Mellon’s case, 3 billion. The company is the world’s largest custodial bank, handling more than 20 trillion in assets for other banks and investors. In February, federal regulators stress-tested the nation’s 19 largest banks and found only three institutions will be profitable in 2010 if the economy gets much worse. Bank of New York Mellon (BK, Fortune 500) would lead that pack, ahead of American Express (AXP, Fortune 500) and Goldman Sachs (GS, Fortune 500). In a recent interview with Fortune’s editors, CEO Robert P. Kelly has more praise than criticism for the government’s interventions. Excerpts:Tell us how things are going in banking.Infinitely better than last fall. Until January or February, many observers thought that the entire banking system was insolvent. After the stress tests, [we saw] that the capital hole wasn’t nearly as great as people had feared and that the underlying earnings power of the banks is fairly high. That’s why bank stocks rallied as much as they did this spring.What happened during the stress tests?It was breathtaking. It culminated in joint sessions of the various regulatory bodies on our premises including the FSA [Financial Services Authority] from the U.K. and the Canadian regulators. Our regulators wanted loan-loss forecasts for the rest of this year and next year using two scenarios: what they expect and then an “adverse case,” which was actually, in many ways, worse than the Great Depression. Then they applied haircuts to our revenue estimates and raised expenses to imply capital ratios.Do you think it was a reasonable test?Yes. It was materially more conservative than what we expect. Based on our analysis of the 19 firms, in the adverse case, only three would make money, including us.0:00
/8:33Transparency? Not so much …We were surprised to see you on the TARP list.It was explained in the [Oct. 13] meeting. They felt we are important to the infrastructure of the payments system of the United States and did not want there to be any questions about our financial viability. We had custody of 23 trillion of the world’s securities, and a one-third market share of corporate-trustee activity. We clear over half the securities of the U.S. government. We’re important to the overall infrastructure of the financial markets, not just in the U.S. but also around the world.They very much wanted all the major banks to be part of the program. I understand the U.K. government [had] tried to do essentially the same thing with their banks. Some U.K. banks started to back away from it, and it morphed from an industry shoring up or a “recapitalization” plan to a “rescue” plan. I expect the U.S. did not want that to happen here.What are you concerned about going forward?Well, we still have some weak securities on our balance sheet, which were all triple-A when we bought them but some of which turned out to be triple-C in reality. It’s manageable, though. We’ve been profitable for the last six quarters, and we are very liquid with nearly half of our assets in cash and short-term securities. The banks that disappeared lacked liquidity. They were lending long and borrowing short. Later this year, I expect we’ll get new proposed standards for capital and liquidity.Will the required ratio make you less profitable?I don’t think so. There are two key capital ratios: Tier 1 Capital and Tier 1 Common. We have roughly twice the minimum of Tier 1 and Tier 1 Common.Is Tier 1 Common a new standard?It’s basically common equity divided by risk-weighted assets, which better indicates one’s ability to absorb losses. The problem with TARP is that it is preferred equity. It can’t absorb losses, because it’s debt with a coupon. However, I think it had huge benefits, for a short period of time. We were in a liquidity crisis not seen in almost 100 years in the United States. And so to come out and say, “Here are our biggest financial institutions and we are telling you, United States and the rest of the world, these guys aren’t going down,” that’s very powerful. Particularly outside of the U.S., people said, “Finally, we know who the survivors are.” We quickly picked up a lot of deposits and new business. I think people will look back on this five or ten years from now and say that TARP did its job. It helped avert a global calamity.Have you paid back your TARP money?Yes. We raised 1.5 billion in uninsured debt, at a much lower rate than TARP and common equity of 1.4 billion, proving that we could access the capital markets. We reduced our dividend, which provided us with another 750 million per year. The sum of those three things is more valuable than having 3 billion of preferred [equity]. Our balance sheet is stronger today than at the time of receiving TARP.You were pretty impressed with how Washington handled the crisis in the fall. Have you continued to be impressed?Yes. I was negative initially on the stress test, because going public with it created downward pressure on the stock prices for several months. But in the end, the numbers spoke for themselves and the markets responded.It seems like one reason why the Public-Private Investment Partnership isn’t going forward is because the gulf is too wide between what investors want to pay and what the banks want to sell for.There’s zero liquidity in many of these instruments. If, for example, you own a 100 [mortgage-backed] security and think you’re going to get 95 back, it probably trades at 40. The bid-offer spread is huge between what people would be willing to buy and sell at.But both sides agree on the actual value?There are accepted ways of determining the expected cash flows on individual securities, which depend upon the default rate and the severity, with generally available data.You said in your annual report that you’ve written down 1.6 billion of securities, but you actually thought the loss would be 535 million. Is that still what you think?Roughly. In the first quarter, we cumulatively had 7.5 billion pre-tax write-downs on marked-to-market securities, which was charged through our capital account. That’s why so many financial institutions were capital-short. The accounting has changed. Under the new rules, if a dollar is going to return 99 cents, you only take one cent through the income statement. You still do the other things to the capital account.I’m a former trader, so I love mark-to-market accounting for traded instruments. But in the banking business, you’re holding loans and securities to maturity. You should disclose what the mark-to-market is, so investors are aware, but not through the capital account.How [else] should the rules be changed?We are in a global economy. We need global accounting standards. FASB [Financial Accounting Standards Board] should be merged with the International Accounting Standards Board. We need to change the policies that have been major problems in this recession. In good times, we need to be able to build credit reserves. When things are good, the FDIC should be building up premiums too. Finally, we need to consolidate the number of regulators overseeing our industry. There’s a lack of accountability, and it is out of line with the rest of the world.

Source:CNN

NEW YORK: They’ve been dubbed boomerang kids and a recent poll by collegegrad.com shows that 80% of 2009 college graduates moved back in with their parents. That’s up quite a bit from recent years.So whether kids are home for just an extended summer or until they find a job, its important to set up some guidelines before they settle in. Consider drawing up a written agreement between you and your child. Outline a time frame as well as responsibilities, both financial and around the house. Some parents charge rent while others won’t even consider the idea. Whichever you choose, make sure to make clear exactly what the child is responsible for when it comes to other expenses like groceries.Keep credit cards and cell phones separate. Johnny can pay for that himself. These are financial responsibilities your child needs to learn to take on. But do consider keeping your child on your health insurance plan. If your health plan is employer-based it probably offers lower premiums than individual health insurance. Twenty-five states give graduates the option to be covered under their parent’s policy, but state laws vary, so the age cutoff could be 24, 25 or 26. New Jersey has the highest age limit at 30. Check out the Kaiser Family foundations Web site at statehealthfactsonline.org to learn about your state’s rules. The reality is, if your child is too old to qualify, you’ll need to find individual health insurance and decide who will pay for it.Don’t forget about auto insurance either. If your child plans on driving the family car, your payments will go up. So figure out who is going to pay what.The bottom line is, you don’t want to risk your own financial health. You shouldn’t feel like you’re on the hook for things you used to pay for when your child was younger. Food and shelter for one extra person costs thousands of dollars each year. So laying everything out on the table ahead of time and establishing a plan of action is key. Got a financial dilemma? Go to CNNMoney.com/helpdesk to submit questions, read the Help Desk articles and check out new Help Desk videos. And tune in to CNN’s Newsroom Tuesdays and Fridays, when Gerri Willis and other experts answer your questions.

Source:CNN

NEW YORK: Fears about what President Obama’s health care reform plan may do to the earnings of drugmakers has caused many Big Pharma stocks to come down with the sickness this year. Pfizer’s (PFE, Fortune 500) stock has fallen 10%, making it one of the more notable laggards in the Dow. Eli Lilly (LLY, Fortune 500) and Abbott Laboratories (ABT, Fortune 500) have both fallen more than 15%. But biotech stocks have been a different story. The NYSE Arca Biotechnology Index is up nearly 30% for 2009. And health care reform seems to be one reason why the sector has been on fire.Drug giants are desperate for growth and worried about the future, so they have been tripping over themselves to buy biotechs with decent profit potential — and bidding up the share prices of the whole group in the process.The latest big deal was announced Wednesday evening when Bristol-Myers Squibb (BMY, Fortune 500) said it would purchase Medarex, a biotech that uses antibodies to develop drugs for treating cancer and other diseases. Bristol-Myers Squibb agreed to pay 2.1 billion, or 16 a share for Medarex (MEDX), a whopping 90% premium to where Medarex’s stock closed Wednesday. This takeover follows a slew of other notable Big Pharma-biotech marriages as of late. In May, Johnson & Johnson (JNJ, Fortune 500) acquired Cougar Biotechnology. J&J also recently purchased an 18% stake in Elan (ELN), an Irish biotech that has a joint venture with Biogen Idec (BIIB) to market the multiple sclerosis treatment Tysabri and also has a pipeline of Alzheimer drugs. Earlier this year, Swiss drug titan Roche bought the remainder of Genentech that it didn’t already own. And late last year, Eli Lilly acquired ImClone Systems, the biotech most well-known for helping to land Martha Stewart in the slammer.Talkback: How would you fix the nation’s health care system? Leave your comments at the bottom of this story. The flurry of deals makes sense and probably won’t stop anytime soon — especially because Big Pharma is contending with a dearth of potential new blockbuster drugs in their pipelines. With that in mind, some analysts are busy trying to figure out who the next takeover candidates might be. In a note to clients Thursday morning, Needham & Co. biotech analysts Mark Monane and Alan Carr suggested that Regeneron Pharmaceuticals (REGN) and Seattle Genetics (SGEN), two biotechs with strong oncology franchises, could be attractive to larger drug firms.Meanwhile, Cowen & Co. analyst Ian Sanderson wrote in a report Thursday that shares of several speciatly pharmaceutical and biotech companies he follows were boosted by takeover speculation in the first half of this year. He expects that to continue for the remainder of the year. Sanderson cited Allergan (AGN), which makes the skin treatment Botox, British biotech Shire (SHPGY) and drug delivery developer Nektar Therapeutics (NKTR) as three potential targets.0:00
/2:07Health reform and youBut investors need to be a little cautious. Biotech stocks are notoriously volatile, especially those of companies still in the early stages of developing drugs. The shares often trade more on news about clinical trials and less on sales and profits. (Many smaller biotechs aren’t even making money.)Of course, volatility can be good. Witness what happened with Human Genome Sciences (HGSI) earlier this week. On Monday, the biotech reported surprisingly promising test results for its injectable lupus drug Benlysta and the stock nearly quadrupled, soaring 277%. But when trials go awry, stocks often plunge. Hard.Another reason investors need to be a tad wary is that not every biotech is going to get bought for a big, fat juicy premium. So some stocks may be well ahead of themselves. What’s more, publicly traded biotechs aren’t the only game in town for Big Pharma either. Waston Pharmaceuticals (WPI) announced a deal to buy privately held Arrrow Group, a company working on generic versions of drugs produced by biotechs, earlier this year. Venture capitalists have also wised up to the fact that Big Pharma has a lust for all things biotech. According to figures released by PricewaterhouseCoopers LLP and the National Venture Capital Association earlier this week, VC investments in biotechs surged 54% in the second quarter from the first quarter. Three of the biggest VC investments during the quarter were in biotech firms. So for investors that still might be intrigued by biotech’s growth potential, it may make more sense to play it a little safer and look at exchange-traded funds (ETF) that track a group of biotechs. The SPDR S&P Biotech (XBI), Biotech HOLDRs (BBH) and First Trust NYSE Arca Biotechnology Index (FBT) ETFs are among a few of the more actively traded funds focusing on the group.Talkback: How would you fix the nation’s health care system?

NEW YORK: Microsoft says Windows 7 is ready to go, and the first users will be able to download it on Aug. 6.The much-anticipated operating system was completed Wednesday, and it is on track to appear on store shelves for the general public on Oct. 22, Microsoft said in a press release. Customers will also be able to download the operating system from Microsoft’s Web site.Third-party hardware and software vendors will get their hands on the new operating system Aug. 6, and businesses that entered agreements with Microsoft to buy software in large quantities will be able to download Windows 7 on Aug. 16.A preliminary version of Windows 7 has been available to tech developers for many months, and reviews have been mostly positive. That’s a dramatic shift from the largely negative reviews — and disappointing sales — of its current Windows version, Vista.But Microsoft (MSFT, Fortune 500) says Windows 7 is scaled back and faster than Vista, addressing users’ complaints about sluggish speeds and unnecessary functions.Microsoft will be announcing their quarterly financial results after the markets close Thursday afternoon.

Source:CNN

NEW YORK (Fortune) — One of the many jobs that Lee Edwards took on during his 25-year career at BP, formerly known as British Petroleum, was leading the energy giant’s effort to re-brand itself. Today as the CEO of Virent Energy Systems, a seven-year-old biofuel startup in Madison, Wis., he is truly trying to move beyond petroleum. With a proprietary process it calls “BioForming,” Virent says it can turn plant sugars from corn, switchgrass, and other crops into gasoline that has a higher energy density than ethanol.So far, the company has raised 70 million and boasts investors, including Honda (HMC) and Cargill. It also has a collaborative partnership deal with oil giant Shell (RDSA). Edwards, who started at Virent in January, took a break from fundraising to answer a few questions from Fortune on the state of the renewable fuel industry.How is the renewable energy industry surviving the Great Recession? Is money flowing right now?I’d say it’s flowing. Mostly from Wall Street and private equity. Venture capital is flowing. It’s just selective. Most investors are looking for deployment of proven technology — wind projects, solar projects, some gas-fired activities. They are really risk-averse. For instance, the wind guys talk about wanting no merchant risk: “If you want to build a 300-megawatt project, that’s great. But don’t tell me your turbine supplier is an unknown company with whiz-bang technology that’s never been proven.” So risk is creeping back into the equation in a positive way, but it’s still a long way from what it used to be.0:00
/3:44Kennedy on energy alternativesHow does the Virent’s “BioForming” technology work?Sugar water goes in and goes through a series of fixed-bed catalytic reactors, which break down the molecules of sugar and react them over the catalyst so that they recombine. It’s a self-sustaining, continuous reaction — gasoline from sugar water with a catalytic reaction process that is really unique chemistry. The catalytic reaction of breaking the bonds of the sugar and then recombining them actually creates more energy than you need for the process to be sustainable. That’s very different from ethanol, where you need a huge amount of energy to do the final separation of taking the water out.Looking to 2020, what percentage of the hydrocarbon market do you think the biofuels industry as a whole could capture?I won’t predict. Hopefully we’ll prove the skeptics wrong. I think a lot of people are hoping we can get to the range of 15% or 20%, but there are going to be certain limitations depending on the nature of the biofuels themselves. If we are an ethanol-only economy, we’re not going to be able to get there.A few months ago, Exxon Mobil CEO Rex Tillerson said that in 2050 we’ll still be getting 80% of our energy from fossil fuels. Why is he wrong?I think there are a number of drivers. One is that the emerging technologies to convert biomass to fuel will prove price competitive with crude oil. I think the world is going to demand renewable alternatives to the true carbon impact of crude oil. And I also believe that there’s going to be a rebalancing of energy security and job creation that will favor more distributed feedstock.And I think all of those factors mean that ultimately we’re going to have better technologies and that they will be price competitive with hydrocarbons. There will be a true value in the marketplace in that timeframe for carbon itself, which will rebalance the playing field. And from a policy standpoint, people want to have more control of their energy destiny — and I think biomass is one of the contributing ways to make that happen.What are the obstacles to speeding up the adoption of renewable fuels?Some of the most promising technologies are still in pilot scale or earlier. They still need to be proven with scale and cost competitiveness. Then you need to work on the whole upstream part of the value chain. With upstream oil, you drill a hole, you pump the oil, you process the oil, and you take the oil on tankers to refineries. There’s a whole new value chain that needs to mature in the logistics around biomass. It’s happening now, but it will continue to improve. For all those reasons, I can see a world with different variables playing out that will definitely make [Tillerson] wrong.Why aren’t the big oil companies pursuing alternative energy programs more aggressively?They’re all doing some things. But what I see is that those companies are really driven by cash-flow management and capital-investment portfolio theory. If they have the cash, they get interested in next generation [technologies]. They’re in it one day and they’re out the next, and then they’re trying to get back in it. And that volatility of cash-flow management, given that they’re investing billions every year in upstream [oil and gas] projects, I don’t think is the best way to get technology to commercialization.The price of oil has been highly volatile over the past year. How does that affect your strategic planning?I guess the easiest answer is to say it’s a lot easier for a biofuel company to raise money when crude is 140 per barrel than when it drops down to 40. What we’re really trying to do as an industry is to say, You know, we want to disconnect from a commodity called crude oil and establish a new commodity called energy from biomass. If crude oil stays at 40 forever all these technologies will only work with a significant amount of policy support that will be driven by job-creation, energy security, and I think to a lesser extent environmental concerns. There needs to be some understanding that we’re really trying to make this shift from a crude oil-driven economy to a biomass-driven economy.

Source:CNN