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Posts Tagged ‘balance sheet restructuring’

Mother of all carry trades faces an inevitable bust

Posted in Board Of Intellectual Capital, Economy, Gerbsman Partners, Investments, Market research, tagged , , , , , , , on November 2, 2009| Leave a Comment »

Here is a market commentary from Financial Times.

“Since March there has been a massive rally in all sorts of risky assets – equities, oil, energy and commodity prices – a narrowing of high-yield and high-grade credit spreads, and an even bigger rally in emerging market asset classes (their stocks, bonds and currencies). At the same time, the dollar has weakened sharply , while government bond yields have gently increased but stayed low and stable.

This recovery in risky assets is in part driven by better economic fundamentals. We avoided a near depression and financial sector meltdown with a massive monetary, fiscal stimulus and bank bail-outs. Whether the recovery is V-shaped, as consensus believes, or U-shaped and anaemic as I have argued, asset prices should be moving gradually higher.

But while the US and global economy have begun a modest recovery, asset prices have gone through the roof since March in a major and synchronised rally. While asset prices were falling sharply in 2008, when the dollar was rallying, they have recovered sharply since March while the dollar is tanking. Risky asset prices have risen too much, too soon and too fast compared with macroeconomic fundamentals.

So what is behind this massive rally? Certainly it has been helped by a wave of liquidity from near-zero interest rates and quantitative easing. But a more important factor fuelling this asset bubble is the weakness of the US dollar, driven by the mother of all carry trades. The US dollar has become the major funding currency of carry trades as the Fed has kept interest rates on hold and is expected to do so for a long time. Investors who are shorting the US dollar to buy on a highly leveraged basis higher-yielding assets and other global assets are not just borrowing at zero interest rates in dollar terms; they are borrowing at very negative interest rates – as low as negative 10 or 20 per cent annualised – as the fall in the US dollar leads to massive capital gains on short dollar positions.”

Read the full story here.

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Date Certain M&A of Barnev, Inc.- its Assets and Intellectual Property

Posted in Uncategorized, tagged , , , , , , , on October 1, 2009| Leave a Comment »

SALE OF BARNEV ASSETS

Gerbsman Partners (www.gerbsmanpartners.com) has been retained by Barnev Inc. (www.birthtrack.com) to solicit interest for the acquisition of all, or substantially all of the assets and business of Barnev Inc. and its subsidiary.

Headquartered in Andover, Massachusetts, Barnev Inc. is a leader in developing labor progression monitoring systems during the active stage of labor.  Barnev Inc. is a parent company to Barnev Ltd., an Israeli based R&D company. (Barnev Inc. and its subsidiary, Barnev Ltd, are hereafter referred to collectively as “Barnev” or the “Company”).  Over the past 10 years, the Company has raised approximately U.S. $18mm in equity and debt financing from venture capital firms including aeris CAPITAL and Innomed Ventures.

In addition Barnev Ltd. received R&D grants from the Office of Chief Scientist of Israel (OCS), totaling approximately 7.35 Million New Israeli Shekels, equivalent to about $2.0 million in current U.S. Dollars.   These grants were provided based on approved research plans under the Israeli R&D law in exchange for which a royalty obligation is owed to the OCS on sales of products. In addition, a sale of the Company’s assets may require OCS approval and may trigger the payment of a portion of the sales proceeds to the OCS, or a more extensive royalty, or both. See “OCS Funding and Approvals” below and Appendix C to this letter.

IMPORTANT LEGAL NOTICE:

The information in this memorandum does not constitute the whole or any part of an offer or a contract.

The information contained in this memorandum relating to the Barnev Assets has been supplied by Barnev.  It has not been independently investigated or verified by Gerbsman Partners or their respective agents.

Potential purchasers should not rely on any information contained in this memorandum or provided by Gerbsman Partners (or their respective staff, agents, and attorneys) in connection herewith, whether transmitted orally or in writing as a statement, opinion, or representation of fact. Interested parties should satisfy themselves through independent investigations as they or their legal and financial advisors see fit.

Gerbsman Partners, and their respective staff, agents, and attorneys, (i) disclaim any and all implied warranties concerning the truth, accuracy, and completeness of any information provided in connection herewith and (ii) do not accept liability for the information, including that contained in this memorandum, whether that liability arises by reasons of Barnev’ or Gerbsman Partners’ negligence or otherwise.

Any sale of the Barnev Assets will be made on an “as-is,” “where-is,” and “with all faults” basis, without any warranties, representations, or guarantees, either express or implied, of any kind, nature, or type whatsoever from, or on behalf of Barnev and Gerbsman Partners. Without limiting the generality of the foregoing, Barnev and Gerbsman Partners and their respective staff, agents, and attorneys, hereby expressly disclaim any and all implied warranties concerning the condition of the Barnev Assets and any portions thereof, including, but not limited to, environmental conditions, compliance with any government regulations or requirements including, without limitation, the OCS requirements described above, the implied warranties of habitability, merchantability, or fitness for a particular purpose.

This memorandum contains confidential information and is not to be supplied to any person without Gerbsman Partners’ prior consent. This memorandum and the information contained herein are subject to the non-disclosure agreement attached hereto as Exhibit A.

Barnev believes its assets are attractive for a number of reasons:

Barnev’s intellectual property comprises 2 issued US patents, 3 pending US patent applications, 17 issued international patents and 14 international pending patent applications.
– The Company’s BirthTrack was developed under the European Medical Device Directive and ISO 13485 and has received a CE mark.
– Barnev received FDA clearance (K060028) for its BirthTrack system and subsequently for its new accessories (K080672). No other company has received FDA clearance for marketing of a continuous labor progression monitor by automatically measuring cervical dilatation and fetal head station.
– For the purpose of receiving an FDA clearance for marketing in the US the company has completed all the required clinical studies for the continuous measurements of cervical dilatation and fetal head station during the labor process.
– More than 400 patients have been treated utilizing the Company’s  technology in various leading hospital and medical centers in the USA, Europe and Israel.
– Leading obstetricians have actively supported and employed Barnev’s devices.
– The BirthTrack received a major prize for “research excellence” from the Society of Maternal Fetal Medicine in 2005.
– The Company has recently established, with the support of its Scientific Advisory Board, a protocol for a multi center clinical study which is currently in the middle of its administrative stage.
– A new generation of the BirthTrack product is presently at an advanced stage of research and development intended to provide all fetal heart rate monitoring parameters (such as fetal heart rate, and contraction frequency measurements) as well as the measurement of cervical dilatation and fetal head station.

Barnev Company Profile
Incorporated in 2004 in Delaware, Barnev Inc. is the parent company owning 100% of the capital of Barnev Ltd., an Israeli based R&D and manufacturing company. The largest shareholder of Barnev Inc. is aeris CAPITAL which holds approximately 90% of its equity.

Over the past 10 years, Barnev has raised approximately U.S. $18mm in equity and convertible debt financing from venture capital firms including aeris CAPITAL and Innomed Ventures.

Barnev Inc. is predominantly responsible for the Sales, Marketing and Customer Support activities related to the BirthTrack. The Barnev Inc. team, led by Bob Deans, a veteran with over 23 years experience in sales and marketing of medical technology, has significant experience in medical devices in general, and particularly in the introduction of new innovative medical technologies to the U.S. market. Currently the Barnev Inc. team is focused on the implementation of a multi-center clinical study of BirthTrack in the U.S. ( i.e. site agreements, IRB applications, site trainings etc.).   This study is being implemented for the benefit of the Company’s own R&D and marketing reasons and is not mandated by any regulatory agency.

Barnev Ltd., located in Israel, is a wholly-owned subsidiary of Barnev Inc. providing R&D production and regulatory support for Barnev Inc.  Barnev Ltd. currently employs 17 highly qualified people of whom 10 are scientists and engineers. This group is led by Yossi Machtey, a veteran with 31 years of experience in the medical equipment industry. The group is proficient in ultrasound technology and has a very strong team in software sciences including algorithm development and digital signal processing (DSP) designers. The team is also responsible for compliance with governmental regulatory requirements (FDA, CE markings). In 2007 Barnev Ltd. was able to obtain FDA clearance to market the BirthTrack system using a unique 510(k) Denovo approach even though the BirthTrack system does not have a substantial equivalent in its “indication of use”.

The operation and production arm of Barnev is led by Adi Ilan, with 15 years of experience in the medical field. Mr. Ilan has overseen the construction of a complete production floor at the Company’s Israel facilities, including a clean room for production of the BirthTrack disposables, all in conformance to all standards such as ISO 14644 and ISO 13485.

The team also has vast experience in designing pivotal clinical trials and clinical trials management. Barnev has conducted multiple research and regulatory clinical trials in prestigious hospital and medical centers across the globe.
Technology

Barnev developed novel technology for the labor room, combining ultrasound technology, localization technology and software, allowing its system to present the position of sensors in space. This technology is being utilized for the continuous measurement of fetal head station and the cervical dilatation during the active stage of labor. For this application the Company developed proprietary single use sensors, as well as proprietary re-usable ultrasound transmitters. These technologies were integrated within the BirthTrack product which has been cleared by FDA and CE authorities for marketing in the U.S. and Europe, and is currently commercially available around the world. There is no embedded third–party  software in Barnev IP that cannot be assigned.  The only software used (other than the Barnev proprietary software) is a standard OEM Windows XP

Impact of Technology on the Market
Approximately 60% of all births in the US become non-progressive and require augmentation or intervention to avoid complications. Currently the assessment of progression is made every two hours through a manual pelvic exam. In addition it requires two consecutive exams to determine whether or not a birth is progressing or not. Added to this protracted time period is the fact that the pelvic exam has been proven through multiple studies to be inconsistent and inaccurate when multiple examiners are involved (a situation which is quite common in the hospital setting). Phelps et al. Am J Ob Gyn 1995; 173:942–945 found that Manual exams performed sporadically are accurate less than 60% of the time. Letic et al. Medical Hypotheses 2003;60:199–201 found that an error of 1 cm in the cervical dilatation within two hours could lead to incorrect conclusions on the progress of labor in 33% of cases.

The fundamental benefit of BirthTrack is that it more rapidly identifies to the clinical caregiver(s) high risk non progressive labors that could lead to fetal and/or maternal complications. For the first time caregivers in the delivery room and elsewhere can see at a glance and at any time the current state of the birth without manual intervention, while maintaining consistent measurement of progression.

BirthTrack is expected to reduce the likelihood of negative consequences of sub-optimum labor management including complications, improper use of labor augmentation and induction medication and risk of infection.  Moreover, it is expected to yield a wealth of archived data for childbirth labor analysis, research and education, with additional clinical experience, perhaps even an early prediction of risk of non-progressive labor.
Future Technologies
The Company is presently engaged in further development of its core technology. This current development is targeted in three separate areas:
1.    A next generation BirthTrack System with  a unique fetal monitor capable of measuring FHR, frequency of contractions (TOCO), Intrauterine Pressure (IUP), Maternal SPO2 as well as Cervical Dilatation and Fetal Head station.
2.    New software expected to reduce the number of internal sensors from 3 to 2,  utilizing the latest technologies developed and patented by Barnev. Early stage development of proprietary algorithms may further reduce the need for internal sensors by calculating CD with a single sensor.
3.    A new central monitoring IT system that is expected to  be capable of merging multiple bedside BirthTrack monitors into one central monitoring station. This system is intended to act as a conduit for data storage and transfer to the hospitals central electronic medical records system (EMR).

Barnev’s Assets
– Patents and Patent Applications
– BirthTrack Technology and Manufacturing Knowhow
– FDA clearance for the BirthTrack system and its disposables
– CE Mark for the BirthTrack system and its disposables
– Intellectual Capital and Expertise
– Product Inventory
– R&D, Manufacturing and Calibration Equipment

OCS Funding and Approvals
In addition to the private capital described above, the Company has received R&D grants from the Office of Chief Scientist of Israel (OCS) totaling approximately 7.35 Million New Israeli Shekels (or about U.S. $2.0 million at current exchange rates).  These grants were provided based on approved research plans under the Israeli R&D law and they are subject to a payment of royalties in an amount ranging from 3% to 5% of the sales prices of products and/or know-how, sold and/or licensed by the Company as stipulated in that law and according to the specific terms of the grants, until such time as 100% of the OCS grants plus interest have been fully recovered.  Assuming the Buyer maintains R&D and manufacturing operations for the BirthTrack system in Israel and neither transfers know-how nor manufacturing rights outside of Israel, then the total amount of royalties that will be payable in a sale transaction would be approximately U.S. $ 2.1 Million. If manufacturing were transferred to a location outside of Israel, the obligation to pay royalties could be increased by up to 200% (or a total royalty of three times the original grant amount, plus interest).

Approval from the OCS will be required in connection with this sale transaction, if the transaction includes one or more of the following scenarios:
(i)            The transaction includes the transfer of know-how from Barnev Ltd. to a non Israeli entity. In such event, the transfer of know-how to a non-Israeli entity shall be subject to transfer fee payment calculated as a percentage of the sale proceeds but not be less than 100% of the OCS grants plus interest.  If OCS approval is granted in this scenario, and the transfer fee payment is made to the OCS, it shall be deemed to include the transfer of the manufacturing rights and no separate payment will be required in connection with the transfer of the manufacturing rights. In addition, following payment of the transfer fee payment, unless otherwise determined by the OCS, the purchaser of the know-how shall be released from the restrictions of the Israeli R&D laws and regulations.
(ii)          The transaction includes the transfer of know-how from Barnev Ltd. to another Israeli entity. In such event, the approval of the OCS is more easily granted in comparison to the transfer of know-how to a non-Israeli entity,  but both the Israeli transferee of the know-how and the foreign purchaser of the assets of Barnev would be required to sign an undertaking vis-à-vis the OCS to comply with the provisions of the Israeli R&D law (the form of such undertaking can be accessed online at http://www.moit.gov.il/NR/rdonlyres/091A5C48-7BDA-42EA-85F2-1F6BDBA27547/0/undertaking.doc).

Such undertaking vis-à-vis the OCS shall be required even if the buyer does not transfer the know-how from Barnev Ltd. to any other entity.  In such event, any future transfer of know-how and manufacturing rights will be subject to the restrictions and requirements of the Israeli R&D law.
(iii)         The transaction envisions the transfer of the manufacturing rights outside of Israel. In such event, unless the transfer constitutes less than 10% of manufacturing assets,  then the royalty rate increases to an amount equal to anywhere from 120% to 300% of the actual amount of the grants received (plus interest) depending on the percentage of manufacturing transferred outside of Israel. The approval of the OCS to transfer the manufacturing outside of Israel (in comparison to the transfer of know-how outside of Israel) is more easily granted by the OCS.
It should be noted that: (i) the OCS approval required in the scenarios stipulated above is discretionary and may be subject to terms and conditions determined by the OCS, in addition to any mandatory transfer payments and/or increased royalties; (ii) the requirement to obtain OCS approval whether in connection with the transfer of know-how or manufacturing rights, shall apply even if such transfer is scheduled to occur following the sale of the assets of Barnev; and (iii) even if all royalties due to the OCS are fully paid, the know-how purchased shall be subject to the Israeli R&D law (e.g. restrictions on the transfer of know-how and manufacturing rights), unless the approval of the OCS is granted with respect to the transfer of know-how described in sub-section (i) above.

This section and Appendix C provide a brief overview to the operation of the OCS and the Israeli R&D law and regulations. Potential buyers are reminded that the foregoing summary and the summary of the Israeli R&D law and regulations law in Appendix C represent mere summaries of the provisions of this law and regulations, and are encouraged to seek their own independent counsel in connection with the operation of and compliance with the Israeli R&D law and regulations. A non-official translation of the Israeli R&D law (not including the applicable R&D regulations and guidelines) can be accessed online at :
http://www.moit.gov.il/NR/exeres/9F263279-B1F7-4E42-828A-4B84160F7684.htm

Key Personnel – Israel
Jonathan Adereth – Acting CEO and Chairman of the Board: Formerly CEO of Elscint, Ltd ( A NYSE medical imaging company ) and Chairman of the board for a variety of medical device companies. Has over 35 years of experience in medical devices.
Yossi Machtey – Director of R&D and CEO of Barnev Ltd.: Mr. Machtey brings to Barnev vast experience in management including over 10 years in management of start-up companies, 13 years experience in leading positions in Elscint Ltd, as the MRI division Marketing Manager and as an R&D project manager. Mr. Machtey holds a graduate degree in biomedical engineering from Case Western Reserve University (Cleveland OH, USA) and an undergraduate degree in mechanical engineering from Ben-Gurion University.
Adi Ilan – Director of Operations: Mr. Ilan has over 12 years experience in various operations & productions positions. Mr. Ilan served as a product manager in Oridion a leading Israeli medical equipment provider of CO2 monitoring devices. He also served as a operations manager in Brainsgate a start-up company in the area of Neuro – stimulation. He is a practical engineer with a degree in Business Administration.
Ofer Barnea  Ph.D. CTO: Dr. Barnea is the past Chairman of the Biomedical Engineering Faculty of Tel Aviv University. His research interests include biomedical measurements, instrumentation, and cardiovascular and physiological systems. He was a member of the Medical Equipment Safety Committee of the Israeli Standards Institute and is an active consultant in the development of medical devices.
Dan Farine M.D. – Medical Advisor: Dr. Farine, an internationally recognized obstetrician, is a professor of Ob/Gyn in the University of Toronto. He earned his medical degree in Tel Aviv University, trained in Ob/Gyn in Toronto and did his fellowship in Maternal Fetal Medicine in Columbia University in NY. He is Board certified in Canada and the US.  Dr. Farine served as Head of Obstetrics and the Maternal Fetal program at Mt. Sinai Hospital in Toronto.

Key Personnel – United States:
Bob Deans – General Manager US operations: Bob joined Barnev Inc. in April 2008 and in August 2009 Bob was made General Manager of U.S. Operations. Bob brings with him over 23 years of medical device, patient monitoring and diagnostic sales & marketing experience with over 10 years of early market development and start-up commercialization expertise. Bob has worked for some of the top companies in the medical device arena including Abbott, Roche, and Bayer. Bob has a BA in Business from Mount Allison University with a double major in Marketing and Economics.

Doug Smith – CFO: Mr. Smith has over 25 years of financial executive experience, including 9 years in the medical device and biotech industries. Prior to joining Barnev, Smith was the CFO for Axya Medical, Inc., a provider of knotless fixation systems for minimally invasive surgery. Doug has also held various senior-level finance positions with OmniSonics Medical Technologies, Insulet Inc., Boston Medical Technologies, and Avicena Group, Inc. Prior to entering the medical device industry, Doug spent 10 years at Thinking Machines Corporation and 7 years at Arthur Andersen & Co.

John Quigley – VP Marketing: Mr. Quigley has 25 years of business experience in diagnostic and biotech sales and marketing. Prior to joining Barnev, John was the Vice President of Sales and Marketing for Matritech, Inc. a biotechnology company focused on the early detection of cancer. In this role, John developed the clinical brand positioning for a proprietary cancer marker, launched the product, and grew sales to $14MM over a period of three years until the company was acquired by Inverness Medical.  John has also held a number of senior level marketing positions with Boehringer Mannheim, Chiron, and Bayer. He has a degree in Biochemistry from Rutgers University.

Barnev’s Board of Directors
Jonathan Adereth: Chairman of the Board, Haifa, Israel
George Rehm: aeris CAPITAL, Zurich, Switzerland
Frank Muehlenbeck: aeris CAPITAL, Zurich, Switzerland
Karl Steigele:  independent member, former IBM marketing manager, and consultant, Atlanta, GA, USA

Barnev’s Scientific Advisory Board

Harold Fox M.D. : Chairman of Obstetrics and Gynecology at Johns Hopkins’ Medical School in Baltimore, MD, U.S.A
Gian Carlo Di Renzo M.D. : Director of OB/GYN, University of Perugia, Italy
Barak Rosenn, MD: Director, Division of Obstetrics and Maternal-Fetal Medicine, Department of Obstetrics and Gynecology St. Luke’s Roosevelt Hospital Center, NYC, NY, U.S.A.
Dan Farine M.D.: Professor of OB/GYN, University of Toronto, Toronto, Canada

The Bidding Process for Interested Buyers

Interested and qualified parties will be expected to sign a nondisclosure agreement (attached hereto as Exhibit A) to have access to key members of the management and intellectual capital teams and the due diligence “war room” documentation (the “Due Diligence Access”). Each interested party, as a consequence of the Due Diligence Access granted to it, shall be deemed to acknowledge and represent (i) that it is bound by the bidding procedures described herein; (ii) that it has an opportunity to inspect and examine the Barnev Assets and to review all pertinent documents and information with respect thereto; (iii) that it is not relying upon any written or oral statements, representations, or warranties of Gerbsman Partners, or their respective staff, agents, or attorneys; and (iv) all such documents and reports have been provided solely for the convenience of the interested party, and Gerbsman Partners (and their respective, staff, agents, or attorneys) do not make any representations as to the accuracy or completeness of the same.

Following an initial round of due diligence (which will be held in Barnev’s Andover office – Israeli resources will be available), interested parties will be invited to participate with a sealed bid, for the acquisition of the Barnev Assets. Sealed bids must be submitted so that the bid is actually received by Gerbsman Partners no later than Thursday, October 29, 2009 at 3:00 p.m. Eastern Standard Time (the “Bid Deadline”) at Barnev’s office, located at 138 River Road #104, Andover, MA 01810.  Please also email steve@gerbsmanpartners.com with any bid.

Bids should identify those assets being tendered for in a specific and identifiable way.  Be specific as to the assets desired.   Also, please specify whether you seek to maintain R&D and manufacturing capability in Israel.

Any person or other entity making a bid must be prepared to provide independent confirmation that they possess the financial resources to complete the purchase where applicable. All bids must be accompanied by a refundable deposit check in the amount of U.S. $200,000 (payable to Barnev Inc.). The winning bidder will be notified within 3 business days after the Bid Deadline. Non-successful bidders will have their deposit returned to them. Barnev reserves the right to, in its sole discretion, accept or reject any bid, or withdraw any or all assets from sale.

Barnev will require the successful bidder to close within 7 business days, which time period may be extended in order to obtain OCS approval and/or any Israeli antitrust authority approval (which may be required depending on the operations and activities of the purchaser in Israel).  Any or all of the assets of Barnev will be sold on an “as is, where is” basis, with no representations or warranties whatsoever.

All sales, transfer, and recording taxes, stamp taxes, or similar taxes, if any, relating to the sale of the Barnev Assets shall be the sole responsibility of the successful bidder and shall be paid to Barnev at the closing of each transaction.

For additional information, please see below and/or contact:

Steven R. Gerbsman
(415) 456-0628
steve@gerbsmanpartners.com

Dennis Sholl
(415) 457-9596
dennis@gerbsmanpartners.com

Kenneth Hardesty
(408) 591-7528
ken@gerbsmanpartners.com

Motti Abramovitz
972 544 774 762
motti@gerbsmanpartners.com

Steven R. Gerbsman
Principal
Gerbsman Partners
Phone: 415.456.0628, Fax: 415.459.2278
Cell: 415.505.4991
steve@gerbsmanpartners.com
thegerbs@pacbell.net
http://www.gerbsmanpartners.com

BLOG of Intellectual Capital http://www.boic.wordpress.com

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Major Shift in Cleantech Investment

Posted in Uncategorized, tagged , , , , , , , , , , , , , , , on June 26, 2009| Leave a Comment »

Here come an article written by Mark Scott at BusinessWeek.

“Last week, I was in Geneva attending a cleantech summit that brought together Europe’s top venture capitalists and entrepreneurs looking for investment. One theme kept emerging: VCs are moving their money away from energy generation projects, such as wind-farm and solar-parks. The reason? Funding those types of businesses is just too expensive for investors already struggling from the global downturn.

That message was reinforced on June 23 when consultants New Energy Finance released preliminary results about cleantech investment. Not surprising, they also found VCs were steering clear of energy generation projects. In the first half of 2009, venture capital and private equity firms forked out $3 billion globally for clean energy companies — a 56% drop compared to the same period last year.”

To read the full story, click here.

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Get Ready for Inflation and Higher Interest Rates

Posted in Board Of Intellectual Capital, boic, Business models, Distressed IP, Economy, Gerbsman Partners, Investments, Market research, Strategy, Venture Capital, tagged , , , , , , , , , , , , , , , , , , , , , , , , , , , , , on June 12, 2009| Leave a Comment »

Here is an interesting post by Arhtur Laffer at Wall Street Journal.

“The unprecedented expansion of the money supply could make the ’70s look benign.

Rahm Emanuel was only giving voice to widespread political wisdom when he said that a crisis should never be “wasted.” Crises enable vastly accelerated political agendas and initiatives scarcely conceivable under calmer circumstances. So it goes now.

Here we stand more than a year into a grave economic crisis with a projected budget deficit of 13% of GDP. That’s more than twice the size of the next largest deficit since World War II. And this projected deficit is the culmination of a year when the federal government, at taxpayers’ expense, acquired enormous stakes in the banking, auto, mortgage, health-care and insurance industries.

With the crisis, the ill-conceived government reactions, and the ensuing economic downturn, the unfunded liabilities of federal programs — such as Social Security, civil-service and military pensions, the Pension Benefit Guarantee Corporation, Medicare and Medicaid — are over the $100 trillion mark. With U.S. GDP and federal tax receipts at about $14 trillion and $2.4 trillion respectively, such a debt all but guarantees higher interest rates, massive tax increases, and partial default on government promises.”

The story concludes…

“Alas, I doubt very much that the Fed will do what is necessary to guard against future inflation and higher interest rates. If the Fed were to reduce the monetary base by $1 trillion, it would need to sell a net $1 trillion in bonds. This would put the Fed in direct competition with Treasury’s planned issuance of about $2 trillion worth of bonds over the coming 12 months. Failed auctions would become the norm and bond prices would tumble, reflecting a massive oversupply of government bonds.

In addition, a rapid contraction of the monetary base as I propose would cause a contraction in bank lending, or at best limited expansion. This is exactly what happened in 2000 and 2001 when the Fed contracted the monetary base the last time. The economy quickly dipped into recession. While the short-term pain of a deepened recession is quite sharp, the long-term consequences of double-digit inflation are devastating. For Fed Chairman Ben Bernanke it’s a Hobson’s choice. For me the issue is how to protect assets for my grandchildren.”

Read the full article here.

Others covering this story include: NCPA, Market Guardian, Bully Pulpit.

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The Geography of Recession

Posted in Board Of Intellectual Capital, Community, Distressed Intellectual Property, Distressed IP, Economy, Gerbsman Partners, Intellectual capital, Investments, Market research, Technology, Venture Capital, tagged , , , , , , , , , , , , , , , , , , , , , , , , , on June 10, 2009| Leave a Comment »

Here is an analysis by John Mauldin at InvestorInsight. It was originally published as a special series at Stratfor.

John Mauldin is president of Millennium Wave Advisors, LLC, a registered investment advisor. All material presented herein is believed to be reliable but we cannot attest to its accuracy. Investment recommendations may change and readers are urged to check with their investment counselors before making any investment decisions. Opinions expressed in these reports may change without prior notice. John Mauldin and/or the staff at Millennium Wave Advisors, LLC may or may not have investments in any funds cited above. Mauldin can be reached at 800-829-7273.

This information is not to be construed as an offer to sell or the solicitation of an offer to buy any securities.

“Dear Friends: One of the first things you learn about analyzing a company is how to dissect a balance sheet. What assets and liabilities can be deployed by a company to create equity over time? I’ve enclosed a fascinating variant on this process. Take a look at how STRATFOR has analyzed the “geographic balance sheets” of the US, Russia, China, and Europe to understand why different countries’ economies have suffered to varying degrees from the current economic crisis.

As investors, it’s precisely this type of outside-the-box thinking that can provide us profitable opportunities, and it’s precisely this type of outside-the-box thinking that makes STRATFOR such an important part of my investment decision making. The key to investment profits is thinking differently and thinking earlier than the next guy. STRATFOR’s work exemplifies both these traits.

I’ve arranged for a special deal on a STRATFOR Membership for my readers, which you can click here to take advantage of.  Many of you are invested in alternative strategies, but I want to make sure that you also employ alternative thinking strategies. So take a look at these different “country balance sheets” as you formulate your plans.
Your Mapping It Out Analyst, John Mauldin

The Geography of Recession

The global recession is the biggest development in the global system in the year to date. In the United States, it has become almost dogma that the recession is the worst since the Great Depression. But this is only one of a wealth of misperceptions about whom the downturn is hurting most, and why.As one can see in the chart, the U.S. recession at this point is only the worst since 1982, not the 1930s, and it pales in comparison to what is occurring in the rest of the world.

(Figures for China have not been included, in part because of the unreliability of Chinese statistics, but also because the country’s financial system is so radically different from the rest of the world as to make such comparisons misleading. For more, click here.)

But didn’t the recession begin in the United States? That it did, but the American system is far more stable, durable and flexible than most of the other global economies, in large part thanks to the country’s geography. To understand how place shapes economics, we need to take a giant step back from the gloom and doom of the current moment and examine the long-term picture of why different regions follow different economic paths.

The United States and the Free Market

The most important aspect of the United States is not simply its sheer size, but the size of its usable land. Russia and China may both be similar-sized in absolute terms, but the vast majority of Russian and Chinese land is useless for agriculture, habitation or development. In contrast, courtesy of the Midwest, the United States boasts the world’s largest contiguous mass of arable land — and that mass does not include the hardly inconsequential chunks of usable territory on both the West and East coasts. Second is the American maritime transport system. The Mississippi River, linked as it is to the Red, Missouri, Ohio and Tennessee rivers, comprises the largest interconnected network of navigable rivers in the world. In the San Francisco Bay, Chesapeake Bay and Long Island Sound/New York Bay, the United States has three of the world’s largest and best natural harbors. The series of barrier islands a few miles off the shores of Texas and the East Coast form a water-based highway — an Intercoastal Waterway — that shields American coastal shipping from all but the worst that the elements can throw at ships and ports.

The real beauty is that the two overlap with near perfect symmetry. The Intercoastal Waterway and most of the bays link up with agricultural regions and their own local river systems (such as the series of rivers that descend from the Appalachians to the East Coast), while the Greater Mississippi river network is the circulatory system of the Midwest. Even without the addition of canals, it is possible for ships to reach nearly any part of the Midwest from nearly any part of the Gulf or East coasts. The result is not just a massive ability to grow a massive amount of crops — and not just the ability to easily and cheaply move the crops to local, regional and global markets — but also the ability to use that same transport network for any other economic purpose without having to worry about food supplies.

The implications of such a confluence are deep and sustained. Where most countries need to scrape together capital to build roads and rail to establish the very foundation of an economy, transport capability, geography granted the United States a near-perfect system at no cost. That frees up U.S. capital for other pursuits and almost condemns the United States to be capital-rich. Any additional infrastructure the United States constructs is icing on the cake. (The cake itself is free — and, incidentally, the United States had so much free capital that it was able to go on to build one of the best road-and-rail networks anyway, resulting in even greater economic advantages over competitors.)

Third, geography has also ensured that the United States has very little local competition. To the north, Canada is both much colder and much more mountainous than the United States. Canada’s only navigable maritime network — the Great Lakes-St. Lawrence Seaway —is shared with the United States, and most of its usable land is hard by the American border. Often this makes it more economically advantageous for Canadian provinces to integrate with their neighbor to the south than with their co-nationals to the east and west.

Similarly, Mexico has only small chunks of land, separated by deserts and mountains, that are useful for much more than subsistence agriculture; most of Mexican territory is either too dry, too tropical or too mountainous. And Mexico completely lacks any meaningful river system for maritime transport. Add in a largely desert border, and Mexico as a country is not a meaningful threat to American security (which hardly means that there are not serious and ongoing concerns in the American-Mexican relationship).

With geography empowering the United States and hindering Canada and Mexico, the United States does not need to maintain a large standing military force to counter either. The Canadian border is almost completely unguarded, and the Mexican border is no more than a fence in most locations — a far cry from the sort of military standoffs that have marked more adversarial borders in human history. Not only are Canada and Mexico not major threats, but the U.S. transport network allows the United States the luxury of being able to quickly move a smaller force to deal with occasional problems rather than requiring it to station large static forces on its borders.Like the transport network, this also helps the U.S. focus its resources on other things.”

John F. Mauldin
johnmauldin@investorsinsight.com

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