The Mission Report

The MissionIR Report - July 2012

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Stocks Rally as Europe Unveils Crisis Plans

U.S. markets on Friday cut loose from the anchor of European debt that has weighed them down for months. The Dow Jones industrial average jumped more than 200 points in early trading after European leaders agreed to easier bank bailouts and regional oversight for their troubled financial sector.

Leaders in Brussels unveiled a plan to funnel money to banks directly from a regional bailout fund. They also agreed to ease austerity measures that have been causing political unrest and agonizing recessions in Greece and other nations that have received bailouts.

The news out of Brussels also lifted energy prices, on the theory that a cure to Europe's debt woes will remove one of the major drags on global growth. Benchmark oil jumped 5.5 percent, or $4.30, to $81.98 a barrel on the New York Mercantile Exchange, a day after hitting an eight-month low.

Industrial and energy stocks rose the most of the 10 industry groups in the S&P 500. Those companies would benefit from higher oil prices and faster global growth.

The two-day summit in Brussels is the 19th meeting for European leaders since the debt crisis emerged, and leaders have repeatedly clashed over how best to address it. European Council President Herman Van Rompuy called Friday's agreement a "breakthrough."

Consensus in Europe was reached after borrowing rates in Spain — where unemployment is approaching 25 percent — and Italy hit unsustainable levels. The fear was that the weaker economies of Europe would drag the entire continent into recession, or worse.

Stocks around the world surged Friday, with markets in countries on the front line of the crisis doing particularly well. Italy's FTSE MIB and Spain's IBEX indexes each rose more than 4 percent.

Perhaps more importantly, the yield on Spain's 10-year bond dropped by 0.46 percentage points to 6.44 percent. Italy's was down by 0.26 percentage points to 5.82 percent. The decrease reflects greater confidence by investors that the countries will be able to service their debts.

Gold Climbs, But Still Worst Quarter in 8 Years

Gold prices rose on Friday after leaders at a European Union summit struck a deal to cut borrowing costs for Spain and Italy, but stayed on track for their biggest quarterly drop in eight years after a dire performance in May and June.

The metal has fallen 5.87 percent since the end of March, its worst quarter since the three months to June 2004, as the dollar benefited from safe-haven flows and hopes faded that the Federal Reserve would launch another round of U.S. quantitative easing.

After a widely celebrated eleven-year bull run, which took gold prices to a record $1,920.30 an ounce last September, it is now little better than flat on the year and has averaged just over $1,650 an ounce in the first half.

"After 11 years it is only natural that gold stops and pauses for breath before taking the next step higher," Saxo Bank vice president Ole Hansen said. "The worry is obviously that momentum has been completely lost and leveraged players (such a hedge funds) have left the building."

"They will come back, but the market needs to reassert itself before that happens, as they are more followers than instigators of trends."

"The event that could trigger the spark that put some life back into gold is however difficult to find at the moment, so before we move higher, there is a risk that we need to clear the table which could be triggered by a move below $1,500."

Spot gold was up 1.3 percent at $1,570.20 an ounce at 1003 GMT, while U.S. gold futures for August delivery were up $20.20 an ounce at $1,570.60.

Financial markets have rebounded strongly from Thursday's losses. The Euro STOXX 50 volatility index, Europe's main gauge of anxiety, sank 10 percent to a one-week low of 25.25 as investors' appetite for risky assets recovered following a deal at the EU summit.

Euro zone leaders agreed to take emergency action to bring down Italy's and Spain's spiraling borrowing costs and to create a single supervisory body for euro zone banks by the end of this year, a first step towards a European banking union.

European shares were up 1.5 pct, the euro was up 1 pct versus the dollar, and the cost of insuring Spanish and Italian debt against default slid.

But analysts warned the bounce would likely be short-lived.

"I'm afraid... this news.. is no more than a sticking plaster on an amputation, and as such while the markets will for the moment react favourably, in the long run we still have a long way to go," Marex Spectron said in a note.

Physical gold buying in major consumer India picked up a little on Friday as prices fell. Weakness in Indian demand has undermined spot prices this year, with Indian gold prices currently near record highs due to rupee weakness.

Traders in India are waiting for monsoon rains to pick up, which is vital to farm productivity and profits. Rural areas contribute to about 60 percent of gold imports.

Quarterly sales of gold American Eagle coins by the U.S. Mint also fell to their lowest in four years at 127,500 ounces, down more than 39 percent from the previous quarter and by more than half year-on-year.

Among other precious metals, silver was up 1.8 percent at $26.82 an ounce.

Its outperformance helped pull the gold/silver ratio, which measures the number of silver ounces needed to buy an ounce of gold, back from its highs of the year to 58.5.

Spot platinum was up 1.5 percent at $1,404.75 an ounce, while spot palladium was up 1.2 percent at $567.57 an ounce. Both metals have fallen to their lowest this year in recent days, at $1,378 and $556 respectively.

"There were no obvious catalysts," UBS said in a note. "If anything U.S. data prints should have been marginally helpful."

"Overall, the market's behaviour was not all that different from what we've seen all week: price action comes in sweeps, mostly on Comex, and stops get triggered along the way, amplifying the move," it added. "Today, it's no great surprise that silver and PGMs are leading the move higher, with both easily outpacing the euro move."

JPMorgan's Potential $9 Billion Loss May Be Bullish

According to the New York Times, JP Morgan's losses from the infamously misguided "hedge" could be as high as $9 billion. If true the loss will be 3-times what was originally expected; possibly enough to cause the bank to record a loss for second-quarter. $9 billion is a staggering total but can't be considered a huge surprise to those who've been watching the story unfold.

On May 10th JPM CEO Jamie Dimon said the losses stood at $2b with another $1 billion or so possible. Dimon didn't offer any specifics, simply that the volatility would be large and JPM would attempt to maximize the economic value by taking its time unwinding.

Within days of the conference call, the rumor mill pegged the total losses at $4b, give or take. Now we're looking at potentially $9b, which can be assumed to be a best guess and not an official statement. It's a huge number; more than $1 billion more than the unrealized gains Dimon said were on JPM's books as of March 30th and a 4% hit on the $200b Chief Investment Office's portfolio. This would be a hard hit for a small hedge fund. For a deposit bank supposedly hedging, a $9b loss on one complicated trade is unthinkably enormous.

Ignore the drop in JPM shares last week because in the bigger picture the NYT story is great. If JPM didn't plant the story, then it should have. As Nesto says in the attached clip, JPM's goal now is managing the stock. In that regard putting a huge number "out there is brilliant."

Here's how Friday's news will make losing $9 billion an upside surprise for JPM:

1) It Changes the Conversation

Per Mr. Dimon's May 10th statement, JPM's CIO had at the time more than $200 billion in investments of which $8b was unrealized gains as of March 30th. If the NYT is right those gains have been wiped out in one trade. Reported profits from the CIO were over $4b in the last 3 years, accounting for 10% of JPM earnings.

$4b in profits over 3 years isn't a lot of money. Small gains are a good thing because the CIO was supposed to be hedging, not speculating. The revised figures and what little we know about the trade in question suggest the CIO was putting huge amounts of money at risk to systemically pick up small gains. Bet a lot on what's regarded as a low-risk trade, collect pennies, and repeat often. If one trade can wipe out three years of gains, it means JPM miscalculated risk in a massive way. It also means they were obviously placing prop bets. If the question is whether or not this can happen again, the answer is yes. In fact it's a wonder the loss wasn't larger.

For Jamie Dimon personally and the banking industry as a whole any conversation about what this trade suggests is unpleasant. The inferences above may all be wrong but banking execs would rather not explain why. Given the numbers at hand there is no "good" explanation for how JPM created the losses. JPM wants to dwell on the final tab because it's better than talking about how they got there.

2) Losing $8b Becomes an Upside Surprise

It's not a great way to find out, however everybody now knows the bogey is $9b. Unpleasant news, but water under the bridge. Yesterday $9 billion was stunning. As of tomorrow anything less than $9 billion is great. More than $9 billion is just more evidence that JPM's hedging strategy was horrific, which we already know. $9 billion on the nose isn't even newsworthy.

3) JPM is Getting the Trade Off the Books

JPM's stated gameplan was to unwind the trade slowly. The point of doing so is to reduce the incentive of betting against the firm. As Dimon said on May 10th:

"We're going to manage this for economics. Hopefully, by the end of the year, it's the hope that this won't be a significant item for us. We want to maximize the economic value of these positions and not panic to do anything stupid. Therefore, we're willing to bear volatility."

Upon further review JPM seems to have decided that prolonging the agony of unwinding this giant wad of misery was stupider than dumping the positions. In effect JPM is paying to get this trade out of their way. The firm may or may not have been able to lessen the loss had they been willing to endure the reputation and financial risk involved with maximizing value. JPM took the hit and is trying to move on with their lives.

4) It Disseminates the Information on a Huge News Day

Did you hear about the Supreme Court? Yes you did. If you got to work late today you didn't hear anything about JPM losing $9 billion. The news is just sort of "out there" and already forgotten.

The smart play for traders may be to cover on this news. For a short to work there needs to be a negative catalyst worse than what is already known. Barring a collapse of the global financial system, a headline loss of $9 billion is going to be hard to beat.

Oil Jumps, Still Faces Deep Quarterly Loss

Oil rose on Friday, but both U.S. and Brent benchmarks were still set for their deepest quarterly losses since 2008.

Euro zone leaders agreed to bend their aid rules to shore up banks and bring down the borrowing costs of stricken members, in a sign the bloc is adopting a more flexible approach to solving its two-year old debt crisis.

"I think the expectation was it would take the EU most of the weekend to reach an agreement, so I think this has taken the market a bit by surprise," said Thorbjoern Bak Jensen, oil analyst at Global Risk Management.

Some consolidation was to be expected after the oil market had seen the steepest quarterly losses since the financial crisis, he added.

Both contracts were on track to post a quarterly loss of around 20 percent, and traders cautioned the rally could run out of steam over the weekend.

"Spectacular is a good word (to describe the rally). Not really sure it's justified myself. Apparently Europe's woes are cured, well until Monday probably," Tony Machacek, an oil futures broker at Jefferies Bache, said.

Bargain-hunters may also have helped reverse some of the previous session's losses, analysts said, after a steep drop of as much as 3 percent on Thursday.

"Oil had a dramatic fall last night and there's bound to be some short-covering and bargain hunting," said Ben Le Brun, a markets analyst at OptionsXpress in Sydney.

While overall global oil demand is still expected to grow this year, the pace is now expected to be the most sluggish since the financial crisis, a Reuters poll showed on Friday.

Slowing growth in China will only just offset falling demand in developed economies, forecasters said.

On the supply side, the spotlight remained on Norway where industrial action in the petroleum sector has cut oil production by as much as 18 percent, according to workers.

Norwegian trade unions decided not to escalate the ongoing strike, leaders told Reuters after a meeting on Friday, but further meetings are planned next week to evaluate the situation.

The impact on oil markets has been limited so far, given that an excess supply of North Sea grades is expected to cover for any interruptions until well into July.

"As production losses mount, it may take perhaps two weeks before losses are sufficient to bring the North Sea crude market back to being closer to balanced," J.P. Morgan analysts said in a note.

Attention also remained on flows of oil from Iran, which will be subject to both U.S. and EU sanctions from July. But the focus, for the moment, is on oversupply, rather that the loss of Iranian oil.

Iraq's Deputy Prime Minister told reporters on Friday that OPEC should consider a production cut if the oil surplus continues much longer.

"The market now is oversupplied, and if the surplus continues much longer, OPEC will need to revise oil production levels," he said.

The United States has said it will exempt all 20 of Iran's major oil buyers from sanctions for the next 180 days, but trouble insuring vessels is expected to curb deliveries to Iran's major clients.

Asia's top buyers of Iranian oil cut imports by more than 250,000 barrels per day in the first five months of the year.

Cardium Therapeutics, Inc.

Cardium Therapeutics recently announced that it will be launching its new MedPodium Neo-Chill Nutra-App® at the National Association of Chain Drug Stores (NACDS) Marketplace 2012. MedPodium's Neo-Chill Nutra-App® contains 200 mg Suntheanine®, a 100% pure L-theanine amino acid also found in green tea, which clinical studies have shown to promote an alert state of relaxation without drowsiness, enhancing mental clarity and focus.

The company exhibited its MedPodium Nutra-Apps product line at the NACDS Marketplace (Booth 967) in Denver, Colorado. The meeting was attended by approximately 230 retail companies, representing more than 145,000 food, drug, mass, and specialty retail suppliers with $500 billion in annual buying power. Cardium also participated in the NACDS "Meet the Market" appointment program, which connects suppliers and manufacturers with retailers for personalized one-on-one meetings.

About Cardium Therapeutics, Inc. (CXM)

Cardium Therapeutics, Inc. is a health sciences and regenerative medicine company focused on acquiring and strategically developing new and innovative products and businesses to address significant unmet medical needs. Comprised of large-market opportunities with definable pathways to commercialization, partnering, and other economic monetizations, Cardium's current portfolio includes the Tissue Repair Company, Cardium Biologics, and the company's in-house MedPodium Health Sciences healthy lifestyle product platform.

The company's lead commercial product Excellagen® topical gel for wound care management recently received FDA clearance for marketing and sale in the United States. In addition to plans to advance the product's commercialization in the U.S. and internationally via strategic partnerships, the company plans to develop new product extensions for additional wound healing applications and is working towards securing approval for marketing and sale in South Korea and through the CE Mark application process in the European Union.

Generx®, Cardium's lead clinical development product candidate, is a DNA-based angiogenic biologic designed to treat patients with myocardial ischemia due to coronary artery disease. Cardium recently initiated its Generx Phase 3 / registration study in Russia. Consistent with its capital-efficient business model.

Cardium is also actively evaluating new technologies and business opportunities. The company utilizes its team's skills in late-stage product development to bridge the critical gap between promising new technologies and product opportunities that are ready for commercialization. Cardium is dedicated to building on its core products and product candidates to continually create new opportunities for greater success. Leveraging the advantages of its capital-efficient, asset-based business strategy, the company provides a diversified and more balanced portfolio of risk/return opportunities with the chief objective of providing long-term shareholder value.

Duma Energy Corp. (DUMA)

In most recent news, Duma Energy reported financial and operating results for its fiscal third quarter ending April 30, 2012. The company announced positive earnings of $73,088, as compared to a loss of ($290,000) in the second quarter. Revenue for the quarter totaled $1.88mm, a modest increase from the previous quarter. Notably, the Palacios #1 well in South Texas was successfully drilled and completed, and completion operations are underway for ST9-12A #4 in Fishers Reef Field, Galveston Bay.

"Our goal of achieving positive earnings was a challenging one, but we have achieved it in this quarter. We are not stopping though. We have many wells yet to bring online in Galveston Bay and Trinity Bay and we have numerous drilling projects being developed by our geological team. I am fully expecting that the remainder of calendar 2012 will be a busy year for us," said Jeremy G. Driver, President and Chief Executive Officer of Duma Energy.

About Duma Energy Corp. (DUMA)

Duma Energy Corp. is an aggressive growth company actively producing oil and gas in the domestic United States, both on and offshore. Leveraging its technical expertise, promising portfolio, and strong financial condition, the company plans to utilize domestic revenues and cash flow to fund its rapid growth through acquisition, while participating in transformational projects with the potential of providing exponential returns for shareholders.

The company's primary goal for fiscal year 2012 and beyond is to drive earnings growth. The company also aims to pursue listing on major exchange(s) to provide better visibility and liquidity to shareholders and financial partners. Already producing and generating revenue from oil and gas in Texas, Illinois, and Louisiana, Duma projects domestic production to exceed 1,000 barrels of oil equivalent per day (boepd) by the end of 2012; with 2,500 boepd projected by the end of 2013.

Duma was founded in 2005 and began trading on the OTCBB in 2009 via registration. In 2006, the company began producing from its first properties in Texas and soon after added production in Louisiana. In 2009, its new CEO Jeremy G. Driver came on board. Within one year, Mr. Driver had identified and negotiated an acquisition that would fundamentally reshape the company. This acquisition was made possible by the large direct cash investment by Mr. Driver and his family, as well as other investors.

The company uses only industry standard and time-tested technologies, and avoids unproven "resource plays" and other opportunities that are heavily dependent upon high commodity prices. Not bound by any geographical location or operational strategy, Duma's management team is focused on developing its existing portfolio while pursuing additional opportunities that provide rapid growth, leveraging growing revenue, cash flow, and reserves to accelerate its growth strategy.

GlobalWise Investments, Inc.

GlobalWise Investments and its wholly owned subsidiary Intellinetics last week provided investors with an update on the company's progress to date and near term intentions to expand into international markets. Eight new Channel Partners have been brought on in just the past seven months to continue software sales expansion in the United States, as well as pursue new opportunities internationally. By utilizing distribution partners who already have an extensive sales force and customer base, GlobalWise is able to focus on being a software company while the partners emphasize on client sales and on-going support.

"GlobalWise is positioning itself for record-breaking growth for the balance of 2012 and 2013," proclaimed William. J. "BJ" Santiago, CEO of GlobalWise. "We have and will continue to recruit many strategic Partners to help us access more industries and markets. I expect we will have additional announcements in the near future regarding further domestic and international growth."

About GlobalWise Investments, Inc. (GWIV)

GlobalWise Investments, via wholly-owned subsidiary Intellinetics, Inc., is a leading-edge technology company focused on Enterprise Content Management (ECM) solutions for the digital age. The ECM industry continues to grow rapidly as a result of unrestricted proliferation of digital content within today's business environment. Leveraging its proprietary cloud-based computing software, GlobalWise is poised to capture a significant market share of this burgeoning industry.

GlobalWise's ECM service is delivered to customers via five unique delivery models which cover the spectrum of business needs: Cloud/Saas (Software as a Service), Hardware Vendor Integrated Service, Software Vendor Integrated Service, Premise (Client-Server), Hybrid (Premise & Cloud/Saas).This diversity gives advanced security & privacy features with an on-demand structure needed for large Tier 3 and Tier 4 businesses that are currently underserved by the market.

The Intellinetics platform defines a new industry benchmark and game-changing approach by combining advanced virtualization & automated content management with an open and service-oriented architecture using web services. The company provides strategies, tactics, and technologies used to manage paper and digital assets from capture to long-term archive, without the need for manual processes conducted by a full time employee.

GlobalWise's management boasts a combined total of over 150 years in ECM leadership and industry experience. The ECM industry is expected to exceed $5.1 billion by 2013 with Gartner predicting a compound annual growth rate of 9.5%. IBM Market Insights predicts adoption of cloud computing to grow by 26% CAGR between 2010 through 2013. Leveraging management and key department heads, Intellinetics has a strong foundation from which to capture significant market share within the lucrative $149 billion Business Software & Services industry.

VistaGen Therapeutics, Inc.

VistaGen Therapeutics recently offered a comprehensive update letter penned by CEO Shawn Singh. The stockholder-directed letter provides a clear view from which to survey the impressive progress of the company since going public only a year ago. Singh noted that the current time is the most momentous for commercialization in the company's distinguished 14-year history of innovation, underscoring the judicious execution of R&D objectives made possible by the amassing of over $45M to date via strategic relationships, investments, and grants for the exciting technological breakthroughs the company has made.

Singh underscored important IP protection and strategic relationships with top biotech companies, as well as academic researchers, secured during the preceding year. Pointing to a clear crystallization of the underlying technologies, IP, and competencies, Singh seemed exuberant at the potential to not only fulfill the company's mission to "put humans first" (from a tech standpoint and philosophically), but accelerate shareholder growth in the process. To read the letter in its entirety, visit the following link: VistaGen Therapeutics (VSTA) CEO Shawn Singh Issues Shareholder Update Letter.

About VistaGen Therapeutics, Inc. (VSTA)

VistaGen Therapeutics is a biotechnology company applying stem cell technology for drug rescue and cell therapy. Drug rescue combines human stem cell technology with modern medicinal chemistry to generate new chemical variants ("drug rescue variants") of once-promising drug candidates that have been discontinued during late-stage preclinical development due to heart or liver safety concerns. VistaGen also focuses on cell therapy, or regenerative medicine, which includes repairing, replacing or restoring damaged tissues or organs.

VistaGen's versatile stem cell technology platform, Human Clinical Trials in a Test Tube™, has been developed to provide clinically relevant predictions of potential heart and liver toxicity of promising new drug candidates long before they are ever tested on humans.

By more closely approximating human biology than conventional animal studies and other nonclinical techniques and technologies currently used in drug development, VistaGen's human stem cell-based bioassay systems can improve the predictability of the drug development cycle and lower the cost of new drug research and development by identifying product failures earlier in the cost curve. According to the Food and Drug Administration even only a ten percent improvement in predicting failure before clinical trials could save $100 million in development costs, which savings ultimately could be passed on to patients.

Using mature human heart cells produced from stem cells, VistaGen has developed and internally validated CardioSafe 3D™, a novel three-dimensional (3D) bioassay system for predicting the in vivo cardiac effects of new drug candidates before they are tested in humans. VistaGen is now focused on using CardioSafe 3D™ to generate up to two new, safer small molecule drug rescue variants every twelve to eighteen months. VistaGen anticipates that these drug rescue variants will be modified versions of once-promising new drug candidates that have been discontinued by pharmaceutical companies and academic research institutions because of heart toxicity concerns, despite substantial prior investment and positive efficacy data demonstrating their potential therapeutic and commercial benefits.


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