The Mission Report

The MissionIR Report - October 2012

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Alternatives to the Sinking Dollar

The Fed’s latest stimulus program, QE3, has boosted risky assets like stocks and commodities at the expense of the dollar. The greenback dropped 6.5% between late July – when investors became more certain the Fed would take action – through mid-September, a more precipitous decline than following the prior two rounds of stimulus. During that same time, the S&P 500 rose nearly 10%.

Behind the dollar’s decline was investors’ growing sense in midsummer that central banks on both sides of the Atlantic would take action. European Central Bank President Mario Draghi vowed to save the euro at all costs, sparking a rally in the currency. In the U.S., currency investors saw further stimulus by the Federal Reserve as increasingly likely and began to price in a devaluing of the dollar. As expected, the Fed launched its third round of so-called quantitative easing earlier this month, a program that will increase the money supply as the Fed buys mortgage bonds with money it has created.

The Fed’s aggressive moves to stimulate the economy spell long-term weakness for the dollar, many pros say. For them, it’s not too late to tweak portfolios to account for this decline. While various factors could cause the dollar to temporarily strengthen against the euro and other currencies — for example, mounting concern over the European debt crisis or escalating tensions in the Middle East could send investors running to the dollar as a safe haven — the currency’s long-term downward trajectory will continue, according to these dollar bears.

Many have looked to gold as the dollar began its slide this summer. Drew Kanaly, a financial adviser at Kanaly Trust in Houston, increased his clients’ allocations to gold through the SPDR Gold Shares exchange-traded fund.

Some have looked to capitalize on other currencies’ appreciation relative to the dollar. Donald Dempsey, a financial adviser in Williston, Vt., shifted part of his clients’ international bond portfolios out of the iShares JPMorgan USD Emerging Markets Bond fund and into the WisdomTree Emerging Markets Local Debt fund. The former gives investors exposure to international bonds but not their currencies, whereas the latter does not hedge out, or erase, the currency risk. Many emerging-market currencies have rallied recently, and the WisdomTree fund allows investors to benefit from this appreciation along with any changes in the underlying bonds’ prices (in the opposite direction, investors get hurt if the currency declines).

Anthony Welch, manager of the $12.8 million Currency Strategies fund, increased his exposure in mid-July to the Canadian and Australian dollars, which have also recently outperformed the greenback. Both countries’ economies are heavily tied to commodities, many of which are priced in the U.S. dollar and tend to rally when the dollar declines. Over the past five years, the Canadian and Australian dollars have risen against both the euro and the U.S. dollar.

To be sure, not all pros favor adjusting portfolios based on market direction. “Typically, advisers tweak things at exactly the wrong time, like their clients,” said Rick Kahler, president of Kahler Financial Group in Rapid City, S.D. Kahler gives his clients exposure to foreign currencies but doesn’t change the mix based on currency moves.

Google Stock Rises
as Social Stocks Dive

Google marked its 14th birthday Thursday with its shares on pace to close at a new high mark — capping a run of 33% over the last three months.

Google was last trading up a fraction at $755.30. The stock closed at a high of $753.46 in the previous session, according to FactSet. Until mid-July, the shares were negative for the year, but began a sharp climb upwards following its July 19 second-quarter report.

That investors have gifted the Web search giant with such strong gains during a meltdown of social networking plays such as Facebook, Groupon, and Zynga is notable, given how Google was perceived last year as relatively stodgy compared to these upstarts — many of whom lured Google employees away with the promise of lucrative stock options that are now largely underwater.

There are other reasons for the improved performance as well, including improving search trends, easing worries on the impact of its Motorola Mobility acquisition, and Google’s growth potential in the mobile market.

But some analysts believe that part of the reason for Google’s recent run could be that it has come to be seen as a mature player and somewhat safe bet when it comes to Internet firms.

“It’s a flight to safety,” Susquehanna analyst Herman Leung told MarketWatch.

In the wake of souring sentiment on new players such as Facebook Inc., Zynga Inc., and Groupon Inc., investors focused on Web companies are shying away from new and unproven business models.

The most visible example is Facebook, once considered a highly-serious threat to Google, whose stock has plunged by 36% in the last three months — and is off more than 47% from its IPO price of $38 set during its controversial debut. Zynga’s shares have dropped 49% and Groupon has shed 52% in the last three months.

“There is a lower appetite for high-risk business models and a shift to business models that have proven themselves with a longer track record,” Leung added. “Appetite for untested business models has pulled back.”

Baird analyst Colin Sebastian also told MarketWatch that “in general, yes, in an uncertain time — whether it be the macro backdrop or sector specific issues — it is expected to see a flight of capital to the proven and more predictable companies, such as Google.”

BGC Partners analyst Colin Gillis also said investors are turning to “safer quality names,” mainly Google and Apple. Of the two, he told MarketWatch, Google has an advantage.

“You may not be buying an iPhone everyday,” he said, “but you’re probably searching every day.”

On top of that, there are signs that Google’s core business is improving. Analysts note indications of brightening trends in costs-per-click, the prices paid for Google’s online advertising. Investors had been worried about the opposite trend due to a shift to mobile searches and the growth of users in emerging markets — two trends that hurt Google’s ability to command higher ad prices.

One-Fifth of U.S. Households Posses Student Debt

A record number of American households carry student loan debt, while the average outstanding loan balance is the highest it's ever been, according to a new report from the Pew Research Center. The Pew analysis found that about one out of five (19%) households, or around 22.3 million, were burdened with student debt in 2010. That figure is more than double the 9% it was in 1989, and it marks a big jump from 15% in 2007.

Here are some of the more alarming figures from the report:

- The average outstanding student loan balance rose from $23,349 in 2007 to $26,682 in 2010.

- Most debtor households had less than $50,000 in outstanding student debt in 2010. But the share of households owing high amounts has climbed: In 2007, 10% of debtors owed more than $54,238. By 2010, 10% of them owed more than $61,894 (adjusted for inflation).

- Among households headed by someone younger than 35 years old, a record 40% owed student debt in 2010.

Student loan debt hit $904 billion in the first quarter of 2012, a $30 billion increase from the previous quarter, and up from $241 billion a decade ago, according to the Federal Reserve Bank of New York's quarterly report on household debt. The Consumer Financial Protection Bureau puts total student loan debt above $1 trillion.

One added twist in this report shows the groups impacted most by the debt increases are at opposite ends of the income spectrum — the poorest and wealthiest households. In 2010, the lowest fifth of households by income owed 13% of all outstanding student debt, up from 11% in 2007. For the richest fifth, that figure rose from 28% to 31% over the same period.

Another interesting item from the report is that student debt is rising while households are reducing their other debts. Student debt rose from 3% of outstanding total debt owed by households in 2007 to 5% of all debts in 2010. Meanwhile, average household debt fell from $105,297 in 2007 to $100,720 in 2010, a 4.3% drop.

Driving the rise in outstanding student debt, says Richard Fry, a senior economist at Pew who authored the report, are several factors, the first of which is the sharp growth in college enrollment during the Great Recession.

- There were 18.2 million students enrolled in college in the fall of 2007, and 21 million in 2010 — a 15% increase, the report says.

- College students are increasingly borrowing to finance their education, and borrowing in greater amounts. In 2009-10, 51.1% of full-time, first-time undergraduate students had a student loan, an increase from the 43.5% of such students in 2006-07.

- The average public, four-year college graduate had accumulated $22,000 (in 2010 dollars) in debt upon receiving a bachelor's degree in 2009-10, up from $20,500 (in 2010 dollars) in 2006-07.

U.S. Government: Job Growth was Underestimated

The U.S. labor department announced that it has likely underestimated job creation in the year ended March 2012.

In a press release, the department said it would likely raise total employment by about 386,000 or 0.3% in the year from April 2011 to March 2012.

“The recovery was not as disappointing as we thought. It was on much firmer footing,” said Justin Wolfers, an economics professor at the University of Michigan.

The revisions translate into a bit over an average of 32,000 additional jobs per month, which would bring the average monthly job growth during that span up to 194,000 from 162,000. By contrast, the economy has added an average of just 94,000 jobs in each of the five months since March. The revisions say nothing about the last six months.

U.S. stocks opened higher on the brighter-than-expected picture on the U.S. job market. The Dow Jones Industrial Average was recently up 47 points to 13,461.

Each year, the government recalibrates its employment survey to match actual employment data from quarterly tax reports filed by employers. The exercise captures the creation of new businesses and also when business shut down, economists said. The final benchmark revision will show up in the data when the January 2013 figures are reported in early February.

The initial estimates of private employment suggest an upward revision of 453,000. This includes an additional 85,000 jobs in construction, and 145,0000 to trade, transportation, and utilities.

“It shows the private sector is a little healthier and generated more jobs. We’ll take anything we can get,” said Diane Swonk, chief economist at Mesirow Financial.

There were some downward revisions as well, including 25,000 fewer manufacturing jobs and 67,000 fewer government jobs.

“We have found that annual benchmark revisions tend follow the business cycle, and an upward revision of 386,000 is in line with the solid but not spectacular GDP growth so far in 2012,” said Cooper Howes, an economist with Barclays Capital, in a note to clients.

But Ellen Zentner, economist at Nomura Securities, noted that the direction of the revision was positive news.

“It was not long ago that the preliminary estimate for the annual benchmark revision in 2009 was a loss of 902,000 jobs,” she noted.

In other reports, the government said orders for durable goods plunged 13.2% in August.

Jobless claims were reported to have dropped a larger-than-expected 26,000 to 359,000 in the latest week.

And the government cut second quarter U.S. growth to 1.3% from the prior estimate of 1.7%. This was a slowdown from the 2% growth rate in the first quarter.

Cardium Therapeutics, Inc.

In recent news, Cardium Therapeutics announced the formation of the new Excellagen Medical Advisory Board. Comprised of leading practitioners, clinicians, and researchers with diversified expertise in the field of advanced wound care, the Medical Advisory Board has been established to provide strategic feedback and guidance regarding ongoing commercialization activities, post-marketing research, reimbursement strategies, and educational opportunities for Cardium’s new Excellagen advanced wound care product platform.

“We are pleased to have assembled such an impressive group of key opinion leaders and industry experts in the field of our initial target diabetic wound care market. The Medical Advisory Board’s collective expertise, insights and practical clinical experience will be instrumental as we advance our commercialization efforts to better target the needs of wound care practitioners and patients who could benefit from our Excellagen wound care product,” stated Christopher J. Reinhard, Cardium’s Chairman and CEO.

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.

GreeneStone Healthcare Corp. (GRST)

GreeneStone Healthcare recently announced that it is addressing the eating disorder epidemic with an expanded clinical staff and clinic launch in Autumn 2012. In the United States alone, as many as 10 million females and 1 million males are suffering from an eating disorder such as anorexia and bulimia, not counting millions more struggling with binge eating disorders. Ann Kerr has been hired to be the Clinical Director at its new Eating Disorder clinic.

Limited operations at the Eating Disorder clinic are set to begin in late October, with full service operations intended to commence in early 2013. The primary mission of the clinic will be to treat anorexia and bulimia through a combination of services, including in-patient care, intensive outpatient care, ongoing support, after-care, and counseling. The company plans to offer the very best in care and aspires to earn a reputation for the best care available in the country.

About GreeneStone Healthcare Corp. (GRST)

GreeneStone Healthcare Corp. is focused on operating medical and healthcare clinics in Ontario, Canada, offering addiction treatment, colonoscopy, endoscopy, minor cosmetic procedures, and executive health assessment programs. The company adds overflow capacity to an increasingly stretched provincial healthcare system, and provides private alternatives to publicly underserviced healthcare needs.

Ontario's public healthcare cost has grown at a compounded 7.1% rate over the past 10 years, now accounting for approximately $77B in government spending compared to $39B in 2000. This cost explosion is similar for the country as a whole, growing at 7.4% over the same period. The need for practical change to the system is immediate as demand continues to rise.

Governments are increasingly looking to private alternatives to address the growing trade-off between costs vs. service in the public healthcare system. Private services are expanding beyond their traditional place as overflow capacity to relieve wait times. GreeneStone Healthcare is particularly well positioned with a first-mover advantage in mental healthcare – a highly underserviced niche.

The company currently offers its various medical services via three medical clinics. Future plans include establishing partnerships for accelerated growth as well as dual-listing on CNSX. With positive revenue growth and cash flow positive status recently achieved, GreeneStone is methodically extending its vertical expertise in the healthcare industry.


SEFE reported the completion of a low-power corona discharge motor prototype at its headquarters in Boulder, Colo. Well suited for medium and high power applications, this type of electrostatic motor represents an additional avenue the R&D team is exploring for the conversion of atmospheric electricity.

“Our prototype motor serves as a low power proof of concept for this type of electrostatic motor,” stated SEFE Director of Engineering Michael Hurowitz. “We’ll be working to increase the capabilities of these motors to handle much stronger currents as we move forward.”

About SEFE, Inc. (SEFE)

SEFE, Inc. is focused on developing and deploying a promising solution to our world's energy problems. It is now more obvious than ever before that fossil fuels are increasingly more difficult to find and harvest. It is also well known by now that alternative energy, such as solar, wind and nuclear, has its own list of unsolvable issues. SEFE's unique technology, in comparison, harvests unadulterated, carbon-free, always-on and problem-free energy from a never ending source.

The company calls it True Energy because it's not an alternative to anything and it certainly isn't petroleum based. SEFE's solution works by capturing and converting naturally occurring static electricity in the atmosphere into a constant, abundant and decidedly green source of renewable energy. The patented technology has been designed to be robust, easy to implement and user-configurable from the start so that these systems can be deployed anywhere and generate current usable by any localized source.

Because the cost of deploying and maintaining SEFE systems is relatively low, the company believes it can sell a kWh of electricity at $0.03 per unit. In comparison, nuclear energy costs approximately $0.14 per kWh and wind energy costs approximately $0.07 per kWh. SEFE is currently prosecuting four pending United States Patent Applications to protect their core intellectual property. Once issued, these patents will provide barriers to entry and fortify their foundational business construct.

The company has grown from a national company to an international concern with planned partnerships in China, India, Australia and the EU. SEFE is also well supported by a highly capable management team that has accumulated more than 30 years of experience in corporate management and governance. The company also employs a host of associates who are experts in fabrication and product development, FAA regulations, engineering and utility consultation, among others.

VistaGen Therapeutics, Inc.

VistaGen Therapeutics announced that Platinum Long Term Growth VII, LLC purchased a $750,000 secured convertible promissory note, supplementing its purchase of a similar note earlier this year in the principal amount of $500,000. All amounts due under the two notes are expected to be rolled into a proposed financing by Platinum anticipated to result in gross proceeds to VistaGen of at least $3.25 million, including $1.25 million from the two outstanding notes.

VistaGen also told investors of the strategic restructuring of approximately $2.38 million of long-term indebtedness to Morrison & Foerster LLP (M&F), its intellectual property counsel. The restructuring is expected to result in VistaGen’s issuance of restricted common stock to M&F, at a price of $1.00 per share, as payment for approximately $1.38 million of the principal amount of such long-term indebtedness.

“We are very pleased with these recent endorsements from our largest institutional investor and our highly-regarded, long-time intellectual property counsel,” stated Shawn K. Singh, CEO of VistaGen Therapeutics. ”Their confidence in our team and stem cell technology platform is a key component of the foundation underlying our core drug rescue, predictive toxicology and drug metabolism screening initiatives.”

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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