The Mission Report

The MissionIR Report - Mid-November 2012

In-depth analysis, timely updates, latest market news


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Consumer Optimism to Lift Christmas Sales

If you’re one of those people who defines the start of the holiday season as the day Christmas decorations start showing up on store shelves, then you’re already aware that Christmas begins sometime in October. For many retailers, however, Christmas is an all-year consideration, something that is analyzed and planned for as the year’s single make-or-break event. And this year you can add in a presidential election, another worrisome variable, which statistically tends to be preceded by loose money as politicians seek to win favor, followed by a more sluggish year after the election is over. The ultimate effect of Super Storm Sandy is also uncertain. Cleanup should boost car and repair sales in the Northeast, though that is money that will not be spent on traditional Christmas items.

So what are CEO’s and consumers saying about Christmas this year? Recent numbers for housing prices, retail sales, and the jobs market have clearly helped buoy consumer confidence, with some reports suggesting the highest confidence level since the beginning of the recession. Housing prices are up for the fifth month in a row, with new homes sales hitting a 2-year high, giving at least homeowners a reason to feel better off. Retail sales have also increased over the past few months, and now many retailers are indicating that they will hire more seasonal workers than they did last year, roughly 600,000 new hires according to the National Retail Federation. More holiday hires means more consumer income and almost certainly more consumer spending.

It’s not just the U.S. that is seeing higher levels of consumer confidence. The UK has experienced modest gains in manufacturing, services, and retail, which has bumped employment, leading to increased optimism on the part of both consumers and businesses, even though employment gains have been largely in part time or temporary positions. One telling statistic about anticipated consumer spending is the number of expected deliveries to be made before Christmas. UPS, for example, is expecting to handle 10% more deliveries than last year, over half a billion packages. Along with that goes the need for more seasonal workers, with UPS planning to hire approximately 55,000.

Timing, however, is another thing. When will retailers get their earliest clear sign that consumer confidence is translating into consumer dollars? As indicated above, the holidays have already begun, and every retailer wants to be first in line. With Amazon and other online threats, brick and mortar stores have to be especially aggressive. Amid understandable controversy, Walmart has already announced that they are moving their Black Friday sales to 8 pm on Thanksgiving Day. But consumers are getting savvy, and don’t always view Black Friday as the be-all end-all sales day that it once was. There’s an increased recognition that at least some of the electronics and other goods sold at discount on Black Friday can be of questionable quality, and may not be such a good deal in the long run. In addition, studies have shown that many items, including major purchase items, are priced lower at other times than Black Friday, such as the two week period right before Christmas. With the holidays stretching from October right up until Christmas Day, it may be hard for retailers to get an accurate measure until it’s all over.

Are executives as optimistic as consumers? Companies traditionally have a longer view than consumers, and are less impressed by trailing indicators. As a result, businesses, though hopeful, are considerably more conservative in their outlook. The numbers they look at suggest a more subdued picture, with capital investment by companies continuing to drop and earnings sluggish. They’ve got a lot more to worry about than Christmas 2012.

That being said, indications are that retailers are generally upbeat about holiday sales, as suggested by the anticipated holiday hiring. A quote in a recent NY Times article by Peter Reiner, Sr. VP for Marketing at Toys “R” Us, reflects the stated views of many retailers: “We’re very optimistic about the holiday.” If nothing else, it’s a clear recognition that consumer optimism always drives the Christmas train.

Global Correlations Continue to Increase

International stock exposure appeals to many investors because they believe that foreign stocks have been reasonably uncorrelated from the U.S. market. The theory is that stock markets in different countries will tend to move in different directions at different times. So if the U.S. market has a period of bad performance, perhaps German, Japanese, or Chinese stocks will be doing better. Over time, this diversification could help smooth out returns and provide better long-term returns with less risk.

But is this view really accurate? Are investors really gaining diversification when they look abroad?

During the last 15 years, correlation coefficients, especially in the emerging markets, have been reasonably low. A correlation coefficient of 1 would imply that the S&P 500 and the foreign index would move in lock step while 0 means that there is no relationship between the two. Looking at historical data, China has been the least correlated with a coefficient of 0.47, the Nikkei 225 coming in next at 0.60, and the BRIC index coming in third at 0.68. Europe tended to hew closer to the U.S. market, and the All World ex-U.S. index comes in at 0.87.

When we compress the time period to only the last five years the changes become readily apparent. The coefficient for China jumps up to 0.73, and the all-world ex-U.S. index climbs to 0.93.

When evaluating only the most recent year, we find that emerging markets have paralleled U.S. markets more closely than they have during the last 15 years, though there was generally less correlation for many markets than there had been during the last five years.

Large corporations have become increasingly more globalized during the last 15 years. Newly open economies and a quest for growth has given U.S.-based firms the incentive to do more business abroad and for companies in developing markets to make inroads in the U.S. The cross-pollination of revenue sources makes firms in all countries more dependent on the global economy and not just the economy in their home countries. So a downturn almost anywhere in the world is going to have an impact on the earnings of almost all big firms, regardless of their home base.

Most major indexes tend to be loaded with large-cap names to the exclusion of smaller stocks. It is these smaller companies that are likely to be pure plays on the local economy leaving the indexes heavily weighted to larger more globalized firms. This can have a profound impact on the correlation coefficient. Take Brazil for example. The correlation coefficient of iShares MSCI Brazil Index (EWZ), a broad-market exchange-traded fund, to the S&P 500 was 0.86 during the last three years while the Market Vectors Brazil-Small Cap (BRF) ETF had a coefficient of only 0.72.

Another key factor to the high levels of correlation has been the financial crisis. The credit crunch and subsequent economic slowdown was a truly global event; there were few corners of the economy in any country that didn't feel the impact. This means that markets everywhere sold off in huge numbers at the beginning of the crisis, and when the smoke cleared, they all came back in a big way.

So is this higher level of correlation permanent? There is no way to give a definitive answer, but it seems likely that correlations will remain higher than historical averages even if they fall from today's levels.

First off, interconnectedness is here to stay. Without question China will see more impressive growth than the U.S. during the next 10 years, but U.S. firms are frantically trying to develop bulkheads in China to participate in that growth. This will help further link the prospects of shares in both regions.

An additional factor that should reduce correlations somewhat going forward is that as the recovery progresses, there will be more separation between markets. Despite globalization, many stocks' fortunes are still tied closely to their local markets. As the fog of credit crisis clears and the gulf between the high-performing markets and laggards expands, we would expect performance to eventually follow. That said, correlations should still remain higher than past levels.

The data shows that even though different local economies around the world are growing at vastly different rates, the large multinationals that most investors buy are becoming increasingly interconnected. This has and will continue to make it more difficult to construct an international portfolio that provides true diversification.

U.S. Wholesale Costs Decline in October

Wholesale prices in the U.S. posted the biggest decline in October in more than a year and a half, mostly because of lower costs of gasoline and motor vehicles.

The producer price index fell a seasonally adjusted 0.2% last month, the Labor Department said Wednesday. Economists surveyed by MarketWatch had predicted a 0.2% increase.

The cost of gasoline dropped 2.2% on a wholesale basis and the price of natural gas and home-heating oil also fell. As a result, the energy index declined by 0.5% in October after surging by 4.7% one month earlier.

Yet wholesale-food costs rose for the fifth straight month, up 0.4%. Pork prices jumped 8.1%, the fastest increase since summer 2008, while poultry and dairy prices climbed around 3% apiece.

Excluding the volatile categories of energy and food, wholesale costs decreased by 0.2%, the biggest drop in one year. Economists surveyed by MarketWatch had expected a 0.1% increase.

Car prices fell by a seasonally adjusted 1.6%, the largest drop since July 2009, and the cost of light trucks fell by 1.5%.

The decline in the price of motor vehicles was linked to a periodic change in how the government measures the value of quality improvements in motor vehicles. Wholesale prices for both categories of vehicles rose last month excluding the adjustments.

Cardium Therapeutics, Inc. (CXM)

In recent news, Cardium Therapeutics presented its financial results for the third quarter, ended September 30, 2012. The company also reported on recent developments, including the acquisition of To Go Brands nutraceutical brand platform, and various developments with Cardium’s Excellagen collagen-based topical gel for the treatment of wounds.

For all the details, including plans to obtain a CE Mark for international expansion of Excellagen, click here.

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.

GlobalWise Investments, Inc. (GWIV)

GlobalWise Investments announced that its wholly owned subsidiary Intellinetics will be sponsoring and participating in two conferences hosted by the national managed print industry leading publication The Imaging Channel ( Intellinetics is a leading-edge technology company focused on the design, implementation, and management of cloud-based Enterprise Content Management (“ECM”) systems in both the public and private sectors.

Both conferences are free events co-sponsored exclusively by Intellinetics and their recently announced channel partner MWA Intelligence, Inc. (MWAi). MWAi is one of the largest IT infrastructure providers for copier dealer Managed Print Service companies in the United States. MWAi CEO Mike Stramaglio chose GlobalWise to participate in the conference as the only ECM provider in attendance. Participants at the two conferences will learn new and exciting ways Content Management applications can reduce operating costs, increase productivity, and streamline processes for greater efficiency.

About GlobalWise Investments, Inc. (GWIV)

GlobalWise Investments, Inc., 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 announced a significant advance in its development of the human liver cell-based bioassay system, LiverSafe 3D™, which was engineered to predict liver toxicity and potential drug metabolism issues, all in such a way as it dovetails perfectly with the company's revolutionary drug rescue activities.

With 70% albumin-positive human hepatocytes populations now being produced by LiverSafe 3D™, the bioassay platform technology stands to be a real game-changer in the drug development industry via the ability to generate clinically predictive liver toxicology and liver metabolism data at the front end of the drug development process, long before standard animal and human testing.

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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