Posts for May 14, 2010

MERIT MEDICAL SIGNS AGREEMENT TO ACQUIRE BIOSPHERE MEDICAL

May 14, 2010 – UB Daily

Merit Medical Systems, Inc. has signed a definitive merger agreement to acquire BioSphere Medical, Inc. in an all cash transaction valued at approximately $96 million, inclusive of all common equity and Series A Preferred preferences.
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PETERSEN INC. EXPANDS MANUFACTURING OPERATIONS IN UTAH

May 14, 2010 – UB Daily

At a meeting of the Governor’s Office of Economic Development (GOED) Board it was announced today that Petersen Inc. a widely recognized leader in custom steel fabrication and machining will be expanding their manufacturing operations in Farr West City, Utah. The company will add 53 new full-time employees over the next several years.
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THE GREEK CRISIS AND WHAT IT MEANS FOR US MORE ON GREECE

May 13, 2010 Contango Capital Advisors

The following commentary was written by George Feiger, Chief Executive Officer of Contango Capital Advisors, the wealth management arm of Zions Bancorporation. The opinions expressed in this commentary are Mr.Feiger’s and not necessarily those of Contango or Zions.

I wanted to attach a copy of a very useful article from the Financial Times of May 5, 2010, but
copyright issues prevent me from doing so. However, you can read it by going to the FT.com website: http://www.ft.com/cms/s/0/7f0c9e48-57dc-11df-855b-00144feab49a.html.
The article lays out very compellingly the key aspects of the mess in which the euro zone now finds itself:
• The package for Greece is enough to forestall funding needs for a time, but it is highly unlikely that the Greek economy (that is to say, Greek society) will be willing and able to voluntarily reduce its expenditure sufficiently. Thus, a default at some future time is virtually certain.
• The virtue of postponing it is to allow the rest of the euro economy, and in particular the banking system, to recover more before writing off so many bad debts.
• But this is not lost on the financial markets. Nor is the overwhelming fact that if $150 billion is not enough to save Greece but only to postpone default, it is extremely unlikely that there will be either the resolution or the resources to save the other heavily indebted Euro economies.
• Hence there will either be very substantial restructuring of most of the euro zone economies or there will be a string of defaults. Neither scenario is very happy. Both imply volatility for the euro for several years, even if there is good recovery in the world economy. Euro depreciation will, ultimately, be a key vehicle for euro zone recovery but one needs to see this over a multiyear horizon.

Real implications
The PIIGS will experience falling living standards during the adjustment, because GDP will be shrinking rather than growing. This is already the case in Ireland and in Greece. Moreover, they will suffer “negative future shock” as their citizens realize that their future well-being will be significantly lower than they thought. All those Greeks who thought that they could retire at 53 or 50 on 90% of their last salary will be waiting until 67 and living on much less than they thought. Moreover, asset prices will fall and thus also the asset-owners claim to future income. The structural adjustments referred to in the FT article apply to most euro zone countries. People across most of Europe will realize that they are much poorer than they thought. In Greece this is causing rioting and strikes. What will play out on a bigger canvas?

PIIGS are us?
So how is this relevant to us? I will deal with the investors’ perspective below. But here in the US our position, as a society, is not so different from that of the PIIGS. It is true that while our current welfare has fallen, it is now rising as the economy recovers. However, we also are going to experience profound future shock when we realize that we, too, are much poorer than we thought. How can that be?
• The federal government has made promises, in social security and in health care, which simply cannot be funded. The Congressional Budget Office has documented this in excruciating detail. Citizens will receive less and pay more out of pocket or have to save more, which is to say, consume less and so be worse off.
• State and local governments have massively underfunded pension and benefit plans for their employees. There is no way that these claims can be met, so the beneficiaries will receive less than they now think.
• The collapse in asset values – bonds and stocks – has significantly reduced the adequacy of funding of institutional plans to pay retirement benefits, both corporate pension plans and insurance company portfolios. There is more pain to come in commercial real estate and in commercial real estate securities which, by the way, are heavily owned by insurance companies. These claims must either be scaled down or must be made up from lower profits or higher savings or higher taxes.
• Individuals have lost significant asset value in their homes and in their investment portfolios. Their savings plans, which were never really adequate for retirement anyway, have been set back by a decade. But of course everyone is not a decade younger, and there are a lot of “everyones” because we are discussing the Boomers.

How to invest
The investor’s perspective is not nearly as gloomy as the social perspective. Core asset values will be rising over the medium and longer term:
• Self-sustaining growth in the emerging markets is real and will continue. Their demand will fuel growth in the advanced economies, and the stock of assets one can invest in there will rise.
• The US economy is on a slow but real recovery path. The US remains the worlds most creative and resilient economy.
• The fall in the euro will ultimately benefit the euro zone, particularly the largest economies in which the bulk of investable assets are located.
• Rapid economic growth (with a variety of ups and downs, to be sure) in emerging economies will fuel the raw material/commodity markets for years.

In the next year or two we anticipate ongoing turbulence in asset markets. Moreover, we are somewhat nervous that today, most asset markets may be overvalued relative to current reality. But these are tactical issues that we grapple with in the day-to-day management of investor portfolios. If we step back from these and take the longer view, an investor needs to address two questions: what portfolio strategy is likely to effectively benefit from the longer-term opportunities; and what are the investor implications of the social stresses that will accompany the realization that the future is not as rosy as people thought?

Contango’s long-term strategies are focused directly on the four key value-creation drivers in the world economy that we have listed above. (We overlay tactical management where our macro views are sufficiently strong. For example, we significantly reduced our euro exposure in stocks some time ago. In addition, we look for opportunities made available by the adjustment process, such as distressed-asset investing.)

The biggest likely impact of social distress is in the attention an individual investor will need to pay to all forms of taxation issues. The so-called Bush tax cuts will expire, estate tax will rise, capital gains tax will rise, states and localities will have to raise all forms of property and income and capital gains taxes. We may even see a value added tax in the US. US citizens are taxed on worldwide income. You won’t be able to escape these issues by leaving town.

Instead there will be a premium on creating and executing a financial plan. There are many considerations, among them:
• Create and maintain an effective will that takes advantage of whatever opportunities are available;
• Use spousal and child gift exemptions to the maximum;
• Examine the value of life insurance–based and trust-based strategies to make the best use of your estate;
• Plan the ownership structure of a private company well in advance of selling or otherwise disposing of your interest in it;
• Be very cognizant of liquidity needs in paying estate taxes so as not to have to make forced disposal of family assets upon a death;
• Use tax-favored vehicles like IRAs to hold “high-tax” assets;
• Look at investment strategies on a post-tax basis rather than a pre-tax basis.

(CCA #0510-0039)
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