In my other role as a secret apologist for Russia and Vladimir Putin, I was contacted yesterday by Sputnik News to comment on the official US debt number surpassing $31 trillion. I’m always grateful for the opportunity to talk about these issues.
I am, after all, a fiscal hawk extraordinaire.
At the same time, I’m completely hip to why Sputnik (and RT) wanted to discuss this issue. They are running their own framing campaign, propaganda if you will. I’m no one’s useful idiot when it comes to these matters.
They may have been looking for a dissident American voice to berate the US for its reckless spending, which fits the Russian media narrative that the US cannot sustain its current pressure campaign against Russia.
This is meant to counter the West’s narrative that Russia can’t sustain its military operations in Ukraine.
Hey, everyone’s got a truth to tell. I get it, it’s a war out there. All I can do is make the best use of the opportunities in front of me and tell my version of those truths. Because talking about things truthfully may actually get us one step back on the path towards peace rather than global war. That said, if I see no upside to the opportunity, the best thing to do is turn it down politely and wait for the next one.
At the same time we all have to realize that Russian media outlets have a hard time booking guests at this point due to the massive political pressure. So, as always, I see the opportunity as a way to talk to everyone to further understanding these things, not just feed one side’s attempt to shift the Overton Window.
In this particular case the US debt is a major issue and part of my general thesis of how the gameboard maps out in real time — faction by fractious faction. So, I was happy to throw my thoughts into the mix.
In short, the US is staring at a massive fiscal decision in the coming months and years. The situation isn’t insolvable but it also isn’t going to be easy for get through. We’re staring at a global recession, at a minimum, as well as a sovereign debt crisis in the West and in some Emerging Markets. Turkey has already been blown up.
However, the US is still a major player in the global financial system and the Federal Reserve the most powerful of these institutions. Understanding the Fed’s role in fixing what is broken is something all sides need to consider.
So, while, I’m sure it pleases my Russian paymasters (sic) that I believe there’s a split at the top of the US political establishment, it may not afford them the opportunities they think that split implies.
The reality is that the Fed has charted its own path here and this week’s pathetic appeal from the United Nations to urge central banks from raising interest rates is the best evidence I can present to you that my arguments about the Fed are correct.
The UN basically asked the Fed to, “Think of the CHILDREN!” Bail out the world for the common good. Now is not the time for unilateral action. Think globally, act locally.
You know, all the usual bromides to cover the reality that a hawkish Fed gores the wrong people’s oxen.
But the not-so-subtle point I think Sputnik was trying to make is that can the Fed actually do this with the US dealing with a $31 trillion debt overhang.
It is the question of the century.
For me, it’s simple. We won’t ever know if we don’t try. And given that the alternative to a few years of global depression to burn out the excesses of the Davos-controlled Fed during the Bernanke/Yellen years or turning the West over to Klaus Von CommieSchnitzel and his Minority Report future, I don’t think the decision is a difficult one for most people to make.
Here is the full Q&A between myself and Sputnik to ponder.
According to the NYT, the breach of the threshold comes at an inopportune moment, as historically low interest rates are being replaced with higher borrowing costs as the Federal Reserve tries to combat rapid inflation. What consequences does this policy bring from a mid-term perspective?
There was so much money printed during the COVID-19 period that it’s left the Fed with a massive dilemma. It needs to flush the global economy of excess dollars and shrink its balance sheet without destroying the US economy in the process.
It’s clear that FOMC Chair Jerome Powell is acting with regards only towards the US’s needs. For the first time in decades the world is having to come to grips with the idea that the Fed will not be there to bail them out if they get into trouble.
The medium term will be a period of extreme dollar strength. Because during this loose dollar period, post-2008, the world loaded up on cheap dollar-denominated debt. That is now reversing itself hard. Emerging markets and even developed markets like the UK, Europe and China are vulnerable to this reversal of dollar outflow.
The political problem for the “Biden” administration is that this is making it very difficult for them in this mid-term election cycle. “Biden” wants inflation down but they baked far too much of it into the global economy contain it even with this aggressive rate hike cycle from the Fed.
This sets the Fed and Congress at odds with each other. But it also sets the stage for a political shift after November. If Congress tries to keep spending beyond its means then the US will enter a very ugly inflationary cycle that the Fed is powerless to contain.
Do you see any alternatives to the existing policy?
Yes. Congress needs to rein in spending to previous levels. The Fed is doing its job raising the cost of capital to divert money out of the unsustainable and into the sustainable. Monetary policy can signal entrepreneurs and investors to rebuild what’s degraded and look to where the economy has been neglected.
But it can’t do that if Congress also wants to get in the act spending money that fuels keeping prices too high and crowding out investment where it wants to go, rather than where Congress wants it to go.
This will require a complete 90-degree shift in our political thinking, similar to the Reagan/Volcker years. We have half of the policy in place, Powell acting like fir Arthur Burns and implying he will also be Volcker.
We need the other half of the policy by getting rid of the ruinous and reckless “Biden” politics of envy – eating the rich, fomenting wars, etc.
But, sadly, I see “Biden” and the people he’s aligned with only wanting war to cover the insolvency of national governments.
Who are the losers and winners in this situation?
If the Fed can help force a political rethink in the US, and the national polling seems to suggest that Americans are ready for this, then a more balanced US fiscal and monetary policy coming into the 2024 presidential cycle would make most of the world a winner because it would put an end to the current insanity.
In the short to medium term, however, the pain for much of the world will be intense, including the US. Much of the deflation in certain sectors of the US economy from the Fed’s intense interest rate policy should be offset by capital inflow from those who have lived beyond their means because of the weak dollar in the past.
The prime beneficiaries of this have been Europe and their overly generous entitlement/pension systems, which are teetering on full collapse as we saw in the UK recently, and China with its massive trade surplus with the US.
The winners will be those who produce and export base commodities. Because in broad strokes, assets inflated through easy credit for over a decade, like gov’t bonds, stocks, real estate and mid-to-high end consumer goods, will be deflating. On the flip side, base commodity prices, the main driver of inflation today, will continue rising – oil, gas, gold, metals, food, etc.
In short, the easy money of the post-2008 era fueled stock, bond and real estate booms which will now bust, suppressing investment into base commodities. With the credit cycle reversing so too will this dynamic.
If servicing the debt becomes more expensive, what will it mean, in practical terms, for the country’s economy? How can this situation affect ordinary Americans?
The downside of all of this is that US debt servicing will rise, helping to force Congress into tightening its belt. If “Biden” doesn’t stop trying to spend money in ways that would make drunken sailors think twice, then he’s deliberately trying to destroy the US fiscal position to degrade the country he’s supposed to be leading. It will be evidence of his administration being staffed in all key positions with vandals.
The US has a lot of debt that needs rolling over in 2023. It will have to happen at higher rates. The Fed will likely stop rate hikes in Q1 to help that situation. But a slow down in government spending without the concomitant relaxing of regulations to free up the flow of capital will keep the US economy sputtering for 2023 even with the inflow from overseas.
Even with a GOP win in November, the battle for the future here will be intense. I don’t expect it to go well and it means recession, political paralysis and the possibility of the White House to continue pursuing ruinous policy because Congress abdicated all of its responsibilities towards foreign policy to the president two decades ago after 9/11.
Practically, after the mid-terms, we will all struggle with high energy and food prices, limited good employment options, frozen capital searching for a decent investment while the economy slowly unwinds the ugly situation it is currently in where supply and demand for basic goods and services are completely out of whack, per Powell’s recent statement at Jackson Hole.
My advice to people is the same as it’s been for years. Get and stay out of debt, minimize expenses where you can, and develop strong local communities to assist each other while the geopolitical tensions continue to rise.
p.s. all references to my being a Russian secret agent are pure, unadulterated sarcasm, in case anyone reading this is devoid of a sense of humor, or a Democrat… but I repeat myself
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EY Eyes Comeback for Biopharma M&A
EY noted that the total value of biopharma M&A in 2022 was $88 billion, down 15% from $104 billion in 2021. The $88 billion accounted for most of the…
A recent trickle of mergers and acquisitions (M&A) announcements in the billion-dollar-and-up range suggests that biopharma may be ready to resume dealmaking this year—although the value and number of deals isn’t expected to return to the highs seen just before the pandemic.
2022 ended with a handful of 10- and 11-figure M&A deals, led by Amgen’s $27.8 billion buyout of Horizon Therapeutics, announced December 13. The dealmaking continued into January with three buyouts announced on the first day of the recent J.P. Morgan Healthcare Conference: AstraZeneca agreed to acquire CinCor Pharma for up to $1.8 billion, while Chiesi Farmaceutici agreed to shell out up to $1.48 billion cash for Amryt, and Ipsen Group said it will purchase Albireo Pharma for $952 million-plus.
EY—the professional services firm originally known as Ernst & Young—recently noted that the total value of biopharma M&A in 2022 was $88 billion, down 15% from $104 billion in 2021 [See Chart]. The $88 billion accounted for most of the $135 billion in 124 deals in the life sciences. That $135 billion figure is less than half the record-high $313 billion recorded in 2019, including $261 billion in 70 biopharma deals.
The number of biopharma deals fell 17% to 75 deals from 90. EY’s numbers include only deals greater than $100 million. The other 49 deals totaling $47 million consisted of transactions in “medtech,” which includes diagnostics developers and companies specializing in “virtual health” such as telemedicine.
“We expect this to be a more active year as the sentiment starts to normalize a little bit,” Subin Baral, EY Global Life Sciences Deals Leader, told GEN Edge.
Baral is not alone in foreseeing a comeback for biopharma M&A.
John Newman, PhD, an analyst with Canaccord Genuity, predicted last week in a research note that biopharma companies will pursue a growing number of smaller cash deals in the range of $1 billion to $10 billion this year. He said rising interest rates are discouraging companies from taking on larger blockbuster deals that require buyers to take on larger sums of debt.
“We look for narrowing credit spreads and lower interest rates to encourage larger M&A ($50 billion and more) deals. We do not anticipate many $50B+ deals that could move the XBI +5%,” Newman said. (XBI is the SPDR S&P Biotech Electronic Transfer Fund, one of several large ETFs whose fluctuations reflect investor enthusiasm for biopharma stock.)
Newman added: “We continue to expect a biotech swell in 2023 that may become an M&A wave if credit conditions improve.”
Foreseeing larger deals than Newman and Canaccord Genuity is PwC, which in a commentary this month predicted: “Biotech deals in the $5–15 billion range will be prevalent and will require a different set of strategies and market-leading capabilities across the M&A cycle.”
Those capabilities include leadership within a specific therapeutic category, for which companies will have to buy and sell assets: “Prepared management teams that divest businesses that are subscale while doubling down on areas where leadership position and the right to win is tangible, may be positioned to deliver superior returns,” Glenn Hunzinger, PwC’s U.S. Pharma & Life Science Leader, and colleagues asserted.
The Right deals
Rising interest and narrowing credit partially explain the drop-off in deals during 2022, EY’s Baral said. Another reason was sellers adjusting to the drop in deal valuations that resulted from the decline of the markets which started late in 2021.
“It took a little bit longer to realize the reality of the market conditions on the seller side. But on the buyer side, the deals that they were looking at were not just simply a valuation issue. They were looking at the quality of the assets. And you can see that the quality deals—the right deals, as we call them—are still getting done,” Baral said.
The right deals, according to Baral, are those in which buyers have found takeover targets with a strong, credible management team, solid clinical data, and a clear therapeutic focus.
“Rare disease and oncology assets are still dominating the deal making, particularly oncology because your addressable market continues to grow,” Baral said. “Unfortunately, what that means is the patient population is growing too, so there’s this increased unmet need for that portfolio of assets.”
Several of 2022’s largest M&A deals fit into that “right” category, Baral said—including Amgen-Horizon, Pfizer’s $11.6-billion purchase of Biohaven Pharmaceuticals and the $6.7-billion purchase of Arena Pharmaceuticals (completed in March 2022); and Bristol-Myers Squibb’s $4.1-billion buyout of Turning Point Therapeutics.
“Quality companies are still getting funded one way or the other. So, while the valuation dropped, people were all expecting a flurry of deals because they are still companies with a shorter runway of cash that will be running to do deals. But that really didn’t happen from a buyer perspective,” Baral said. “The market moved a little bit from what was a seller’s market for a long time, to what we would like to think of as the pendulum swinging towards a buyers’ market.”
Most biopharma M&A deals, he said, will be “bolt-on” acquisitions in which a buyer aims to fill a gap in its clinical pipeline or portfolio of marketed drugs through purchases that account for less than 25% of a buyer’s market capitalization.
Baral noted that a growing number of biopharma buyers are acquiring companies with which they have partnered for several years on drug discovery and/or development collaborations. Pfizer acquired BioHaven six months after agreeing to pay the company up to $1.24 billion to commercialize rimegepant outside the U.S., where the migraine drug is marketed as Nurtec® ODT.
“There were already some kind of relationships there before these deals actually happened. But that also gives an indication that there are some insights to these targets ahead of time for these companies to feel increasingly comfortable, and pay the valuation that they’re paying for them,” Baral said.
$1.4 Trillion available
Baral sees several reasons for increased M&A activity in 2023. First, the 25 biopharma giants analyzed by EY had $1.427 trillion available as of November 30, 2022, for M&A in “firepower”—which EY defines as a company’s capacity to carry out M&A deals based on the strength of its balance sheet, specifically the amount of capital available for M&A deals from sources that include cash and equivalents, existing debt, and market cap.
That firepower is up 11% from 2021, and surpasses the previous record of $1.22 trillion in 2014, the first year that EY measured the available M&A capital of large biopharmas.
Unlike recent years, Baral said, biopharma giants are more likely to deploy that capital on M&A this year to close the “growth gap” expected to occur over the next five years as numerous blockbuster drugs lose patent exclusivity and face new competition from lower-cost generic drugs and biosimilars.
“There is not enough R&D in their pipeline to replenish a lot of their revenue. And this growth gap is coming between 2024 and 2026. So, they don’t have a long runway to watch and stay on the sidelines,” Baral said.
This explains buyers’ interest in replenishing pipelines with new and innovative treatments from smaller biopharmas, he continued. Many smaller biopharmas are open to being acquired because declining valuations and limited cash runways have increased investor pressure on them to exit via M&A. The decline of the capital markets has touched off dramatic slowdowns in two avenues through which biopharmas have gone public in recent years—initial public offerings (IPOs) and special purpose acquisition companies (SPACs).
EY recorded just 17 IPOs being priced in the U.S. and Europe, down 89% from 158 a year earlier. The largest IPO of 2022 was Prime Medicine’s initial offering, which raised $180.3 million in net proceeds for the developer of a “search and replace” gene editing platform.
Another 12 biopharmas agreed to SPAC mergers with blank-check companies, according to EY, with the largest announced transaction (yet to close at deadline) being the planned $899 million merger of cancer drug developer Apollomics with Maxpro Capital Acquisition.
“For the smaller players, the target biotech companies, their alternate source of access to capital pathways such as IPOs and SPACs is shutting down on them. So how would the biotech companies continue to fund themselves? Those with quality assets are still getting funded through venture capital or other forms of capital,” Baral said. “But in general, there is not a lot of appetite for the biotech that is taking that risk.
Figures from EY show a 37% year-to-year decline in the total value of U.S. and European VC deals, to $16.88 billion in 2022 from $26.62 billion in 2021. Late-stage financing rounds accounted for just 31% of last year’s VC deals, down from 34% in 2021 and 58% in 2012. The number of VC deals in the U.S. and Europe fell 18%, to 761 last year from 930 in 2021.
The decline in VC financing helps explain why many smaller biopharmas are operating with cash “runways” of less than 12 months. “Depending on the robustness of their data, their therapeutic area, and their management, there will be a natural attrition. Some of these companies will just have to wind down,” Baral added.
Baral also acknowledged some headwinds that are likely to dampen the pace of M&A activity. In addition to rising interest rates and inflation increasing the cost of capital, valuations remain high for the most sought-after drugs, platforms, and other assets—a result of growing and continuing innovation.
Another headwind is growing regulatory scrutiny of the largest deals. Illumina’s $8 billion purchase of cancer blood test developer Grail has faced more than two years of challenges from the U.S. Federal Trade Commission and especially the European Commission—while Congress acted last year to begin curbing the price of prescription drugs and insulin through the “Inflation Reduction Act.”
Those headwinds may prompt many companies to place greater strategic priority on collaborations and partnerships instead of M&A, Baral predicted, since they offer buyers early access to newer technologies before deciding whether to invest more capital through a merger or acquisition.
“Early-stage collaboration, early minority-stake investment becomes increasingly important, and it has been a cornerstone for early access to these technologies for the industry for a long, long time, and that is not changing any time soon,” Baral said. “On the other hand, even on the therapeutic area side, early-stage development is still expensive to do in-house for the large biopharma companies because of their cost structure.
“So, it is efficient cost-wise and speed-wise to buy these assets when they reach a certain point, which is probably at Phase II onward, and then you can pull the trigger on acquisitions if needed,” he added.congress pandemic genetic interest rates european europe
IMF Upgrades Global Growth Forecast As Inflation Cools
IMF Upgrades Global Growth Forecast As Inflation Cools
The International Monetary Fund published its latest World Economic Outlook on Monday,…
The International Monetary Fund published its latest World Economic Outlook on Monday, painting a slightly less gloomy picture than three and a half months ago, as inflation appears to have peaked in 2022, consumer spending remains robust and the energy crisis following Russia’s invasion of Ukraine has been less severe than initially feared.
However, the IMF predicts the slowdown to be less pronounced than previously anticipated.
Global growth is now expected to fall from 3.4 percent in 2022 to 2.9 percent this year, before rebounding to 3.1 percent in 2024.
The 2023 growth projection is up from an October estimate of 2.7 percent, as the IMF sees far fewer countries facing recession this year and does no longer anticipates a global downturn.
You will find more infographics at Statista
One of the reasons behind the cautiously optimistic outlook is the latest downward trend in inflation, which suggests that inflation may have peaked in 2022.
The IMF predicts global inflation to cool to 6.6 percent in 2023 and 4.3 percent in 2024, which is still above pre-pandemic levels of about 3.5 percent, but significantly lower than the 8.8 percent observed in 2022.
“Economic growth proved surprisingly resilient in the third quarter of last year, with strong labor markets, robust household consumption and business investment, and better-than-expected adaptation to the energy crisis in Europe,” Pierre-Olivier Gourinchas, the IMF’s chief economist, wrote in a blog post released along with the report.
“Inflation, too, showed improvement, with overall measures now decreasing in most countries—even if core inflation, which excludes more volatile energy and food prices, has yet to peak in many countries.”
The risks to the latest outlook remain tilted to the downside, the IMF notes, as the war in Ukraine could further escalate, inflation continues to require tight monetary policies and China’s recovery from Covid-19 disruptions remains fragile. On the plus side, strong labor markets and solid wage growth could bolster consumer demand, while easing supply chain disruptions could help cool inflation and limit the need for more monetary tightening.
In conclusion, Gourinchas calls for multilateral cooperation to counter “the forces of geoeconomic fragmentation”.
“This time around, the global economic outlook hasn’t worsened,” he writes. “That’s good news, but not enough. The road back to a full recovery, with sustainable growth, stable prices, and progress for all, is only starting.”
However, just because the 'trend' has shifted doesn't mean it's mission accomplished...
That looks an awful lot like Central Bankers' nemesis remains - global stagflation curb stomps the dovish hopes.
Nike Escalates Design Battle Against Lululemon
The sportswear giant is accusing lululemon of patent infringement.
The sportswear giant is accusing lululemon of patent infringement.
The Gucci loafers. The Burberry (BBRYF) trench coat. When it comes to fashion, having a unique design is everything. This is why brands spend millions both creating and protecting their signature looks and the reason, as in the case of Adidas (ADDDF) , extricating a brand's design from creators who behave badly is a costly and difficult process.
There is also the constant effort to release new styles without infringing on another group's style. This week, sportswear giant Nike (NKE) - Get Free Report filed a lawsuit accusing lululemon (LULU) - Get Free Report of infringing on its patents in the shoe line that the Vancouver-based activewear company launched last spring.
After years of selling exclusively clothing, accessories and the odd yoga mat, lululemon expanded into the world of footwear with a running shoe it dubbed Blissfeel last March. These were soon followed by training shoe and pool slide styles known as Chargefeel, Strongfeel -- all three of the designs (including a Chargefeel Low and a Chargefeel Mid design) have been mentioned in the lawsuit as causing "economic harm and irreparable injury" to Nike.
Nike's History Of Suing Lululemon Over Design
The specific issue lies in the technology used to build the shoes. According to the lawsuit filed in Manhattan federal court, certain knitted elements, webbing and tubular structures are too similar to ones that had been used by Nike earlier.
Nike is keeping the amount it hopes to receive from lululemon under wraps but is insisting the company infringed on its patent when releasing a shoe line too similar to its own. Lululemon had previously talked about how its shoe line "far exceeded" its leaders' expectations both in terms of sales and ability to expand.
In a Q1 earnings call, chief executive Calvin McDonald said that the line "definitely had a lot more demand than we anticipated."
Nike has already tried to go after lululemon through the courts once before. In January 2022, it accused the company of infringing on six patents over its at-home Mirror Home Gym. As the world emerged out of the pandemic, lululemon has been billing it as a hybrid model between at-home and in-person classes.
The lawsuit was also filed in the U.S. District Court in Manhattan but ultimately fizzled out.
When it comes to the shoe line lawsuit, Lululemon has been telling media outlets that "Nike's claims are unjustified" and the company "look[s] forward to proving [their] case in court."
Some More Examples Of Prominent Design Battles
In the fashion industry, design infringement accusations are common and rarely lead to high-profile rulings. While Nike has gone after the technology itself in both cases, lawsuits more often focus on the style or pattern on a given piece.
Shein, a China-based fast-fashion company that took on longtime leaders like H&M (HNNMY) and Fast Retailing (FRCOF) 's Uniqlo with its bottom-of-the-barrel pricing, has faced numerous allegations from smaller and independent designers over the copying of designs -- in some cases not even from fashion designers but artists painting in local communities.
"They didn't remotely bother trying to change anything," U.K.-based artist Vanessa Bowman told the Guardian after seeing her painting of a local church appear on a sweater on Shein's website. "The things I paint are my garden and my little village: it’s my life. And they’ve just taken my world to China and whacked it on an acrylic jumper."china pandemic
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