Greybriar Partners Presentations V

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Client Communication Time Line Private Client Notes

TweetsPublic Research ReportsPrivate Research Reports

August 2011

After reviewing this presentation please feel free to contact us for a detailed review of your specific business, industry and/or global outlook and responses:

[email protected]

T h e E n d o f G l o b a l G r o w t h:

This presentation provides a brief outline of some of client communication over the last 10 months.

While we have remained quite guarded and concerned about the overall economic outlook and a likely double dip recession.

We remain very positive and constructive about the potential opportunities which exist due to the economic dislocations and our confidence in the effectiveness of a well deployed comprehensive action plan which can employed to address these conditions.

We provide these backward looking insights as a demonstration of how these insights can be utilized proactively to prosper even when faced with these “headwinds” and the fragmented macro economic environment and what the data points are signaling.

P r e s e n t a t i o n O b j e c t i v e

P r e s e n t a t i o n: C A S E S T U D Y

• CASE STUDY: Professional Services Practice

• During similar conditions of 2008-2010 a former client on our advice responded to these conditions by:

Reducing Receivables ExposureTightened Credit PolicyExpanded Service Offerings

Expanded GeographicallyUndertook Major Technology and Process Improvement ProjectsRefined and Enhanced Marketing and Business Development Activities

P r e s e n t a t i o n: C A S E S T U D Y

• CASE STUDY: Continued

• Results:• The results of adoption of our Firm’s recommendations were a 40% increase in

both top and bottom line growth, providing significant local market share gains and the opportunity to take advantage and develop a regional growth strategy and opportunities, provided in three additional large metropolitan markets.

• Please feel to contact us to discuss how these same results and insights might be applied to your particular needs , situation and requirements at:

[email protected]

12/6/2010 - Private Client Note: Double Dip Recession: A Certainty In 2011- Magnitude Lacks Full Visibility … it is more dependent in how deep Europe's Tier Two countries are in trouble and how this spreads with greater austerity measures and further monetary contraction and if China has to make similar changes.

Double dip here is almost a certainty. It is the magnitude of it’s depth we’ve yet to come to any real "hard" conclusion on; it will be painful but it too could be horrific.

D o u b l e D i p R e c e s s i o n : A C e r t a i n t y I n 2 0 1 1

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D o u b l e D i p R e c e s s i o n: A C e r t a i n t y I n 2 0 1 1

2/3/2011 - Private Client Note: State and Municipal Budget Shortfalls and Lack of Additional Federal Stimulus

… investors in November and December pulled a record $21 billion from funds that in municipal bonds - twice as much as they did at the depths of the 2008 credit crisis.

States' combined deficits for next fiscal year are a projected $125 billion and they haven't put enough money away to cover pensions due in coming decades. Estimates for the collective pension shortfall range from $500 billion to $3 trillion.

… most states face brutal budget squeezes. Tax revenue remains just below pre-recession levels….but it too could be horrific.

S t a t e a n d M u n I c I p a l B u d g e t S h o r t f a l l s1

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S t a t e a n d M u n I c I p a l B u d g e t S h o r t f a l l s

2/17/2011 - Tweet: @econitics

The severity of existing eco-political dislocations and a lack of transparency continue to discount the true nature of systemic global risk.

2/18/2011 - Tweet: @econitics

Market complacency continues latest data on PPI; .8% for Jan 2011, annualized inflation projected at 9.6%. Crude up 3.3% in Jan alone.

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U . S . D o m e s t i c C o n s p e n d i n g S p e n d i n g

4/19/2011 - Private Client Note: Recession Severity and Risk / Long Term Structural Recovery

…it is very apparent to us, as we are sure it maybe to you, we can anticipate a "double dip".

The "double dip scenario" has been our hypothesis for some time. It was the severity which was questioned and we were unsure of.

… (unfortunately) the answer is "in", and in all likelihood it will be deeper and more severe than the "dislocation" we are currently experiencing. Very candidly, it could take two, three or perhaps even four years for us to "work through" this, so (a recovery) 2014/15.

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R e c e s s i o n S e v e r i t y a n d R i s k

• 4.27.2011 - Greybriar Partners Public Research Report:• • U.S. Domestic Consumer Spending• • Greybriar Partners (EDP) Economic Data Point:

• According to the National Retail Federation US consumer spending during crucial 2010 holiday season was US$462 billion, topping 2007's peak of US$453 billion, a robust 5.7% increase over 2009, representing the strongest percentage gain since 2004.

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• 4.27.2011 - Greybriar Partners Public Research Report:• • U.S. Domestic Consumer Spending• • Greybriar Partners Insight:

• A closer examination however of these results reveals the NRF "numbers" do not reflect any adjustments for "price inflation", spending during the 2010 season needed to top US$478 billion to signify a move above pre-recession levels.

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• 4.27.2011 - Greybriar Partners Public Research Report:• • U.S. Domestic Consumer Spending• • Greybriar Outlook:

• Increasing basic commodity prices for food and energy, the inevitability of higher local taxation initiatives and little to no upward wage pressure, spending inevitably has little room for growth. (US CS is generally cited as accounting for 70%-75% of all US GDP although actual CS may represent only 60%-65%)

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4.27.2011 - Private Client Note: Consumer Spending Risk to Business to Business (B2B) Consumption and Cap Ex Spending This EDP (Economic Data Point) on Consumer Spending is less relevant or may not seem particularly impactful directly to your business (B2B rather than B2C) however, it may have "pieces" of relevant information to issues you are attempting to address.

C o n s u m e r S p e n d i n g R i s k B 2 B C o n s u m p t I o n

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We would argue this lack of confidence may derogatorily be impactful in "B2B" spending as both those making "B2B" expenditures / decisions feel "the crunch" directly or a general malaise of “negativeness” may linger across both "B2B" and "B2C". As we all know "B2G" is dead...

4.27.2011 - Private Client Note: Global Bank Solvency: Mark to Market Accounting …banks are insolvent if they had to mark-to-market. …this is an "accounting scheme" about when banks have to realize these losses. According to GAAP accounting it should be recognized at the time of loss, which would be sooner rather than later.

G l o b a l B a n k S o l v e n c y:

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5.10.2011 - Private Client Note: Structural Impediments To Further Government Intervention, Reflation and Inflation the private sector has crumbled, and Structural GDP has lost 13 years of growth, tax receipts have collapsed. Real per capita federal tax receipts have tumbled to levels first achieved in 1994, and are fully 25% below the peak levels of 2000.

Inflation (fears) may have significantly been diminished, typically inflationary pressures need wage inflation to make it sustainable …

… and it (inflation) isn’t in this employment market. At this point we’re wondering what QE 2.5/QE 3.25 will look like, as without asset , price and wage inflation the lack of these can only lead us to conclude GDP and global growth are likely to contract.

I m p e d i m e n t s T o F u r t h e r I n t e r v e n t i o n /I n f l a t I o n

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5.10.2011 - Private Client Note: Growth, Inflation and Asset Recapitalization: The End Of The Global Growth Story Growth = Inflation = Asset Recapitalization ........ (a lack of any one of the three) … and well pop goes the global growth story.

One has to ask this (question) - Why has China for the 4th time this year and the 10th time since Jan 2010 raised banking reserve requirements?

G r o w t h, I n f l a t I o n a n d A s s e t R e c a p i t a l i z a t I o n:

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• 5.16.2011 Greybriar Partners Public Research Report:• • U.S. Domestic Employment• • Greybriar Partners (EDP) Economic Data Point:

• The disgorging of US domestic payrolls over the last three years has slowed significantly; however, job creation has been at best "choppy and anemic". During April, according to the Bureau of Labor Statistics (BLS) April, the unemployment rate edged up from 8.8% to 9.0%, with 244,000 jobs created. Relatively speaking this represents a "strong" job creation number, but outset by a rise in the unemployment rate which speaks to the inconsistency of job creation. This 9.0% rate represents the standardized U-3, which does not fully reflect the comprehensive unemployment, U-6, which stood at 15.9%.

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U . S . D o m e s t i c E m p l o y m e n t

• 5.16.2011 Greybriar Partners Public Research Report:• • U.S. Domestic Employment• • Greybriar Partners Insight:

• While U-6 more accurately reflects the broader employment picture including those underemployed, marginally attached workers and part time workers looking for full time it ignores both 1099 employees and those self employed both ineligible for benefits. According to an alternative survey conducted by Gallup in mid April the equivalent U-3 was 9.6%, a full .6% higher than those results produced by the BLS. However, Gallup's U-6 increased to 19.2% in mid-April, up from 19% at the end of March, a full 4.0% higher than the official BLS report. During the month an additional 548,000 people dropped out of the labor force in the first four months of the year. Were it not for people dropping out of the labor force, the U-3 rate would have been well over 11%.

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• 5.16.2011 Greybriar Partners Public Research Report:• • U.S. Domestic Employment• • Greybriar Outlook:

• Hiring is expected to remain lackluster and irregular, determined in large part to the likelihood of slowing global growth and the potential return to strategic employment reductions into Q3 and Q4 as firm's attempt to makeup shortfall in quarterly earnings. However a recently released US Commerce Department report revealed US multinational corporations have been cutting their work forces in the United States while hiring abroad; bad news for the US labor markets, signaling US employment recovery is not going to be a result, as it has historically, by large international firms hiring.

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5.16.2011 - Private Client Note: Global Growth : Impact on Equities and Inflation Oils been all over the place… it has to hit equities with our thoughts on a global slow down, and earning Q3 and Q4...

Inflation is waning as a concern as typically wage inflation is required to make inflation sustainable..and in this employment market , employee pay, hours worked, jobs created and worker mobility are severely lacking to make inflation sustainable. Just wonder what QE2.5/3.25 will look like, otherwise how is Ben going to keep the Big Ballon Inflated????

Global Growth Slowdown: Impact on Equities and Inflation

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5.16.2011 - Private Client Note: Markets Are Rolling Into Consumer Stales and Other Defensive Equities Markets rolling over in to consumer staples, health care and utilities....what does that say ... D-E-F-E-N-S-I-V-E

E q u i t y M a r k e t s S i g n a l I n g:

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5.18.2011 - Private Client Note: European Sovereign Debt - Signaling of Addition Problems Beyond PIIGS The EU is a basket case, the German's are growing weary, someone else; something else besides Greece, Ireland, Spain and Portugal.(later to be determined to be Italy)

…over reliance that the magic of China's growth story will save us and it maybe a mirage. Interesting fact…the Chinese banking system has had to be totally recapitalized twice in the last ten years.

E u r o p e a n S o v e r i e g n D e b t S i g n a l i n g:

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• 5.25.2011 Greybriar Partners Private Research Report:• • Inflation and Rising Commodity Prices:• • Greybriar Partners (EDP) Economic Data Point:

• Consumer prices (headline) in April rose 3.2%, the most since October 2008, with higher food and gas prices driving these gains. The consumer price index for the first quarter of 2011 came in at an annual rate of 6%, last hit in 1982. While the rate of increase slowed as food and energy costs moderated, it surpassed economists' expectations of a 1.8 percent gain. Import costs rose 2.2% after increasing 2.6% in March.

I n f l a t i o n a n d R i s i n g C o m m o d i t y P r i c e s

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• 5.25.2011 Greybriar Partners Private Research Report:• • Inflation and Rising Commodity Prices:• • Greybriar Partners Insight:

• While it would appear the CME’s raising of the margin requirements for oil, silver and gold reduced the number of speculators in these markets. However general economic theory is that sustainable inflation is only possible in wage demand scenario, which in this weak labor market doesn’t exist. Demand from fast-growing developing countries such as China and India may also slow, central banks may raise interest rates to slow inflation, while these credit tightening measures cushion any asset bubbles existing in their domestic markets, and further the potential slow down of in their economies.

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• 5.25.2011 Greybriar Partners Private Research Report:• • Inflation and Rising Commodity Prices:• • Greybriar Outlook:

• With wage growth very weak, average hourly pay rose an anemic 1.9 % in the last 12 months, less than the rate of inflation. China’s official inflation rate (CPI) at 5.4%, with actual inflation is mid-teens, and food inflation at 11%. All the “hot” international markets have an accelerating inflation problem. Russia is running at 9.5%, India at 9%, Brazil 6.3%. The specter of inflation will continue to loom or the net effect of wage growth below inflation growth will continue to minimize purchasing power and consumer spending both domestically in the US and globally.

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• 5.25.2011 Greybriar Partners Private Research Report:• • Equity Markets:

• Greybriar Partners (EDP) Economic Data Point:

• After sailing through its best first quarter since 1998, U.S. stock markets are starting to lose some momentum. The Standard and Poor's 500 stock index, a broadest large “cap” equity market benchmark, is up just 1% this quarter after jumping 5.4% percent in the first three months of the year, this in large part because of conflicting data about the health of the U.S. economy. Earnings per share and profitability have remained high as a result of the disgorging of these companies’ payrolls in response to the rapidly devolving condition of the last four years. The reduction of corporate payrolls is arguably the single most important reason why EPS has not been negatively impacted, coupled with historically low cost debt environment along with little wage and input inflation, all have contributed to an equity market rebound.


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• Greybriar Partners Insight:

• By the first quarter of 2011 major U S companies are deriving more than 50% of their Q1 earnings from overseas operations. This aided not only by developing nations higher demands for products and commodities but from a lower USD dollar, which in 2011 has been devalued by more than 5% in Q1 of 2011 alone.


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• Greybriar Outlook:

• While the specter of inflation will remain, it has moderated. However, with companies now adjusting to their new “lean” profiles, additional EPS growth or even the maintenance of EPS is unlikely as the trimming of payrolls was and remained the easiest methodology for companies to manage EPS in 2010 and 2011. Unable to sell “hard assets” the adjusts public companies made to manage EPS and prop up global stock markets has come to an end and reporting Q1 2011 has been tepid to underperform and outlooks generally weak.


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• 5.25.2011 Greybriar Partners Private Research Report:• • Quantitative Easing (QE2):

• Greybriar Partners (EDP) Economic Data Point:

• By definition Quantitative Easing or QE is a monetary policy used by central banks to stimulate economies when conventional monetary policy fails. The central banks buys government bonds with new money that the bank creates, increasing money supply. Quantitative easing shifts monetary policy instruments away from interest rates, towards targeting the quantity of money. One of the purposes of QE2 is to push up the prices of risky assets

Q u a n t I t a t I v e E a s I n g (QE2)

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• Greybriar Partners Insight:

• By March 2009 the FED held $1.75 TT of bank debt, peaking at $2.1 TT in June 2010, this increased from approximately 800BB. According to the Federal Reserve, the decline in home and equity prices over the past 18 months has resulted in a loss of household wealth totaling $12 trillion, or the equivalent of 80 percent of annual U.S. GDP.

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• Greybriar Outlook:

• The end of the Fed's QE2 purchases are setting the climate for substantial downside in asset prices. However, while the Fed and Chairman Bernake have taken this very public position it is inconceivable that as the US and global economy weakens the Fed will not respond either with a public QE3 or less public measures. Clearly the uncertainty of both the decay in the economy through 2011 and the impact of the loss of this injection of liquidity may ultimately create an additional economic head wind. The more than 12 trillion dollars represented lost in both household wealth and the Feds QE injections will permit only a negatively sloped economic outlook.

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Greybriar Partners brings to bear more than 25 years of experience and

success in advising both Fortune 500 Companies and venture funded entities.

Strategic Consulting

Government Affairs

Crisis Management

Policy Analysis

Risk Management

“N e w” G l o b a l P h i l o s o p h I c a l I m p e r a t i v e sM E N U O F S E R V I C E S

www.greybriar.com

August 2011

After reviewing this presentation please feel

free to contact us for a detailed review of

your specific business, industry and/or

global outlook and responses:

[email protected]

www.greybriar.com

www.woodsendpartners.com

Twitter: @econitics

Practice Philosophy I:

Dynamic economic, business and regulatory shifts have caused fundamental market disruptions. Existing economic ambiguities highlight the critical nature of the planning and monitoring process.

Practice Philosophy II:

An “active management” philosophy is demanded by the presence of today’s dislocations. This methodology is the most effective response to existing operational challenges.

“N e w” G l o b a l P h i l o s o p h I c a l I m p e r a t i v e sG r e y b r i a r P a r t n e r s

P r a c t I c e P h i l o s o p h i e s

Practice Philosophy III:

The utilization of vigorous audit, analytic and realignment techniques significantly enhance an organization’s existing competitive advantages.

Practice Philosophy IV:

An effective risk assessment and mitigation plan has become an organizational imperative in responding to today’s dislocated operating environment.


G r e y b r i a r P a r t n e r s


Practice Philosophy V:

Active risk management can be employed as a non-defensive organizational competitive advantage.

Practice Philosophy IV:

This set of practice philosophies and methodology is the most practical, pragmatic and affords both control and adaptive flexibility.

G r e y b r i a r P a r t n e r s