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Fusion Economy Arbitrage – How Tender is “Legal Tender” in the Global Economy? � Susceptibility of Markets to Non-aligned Morphogenetic Per turbations � Dr. David E. Martin, CEO M·CAM � Batten Fellow, Darden Graduate Sc hool of Business Administration, University of Virginia © 2007 M·CAM Confidential The Operating System for the Fusion Economy Risk Assessment Horizon Scanning in Global Finance � ce •� Thermodynamics 101 – Every action has a reaction and it always involves money •� Understanding Financial Consequences of events provides: –�Unexpected threat emergence –�Unexpected opportunity emergence –�Unexpected network emergence – Dynamic reconstitution of “knowledge” networks and their participants •� Arbitrage is how the financial markets engineer positions to win in upward and downward trending market conditions © 2007 M·CAM Confidential The Operating System for the Fusion Economy Case Studies � • Bio-Terrorism – U.S. Anthrax Attacks of 2001 • Government Procurement – Unmanned Air / Underwater Vehicles • Financial Markets – Collateralized Debt Obligations © 2007 M·CAM Confidential The Operating System for the Fusion Economy Case Study – Anthrax 2001 � •� September 17,18, 2001 - U.S. news organizations targeted •� October 4, 2001 – HHS says no reason for “public concern” •� October 6-17, 2001 – Second round of letters mailed � •� October 21-24, 2001 – Bayer’s Cipro drug negotiations; reduces price from $1.77 to $0.95 per dose •� September 25, 2006 – FBI 17 agents and 10 postal inspectors on the case with “fluid” list of persons of interest © 2007 M·CAM Confidential The Operating System for the Fusion Economy � Is This the Whole Story? � Anthrax Laboratory Propogation � 250 Cummulative Research Team Efforts � 200 New Teams (U.S.) New Teams (Intl) 150 100 50 0 1970 1975 1980 1985 1990 1995 2000 2005 2010 Years © 2007 M·CAM Confidential The Operating System for the Fusion Economy Financial View � •� August 31, 2000 – Bayer gets approval for inhalation anthrax use of Cipro® using U.S. Army data, not corporate trials New Scie Her nce e •� October 2001 – Bayer’s sales of Cipro® over $1 billion with 60% of sales to U.S. despite incidence of < 2 cases per year lem ob Pr Here •� 2004 VaxGen awarded anthrax vaccine contract worth $877 million •� June 2004 – Lockheed Martin $142 million for postal sniffers •� India and Iranian researchers demonstrate “edible vaccine” for anthrax in tomato plants © 2007 M·CAM Confidential The Operating System for the Fusion Economy Unexpected Horizons � •� Non-conventional wisdom of events: –�Post event, pharma dropped but technology vendors rose (despite a market suppression) –�Shift of resources from medicine to “bio-defense” –�Over 50 international “new” bioweapons and biodefense programs visible that had no legacy exposure © 2007 M·CAM Confidential The Operating System for the Fusion Economy � Government Procurement GU LF W AR Over 40 Systems Developed outside U.S. GU LF W AR • Unmanned surveillance and weapon systems increasingly adopted II I 1984 2005 39 Improvements and Counter-measures to U.S., European, and Israeli systems – UAV / UUV – Navigation engineering seeking greater autonomous functionality 7 Identifiable Reverse Engineering Programs © 2007 M·CAM Confidential The Operating System for the Fusion Economy Economic Impact � ct •� Procurement of UAV / UUV augmenting or replacing conventional capabilities –� Non-traditional vendors building scalable production � on –� Cost of capabilities reducing barriers to access for new players � yers Ground / Carrier Launched •� GPS-independent navigation systems susceptible v. to novel counter-measures Hand launched •� Fleet expenditures limit ability to adapt to rapid technology life cycles –� Conventional air and sea fleets on 10-20 year cycles � es –� New MEMS UAV/UUV altering in 2-4 year cycles © 2007 M·CAM Confidential The Operating System for the Fusion Economy International Banking Crisis Detection •Sovereign-backed banking •CMOs •Consumer Credit 6-8% cost of capital •CDOs 16-18% cost of capital 30-40% cost of capital •Supports 60-70% of Banking Reserves •Relies on 30 year historical actuarial data •6 quarters of unconventional, negative credit quality in U.S. and Europe •Import and Export reliance on consumer consumption •China and India GDP growth projected off of sustained product and service consumption •Tightening access to cash impair consumer spending © 2007 M·CAM Confidential •Public & Private Equity •Derivatives •Unregulated and decoupled from Central Bank controls The Operating System for the Fusion Economy Watching the Unconventional for the Unexpected •Sovereign-backed banking •CMOs Loss reserve allocations © 2007 M·CAM Confidential •Consumer Credit •CDOs Treasuryindependent currency alternatives •Public & Private Equity •Derivatives Technology / Oligopoly Transfers The Operating System for the Fusion Economy Keys to RAHS Success and Scale � le •� Theoretical framework for “sense-making” in development and deployment •� Take Home Messages: –� Financial markets have pioneered awareness in multi-disciplinary data and validated utility of horizon scanning and have shown framework to outperform all other financial models –� RAHS application diversification will reinforce need for integration of dynamic, non-conventional, automated collections and analysis to surface network perturbations of consequence before human experts recognize them – cognogentive intentional networks –� Successful horizon scanning experts will need to have behavioral & domain expertise rather than exclusively one or the other © 2007 M·CAM Confidential The Operating System for the Fusion Economy
