SPECIALISTS IN SATELLITE, TELECOM AND AEROSPACE INVESTMENT BANKING

Thats Quadrillion with a Q

Hyperinflation aside, real value creation has to be constrained at least partially by the boundary conditions of the economic system

There was a period in 2010-2011 when commentators would say, often in wide eyed voices, Thats Trillion with a T. They wanted to make sure the listener was fully aware we were entering new uncharted economic territory and would no longer be talking in such pedestrian amounts as billions or even hundreds of billions. Trillions have, in fact, become quite commonplace in our dialog. Almost nothing worth a vigorous national debate involves mere billions anymore. Our annual budget deficit is in trillions, we increase our debt ceiling in increments of a trillion or more, Quantitative Easing exceeded a trillion, the Iraq/Afghanistan War cost over a trillion, we owe China more than a trillion, and some believe that if only the Stimulus Plan had been a trillion we would have had a faster recovery. How silly of us to think we could stimulate our economy with mere billions. But, surely Trillions is as far as it goes right? We wont in a few decades hear commentators say Thats Quadrillion with a Q will we? Hyperinflation aside, real value creation has to be constrained at least partially by the boundary conditions of the economic system; which in this case would be the finite surface area of the Earth, its limited extractable and recyclable resources, the amount of population such area and resources can support productively, and the ability to generate enough energy, alternative or otherwise, to power it all. Whatever our future, surely it cannot involve Quadrillions, can it? The United Nations predicts, under its medium fertility variant set of assumptions, that the Earth will reach a population of 10 billion around 2080 and enter a prolonged period of rough stabilization at that level. While this is a 10x gain from approximately 1 billion people in 1800, no one seems to be suggesting 100 billion people is doable in another 280 years, say by 2360. Our land, resources and energy sources may maintain modest economic growth rates for another century or so, but has anyone suggested 520 years of such growth (the period since Columbus) or even 386 years (the period from the Dutch purchase of Manhattan where our office sits)? Surely, we are heading toward an era of slower growth to, at best, the Stabilization the U.N. hopefully predicts.

What does a constrained future without growth even mean? Can the human psyche even handle that prospect?

SPECIALISTS IN SATELLITE, TELECOM AND AEROSPACE INVESTMENT BANKING

Asking why we should spend money exploring and colonizing space is like asking why we are human. Were going to go.

Will Trillions be it then; the apogee of human economic value creation? What does a constrained future without growth even mean? Can the human psyche even handle that prospect? Just think about these dates. 2080 is only 68 years from now. Our grandchildren will experience this event; a maxed out Earth. Is this what we want to leave our grandchildren, double digit trillions of debt and underfunded entitlements and no growth? Lets hope not. Growth with its creative destruction, business cycles and disproportionate allocations of wealth may at times be painful, and even seem unfair, but it is a heck of a lot better than decline, stagnation or even stabilization. What do you do when the land of opportunity stops having opportunities? To many of us in the space community, the answer is obvious. You look for new land. The problem is that humanity is stuck on Earth its lovely, but oh so finite cradle. If you stop thinking about a stabilized Earth as the ultimate destiny of Humankind, then there are no limits to human progress. That has always been the promise of Space. It is our untapped reservoir of resources, growth and opportunity. We humans do not want boundary conditions constraining our growth. We want unlimited frontiers. Perhaps no one has put it better or more simply than Rick Tumlinson of the Space Frontier Foundation, we are here, to go there. Earth is just the cradle. Our DNA wants off planet. Not just for the survival of our species against some unpredictable cataclysm, not just to explore, but for long term growth and opportunity. Asking why we should spend money exploring and colonizing space is like asking why we are human. Were going to go. We have to go. We just need to figure out the most economical and judicious path forward. That brings us back to billions and trillions. NASAs 2013 budget is only $17.7 billion, roughly half of a penny of the U.S. tax dollar. Normally, debate over such a tiny amount would not make it onto the front pages of major media and into Presidential debates. No ones talking about Trillions for Space. But somehow, spending money on Space becomes a supercharged debate of extremes and not necessarily along partisan lines. On the one extreme, NASAs budget should be zeroed out entirely to flow more money to social welfare programs or at least limited only to national security interests. If an Earth-bound existence is our future, we might as well accept it and start funding the stabilization or defending our pile right? Two missions to Mars were, in fact, recently cancelled. At the other extreme, are the proponents of humans on Mars ASAP, almost regardless of the cost and budgetary trade-offs. The

It is not too hard to actually get to Trillions when you add up satellite communications, GPS, and hundreds of other computer and healthcare technology spinoffs

SPECIALISTS IN SATELLITE, TELECOM AND AEROSPACE INVESTMENT BANKING

promised future of our childhood has already been delayed far too long for these people. Lets get with it already! For these enthusiasts, hundreds of billions of expenditures are easily justified. Actually, these enthusiasts make a good point. The benefits have been extraordinary, if largely under reported. It is not too hard to actually get to Trillions when you add up satellite communications, GPS, and hundreds of other computer and healthcare technology spin-offs. A great summary of recent benefits is described each year by The Space Foundation in The Space Report The Authoritative Guide to Global Space Activity. I highly recommend it. In the middle of the debate are those who argue the pros and cons of a status quo, federally lead space program versus a new commercially lead space industry and what the relative budget priority and role of government should be within sane levels of expenditure. My favorite new proposal within this middle ground of recommendations is a petition to increase NASA's Budget to 1% of the Federal Budget. As Dr. Neil deGrasse Tyson says, for a penny on a dollar - we can transform the country from a sullen, dispirited nation, weary of economic struggle, to one where it has reclaimed its 20th century birthright to dream of tomorrow. We would still only be talking $36 billion, or $0.036 Trillion. If Wall Street focuses on next quarter and private equity investors look at five year investment horizons, who is in charge of investing for the next century? Dr. Neil DeGrasse Tyson went on to ask the Senators at his Committee hearing, how much would you pay for the universe? That question hits right at the heart of the problem. If Wall Street focuses on next quarter and private equity investors look at five year investment horizons, who is in charge of investing for the next century? Who is in charge of making sure mankind doesnt max out here on Earth in our grandchildrens lifetime? Isnt that something we want our national government to be doing? But nations and kings have historically been just as near sighted as investors. My favorite example of the inability of governments to appreciate long term value potential is the 1763 Treaty of Paris ending the Seven Years War. As part of the treaty, England gave France the choice of either keeping Guadelope, a Caribbean island with sugar plantations or what was then called New France, an area significantly larger than what the U.S. later acquired in the Louisiana Purchase. France chose the sugar (Note: this huge tract of land was so inconsequential that England later traded the NonCanadian part back to France under a subsequent treaty). 245 years later, from our 2012 perspective, that choice seems

SPECIALISTS IN SATELLITE, TELECOM AND AEROSPACE INVESTMENT BANKING

ludicrous. But for France, Guadelope had a larger European population, a higher GDP and was easier to defend. Think of the space corollary to that choice today. Earth orbit has hundreds of satellites, billions of dollars of commerce and is easier to get to than deep space, but is it really worth more than the rest of the universe? Will our descendants think so 245 years from now from their Martian timeshares or just laugh at the very idea? Isnt NASA being stuck investing largely in low Earth orbit just such a situation; supporting the sugar plantations versus getting on with the hard work of frontier settlement and expansion? Wasnt the United States supposed to be the first country to think grand and long-term? Jefferson did, after all, acquire New France from Napoleon, and we developed it. We understood manifest destiny right? We even bought Alaska from Russia, even though by then such things were already labeled as follies. These prior US governments understood long term investment and the value of undeveloped frontiers. For small investments they created enormous potential for the nation. Well its 2012. Wheres the Manifest Destiny for this Millennium? Perhaps this petition for a penny on the dollar is our generations chance to start getting it right. It is still a small investment, but it may give NASA enough funds to start building frontiers again. Politicians can then stop fighting over which district loses which space program jobs and get on to the real work of pioneering space and helping commercial industry take over activities in Earth orbit. Let industry run the sugar plantations and build a more prosperous island community. Let NASA explore the frontier and then help industry colonize the new continent, because when you get right down to it Trillions just arent going to be enough. There are Quadrillions out there and we want them. Penny for your thoughts - future?

Earth orbit has hundreds of satellites, billions of dollars of commerce and is easier to get to than deep space, but is it really worth more than the rest of the universe?

By Hoyt Davidson Near Earth LLC

SPECIALISTS IN SATELLITE, TELECOM AND AEROSPACE INVESTMENT BANKING

IMPORTANT DISCLOSURES AND INFORMATION ABOUT THE USE OF THIS DOCUMENT: Near Earth, LLC ("Near Earth") has published this report solely for informational purposes. The report is aimed at institutional investors and investment professionals, and satellite, media and telecom industry professionals. This report is not to be construed as a recommendation or solicitation to buy or sell securities. The report was written without regard for the investment objectives, financial situation, or particular needs of any specific recipient, and it should not be regarded by recipients as a substitute for the exercise of their own judgment. The content contained herein is based on information obtained from sources believed to be reliable, but is not guaranteed as being accurate, nor is it a complete statement or summary of any of the markets or developments mentioned. The authors of this report are employees of Near Earth, LLC, which is a member of FINRA. The opinions expressed in this report accurately reflect the personal views of the authors but do not necessarily reflect the opinions of Near Earth itself or its other officers, directors, or employees. The portions of this report produced by non-Near Earth employees are provided simply as an accommodation to readers. Near Earth is under no obligation to confirm the accuracy of statements written by others and reproduced within this report. Near Earth and/or its directors, officers and employees may have, or have had, interests in the securities or other investment opportunities related to the companies or industries discussed herein. Employees and/or directors of Near Earth may serve or have served as officers or directors of companies mentioned in the report. Near Earth does, and seeks to do, business with companies mentioned in this report. As a result, Near Earth may have conflicts of interest that could affect the objectivity of this report. This report is subject to change without notice and Near Earth assumes no responsibility to update or keep current the information contained herein. Near Earth accepts no liability whatsoever for any loss or damage of any kind arising out of the use of all or any part of this report. No part of this report may be reproduced or distributed in any manner, via the Internet or otherwise, without the specific written permission of Near Earth. Near Earth accepts no liability whatsoever for the actions of third parties in this respect.