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Leadership in Turbulent Times Leadership in Turbulent Times Leadership in Turbulent Times Leadership in Turbulent Times Milken Institute Summit - London Heron Tower Milken Institute Summit - London Heron Tower Heron Tower October 18, 2011 Heron Tower October 18, 2011 Michael Milken Chairman, The Milken Institute Michael Milken Chairman, The Milken Institute

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  • Leadership in Turbulent TimesLeadership in Turbulent TimesLeadership in Turbulent TimesLeadership in Turbulent Times

    Milken Institute Summit - LondonHeron Tower

    Milken Institute Summit - LondonHeron TowerHeron Tower

    October 18, 2011Heron Tower

    October 18, 2011

    Michael MilkenChairman, The Milken Institute

    Michael MilkenChairman, The Milken Institute,,

  • Leadership in Turbulent TimesLeadership in Turbulent TimesLeadership in Turbulent TimesLeadership in Turbulent Times

    Seeing the World Through New Eyes

    C it l M k t

    Seeing the World Through New Eyes

    C it l M k t Capital Markets

    Building Human Capital

    Capital Markets

    Building Human Capital Building Human Capital

    Wheres Sputnik?

    Building Human Capital

    Wheres Sputnik?

  • It was the best of times, It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness

    it was the worst of times, it was the age of wisdom, it was the age of foolishness it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity,

    it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope

    it was the season of Light, it was the season of Darkness, it was the spring of hope it was the spring of hope, it was the winter of despair, we had everything before us,

    it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us we had nothing before us

  • Real estate pricesReal estate pricescollapsed, creditdried up, housecollapsed, creditdried up, housed ed up, ousebuilding stopped ...d ed up, ousebuilding stopped ...

    in 1792.in 1792.

  • The stock market dropped 50 percent. The stock market dropped 50 percent. The stock market dropped 50 percent.

    Banks curtailed lending.

    The stock market dropped 50 percent.

    Banks curtailed lending.

    Commentators predicted widespread industrial bankruptcies

    Commentators predicted widespread industrial bankruptciesindustrial bankruptcies.

    High unemployment.

    industrial bankruptcies.

    High unemployment.

    Volatile interest rates. Volatile interest rates.

    i 1974i 1974in 1974.in 1974.

  • What is the most valuable real estate i th ld?

    What is the most valuable real estate i th ld?in the world?in the world?

    kk1. New York City

    2. Moscow

    1. New York City

    2. Moscow

    3. London

    4 Dubai

    3. London

    4 Dubai4. Dubai

    5. Beverly Hills

    4. Dubai

    5. Beverly Hills

    6. Tokyo6. Tokyo

  • What is the most valuable real estate i th ld?

    What is the most valuable real estate i th ld?in the world?in the world?

  • Blockbuster vs. Netflix - 2002Blockbuster vs. Netflix - 2002Market ValueMarket Value

    BlockbusterBlockbuster$4.5 billion$4.5 billion28 Netflix = 1 Blockbuster $$

    Netflix$0 16 billion

    Netflix$0 16 billion$0.16 billion$0.16 billion

  • Blockbuster vs. Netflix - 2011Blockbuster vs. Netflix - 2011Market ValueMarket Value

    Netflix$6 1 billionNetflix

    $6 1 billion$6.1 billion$6.1 billion

    BlockbusterBlockbuster$0$0$0$0

    Source: WSJ.com 10/16/11

  • Facebook Membership Tops 800 MillionFacebook Membership Tops 800 Millionp pp p

    800800 ..600 600

    ..400 400 ..200 200

    .. ....Dec

    2004Dec

    2004

    ..Dec

    2010Dec

    2010Feb

    2010Feb

    2010Aug

    2008Aug

    2008Jan

    2009Jan

    2009Source: Facebook 10/3/11

    Oct2011Oct

    2011

  • IBM System 370/168 in 1976IBM System 370/168 in 1976IBM System 370/168 in 1976IBM System 370/168 in 1976

    8 megabytes for$8 million

    8 megabytes for$8 million$

    Cost per megabyte:

    $

    Cost per megabyte:p g y$1 million

    p g y$1 million

  • Apple iPod Classic - 2010Apple iPod Classic - 2010Apple iPod Classic 2010Apple iPod Classic 2010

    160 gigabytes for $249 160 gigabytes for $249

    Cost per megabyte:

  • Today there are more than 500 Today there are more than 500 Today, there are more than 500

    million cell phones in China

    Today, there are more than 500

    million cell phones in China million cell phones in China million cell phones in China

    Source: Chinas Ministry of Information Industry

  • and more than 6 billion in and more than 6 billion in and more than 6 billion inthe world!

    and more than 6 billion inthe world!

  • Down on the FarmDown on the FarmDown on the FarmDown on the Farm

    Source: McGraw Hill advertisement

  • Cost of a 1-Minute Phone Call from the Cost of a 1-Minute Phone Call from the U.S. to IndiaU.S. to India

    1975$101975$10

    20112011$.01$.01

    Telecommunications cost to business Telecommunications cost to business Telecommunications cost to business approaches zero.

    Telecommunications cost to business approaches zero.

  • The Worlds Top 10 Economies(P t f W ld GDP)

    The Worlds Top 10 Economies(P t f W ld GDP)

    U.S. (21.5%)U.S. (21.5%)TodayToday

    (Percent of World GDP)(Percent of World GDP)20502050 18201820

    China (28.7%) China (28.7%) China (18.5%) China (18.5%) U.S. (21.5%)China (10.0%) Japan (8.4%) Germany (5 2%)

    U.S. (21.5%)China (10.0%) Japan (8.4%) Germany (5 2%)

    China (28.7%) India (16.0%)France (5.4%) England (5 2%)

    China (28.7%) India (16.0%)France (5.4%) England (5 2%)

    China (18.5%) U.S. (16.5%) India (12.0%) Brazil (4 8%)

    China (18.5%) U.S. (16.5%) India (12.0%) Brazil (4 8%)Germany (5.2%)

    France (4.4%) Brazil (3.6%)

    Germany (5.2%)France (4.4%) Brazil (3.6%)

    England (5.2%) Prussia (4.9%) Japan (3.1%)

    England (5.2%) Prussia (4.9%) Japan (3.1%)

    Brazil (4.8%)Indonesia (3.5%)Japan (3.1%)

    Brazil (4.8%)Indonesia (3.5%)Japan (3.1%)

    U.K. (3.5%) Italy (3.2%)Russia (2.7%)

    U.K. (3.5%) Italy (3.2%)Russia (2.7%)

    Austria (1.9%)Spain (1.9%) U.S. (1.8%)

    Austria (1.9%)Spain (1.9%) U.S. (1.8%)

    Mexico (3.0%)Russia (2.7%) Germany (2.4%)

    Mexico (3.0%)Russia (2.7%) Germany (2.4%)Russia (2.7%)

    India (2.6%)Russia (2.7%)India (2.6%)

    Sources: World Bank/Angus Maddison, The World Economy: Historical Statistics (OECD)/PricewaterhouseCoopers/Milken Institute/Goldman Sachs (9/09)

    U.S. (1.8%) Russia (1.7%)U.S. (1.8%) Russia (1.7%)

    Germany (2.4%)U.K. (2.2%)Germany (2.4%)U.K. (2.2%)

  • The Worlds Economic Clout Moves EastThe Worlds Economic Clout Moves EastLeading Cities Ranked by GDPLeading Cities Ranked by GDP

    More than 20 of the worlds Top 50 cities will be located in Asia by 2025, up from 8 in 2007.

    More than 20 of the worlds Top 50 cities will be located in Asia by 2025, up from 8 in 2007.

    More than half of Europes Top 50 cities will drop off the list, as will three in North America.

    More than half of Europes Top 50 cities will drop off the list, as will three in North America.

    Shanghai and Beijing will outrank Los Angeles and London Mumbai and Doha will surpass Munich and D

    Shanghai and Beijing will outrank Los Angeles and London Mumbai and Doha will surpass Munich and DDenver.Denver.

    Source: McKinsey Global Institute (March 2011)

  • World Population Shares, 203020 34 Y Old

    World Population Shares, 203020 34 Y Old20-34 Year Olds20-34 Year Olds

    N America S America Europe Africa Asia Australia / N ZN. America S. America Europe Africa Asia Australia / N.Z.7% 6% 6% 21% 59% 0.5%

    Source: U.S. Bureau of Census

  • U.S. Population Living On FarmsU.S. Population Living On Farmsp gp g

    1800 20002000N t li iN t li i Living on Living on Not livingon farms

    2%

    Not livingon farms

    2%

    Living on farms

    2%

    Living on farms

    2%

    li i li i Living on farms98%

    Not living on farms98%

    Not living on farms98%98%98%

  • In 1900, 40 million Americans livedon farms and fed 76 million domestically

    In 1900, 40 million Americans livedon farms and fed 76 million domestically on farms and fed 76 million domestically plus 15 million people outside the U.S.

    on farms and fed 76 million domestically plus 15 million people outside the U.S.

    Each farm person fed about two others.Each farm person fed about two others.

  • In 2000, 1.5 million Americans lived on farms and fed 290 million domestically plus 220

    In 2000, 1.5 million Americans lived on farms and fed 290 million domestically plus 220 and fed 290 million domestically plus 220

    million others.and fed 290 million domestically plus 220

    million others.

    Each farm person fed about 340 others!Each farm person fed about 340 others!

  • Fi i l HN l FinancialResources

    HumanResources

    Natural Resources

  • Cost of Raw Materials & EnergyCost of Raw Materials & Energygygy1920s

    b l1920s

    b lTodays

    hTodays

    hAutomobileAutomobile MicrochipMicrochip

    60%60% 2%2%60%60%

  • Growth of World Population andthe History of Technology

    Growth of World Population andthe History of Technologythe History of Technologythe History of Technology

    60006000High-Speed ComputersHigh-Speed Computers

    Man Lands on MoonMan Lands on MoonGenome ProjectGenome Project

    PCsPCs

    Population (millions)Population (millions)InternetInternet

    50005000

    40004000kk

    Peak of RomePeak of Rome

    Invention of AirplaneInvention of Airplane

    2nd Agricultural Revolution2nd Agricultural RevolutionIndustrial RevolutionIndustrial Revolution

    NuclearEnergy

    NuclearEnergy

    DNA DiscoveredDNA Discovered

    30003000

    Peak of GreecePeak of Greece PenicillinPenicillin

    AutomobileAutomobile

    TelephoneTelephone20002000

    10001000Watt EngineWatt Engine

    RailroadsRailroads

    Germ TheoryGerm Theory

    TelephoneTelephone

    Source: Robert Fogel/University of Chicago

    -9000-9000 -6000-6000 -3000-3000 -2000-2000 00 10001000 20002000-4000-400000

    Watt EngineWatt Engine

  • Leadership in Turbulent TimesLeadership in Turbulent TimesLeadership in Turbulent TimesLeadership in Turbulent Times

    Seeing the World Through New Eyes

    C it l M k t

    Seeing the World Through New Eyes

    C it l M k t Capital Markets

    Building Human Capital

    Capital Markets

    Building Human Capital Building Human Capital

    Wheres Sputnik?

    Building Human Capital

    Wheres Sputnik?

  • B k lBerkeley19641964

  • Los Angeles Under SiegeLos Angeles Under Siege

  • P=Fti*(HCi+SCi+RAi)P=Fti*(HCi+SCi+RAi)P = ProsperityP = Prosperity

    i ( i i i)i ( i i i)P = ProsperityFt = Financial TechnologyHC = Human Capital

    P = ProsperityFt = Financial TechnologyHC = Human CapitalHC = Human CapitalSC = Social CapitalRA = Real Assets

    HC = Human CapitalSC = Social CapitalRA = Real AssetsRA = Real AssetsRA = Real Assets

  • America Goes to WorkU S and Fortune 500 EmploymentAmerica Goes to Work

    U S and Fortune 500 EmploymentU.S. and Fortune 500 EmploymentU.S. and Fortune 500 Employment200200

    180180 U.S. = +62 million jobsU.S. = +62 million jobsNew financialNew financial180180160160

    140140

    jjNew financialtechnologies arefully implemented

    New financialtechnologies arefully implemented

    140140

    120120

    100100100100

    8080

    6060Fortune 500 = minus 4 millionFortune 500 = minus 4 million

    Modern capitalmarkets beginModern capitalmarkets begin

    00009595909085858080757570706060

    Index 1970 = 100Index 1970 = 100

  • The Nature of CreditThe Nature of CreditThe Nature of CreditThe Nature of Credit

    1 Credit is what counts not leverage1 Credit is what counts not leverage1. Credit is what counts, not leverage.

    2. Most loans to real estate are not investment-grade.

    1. Credit is what counts, not leverage.

    2. Most loans to real estate are not investment-grade.

    3. Interest rates are volatile and unpredictable.

    4. Credit research is more than ratings.

    3. Interest rates are volatile and unpredictable.

    4. Credit research is more than ratings.g

    5. Sovereign debt is historically risky.

    6 Debt values underpin all capital markets

    g

    5. Sovereign debt is historically risky.

    6 Debt values underpin all capital markets6. Debt values underpin all capital markets6. Debt values underpin all capital markets

  • Leverage ratios of financial institutionsLeverage ratios of financial institutionsTotal assets/common equity June 2008Total assets/common equity June 2008

    67 9F ddi MF ddi M

    21 5

    67.9

    Fannie MaeFannie Mae

    Freddie MacFreddie Mac

    23.7

    21.5

    Federal Home Loan BanksFederal Home Loan Banks

    Fannie MaeFannie Mae

    31.6

    23.7

    Brokers/hedge fundsBrokers/hedge funds

    Federal Home Loan BanksFederal Home Loan Banks

    Sources: Federal Deposit Insurance Corporation, Office of Federal Housing Enterprise Oversight, National Credit Union Administration, Bloomberg, Google Finance, Milken Institute.

    gg

  • The Nature of CreditThe Nature of CreditThe Nature of CreditThe Nature of Credit

    1 Credit is what counts not leverage1 Credit is what counts not leverage1. Credit is what counts, not leverage.

    2. Most loans to real estate are not investment-grade.

    1. Credit is what counts, not leverage.

    2. Most loans to real estate are not investment-grade.

    3. Interest rates are volatile and unpredictable.

    4. Credit research is more than ratings.

    3. Interest rates are volatile and unpredictable.

    4. Credit research is more than ratings.g

    5. Sovereign debt is historically risky.

    6 Debt values underpin all capital markets

    g

    5. Sovereign debt is historically risky.

    6 Debt values underpin all capital markets6. Debt values underpin all capital markets.6. Debt values underpin all capital markets.

  • Fallacy:Fallacy:Any loan to real estate is a good loan Any loan to real estate is a good loan

  • Home prices dont go up foreverCh i h i i 120

    Home prices dont go up foreverCh i h i i 120

    WWIWWI WWIIWWII

    GreatDepression

    GreatDepression

    70sBoom70s

    Boom80s

    Boom80s

    BoomLatestBoomLatestBoom30%30%

    Change in home prices in 120 yearsChange in home prices in 120 years

    The image cannot be displayed. Your computer may not have enough memory to open the image, or the image may have been corrupted. Restart your computer, and then open the file again. If the red x still appears, you may have to delete the image and then insert it again.

    The image cannot be displayed. Your computer may not have enough memory to open the image, or the image may have been corrupted. Restart your computer, and then open the file again. If the red x still appears, you may have to delete the image and then insert it again.

    The image cannot be displayed. Your computer may not have enough memory to open the image, or the image may have been corrupted. Restart your computer, and then open the file again. If the red x still appears, you may have to delete the image and then insert it again.

    The image cannot be displayed. Your computer may not have enough memory to open the image, or the image may have been corrupted. Restart your computer, and then open the file again. If the red x still appears, you may have to delete the image and then insert it again.

    The image cannot be displayed. Your computer may not have enough memory to open the image, or the image may have been corrupted. Restart your computer, and then open the file again. If the red x still appears, you may have to delete the image and then insert it again.

    The image cannot be displayed. Your computer may not have enough memory to open the image, or the image may have been corrupted. Restart your computer, and then open the file again. If the red x still appears, you may have to delete the image and then insert it again.

    20%20%

    10%10%

    0%0%

    -10%-10%

    19901990

    Sources: Robert Shiller, Milken Institute.

    18901890 19001900 19101910 19201920 19301930 19401940 19501950 19601960 19701970 19801980 20002000 20102010-20%-20%

  • When Lenders Make Non-Recourse LoansWhen Lenders Make Non-Recourse LoansHeads they lose -- Tails they loseHeads they lose -- Tails they lose

    If prices rise the borrower keeps If prices rise the borrower keeps If prices rise, the borrower keeps the gain

    If prices fall, the borrower can

    If prices rise, the borrower keeps the gain

    If prices fall, the borrower can p ,walk, sticking the lender witha long-term depreciating assetIf i i h l f

    p ,walk, sticking the lender witha long-term depreciating assetIf i i h l f If interest rates rise, the value ofthe loan depreciates as the real average life of the asset is extended

    If interest rates rise, the value ofthe loan depreciates as the real average life of the asset is extended

    If interest rates fall, the borrower prepays If interest rates fall, the borrower prepays

  • Current Home Ownership RatesCurrent Home Ownership RatesCurrent Home Ownership RatesCurrent Home Ownership Rates

    0%0%

    65%65%

    70%70%

    55%55%

    60%60%

    45%45%

    50%50%

    Sources: EuroStat, HUD, Milken Institute.

    U.K.U.K. CanadaCanada U.S.U.S. JapanJapan FranceFrance DenmarkDenmark GermanyGermany

  • The Nature of CreditThe Nature of CreditThe Nature of CreditThe Nature of Credit

    1 Credit is what counts not leverage1 Credit is what counts not leverage1. Credit is what counts, not leverage.

    2. Most loans to real estate are not investment-grade.

    1. Credit is what counts, not leverage.

    2. Most loans to real estate are not investment-grade.

    3. Interest rates are volatile and unpredictable.

    4. Credit research is more than ratings.

    3. Interest rates are volatile and unpredictable.

    4. Credit research is more than ratings.g

    5. Sovereign debt is historically risky.

    6 Debt values underpin all capital markets

    g

    5. Sovereign debt is historically risky.

    6 Debt values underpin all capital markets6. Debt values underpin all capital markets.6. Debt values underpin all capital markets.

  • 1981:1981:Unrealized losses on AAA assets because of Unrealized losses on AAA assets because of

    interest-rate increases exceeded $1 trillion.

    E j fi i l i i i

    interest-rate increases exceeded $1 trillion.

    E j fi i l i i i Every major financial institution was essentially under water on a mark-to-market

    Every major financial institution was essentially under water on a mark-to-market

    basis.basis.

  • Interest Rates and Buying a CarInterest Rates and Buying a Car

    19811981 20112011

    Interest Rates and Buying a CarInterest Rates and Buying a Car

    19811981 20112011 3-year loan

    $10 000 3-year loan

    $10 000 5-year loan

    $2 000 5-year loan

    $2 000 $10,000 car 18% interest $10,000 car 18% interest

    $25,000 car 3.24% interest $25,000 car 3.24% interest

    $796* monthly payment$796* monthly payment

    $424 monthly payment$424 monthly paymentpaymentpayment paymentpayment

    * = 2011 dollars

  • The Nature of CreditThe Nature of CreditThe Nature of CreditThe Nature of Credit

    1 Credit is what counts not leverage1 Credit is what counts not leverage1. Credit is what counts, not leverage.

    2. Most loans to real estate are not investment-grade.

    1. Credit is what counts, not leverage.

    2. Most loans to real estate are not investment-grade.

    3. Interest rates are volatile and unpredictable.

    4. Credit research is more than ratings.

    3. Interest rates are volatile and unpredictable.

    4. Credit research is more than ratings.g

    5. Sovereign debt is historically risky.

    6 Debt values underpin all capital markets

    g

    5. Sovereign debt is historically risky.

    6 Debt values underpin all capital markets6. Debt values underpin all capital markets.6. Debt values underpin all capital markets.

  • AAA-rated Industrial Companies in the U SAAA-rated Industrial Companies in the U SAAA-rated Industrial Companies in the U.S.AAA-rated Industrial Companies in the U.S.

    Microsoft Microsoft ADP Exxon-Mobil ADP Exxon-Mobil Johnson & Johnson Johnson & Johnson

  • Standard & Poors RatingsNew Issues: 1/1/2000 to 9/30/2008

    Standard & Poors RatingsNew Issues: 1/1/2000 to 9/30/2008

    AAA 16,907AAA 16,907 BB+ 238BB+ 238Investment-Grade SecuritiesInvestment-Grade Securities Non-investment Grade SecuritiesNon-investment Grade Securities

    New Issues: 1/1/2000 to 9/30/2008New Issues: 1/1/2000 to 9/30/2008

    AAA 16,907AA+ 240AA 2,098AA- 3 414

    AAA 16,907AA+ 240AA 2,098AA- 3 414

    BB 238BB 313BB- 331B+ 339

    BB 238BB 313BB- 331B+ 339AA 3,414

    A 2,602A- 2,027BBB+ 903

    AA 3,414A 2,602A- 2,027BBB+ 903

    B+ 339B 330B- 1,189CCC+ 293

    B+ 339B 330B- 1,189CCC+ 293BBB+ 903

    BBB 1,371BBB- 1,359

    BBB+ 903BBB 1,371BBB- 1,359

    CCC+ 293CCC 214CCC- 104CC 36

    CCC+ 293CCC 214CCC- 104CC 36CC 36C 11CC 36C 11

    Source: Bloomberg 11/6/08

  • The Nature of CreditThe Nature of CreditThe Nature of CreditThe Nature of Credit

    1 Credit is what counts not leverage1 Credit is what counts not leverage1. Credit is what counts, not leverage.

    2. Most loans to real estate are not investment-grade.

    1. Credit is what counts, not leverage.

    2. Most loans to real estate are not investment-grade.

    3. Interest rates are volatile and unpredictable.

    4. Credit research is more than ratings.

    3. Interest rates are volatile and unpredictable.

    4. Credit research is more than ratings.g

    5. Sovereign debt is historically risky.

    6 Debt values underpin all capital markets

    g

    5. Sovereign debt is historically risky.

    6 Debt values underpin all capital markets6. Debt values underpin all capital markets.6. Debt values underpin all capital markets.

  • Sovereign Debt Has Long Been SuspectSovereign Debt Has Long Been Suspect

    Wh ti l d bt h b Wh ti l d bt h b

    Sovereign Debt Has Long Been SuspectSovereign Debt Has Long Been Suspect

    When national debts have once been accumulated to a certain degree, there is When national debts have once been accumulated to a certain degree, there is scarce, I believe, a single instance of their having been fairly and completely paid.scarce, I believe, a single instance of their having been fairly and completely paid.g y p y p

    Adam Smith

    g y p y p

    Adam Smith

  • Alexander Hamilton,Alexander Hamilton,

    first U.S. Secretaryfirst U.S. Secretary

    of the Treasuryof the Treasury

  • Secondary Market Prices Secondary Market Prices of Third-World Debtof Third-World Debt

    100100Cents on the dollarCents on the dollar

    7070

    8080

    100100

    5050

    6060

    2020

    3030

    4040

    202019821982 19831983 19841984 19851985 19861986 19871987 19881988 19891989

  • U.S. Lending to Third-World CountriesU.S. Lending to Third-World CountriesAt Face ValueAt Face Value

    $1,500$1,500$ billions$ billions

    $1,300$1,300

    $1,500$1,500

    $1,100$1,100

    $700$700

    $900$900

    $700$70019821982 19831983 19841984 19851985 19861986 19871987 19881988 19891989

  • Venezuelas Sovereign Debt RatingVenezuelas Sovereign Debt Ratingdd

    AAAAAA

    AAAA

    S&P Credit RatingS&P Credit Rating

    AAAA

    A-A-

    A+A+

    BB+BB+BBBB

    BBBBBB

    BB-BB-BB

    CCC+CCC+

    19771977 19821982 19871987 19921992 19971997 20022002 20092009

  • Sovereign Debt DefaultsSovereign Debt DefaultsSovereign Debt DefaultsSovereign Debt DefaultsArgentinaArgentina EcuadorEcuador ParaguayParaguay GreeceGreece TurkeyTurkey UruguayUruguay

    18301830 18321832 18271827 18761876 1876187618261826 18301830 18901890 19151915

    18321832 18681868 19111911

    18271827 18741874 18921892

    187618761915191519401940

    18761876 18911891 19151915

    182618261843184318521852 19151915

    1930s1930s 19821982

    19111911 19141914 19311931

    18921892 19201920 19321932

    1940194019781978

    19151915 19331933 19831983

    18521852189318931932193219821982

    2001200119311931

    19821982 19991999

    19321932 19861986 20032003

    19831983 20032003

    19321932

    Sources: Sturzenegger and Zettelmayer (2006), Moodys, Milken Institute.

    20082008

  • Greeces Sovereign DefaultsGreeces Sovereign DefaultsGreece s Sovereign DefaultsGreece s Sovereign Defaults 1826 1826 1843 1852 1843 18521852 1893

    1852 1893 1932 1932 2011? 2011?

  • Annualized return on Mexico EquitiesAnnualized return on Mexico EquitiesAfter 1982 Sovereign Default After 1982 Sovereign Default

    115%115% 114%114%

    Mexico

    115%115% 114%114%

    Mexico BOLSAIndex

    U S S&P 500U S S&P 500

    18%18% 23%23%

    Sources: Milken Institute, Bloomberg, International Monetary Fund.

    U.S. S&P 500U.S. S&P 500

    2 years 5 years

  • Annualized return on Brazil EquitiesAnnualized return on Brazil EquitiesAfter 1983 Sovereign Default After 1983 Sovereign Default

    127%127%

    Brazil

    127%127%

    IBOVIndex

    U.S. S&P 500U.S. S&P 500 24%24%8%8% 11%11%

    Sources: Milken Institute, Bloomberg, International Monetary Fund.

    2 years 5 years

  • Annualized Return on Russia EquitiesAnnualized Return on Russia EquitiesAfter 1998 Sovereign Default After 1998 Sovereign Default

    116%116%

    Russian

    116%116%

    RussianRTS

    Index59%59%

    U.S. S&P 500U.S. S&P 500

    26%26%

    1%1%

    Sources: Milken Institute, Bloomberg, International Monetary Fund.

    U.S. S&P 500U.S. S&P 500 1%1%2 years 5 years

  • Russia:1998-2000 and Italy: 2010-11

    26000900

    1,000 Italy FTSE MIB index

    20000

    22000

    24000

    700800900

    16000

    18000

    20000

    400500600

    12000

    14000

    16000

    100200300 Russia RTS index

    100000100

    October 4, 2011

    January 1997August 1998 August1998December 2000

  • The Nature of CreditThe Nature of CreditThe Nature of CreditThe Nature of Credit

    1 Credit is what counts not leverage1 Credit is what counts not leverage1. Credit is what counts, not leverage.

    2. Most loans to real estate are not investment-grade.

    1. Credit is what counts, not leverage.

    2. Most loans to real estate are not investment-grade.

    3. Interest rates are volatile and unpredictable.

    4. Credit research is more than ratings.

    3. Interest rates are volatile and unpredictable.

    4. Credit research is more than ratings.g

    5. Sovereign debt is historically risky.

    6 Debt values underpin all capital markets

    g

    5. Sovereign debt is historically risky.

    6 Debt values underpin all capital markets6. Debt values underpin all capital markets.6. Debt values underpin all capital markets.

  • 19741974

    Th t i t t Th t i t t

    19741974

    The most important yearin financial history

    The most important yearin financial historyin financial historysince World War IIin financial historysince World War IIsince World War II.since World War II.

  • 19741974

    RESULT #1:RESULT #1:Companies with the highest returns on

    capital fastest rates of growth in market Companies with the highest returns on

    capital fastest rates of growth in market capital, fastest rates of growth in market share and employment, and greatest

    innovation were denied access to equity

    capital, fastest rates of growth in market share and employment, and greatest

    innovation were denied access to equity innovation were denied access to equity and debt capital.

    innovation were denied access to equity and debt capital.

  • 19741974

    RESULT #2:RESULT #2:With financial institutions weakened by

    the recession public and private markets With financial institutions weakened by

    the recession public and private markets the recession, public and private markets began displacing banks as the source of

    most corporate financing

    the recession, public and private markets began displacing banks as the source of

    most corporate financingmost corporate financing.most corporate financing.

  • Institutional Investor Base forInstitutional Investor Base forNon-investment Grade LoansNon-investment Grade Loans

    B kB k CLOCLO Hedge, distressed andHedge, distressed and Prime rate funds, financial Prime rate funds, financial

    100%

    BanksBanks CLOsCLOs Hedge, distressed andhigh-yield fundsHedge, distressed andhigh-yield funds

    Prime rate funds, financial and insurance companiesPrime rate funds, financial and insurance companies

    60%

    80%

    20%

    40%

    Sources: S&P LCD, JPMorgan (4/12/2010).

    1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

  • Dow Industrials: 1973-76 and 2008-11

    1000

    DJIA, 1973-1976 DJIA, 2008-2011

    11500

    13000

    900

    1000

    8500

    10000

    700

    800

    7000600

    578 on Dec. 6, 1974 6,547 on March 9, 2009

    October 4, 2011

    5500500

  • Leadership in Turbulent TimesLeadership in Turbulent TimesLeadership in Turbulent TimesLeadership in Turbulent Times

    Seeing the World Through New Eyes

    C it l M k t

    Seeing the World Through New Eyes

    C it l M k t Capital Markets

    Building Human Capital

    Capital Markets

    Building Human Capital Building Human Capital

    Wheres Sputnik?

    Building Human Capital

    Wheres Sputnik?

  • 2009 U.K. Balance Sheet: Households8 8 T illi

    2009 U.K. Balance Sheet: Households8 8 T illi8.8 Trillion8.8 Trillion

    44%44%26%

    Ins rance 26%

    Ins rance

    2% Other2% Other

    44%Real Estate

    44%Real Estate

    6%6%

    Insurance Technical Services

    Insurance Technical Services

  • What is the worlds What is the worlds largest asset class? largest asset class?

  • Human capital is the Human capital is the Human capital is the largest asset class.

    Human capital is the largest asset class.

  • 2009 Human Capital in the U.K.2009 Human Capital in the U.K.

    U K Financial U K Financial

    29.3 Trillion Total29.3 Trillion Total

    U.K. Financial Assets30%

    U.K. Financial Assets30%

    Human and SocialHuman and SocialCapital

    70% Capital

    70%

  • The 21st Century will see The 21st Century will see The 21 Century will see a worldwide competition The 21 Century will see a worldwide competition a worldwide competition

    for human capitala worldwide competition

    for human capitalfor human capital.for human capital.

  • 1880s Eastern Europe1880s Eastern Europe

    Warsaw

    Samuel GoldwynMGM, ParamountSamuel GoldwynMGM, Paramount

    Louis B. MayerMGM

    Louis B. MayerMGM

    Warsaw

    Carl Laemmlel d

    Carl Laemmlel d

    Jack WarnerJack WarnerUniversal StudiosUniversal Studios Warner Bros. StudiosWarner Bros. Studios

    Adolph ZukorParamount Pictures

    Adolph ZukorParamount Pictures

    William FoxFox Films

    William FoxFox Films

  • 1880s Eastern Europe1880s Eastern EuropeViacomViacom SonySony

    Samuel GoldwynMGM, ParamountSamuel GoldwynMGM, Paramount

    Louis B. MayerMGM

    Louis B. MayerMGM

    WarsawComcastComcastCarl Laemmle

    l dCarl Laemmle

    l dJack WarnerJack Warner

    WarsawComcastComcast Time-WarnerTime-Warner

    Universal StudiosUniversal Studios Warner Bros. StudiosWarner Bros. Studios

    ViacomViacomNewsCorpNewsCorpAdolph Zukor

    Paramount PicturesAdolph Zukor

    Paramount PicturesWilliam FoxFox Films

    William FoxFox Films

    pp

  • Do human capital strategies work?Do human capital strategies work?Per Capita GDPPer Capita GDP

    19601960 20102010

    p gp g

    SiSi 19601960

    $43,117$43,117

    20102010

    $2,271$2,271

    SingaporeSingapore

    ,,

    JamaicaJamaica

    $ 5,039$ 5,039$2,255$2,255

    JamaicaJamaica

    Source: IFS, WEO; IMF; in 2010 USD

    $ ,$ ,$ ,$ ,

  • Leadership in Turbulent TimesLeadership in Turbulent TimesLeadership in Turbulent TimesLeadership in Turbulent Times

    Seeing the World Through New Eyes

    C it l M k t

    Seeing the World Through New Eyes

    C it l M k t Capital Markets

    Building Human Capital

    Capital Markets

    Building Human Capital Building Human Capital

    Wheres Sputnik?

    Building Human Capital

    Wheres Sputnik?

  • Wheres Sputnik?Wheres Sputnik? EnergyEnergy

    Where s Sputnik?Where s Sputnik?gygy

    HousingHousingEntitlementsEntitlements EntitlementsEntitlements

    EducationEducation ImmigrationImmigration HealthHealthHealthHealth

  • President Jimmy Carter on the energy crisisPresident Jimmy Carter on the energy crisisy gyy gyand proposed energy legislationand proposed energy legislation

    This difficult effort will be This difficult effort will be the moral equivalent of war the moral equivalent of war ---- except that we will be except that we will be uniting our efforts to build uniting our efforts to build

    d t d t d t d t and not destroy.and not destroy.

  • 36.1%Nixon 36.1%

    37.1%Ford

    Nixon

    Percentage Percentage 40.5%43.6%Reagan

    CarterPercentage Percentage of Oil from of Oil from F i F i

    47.2%

    49 8%Cli t

    Bush

    gForeign Foreign SourcesSources

    65.5%Bush

    49.8%Clinton

    66.2%Obama

  • Wheres Sputnik?Wheres Sputnik? EnergyEnergy

    Where s Sputnik?Where s Sputnik?gygy

    HousingHousingEntitlementsEntitlements EntitlementsEntitlements

    EducationEducation ImmigrationImmigration HealthHealthHealthHealth

  • The American DreamThe American Dream

    Equal opportunity not based on Equal opportunity not based on q pp y Where you were born Where you went to school

    q pp y Where you were born Where you went to school Where you went to school Who your parents are

    Wh t li i i

    Where you went to school Who your parents are

    Wh t li i i What your race or religion is

    Access to capital based on ability What your race or religion is

    Access to capital based on ability

  • The American DreamThe American Dream

    Father born in Syria Father born in Syria Father born in Syria

    Adopted

    Father born in Syria

    Adopted

    Dropped out of college Dropped out of college

    Steve JobsSteve Jobs

  • The American DreamThe American Dream

    Born poor in Algeria Born poor in Algeria Born poor in Algeria

    Former Director, l

    Born poor in Algeria

    Former Director, lNational Institutes of

    HealthNational Institutes of Health

    President, Global R&D, Sanofi

    President, Global R&D, Sanofi

    Elias Elias ZerhouniZerhouni

  • The American Dream Turns into A NightmareThe American Dream Turns into A Nightmare

    Low down payments Low down payments

    gg

    Low down payments Tax preferences

    Extended payback terms

    Low down payments Tax preferences

    Extended payback terms Extended payback terms Lack of pre-payment penalties

    h h ld h

    Extended payback terms Lack of pre-payment penalties

    h h ld h Non-recourse terms that shield non-housing assets The myth that housing prices always rise Non-recourse terms that shield non-housing assets The myth that housing prices always rise

  • Consumer SpendingConsumer Spending

    Housing 33%Housing 33%

    U.S.U.S. AsiaAsiaFood 23%Food 23%Housing 33%

    Transportation 18%Food 13%

    Housing 33%Transportation 18%Food 13%

    Food 23%Supplemental Education 15%Housing 10%

    Food 23%Supplemental Education 15%Housing 10%

    Insurance/pensions 11%Healthcare 6%Entertainment 5%

    Insurance/pensions 11%Healthcare 6%Entertainment 5%

    Clothing 8%Other 8%Transportation 6%

    Clothing 8%Other 8%Transportation 6%Entertainment 5%

    Apparel and services 4%Supplemental Education 2%

    Entertainment 5%Apparel and services 4%Supplemental Education 2%

    Transportation 6%Healthcare 5%Communication 5%

    Transportation 6%Healthcare 5%Communication 5%pppp

    Source: U.S. Bureau of Labor Statistics/CLSA

  • Wheres Sputnik?Wheres Sputnik? EnergyEnergy

    Where s Sputnik?Where s Sputnik?gygy

    HousingHousingEntitlementsEntitlements EntitlementsEntitlements

    EducationEducation ImmigrationImmigration HealthHealthHealthHealth

  • When Social Security was introduced in When Social Security was introduced in 1935, the average life span in the U.S. was 1935, the average life span in the U.S. was 1935, the average life span in the U.S. was 1935, the average life span in the U.S. was 61.7 years.61.7 years.

    In 2009, life expectancy in the U.S. In 2009, life expectancy in the U.S. reached 78 1 years reached 78 1 years reached 78.1 years. reached 78.1 years.

    Sources: National Center for Health Statistics, National Vital Statistics Reports, vol. 54, no. 19, June 28, 2006.U.S. Census Bureau, International Database.

  • Longer Life Expectancy; Longer RetirementsF

    Longer Life Expectancy; Longer RetirementsF

    9595

    FranceFrance

    Life Expectancy Life Expectancy WomenWomenMenMen

    8585Life Expectancy at age 65Life Expectancy at age 65

    MenMen

    28.628.6 32.932.9

    7575

    14.414.4 18.318.322.022.0 26.526.5

    26.226.2 30.830.8

    6565

    5555

    Retirement AgeRetirement Age

    14.414.4 18.318.3

    19701970 19801980 19901990 20002000 20102010 20202020 20302030 20402040 205020505555

    Source: OECD Ageing and Employment Policies, France 2005

  • Entitlements Entitlements The Math Doesnt Add UpThe Math Doesnt Add Up

    Unrealistic assumptions about rates of return on assets.

    Unrealistic assumptions about rates of return on assets.

    Falling ratios of current workers to retirees. Workers who pay in to the system for too few years Falling ratios of current workers to retirees. Workers who pay in to the system for too few years Workers who pay in to the system for too few years. Pensioners who live longer than the original system

    planners assumed

    Workers who pay in to the system for too few years. Pensioners who live longer than the original system

    planners assumedplanners assumed.planners assumed.

  • Wheres Sputnik?Wheres Sputnik? EnergyEnergy

    Where s Sputnik?Where s Sputnik?gygy

    HousingHousingEntitlementsEntitlements EntitlementsEntitlements

    EducationEducation ImmigrationImmigration HealthHealthHealthHealth

  • If f i dl f i If f i dl f i If an unfriendly foreign power had attempted to impose on America the

    If an unfriendly foreign power had attempted to impose on America the impose on America the mediocre educational performance that exists

    impose on America the mediocre educational performance that exists performance that exists today, we might have viewed it as an act of

    performance that exists today, we might have viewed it as an act of war.

    1983war.

    1983

  • The Jobs ProblemThe Jobs Problem(It Isnt Jobs Its Trained Workers)(It Isnt Jobs Its Trained Workers)

    Millions125125

    100100

    Millions

    123,000,000 h h k ll d b

    7575

    5050

    high-skilled jobs will be available

    in 202050 000 000 5050

    252550,000,000

    Americans will qualify for those jobs

    Source: Edward Gordon, Winning the Global Talent Showdown

    j

  • Skilled and Unskilled JobsSkilled and Unskilled Jobs

    19501950 T dT d

    Skilled and Unskilled JobsSkilled and Unskilled Jobs

    19501950 TodayToday

    60% 65%Skill d

    20%Skilled

    20%Semi-skilled

    60%Unskilled

    20%Semi-skilled

    Skilled

    15%Skilled skilledUnskilled

  • Occupy Movement:Occupy Movement:Occupy Movement:Ignore at Your Own Peril

    Occupy Movement:Ignore at Your Own Peril

  • There are 600 million There are 600 million There are 600 million

    children in India and China

    There are 600 million

    children in India and China

    whose future buying power

    ill l f

    whose future buying power

    ill l f will grow at least as fast as

    their rapidly improving

    will grow at least as fast as

    their rapidly improving their rapidly improving

    educations.

    their rapidly improving

    educations.

  • ChiChi

    Parents spend an average Parents spend an average

    ChinaChina

    Parents spend an average of 15% on their childrens education and only 10%

    Parents spend an average of 15% on their childrens education and only 10% on housing.

    55% of parents in China

    on housing.

    55% of parents in China 55% of parents in China send their children for extra lessons in English.

    55% of parents in China send their children for extra lessons in English.

  • I di I di India India Extracurricular activities

    i t d f d i Extracurricular activities

    i t d f d i consisted of academic coaching in 95% of the households

    consisted of academic coaching in 95% of the householdshouseholds.

    43% of parents want their children to get a Masters

    households.

    43% of parents want their children to get a Masters children to get a Master s degree; 29% want them to get a PhD.

    children to get a Master s degree; 29% want them to get a PhD.get a PhD.get a PhD.

  • We must not be afraid of We must not be afraid of f fcompetition.

    f fcompetition.

    We must be ready to We must be ready to We must be ready to compete.

    We must be ready to compete.

  • Eddie The Eagle EdwardsEddie The Eagle EdwardsEddie The Eagle EdwardsEddie The Eagle Edwards

    1988 Calgary Olympics 1988 Calgary Olympics

    Britains first (and last!) ski jumper

    Britains first (and last!) ski jumper

    Last place finish with a jump of 253 feet

    Last place finish with a jump of 253 feet

    Matti Nykanen of Finland wins the gold with a jump of 412 feet.

  • Eddie The Eagle EdwardsEddie The Eagle EdwardsEddie The Eagle EdwardsEddie The Eagle Edwards

    1988 Calgary Olympics 1988 Calgary Olympics

    Britains first (and last!) ski jumper

    Britains first (and last!) ski jumper

    Last place finish with a jump of 253 feet

    Last place finish with a jump of 253 feet

    Eddie The Eagle Rule:Eddie The Eagle Rule:Olympic qualifiers must compete in international events and place in the Top 30 percent or Top 50 competitors.Olympic qualifiers must compete in international events and place in the Top 30 percent or Top 50 competitors.

  • Wheres Sputnik?Wheres Sputnik? EnergyEnergy

    Where s Sputnik?Where s Sputnik?gygy

    HousingHousingEntitlementsEntitlements EntitlementsEntitlements

    EducationEducation ImmigrationImmigration HealthHealthHealthHealth

  • Highly skilled, entrepreneurial Highly skilled, entrepreneurial

    and educated immigrants are

    l

    and educated immigrants are

    l crucial to any nations prosperity. crucial to any nations prosperity.

  • Immigrants in Silicon Valley Immigrants in Silicon Valley

    More than half of Silicon Valleys science and engineering workforce is foreign born

    More than half of Silicon Valleys science and engineering workforce is foreign bornengineering workforce is foreign-born.

    More than 15 percent of Silicon Valley start-

    engineering workforce is foreign-born.

    More than 15 percent of Silicon Valley start-p yup companies were founded by immigrants from India.

    p yup companies were founded by immigrants from India.

    Another 13 percent had CEOs from China or Taiwan

    Another 13 percent had CEOs from China or Taiwan

    Sources: Vivek Wadhwa, Duke University

    Taiwan. Taiwan.

  • 20002000 201020102000 9,500 students

    20% foreign

    2000 9,500 students

    20% foreign

    2010 14,500 students

    29% from non EU countries

    2010 14,500 students

    29% from non EU countries 20% foreign 108 from China 20% foreign 108 from China

    29% from non-EU countries 1,800 from China and

    Malaysia

    29% from non-EU countries 1,800 from China and

    MalaysiaMalaysiaMalaysia

    Students at Imperial College come from 126 nations.Students at Imperial College come from 126 nations.Students at Imperial College come from 126 nations.36% of staff members are immigrants.

    Students at Imperial College come from 126 nations.36% of staff members are immigrants.

  • International Students inU S Doctoral/Research Programs

    International Students inU S Doctoral/Research ProgramsU.S. Doctoral/Research ProgramsU.S. Doctoral/Research Programs

    Intl Students

    Intl Students

    TotalEnrollment

    TotalEnrollment

    1. University of Southern California 7,115 33,3892. Columbia University 5,937 24,4173 New York University 5 827 50 917

    1. University of Southern California 7,115 33,3892. Columbia University 5,937 24,4173 New York University 5 827 50 9173. New York University 5,827 50,9174. University of Illinois (Urbana Champaign) 5,685 41,3425. Purdue University 5,581 39,2286 University of Michigan (Ann Arbor) 5 429 40 025

    3. New York University 5,827 50,9174. University of Illinois (Urbana Champaign) 5,685 41,3425. Purdue University 5,581 39,2286 University of Michigan (Ann Arbor) 5 429 40 0256. University of Michigan (Ann Arbor) 5,429 40,0257. University of Texas (Austin) 5,303 49,7388. University of California, Los Angeles 4,704 38,2189 Harvard University 4 514 20 042

    6. University of Michigan (Ann Arbor) 5,429 40,0257. University of Texas (Austin) 5,303 49,7388. University of California, Los Angeles 4,704 38,2189 Harvard University 4 514 20 0429. Harvard University 4,514 20,04210. Boston University 4,484 31,5749. Harvard University 4,514 20,04210. Boston University 4,484 31,574

    Source: Open Doors 2007

  • Wheres Sputnik?Wheres Sputnik? EnergyEnergy

    Where s Sputnik?Where s Sputnik?gygy

    HousingHousingEntitlementsEntitlements EntitlementsEntitlements

    EducationEducation ImmigrationImmigration HealthHealthHealthHealth

  • Three SolutionsThree SolutionsThree Solutionsto Healthcare Challenges

    Three Solutionsto Healthcare Challenges

    Prevention Prevention

    Cost reduction Cost reduction

    Research leading to cures Research leading to curesResearch leading to curesResearch leading to cures

  • Lifestyle Makes a DifferenceLifestyle Makes a Differenceyy

  • Obesity Prevalence Among U.S. Adults 1991

    Obesity Prevalence Among U.S. Adults 199119911991 > 15%> 15%

    < 15%< 15%

  • Obesity Prevalence Among U.S. Adults 2009

    Obesity Prevalence Among U.S. Adults 200920092009

    25-30%25-30%> 30%> 30%

    Sources: Trust for America's Health and the Robert Wood Johnson Foundation

  • Only in AmericaOnly in Americayy

  • Only in AmericaOnly in Americayy

  • Obesity Rates: U.S. vs. WorldObesity Rates: U.S. vs. World20022005 41.8%41.8%

    36.5%U.S.U.S. MENWOMENWOMEN24.0%MexicoMexico

    24.2%24.2%21.6%U.K.U.K.

    34.3%34.3%24.0%MexicoMexico

    6 6%6 6%

    20.4%20.4%7.8%

    20.9%

    FranceFrance

    GermanyGermany

    1.9%1.9%

    6.6%6.6%

    1 8%1 8%

    1.6%1.6%ChinaChina

    Source: World Health Organization / Estimated obesity rates for people aged 15 years and older / 2005

    1.5%1.5%1.8%1.8%JapanJapan

  • W ld W I W ld W I World War I poster urges World War I poster urges sacrifice eatfruits and veggiessacrifice eatfruits and veggiesfruits and veggiesso the troops can have the good

    fruits and veggiesso the troops can have the good have the good sugar and fats!have the good sugar and fats!

  • Diabetes in England 1905-1950Diabetes in England 1905-1950Diabetes in England 1905 1950Diabetes in England 1905 1950 The incidence of diabetes increased steadily except for two

    periods: The incidence of diabetes increased steadily except for two

    periods:p

    1915-1918 and 1940-1945

    p

    1915-1918 and 1940-1945

    During these war years, meat, cheese, butter, cooking fats andsugar were rationed.

    During these war years, meat, cheese, butter, cooking fats andsugar were rationed.sugar were rationed.

    Naval blockades cut supplies ofgasoline, forcing people to walk more.

    sugar were rationed.

    Naval blockades cut supplies ofgasoline, forcing people to walk more.gasoline, forcing people to walk more.gasoline, forcing people to walk more.

    Source: American Diabetes Association

  • Chronic Disease StudyChronic Disease Study

    Failure to address chronic diseases Failure to address chronic diseases adequately costs the

    U S th adequately costs the

    U S th U.S. economy more than $1 trillion annually.

    U.S. economy more than $1 trillion annually.

  • Major Spending Initiatives in the U.S.Major Spending Initiatives in the U.S.Major Spending Initiatives in the U.S.Major Spending Initiatives in the U.S.

    National Heart Institute budget $3 0BNational Heart Institute budget $3 0B

    National Cancer Institute budget $4.9B

    National Heart Institute budget $3.0BNational Heart Institute budget $3.0B

    2008 U.S. political campaigns $5.3B

    National Cancer Institute budget $4.9B

    2008 U.S. political campaigns $5.3B

    Consumer spending on potato chips $5.3BConsumer spending on potato chips $5.3B

    Source: Center for Responsive Politics

    p g p p $p g p p $

  • Half of all economic growth in the l i b d

    Half of all economic growth in the l i b d last two centuries can be traced to medical research advances.

    last two centuries can be traced to medical research advances.to medical research advances.to medical research advances.

  • Company Value ComparisonCompany Value Comparisonp y pU.S. $ billions

    p y pU.S. $ billions

    Enterprise ValueEnterprise Value Est P/E RatioEst P/E Ratio

    Average: Consumer $120.0 16.2(P&G, Este Lauder, Coca Cola, Pepsi, Kraft)

    Average: Consumer $120.0 16.2(P&G, Este Lauder, Coca Cola, Pepsi, Kraft)

    Enterprise ValueEnterprise Value Est. P/E RatioEst. P/E Ratio

    (P&G, Este Lauder, Coca Cola, Pepsi, Kraft)

    Average: Pharma $106.6 9.9

    (P&G, Este Lauder, Coca Cola, Pepsi, Kraft)

    Average: Pharma $106.6 9.9ve age: a a $ 06.6 9.9(Pfizer, J&J, Roche, Norvartis, Merck, GSK, SanofiAventis,

    Abbott Labs, AstraZeneca, Amgen, BMS and Eli Lilly)

    ve age: a a $ 06.6 9.9(Pfizer, J&J, Roche, Norvartis, Merck, GSK, SanofiAventis,

    Abbott Labs, AstraZeneca, Amgen, BMS and Eli Lilly)

    Source: Bloomberg 9/6/11

  • Economic Value of Eliminating Deaths in the U.S.Economic Value of Eliminating Deaths in the U.S.gg

    Heart Disease $60.5THeart Disease $60.5T$ .$ .

    Cancer $58.1T

    Stroke $9.5TStroke $9.5T

    AIDS $9.3TAIDS $9.3T

    U.S. Balance Sheet 2009 $67TU.S. Balance Sheet 2009 $67T

    Source: Estimates base on 1999 studies by Kevin Murphy and Robert Topel/University of Chicago

    U.S. Balance Sheet 2009 $67TU.S. Balance Sheet 2009 $67T

  • World University RankingWorld University Ranking

    1. Harvard University1. Harvard University

    y gLife Sciences and Medicine

    y gLife Sciences and Medicine

    11. Imperial College London11. Imperial College London2. University of Cambridge3. University of Oxford4 Stanford University

    2. University of Cambridge3. University of Oxford4 Stanford University

    12. UC San Diego13. National University/Singapore14 University of Melbourne

    12. UC San Diego13. National University/Singapore14 University of Melbourne4. Stanford University

    5. Berkeley6. University of Tokyo

    4. Stanford University5. Berkeley6. University of Tokyo

    14. University of Melbourne15. University College London16. University of Toronto

    14. University of Melbourne15. University College London16. University of Torontoy y

    7. Johns Hopkins University8. MIT

    y y7. Johns Hopkins University8. MIT

    y17. University of Edinburgh18. Kyoto University

    y17. University of Edinburgh18. Kyoto University

    9. Yale University10. UCLA9. Yale University10. UCLA

    19. University of Sydney20. University of British Columbia19. University of Sydney20. University of British Columbia

  • Do we have the will?Do we have the will? EnergyEnergyDo we have the will?Do we have the will?

    HousingHousing EntitlementsEntitlements EntitlementsEntitlements EducationEducation ImmigrationImmigration HealthHealthwheressputnik.comwheressputnik.com

  • Success is not final, failure is not fatal; it is Success is not final, failure is not fatal; it is the courage to continue that counts.the courage to continue that counts.

    - Winston Churchill- Winston Churchill- Winston Churchill- Winston Churchill

  • Leadership in Turbulent TimesLeadership in Turbulent TimesLeadership in Turbulent TimesLeadership in Turbulent Times

    Milken Institute Summit - LondonHeron Tower

    Milken Institute Summit - LondonHeron TowerHeron Tower

    October 18, 2011Heron Tower

    October 18, 2011

    Michael MilkenChairman, The Milken Institute

    Michael MilkenChairman, The Milken Institute,,