Paul Marson, Lombard Odier "Prevailing Winds"

Prevailing Winds

Paul Marson, Chief Investment Officer, Private BankingMay 2011, Moscow

“Only buy something that you’d be perfectly happy to hold if the market shut down for ten years”

Warren Buffett

De-leveraging and Global Imbalances..

Cumulative Emerging Surpluses = NET Asset accumulation with corresponding, and unsustainable, NET liability accumulation in the West...

De-leveraging implies a reduction in the Western Deficit and a corresponding decline in the Emerging Surplus...

Source: Datastream, LODH Calculation

Cumulative Sum of Current Account Surpluses [ASSETS] / Deficits [LIABILITIES] since 1982 : USA vs China, Japan and Developing / Dynamic Asia, Latam and E Europe [ USD

Trillions ]

-10.0

-8.0

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

10.01982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

China, Japan & Dynamic Asia,Latam & E Europe

USA

Current Account Balance (USDbn): Emerging & Developing versus G7 Developed Economies

273.2

-298.4

-800.0

-600.0

-400.0

-200.0

0.0

200.0

400.0

600.0

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

Developing & Emerging Economies

G7 bloc

US De-leveraging….incomplete

The extent of excessive leverage growth and the overhang in debt can be seen in the 5 year rolling change in Debt versus Private Gross Domestic investment...the Private Capital Stock supports aggregate National Credit Market Debt

Total US Credit Market Debt outstanding tracked Private Gross Investment in much of the post-war period, diverging in the late 1980’s S&L bubble and the 2006/7 Housing Bubble…there is still too much debt for the private capital stock to support


Total Credit Market Debt [$trn] versus Total Cumulative Gross PRIVATE Domestic Investment [$trn]

0.0

10.0

20.0

30.0

40.0

50.0

60.0

Q4 1

956

Q1 1

959

Q2 1

961

Q3 1

963

Q4 1

965

Q1 1

968

Q2 1

970

Q3 1

972

Q4 1

974

Q1 1

977

Q2 1

979

Q3 1

981

Q4 1

983

Q1 1

986

Q2 1

988

Q3 1

990

Q4 1

992

Q1 1

995

Q2 1

997

Q3 1

999

Q4 2

001

Q1 2

004

Q2 2

006

Q3 2

008

Q4 2

010

Q1 2

013

Q2 2

015

Debt

Investment

5 Year Change in US Credit Market Debt Outstanding [$trn] versus 5 Year Cumulative Gross Private Domestic Investment [$trn]

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

20.0Q

4 1956

Q1 1959

Q2 1961

Q3 1963

Q4 1965

Q1 1968

Q2 1970

Q3 1972

Q4 1974

Q1 1977

Q2 1979

Q3 1981

Q4 1983

Q1 1986

Q2 1988

Q3 1990

Q4 1992

Q1 1995

Q2 1997

Q3 1999

Q4 2001

Q1 2004

Q2 2006

Q3 2008

Q4 2010

Q1 2013

Q2 2015

Debt

Investment

Global RE-leveraging….!!

Looked at on a rolling 5 year cycle, to eliminate some of the annual volatility, Global Securities debt growth has outpaced Nominal GDP persistently over the last decade, with the exception of the period up to 2008…no hint of de-leveraging here…

The total sum of Global Domestic and International Debt Securities outstanding increased by $20 trillion in the 3 years from the end of 2007! The ratio of Debt Securities / Global GDP increased from 140% to 160%...

Source: BIS, LODH Calculation

Global Domestic and International Debt Securities Outstanding [USD trn] : All Issuers [Government, Financial Institutions and Corporate entities], BIS data

0.0

20.0

40.0

60.0

80.0

100.0

120.0

Mar.1994

Dec.1994

Sep.1995

Jun.1996

Mar.1997

Dec.1997

Sep.1998

Jun.1999

Mar.2000

Dec.2000

Sep.2001

Jun.2002

Mar.2003

Dec.2003

Sep.2004

Jun.2005

Mar.2006

Dec.2006

Sep.2007

Jun.2008

Mar.2009

Dec.2009

Sep.2010

Jun.2011

Mar.2012

Dec.2012

5 Year Annualized Growth Rate for Global Nominal GDP versus Global International & Domestic Debt Securities Outstanding

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Debt Securities

GDP

OECD Lead Indicators....

Developed Country OECD lead indices also point to moderating growth, after a government debt fuelled/inventory driven cyclical rebound...

Lead Indicators in the Emerging Markets point to slower growth..


-30.0

-20.0

-10.0

0.0

10.0

20.0

30.0

Jan

-91

Jan

-92

Jan

-93

Jan

-94

Jan

-95

Jan

-96

Jan

-97

Jan

-98

Jan

-99

Jan

-00

Jan

-01

Jan

-02

Jan

-03

Jan

-04

Jan

-05

Jan

-06

Jan

-07

Jan

-08

Jan

-09

Jan

-10

Jan

-11

Jan

-12

Jan

-13

Jan

-14

Jan

-15

Indonesia

India

Mexico

China

Brazil

Russia

OECD Leading Indicator (% 3msaar)

-30.0

-20.0

-10.0

0.0

10.0

20.0

30.0

May-05

Sep-05

Jan-06

May-06

Sep-06

Jan-07

May-07

Sep-07

Jan-08

May-08

Sep-08

Jan-09

May-09

Sep-09

Jan-10

May-10

Sep-10

Jan-11

May-11

Sep-11

Jan-12

May-12

Sep-12

Euroland

USA

Japan

Germany

Inflation and Deflation....

China inflating [internal supply very inelastic versus external supply]...money growth slowing. Inflation at 5.3%, 2 year high, Food Inflation at 11.5%...Aggressive tightening necessary…. much slower growth ahead as credit availability evaporates

On balance, over half of US and Japanese core inflation sub-components are deflating…no risk of deflation in the UK and Eurozone

Source: Datastream, Bloomberg, LODH Calculation

Inflation Diffusion Indices [6mm.ave, balance of Core Inflation components inflating versus deflating]

Inflationary pressures

US: 48%

JP: 24%

Deflationary pressures

EZ: 86%

SW: 67%

UK: 100%

0%

20%

40%

60%

80%

100%

120%

72 74 77 80 83 85 88 91 94 96 99 02 05 07 10

Chinese M1 Money Supply Growth [ ADVANCED 6 MONTHS] vs Chinese Consumer Price Inflation

5

10

15

20

25

30

35

40

45Jan-99

Jul-99

Jan-00

Jul-00

Jan-01

Jul-01

Jan-02

Jul-02

Jan-03

Jul-03

Jan-04

Jul-04

Jan-05

Jul-05

Jan-06

Jul-06

Jan-07

Jul-07

Jan-08

Jul-08

Jan-09

Jul-09

Jan-10

Jul-10

Jan-11

Jul-11

Jan-12

-5

0

5

10

15

20

Money Supply [%y/y, LHS]

Inflation [RHS]

US – Rolling Sectoral Deficits and MORE Debt...?

Valuation cycles at the extreme in the last decade, and the unquestionably poor performance of the US market, have been driven by rolling deficits and ever increasing levels of aggregate credit market debt…..the end of ALL debt cycles [public or private] necessitates asset price adjustment…

A proxy Price / Sales ratio for the US market and, according to Warren Buffett, the single most important measure of valuation. Above 100% for one quarter between 1900-1995, now at 118%, in the 16th percentile...miserable implied returns!

Driven by record $53trn total US credit market debt..


Market Value of All US Corporate Equity / GDP [1929 = 87%, 1936 = 100%, 1943 = 35%]

Q4 2008, 84%, Buffett Bullish : "Today my money and my mouth both say equities"

Buffett Bearish : "Investors in stocks these days are expecting far too much"

Buffett Bullish, acquires ABC Stock

Buffett is back & Bullish, acquires Washington Post

Stock

Q1 2000, 185%

Q2 2007, 145%

Q4 1968, 103%, 'Buffett Partnership' Closed in 1969

Q4 2010, 118%

0%

20%

40%

60%

80%

100%

120%

140%

160%

180%

200%

Q1 1952

Q2 1954

Q3 1956

Q4 1958

Q1 1961

Q2 1963

Q3 1965

Q4 1967

Q1 1970

Q2 1972

Q3 1974

Q4 1976

Q1 1979

Q2 1981

Q3 1983

Q4 1985

Q1 1988

Q2 1990

Q3 1992

Q4 1994

Q1 1997

Q2 1999

Q3 2001

Q4 2003

Q1 2006

Q2 2008

Q3 2010

Q4 2012

Q1 2015

US Total Equity Market Valuation / GDP ratio [%] vs US Sectoral Financial Balances [% of GDP] : 1995 -

60%

80%

100%

120%

140%

160%

180%

200%

Q1 1995

Q4 1995

Q3 1996

Q2 1997

Q1 1998

Q4 1998

Q3 1999

Q2 2000

Q1 2001

Q4 2001

Q3 2002

Q2 2003

Q1 2004

Q4 2004

Q3 2005

Q2 2006

Q1 2007

Q4 2007

Q3 2008

Q2 2009

Q1 2010

Q4 2010

Q3 2011

Q2 2012

Q1 2013

Q4 2013

Q3 2014

Q2 2015

-11.0%

-9.0%

-7.0%

-5.0%

-3.0%

-1.0%

1.0%

3.0%

Market Value / GDP - LHS

Govt Balance - RHS INVERTED

Household Balance - RHS INVERTED

Corporate Balance - RHS INVERTED

US extreme over-valuation…again..

At the current level of valuation, implied annualized REAL returns are barely 1% over the next decade: there is no margin of safety of note implicit in US market valuation…the market prices US equities akin to a “risk-free” asset ….

The US market is valued at 26.5 * trailing ten year average earnings: if we strip away the tech bubble in 1999/2000 and housing bubble in 2006/7, this is the highest level of valuation since 1929. Current Valuation is in the 10th percentile since 1870 i.e. 90% of the time historically the market has been cheaper…..


US REAL Annualized 10 Year Holding Period Returns ranked by Valuation Quintile [P / Trailing 10 Yr REPORTED E ] : 1871 -

1.50%

5.30%

6.50%

7.20%

10.90%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

First Second Third Fourth Fifth

S&P500 Price / Trailing 10 Year Average Earnings

0.0

10.0

20.0

30.0

40.0

50.0

60.0

Jan-1

0

Jan-1

5

Jan-2

0

Jan-2

5

Jan-3

0

Jan-3

5

Jan-4

0

Jan-4

5

Jan-5

0

Jan-5

5

Jan-6

0

Jan-6

5

Jan-7

0

Jan-7

5

Jan-8

0

Jan-8

5

Jan-9

0

Jan-9

5

Jan-0

0

Jan-0

5

Jan-1

0

US Risk Premium and Implied Returns..

The very poor level of implied returns is reflected in a wafer thin implied equity risk premium...barely 0.7%, the 13th percentile over 110 years, if valuations revert to the median level. A low level of implied return plus a low margin of safety should be a warning to investors …

The range of implied returns, from current valuation levels, is between -4.7% to +3.1% annualized, assuming median reversion or a historical worst case valuation multiple….implied returns are very poor by historical standards….


Implied 10 Year S&P500 Equity Risk Premium [Annualized Equity Return, assuming trend 6% EPS Growth and specified Terminal Multiple Valuation Ratio, less Real 10 year Yield] : 1901 -

-20%

-10%

0%

10%

20%

30%

40%

50%

Jan-01Jan-05Jan-09Jan-13Jan-17Jan-21Jan-25Jan-29Jan-33Jan-37Jan-41Jan-45Jan-49Jan-53Jan-57Jan-61Jan-65Jan-69Jan-73Jan-77Jan-81Jan-85Jan-89Jan-93Jan-97Jan-01Jan-05Jan-09Jan-13

terminal multiple = trailing median

terminal multiple = trailing maximum

terminal multiple = trailing minimum

Implied 10 Year S&P500 Holding Period Return [Annualized, assuming trend 6% EPS Growth and specified Terminal Multiple Valuation Ratio]

-20%

-10%

0%

10%

20%

30%

40%

Jan-01

Jan-06

Jan-11

Jan-16

Jan-21

Jan-26

Jan-31

Jan-36

Jan-41

Jan-46

Jan-51

Jan-56

Jan-61

Jan-66

Jan-71

Jan-76

Jan-81

Jan-86

Jan-91

Jan-96

Jan-01

Jan-06

Jan-11

Jan-16

terminal multiple = trailing median

terminal multiple = trailing maximum

terminal multiple = trailing minimum

US Drawdown risk…where the US goes…

When ranked according to US return decile, NON US nominal annualized returns decline in predictable fashion as US returns worsen: at the lower end of the US return distribution, NON US returns are negative…where the US market goes, global markets follow..

The maximum annualized drawdown for the investment holding period increases as the implied equity risk premium declines! ….in the first and second deciles the drawdown exceeds the implied return very substantially...we are currently in the 13th percentile


Median Annual Total Return for the MSCI World EX USA Index, ranked by US Market Return Decile [1st decile = worst US Market Return Decile]

-20.8

-3.0

4.5

16.014.1 15.3 14.5

16.9

22.2

28.6

-30.0

-20.0

-10.0

0.0

10.0

20.0

30.0

40.0

1st [w orst] 2nd 3rd 4th 5th 6th 7th 8th 9th 10th [best]

Minimum Annualized 10 Year S&P500 Holding Period Return ranked by Implied 10 Year Risk Premium Deciles [1st decile = smallest/WORST risk premium, 10th decile = largest/BEST risk

premium ] : 1874 -

-10%

-8%-7%

-5%

-6%

-4%

-3%

-2%-1%

3%

-12.0%

-10.0%

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

1st[WORST]

2nd 3rd 4th 5th 6th 7th 8th 9th 10th [BEST]

US Equities – High Profit Margins = Poor Prospects

The ability of current Margins to predict Profit Growth improves further at the 5 year horizon: over the next 5 years, current elevated margins imply negative nominal net profit growth….margins DO mean revert

Current Profit Margins are a very good predictor of future Profit Growth, at a 3 year horizon: high margins = low implied profit growth [and vice-versa]. An 8.5% net non-financial sector margin implies negative profit growth..


US Non Financial Sector Profits [NET of Tax, IVA & CCadj] / Non Financial Corporate Sector GDP vs Non Financial Corporate Sector Annualized 5 Year FORWARD Profit Growth [NET of

Tax, IVA & CCadj]

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

10.0%

11.0% Q1 1970

Q4 1971

Q3 1973

Q2 1975

Q1 1977

Q4 1978

Q3 1980

Q2 1982

Q1 1984

Q4 1985

Q3 1987

Q2 1989

Q1 1991

Q4 1992

Q3 1994

Q2 1996

Q1 1998

Q4 1999

Q3 2001

Q2 2003

Q1 2005

Q4 2006

Q3 2008

Q2 2010

Q1 2012

Q4 2013

Q3 2015

-15.0

-10.0

-5.0

0.0

5.0

10.0

15.0

20.0

25.0

30.0

Profit / Corp GDP % - LHS INVERTED

5 Yr FORWARD Profit Grow th - RHS

US Non Financial Sector Profits [NET of Tax, IVA & CCadj] / Non Financial Corporate Sector GDP vs Non Financial Corporate Sector Annualized 3 Year FORWARD Profit Growth [NET of

Tax, IVA & CCadj]

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

10.0%

11.0%

Q1 1970

Q4 1971

Q3 1973

Q2 1975

Q1 1977

Q4 1978

Q3 1980

Q2 1982

Q1 1984

Q4 1985

Q3 1987

Q2 1989

Q1 1991

Q4 1992

Q3 1994

Q2 1996

Q1 1998

Q4 1999

Q3 2001

Q2 2003

Q1 2005

Q4 2006

Q3 2008

Q2 2010

Q1 2012

Q4 2013

Q3 2015

-30.0

-20.0

-10.0

0.0

10.0

20.0

30.0

40.0

50.0Profit / Corp GDP % - LHS INVERTED

3 Yr FORWARD Profit Grow th - RHS

US Equities – Corporate De-Leveraging…Really?

Companies have record cash ASSETS, but they correspond to record Credit Market Debt LIABILITIES. Moreover, cash holdings, as a percentage of financial assets, are at the highest level since 1979, but remain low by historical standards..

US Non Farm Non Financial Corporate Businesses have $7.4 trn of Credit Market Debt, a record amount... they have $1.5 trn of cash assets [deposits, money funds, repos], a record amount..


US Non Farm Non Financial Business Sector Credit Market Debt vs Cash [$bn]

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

Q4 1951

Q2 1954

Q4 1956

Q2 1959

Q4 1961

Q2 1964

Q4 1966

Q2 1969

Q4 1971

Q2 1974

Q4 1976

Q2 1979

Q4 1981

Q2 1984

Q4 1986

Q2 1989

Q4 1991

Q2 1994

Q4 1996

Q2 1999

Q4 2001

Q2 2004

Q4 2006

Q2 2009

Q4 2011

Q2 2014

Debt

Cash

US Non Financial Corporate Sector Holdings of Cash Deposits & Money Market Funds as a % of Financial Assets

Q4 2010, 10.4%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%Q

4 1951

Q3 1954

Q2 1957

Q1 1960

Q4 1962

Q3 1965

Q2 1968

Q1 1971

Q4 1973

Q3 1976

Q2 1979

Q1 1982

Q4 1984

Q3 1987

Q2 1990

Q1 1993

Q4 1995

Q3 1998

Q2 2001

Q1 2004

Q4 2006

Q3 2009

Q2 2012

Q1 2015

US Equities – the definition of Cheap…

Besides, even if valuation were historically cheap on this comparable basis… the relationship to forward realized returns is extremely weak..

The S&P500 is valued at 13.5* one-year forward Operating Earnings: the long run median for THAT ratio is 13* [it should not be compared to historical REPORTED earnings valuation multiples]...a 15* multiple is the ceiling in the 1960s, 1987, 1991, 2007 and in 2009..


S&P500 Price / 12 Months FORWARD Operating Earnings [horiz axis] vs 12 Months FORWARD Total Return [vert axis] : 1987 -

y = -1.70x + 37.68R2 = 0.11

-70.0

-60.0

-50.0

-40.0

-30.0

-20.0

-10.0

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.07.0

9.0

11.0

13.0

15.0

17.0

19.0

21.0

23.0

25.0

27.0

S&P500 Price / Forward Operating EPS [ PRE 1985 data modelled from deviation versus trend for ISM and Peak Reported Earnings per Share ]

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

Dec-59

Dec-61

Dec-63

Dec-65

Dec-67

Dec-69

Dec-71

Dec-73

Dec-75

Dec-77

Dec-79

Dec-81

Dec-83

Dec-85

Dec-87

Dec-89

Dec-91

Dec-93

Dec-95

Dec-97

Dec-99

Dec-01

Dec-03

Dec-05

Dec-07

Dec-09

Dec-11

Dec-13

Dec-15

More than just Growth….…the US case

Even the CHANGE in the annual GDP Growth rate forecast in any 6 month period is negatively correlated with US equity returns over the subsequent 6 month period: actual and expected GDP growth are NOT positively correlated with realized market returns….

The relationship between expected US GDP Growth over the next year and subsequent, realized, Equity Returns is negative! When Growth expectations are strong, it is usually the precursor to lower returns. Actual Growth and Returns are negatively correlated cross sectionally across markets….


US Nominal GDP Growth Rate Forecast One Year Forward [Philadelphia Fed Livingston Survey, HORIZ AXIS] versus Realized Nominal MSCI US Equity Index Total Return [VERT

AXIS, 1971 - ]

y = -2.7x + 15.7R2 = 0.1

-70.0

-50.0

-30.0

-10.0

10.0

30.0

50.0

70.0

-3.0 -2.0 -1.0 0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0

CHANGE in US One Year Forward GDP Forecast Growth Rate over a 6 month period [Philadelphia Fed Livingston Survey, HORIZ AXIS , 1971- ] versus the Total Return for the

MSCI US Equity Index over the subsequent 6 month period [VERT AXIS]

y = -2.8x + 5.9R2 = 0.1

-50.0

-40.0

-30.0

-20.0

-10.0

0.0

10.0

20.0

30.0

40.0

50.0

-4.0 -3.0 -2.0 -1.0 0.0 1.0 2.0 3.0 4.0

Quantitative Easing II / III / IV …who cares?

Increases in the supply of money induce a near perfect offsetting reduction in the velocity of circulation of money: if velocity declines proportionally with the rise in money supply, nominal income is unaffected..

Money Supply * Velocity of Circulation of Money = the Price Level * Income [MV=PY]. As rates converge to zero, the velocity of circulation of money collapses…monetary policy pushes on a piece of string at low rate levels…


US Short Term Interest Rate [VERTICAL AXIS] vs Monetary Velocity [ NOMINAL GDP / Monetary Base] [HORIZONTAL AXIS] : 1959 -

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

5.0 7.0 9.0 11.0 13.0 15.0 17.0 19.0 21.0 23.0

5 Year Annualized Change in the Monetary Base [HORIZONTAL AXIS] vs 5 Year Annualized Change in the Velocity of Circulation of Money [VERTICAL AXIS] : 1959 -

y = -1.0x + 7.0R2 = 0.7

-20.0

-15.0

-10.0

-5.0

0.0

5.0

10.0

0.0 5.0 10.0 15.0 20.0 25.0

Can Equity Price Inflation lift the US Economy ..?

The decline in velocity in Japan has also been proportional to monetary growth, explaining the ineffectiveness of Japanese monetary policy measures since the early 1990s..…..

Real Equity Market Returns have an extremely weak and insignificant impact on forward Real US GDP growth…[+1% S&P = +0.032% GDP one year ahead]…smaller than the error term in the National Accounts


REAL US Equity Market Total Return [% y/y] vs ONE YEAR FORWARD REAL US GDP [% y/y]

y = 0.0x + 2.7R2 = 0.1

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

-60.0 -40.0 -20.0 0.0 20.0 40.0 60.0 80.0

Japanese Monetary Base ( 5 Year Annualized Growth Rate, VERT axis ) vs Japanese Velocity of Circulation of Money ( 5 Year Annualized Growth Rate, HORIZ axis ) : 1993 -

y = -1.0x + 1.1R2 = 0.9

-8.0

-3.0

2.0

7.0

12.0

17.0

-14.0 -12.0 -10.0 -8.0 -6.0 -4.0 -2.0 0.0 2.0 4.0 6.0

The difficulty in unwinding QE2!

Very low rates imply a very high level of “Liquidity Preference” [ 1 / V = M / PY ]..the relationship is non linear i.e. huge monetary withdrawals are consistent, in the first instance, with a modest rise in rates. Policy reversal must be highly front-loaded..

Money Supply * Velocity of Circulation of Money = the Price Level * Income [MV=PY]. As rates converge to zero, the velocity of circulation of money collapses…monetary policy pushes on a piece of string at low rate levels…


US Short Term Interest Rate [VERTICAL AXIS] vs Monetary Velocity [ NOMINAL GDP / Monetary Base] [HORIZONTAL AXIS] : 1959 -

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

5.0 7.0 9.0 11.0 13.0 15.0 17.0 19.0 21.0 23.0

US 3 Month Treasury Bill Yield [ VERT AXIS] versus "Liquidity preference": Monetary Base / Nominal GDP [HORIZ AXIS] : 1959-

0.00

2.00

4.00

6.00

8.00

10.00

12.00

14.00

16.00

0.04 0.06 0.08 0.10 0.12 0.14 0.16

Japan...preparing for “X-day”…

The household savings rate has fallen to zero in the last 30 years: a structural decline in the level of the population, together with a rising dependency ratio [retirees / workers] implies no increase in net domestic saving levels…in fact, the contrary is to be expected..

Net Savings exceeded the budget deficit over the last 20 years : going forward, that reverses and Japan will have to rely on foreign financing for the budget deficit, as net domestic saving levels for short of the required level…

Source: OECD, Datastream, National Data Sources, LODH Calculation

Japanese General Government Surplus/Deficit [% of GDP, +ve = deficit] vs NET Domestic Saving [% GDP]

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

budget balance [% GDP, +ve = deficit]

NET domestic saving [%GDP]

Japanese NET Household Savings Ratio [% of Disposable Income] vs Japanese Population [millions]

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

20.01980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

110.0

112.0

114.0

116.0

118.0

120.0

122.0

124.0

126.0

128.0

130.0savings rate [lhs]

population [rhs]

Population decline and Saving behaviour..…

Retirees have a substantially negative savings rate: more retirees relative to workers means a lower level of national savings and a structural inability to finance domestically…Japan is, finally, falling dependent on foreign capital..

The “dependency ratio” increases steadily as the number of retirees increases and the working age population share diminishes : a structurally increasing burden on a shrinking workforce…

Source: NIPSSR, LODH Calculation

Japanese Population Breakdown and Projections [National Institute of Population and Social Security Research]

2020, 0.29

2011, 0.23

2020, 0.60

2011, 0.64

0%

10%

20%

30%

40%

50%

60%

70%

80%

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2020

2025

2030

2035

2040

2045

2050

2055

aged 65 + [% of total population]

aged 15-64 [% of total population]

Savings Rate for All Retired Households [increase after 2000 due to decline in social security benefits and a rise in social insurance premiums and taxes] vs Savings Rate for

Workers aged 29 or younger, 30-39 and 60-64 [Horioka (2009)]

-40.0

-30.0

-20.0

-10.0

0.0

10.0

20.0

30.0

40.0

50.0

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

retired households w orkers aged 30-39

w orkers aged 60-64 w orkers aged <29

The scale of Japanese Fiscal irresponsibility....…

Debt service absorbs 21% of Government Revenue: every 100bp increase in the Japanese Government Weighted Average Cost of Capital is estimated to divert 25% of Revenue to debt service !!

The ratio of Government Debt / Tax Revenue is a key sustainability metric: Japan is far beyond any other country and extremely vulnerable to a rise in financing costs…420% is a historical “tipping point” [Reinhart & Rogoff (2008)]

Source: Moodys

General Government Debt / Revenue [2010 data]

1920%

380%320% 300%

195% 190%

0%

500%

1000%

1500%

2000%

2500%

Japan Iceland Greece USA UK France

General Government Interest Expense / Revenue [2010 data]

21%20%

14%

6% 6%5%

0%

5%

10%

15%

20%

25%

Japan Iceland Greece USA UK France

Global Deficits : Sectoral Balances

Current Account countries tend to be burdened with higher net interest servicing costs…especially where current account deficits particularly reflect public sector deficits.

The Current Account Balance is the sum of the Government and Private Financial Balances [Gross Saving – Gross Investment]...Only the Swiss and Norwegians have a “double surplus”…

Source: Datastream, LODH Calculation, See Wynne Godley « Debt and Lending », 2006/4

Current Account / GDP ratio [%, HORIZ AXIS] vs PRIMARY Budget Deficit / GDP ratio [%, VERT AXIS]

Switzerland

Portugal

Italy

France

Canada

Norway

Germany

Japan

UK

Ireland

USA

Spain

Greece

Belgium

-20.0

-15.0

-10.0

-5.0

0.0

5.0

10.0

15.0

-15.0 -10.0 -5.0 0.0 5.0 10.0 15.0 20.0

Current Account / GDP ratio [%, HORIZ AXIS] vs NET Interest Costs/ GDP ratio [%, VERT AXIS]

Italy

Japan

Greece

Germany

Norway

Ireland

Portugal

Spain

Canada

USA

UK

-5

-3

-1

1

3

5

7

9

-15.0 -10.0 -5.0 0.0 5.0 10.0 15.0 20.0

Simple Notes on Fiscal Policy, Debt and Deficits

• Real Debt Growth = Real Primary Deficit / Real Debt (previous period) + Real Interest Payments / Real Debt (previous period)

Which is equivalent to,

• Real Debt Growth = Real Primary Deficit / Real Debt (previous period ) + Effective Interest Rate on Real Debt

Given this,

The Debt / GDP ratio increases with the ratio of the Primary Deficit / GDP and the difference between the Real Effective Interest Rate and the Real GDP Growth Rate, formally

• Change in Debt / GDP = Primary Deficit / GDP + ( Interest Rate – Growth Rate ) * Debt / GDP

See, for example, Craig Burnside « Fiscal Sustainability in Theory and Practise »

Notes on Fiscal Sustainability

The Arithmetic of the Sustainability of Government Debt is simple and irrevocable:

Define the following variables, d = net Debt / GDP ratio at the start point [ch d = the change in the ratio over one period ]

s = the Primary Budget Balance as a % of GDP [the non interest inclusive balance]

g = the growth rate of Real GDP

r = the Real interest rate on the Outstanding stock of Public Debt

Then,

ch d = -s + [ (r – g ) / ( 1 + g ) ] * d

So, to keep the Government Debt / GDP ratio constant, the Primary Surplus as a percentage of GDP must be,

s = [ ( r – g ) / ( 1 + g ) ] * d

Notes on Fiscal Solvency

The Arithmetic of the Solvency of a Sovereign Borrower is similarly easy to derive:

Define the following variables, D = net Debt / GDP ratio at the start point

S = the expected long run average Primary Budget Balance as a % of GDP

G = the expected long run average growth rate of Real GDP

R = the expected long run average / equilibrium Real interest rate on the Outstanding stock of Public Debt

Then, any sustainable policy must satisfy the constraint that the outstanding debt cannot exceed the discounted present value of the current and future primary balance,

S > or equals [ (R – G ) / ( 1 + G ) ] * D

The minimum value of the Primary Surplus [S min] as a percentage of GDP is

S min = [ ( R – G ) / ( 1 + G ) ] * D

Fiscal Inference

Therefore, if

Real Interest Rate on Debt [ R ] > Long Run Trend Real GDP Growth [ G ]

Then

Any country with a positive outstanding Government Debt MUST run future Primary Budget Surpluses

For example, a country with a 100% net Debt / GDP ratio, trend Real GDP growth of 3% and an expected average Real interest rate on the Stock of Government Debt of 4% will have to run, on average, future Primary Surpluses equal to 1% of GDP.

If the Primary Deficit were, say 6% of GDP, then it would have to raise taxes / cut Public Spending by the equivalent of 7% of GDP on average in the future [i.e. permanently]

Fundamental Fiscal Data

Source: OECD, Datastream, LODH calculations, See Willem Buiter « Measuring Fiscal Sustainability », University of Cambridge, 1995

Gross Debt Net Debt Budget Balance Structural Balance Cyclically Adj Primary BalanceGermany 79.9 50.5 -4.0 -3.0 -0.7Spain 72.2 43.4 -9.2 -5.9 -4.7France 92.4 57.1 -7.4 -5.4 -3.2Italy 131.3 103.3 -5.0 -2.1 2.0Ireland 104.9 61.5 -32.3 -26.1 -5.5Greece 129.2 97.3 -8.3 -5.4 -0.3Portugal 92.9 63.2 -7.3 -6.1 -4.3Japan 198.4 114.0 -7.7 -6.7 -5.5UK 81.3 51.3 -9.6 -7.2 -5.0USA 92.8 67.8 -10.5 -8.8 -7.0

2010 [% of GDP]

So, for the USA, assuming trend Real GDP growth at 2.5% and a Real Interest Rate of 3.0% on the outstanding stock of Government Debt and a net Debt / GDP ratio of 68%, a primary surplus of 0.3% of GDP is necessary [1% from estimated 2011 debt levels], requiring a near 8% of GDP swing in the Primary Balance……draconian policy tightening [spending cuts and / or tax increases] required, under very conservative assumptions

US Fiscal Stability Scenarios


USA

% Prim Bal / GDP Net Debt / GDP The Primary Balance [% of GDP] required to Stabilize the Net Debt / GDP ratio AT 2010 LEVELS, for various combinationsCyc Adj ratio of achievable / sustainable Real GDP Growth and Real Interest Rates

-7.0 0.68

Real Interest rateReal GDP Growth -8 -7.5 -7 -6.5 -6 -5.5 -5 -4.5 -4 -3.5 -3 -2.5 -2 -1.5 -1 -0.5 0 0.5 1 1.5 2 2.5 3 3.5 4 4.5 5 5.5 6 6.5 7 7.5 8

0.2 -5.5% -5.2% -4.9% -4.5% -4.2% -3.9% -3.5% -3.2% -2.8% -2.5% -2.2% -1.8% -1.5% -1.1% -0.8% -0.5% -0.1% 0.2% 0.5% 0.9% 1.2% 1.6% 1.9% 2.2% 2.6% 2.9% 3.2% 3.6% 3.9% 4.3% 4.6% 4.9% 5.3%0.3 -5.6% -5.3% -4.9% -4.6% -4.3% -3.9% -3.6% -3.2% -2.9% -2.6% -2.2% -1.9% -1.6% -1.2% -0.9% -0.5% -0.2% 0.1% 0.5% 0.8% 1.1% 1.5% 1.8% 2.2% 2.5% 2.8% 3.2% 3.5% 3.9% 4.2% 4.5% 4.9% 5.2%0.4 -5.7% -5.3% -5.0% -4.7% -4.3% -4.0% -3.6% -3.3% -3.0% -2.6% -2.3% -2.0% -1.6% -1.3% -0.9% -0.6% -0.3% 0.1% 0.4% 0.7% 1.1% 1.4% 1.8% 2.1% 2.4% 2.8% 3.1% 3.4% 3.8% 4.1% 4.5% 4.8% 5.1%0.5 -5.7% -5.4% -5.1% -4.7% -4.4% -4.0% -3.7% -3.4% -3.0% -2.7% -2.4% -2.0% -1.7% -1.3% -1.0% -0.7% -0.3% 0.0% 0.3% 0.7% 1.0% 1.3% 1.7% 2.0% 2.4% 2.7% 3.0% 3.4% 3.7% 4.0% 4.4% 4.7% 5.1%0.6 -5.8% -5.5% -5.1% -4.8% -4.4% -4.1% -3.8% -3.4% -3.1% -2.8% -2.4% -2.1% -1.8% -1.4% -1.1% -0.7% -0.4% -0.1% 0.3% 0.6% 0.9% 1.3% 1.6% 2.0% 2.3% 2.6% 3.0% 3.3% 3.6% 4.0% 4.3% 4.6% 5.0%0.7 -5.9% -5.5% -5.2% -4.8% -4.5% -4.2% -3.8% -3.5% -3.2% -2.8% -2.5% -2.2% -1.8% -1.5% -1.1% -0.8% -0.5% -0.1% 0.2% 0.5% 0.9% 1.2% 1.5% 1.9% 2.2% 2.6% 2.9% 3.2% 3.6% 3.9% 4.2% 4.6% 4.9%0.8 -5.9% -5.6% -5.2% -4.9% -4.6% -4.2% -3.9% -3.6% -3.2% -2.9% -2.6% -2.2% -1.9% -1.5% -1.2% -0.9% -0.5% -0.2% 0.1% 0.5% 0.8% 1.1% 1.5% 1.8% 2.2% 2.5% 2.8% 3.2% 3.5% 3.8% 4.2% 4.5% 4.8%0.9 -6.0% -5.6% -5.3% -5.0% -4.6% -4.3% -4.0% -3.6% -3.3% -3.0% -2.6% -2.3% -1.9% -1.6% -1.3% -0.9% -0.6% -0.3% 0.1% 0.4% 0.7% 1.1% 1.4% 1.7% 2.1% 2.4% 2.8% 3.1% 3.4% 3.8% 4.1% 4.4% 4.8%1.0 -6.0% -5.7% -5.4% -5.0% -4.7% -4.4% -4.0% -3.7% -3.4% -3.0% -2.7% -2.3% -2.0% -1.7% -1.3% -1.0% -0.7% -0.3% 0.0% 0.3% 0.7% 1.0% 1.3% 1.7% 2.0% 2.3% 2.7% 3.0% 3.4% 3.7% 4.0% 4.4% 4.7%1.1 -6.1% -5.8% -5.4% -5.1% -4.8% -4.4% -4.1% -3.8% -3.4% -3.1% -2.7% -2.4% -2.1% -1.7% -1.4% -1.1% -0.7% -0.4% -0.1% 0.3% 0.6% 0.9% 1.3% 1.6% 1.9% 2.3% 2.6% 2.9% 3.3% 3.6% 4.0% 4.3% 4.6%1.2 -6.2% -5.8% -5.5% -5.2% -4.8% -4.5% -4.2% -3.8% -3.5% -3.1% -2.8% -2.5% -2.1% -1.8% -1.5% -1.1% -0.8% -0.5% -0.1% 0.2% 0.5% 0.9% 1.2% 1.5% 1.9% 2.2% 2.5% 2.9% 3.2% 3.5% 3.9% 4.2% 4.6%1.3 -6.2% -5.9% -5.6% -5.2% -4.9% -4.5% -4.2% -3.9% -3.5% -3.2% -2.9% -2.5% -2.2% -1.9% -1.5% -1.2% -0.9% -0.5% -0.2% 0.1% 0.5% 0.8% 1.1% 1.5% 1.8% 2.1% 2.5% 2.8% 3.1% 3.5% 3.8% 4.1% 4.5%1.4 -6.3% -5.9% -5.6% -5.3% -4.9% -4.6% -4.3% -3.9% -3.6% -3.3% -2.9% -2.6% -2.3% -1.9% -1.6% -1.3% -0.9% -0.6% -0.3% 0.1% 0.4% 0.7% 1.1% 1.4% 1.7% 2.1% 2.4% 2.7% 3.1% 3.4% 3.7% 4.1% 4.4%1.5 -6.3% -6.0% -5.7% -5.3% -5.0% -4.7% -4.3% -4.0% -3.7% -3.3% -3.0% -2.7% -2.3% -2.0% -1.7% -1.3% -1.0% -0.7% -0.3% 0.0% 0.3% 0.7% 1.0% 1.3% 1.7% 2.0% 2.3% 2.7% 3.0% 3.3% 3.7% 4.0% 4.3%1.6 -6.4% -6.1% -5.7% -5.4% -5.1% -4.7% -4.4% -4.1% -3.7% -3.4% -3.1% -2.7% -2.4% -2.1% -1.7% -1.4% -1.1% -0.7% -0.4% -0.1% 0.3% 0.6% 0.9% 1.3% 1.6% 1.9% 2.3% 2.6% 2.9% 3.3% 3.6% 3.9% 4.3%1.7 -6.5% -6.1% -5.8% -5.5% -5.1% -4.8% -4.5% -4.1% -3.8% -3.5% -3.1% -2.8% -2.5% -2.1% -1.8% -1.5% -1.1% -0.8% -0.5% -0.1% 0.2% 0.5% 0.9% 1.2% 1.5% 1.9% 2.2% 2.5% 2.9% 3.2% 3.5% 3.9% 4.2%1.8 -6.5% -6.2% -5.9% -5.5% -5.2% -4.9% -4.5% -4.2% -3.9% -3.5% -3.2% -2.9% -2.5% -2.2% -1.9% -1.5% -1.2% -0.9% -0.5% -0.2% 0.1% 0.5% 0.8% 1.1% 1.5% 1.8% 2.1% 2.5% 2.8% 3.1% 3.5% 3.8% 4.1%1.9 -6.6% -6.3% -5.9% -5.6% -5.3% -4.9% -4.6% -4.3% -3.9% -3.6% -3.3% -2.9% -2.6% -2.3% -1.9% -1.6% -1.3% -0.9% -0.6% -0.3% 0.1% 0.4% 0.7% 1.1% 1.4% 1.7% 2.1% 2.4% 2.7% 3.1% 3.4% 3.7% 4.1%2.0 -6.6% -6.3% -6.0% -5.6% -5.3% -5.0% -4.7% -4.3% -4.0% -3.7% -3.3% -3.0% -2.7% -2.3% -2.0% -1.7% -1.3% -1.0% -0.7% -0.3% 0.0% 0.3% 0.7% 1.0% 1.3% 1.7% 2.0% 2.3% 2.7% 3.0% 3.3% 3.7% 4.0%2.1 -6.7% -6.4% -6.0% -5.7% -5.4% -5.0% -4.7% -4.4% -4.0% -3.7% -3.4% -3.1% -2.7% -2.4% -2.1% -1.7% -1.4% -1.1% -0.7% -0.4% -0.1% 0.3% 0.6% 0.9% 1.3% 1.6% 1.9% 2.3% 2.6% 2.9% 3.3% 3.6% 3.9%2.2 -6.8% -6.4% -6.1% -5.8% -5.4% -5.1% -4.8% -4.4% -4.1% -3.8% -3.4% -3.1% -2.8% -2.5% -2.1% -1.8% -1.5% -1.1% -0.8% -0.5% -0.1% 0.2% 0.5% 0.9% 1.2% 1.5% 1.9% 2.2% 2.5% 2.9% 3.2% 3.5% 3.8%2.3 -6.8% -6.5% -6.2% -5.8% -5.5% -5.2% -4.8% -4.5% -4.2% -3.8% -3.5% -3.2% -2.8% -2.5% -2.2% -1.9% -1.5% -1.2% -0.9% -0.5% -0.2% 0.1% 0.5% 0.8% 1.1% 1.5% 1.8% 2.1% 2.5% 2.8% 3.1% 3.4% 3.8%2.4 -6.9% -6.6% -6.2% -5.9% -5.6% -5.2% -4.9% -4.6% -4.2% -3.9% -3.6% -3.2% -2.9% -2.6% -2.3% -1.9% -1.6% -1.3% -0.9% -0.6% -0.3% 0.1% 0.4% 0.7% 1.1% 1.4% 1.7% 2.1% 2.4% 2.7% 3.0% 3.4% 3.7%2.5 -6.9% -6.6% -6.3% -6.0% -5.6% -5.3% -5.0% -4.6% -4.3% -4.0% -3.6% -3.3% -3.0% -2.6% -2.3% -2.0% -1.7% -1.3% -1.0% -0.7% -0.3% 0.0% 0.3% 0.7% 1.0% 1.3% 1.7% 2.0% 2.3% 2.6% 3.0% 3.3% 3.6%2.6 -7.0% -6.7% -6.3% -6.0% -5.7% -5.4% -5.0% -4.7% -4.4% -4.0% -3.7% -3.4% -3.0% -2.7% -2.4% -2.0% -1.7% -1.4% -1.1% -0.7% -0.4% -0.1% 0.3% 0.6% 0.9% 1.3% 1.6% 1.9% 2.2% 2.6% 2.9% 3.2% 3.6%2.7 -7.1% -6.7% -6.4% -6.1% -5.7% -5.4% -5.1% -4.8% -4.4% -4.1% -3.8% -3.4% -3.1% -2.8% -2.4% -2.1% -1.8% -1.5% -1.1% -0.8% -0.5% -0.1% 0.2% 0.5% 0.9% 1.2% 1.5% 1.8% 2.2% 2.5% 2.8% 3.2% 3.5%2.8 -7.1% -6.8% -6.5% -6.1% -5.8% -5.5% -5.1% -4.8% -4.5% -4.2% -3.8% -3.5% -3.2% -2.8% -2.5% -2.2% -1.8% -1.5% -1.2% -0.9% -0.5% -0.2% 0.1% 0.5% 0.8% 1.1% 1.5% 1.8% 2.1% 2.4% 2.8% 3.1% 3.4%2.9 -7.2% -6.8% -6.5% -6.2% -5.9% -5.5% -5.2% -4.9% -4.5% -4.2% -3.9% -3.6% -3.2% -2.9% -2.6% -2.2% -1.9% -1.6% -1.3% -0.9% -0.6% -0.3% 0.1% 0.4% 0.7% 1.1% 1.4% 1.7% 2.0% 2.4% 2.7% 3.0% 3.4%3.0 -7.2% -6.9% -6.6% -6.3% -5.9% -5.6% -5.3% -4.9% -4.6% -4.3% -3.9% -3.6% -3.3% -3.0% -2.6% -2.3% -2.0% -1.6% -1.3% -1.0% -0.7% -0.3% 0.0% 0.3% 0.7% 1.0% 1.3% 1.6% 2.0% 2.3% 2.6% 3.0% 3.3%3.1 -7.3% -7.0% -6.6% -6.3% -6.0% -5.7% -5.3% -5.0% -4.7% -4.3% -4.0% -3.7% -3.4% -3.0% -2.7% -2.4% -2.0% -1.7% -1.4% -1.1% -0.7% -0.4% -0.1% 0.3% 0.6% 0.9% 1.2% 1.6% 1.9% 2.2% 2.6% 2.9% 3.2%3.2 -7.4% -7.0% -6.7% -6.4% -6.0% -5.7% -5.4% -5.1% -4.7% -4.4% -4.1% -3.7% -3.4% -3.1% -2.8% -2.4% -2.1% -1.8% -1.4% -1.1% -0.8% -0.5% -0.1% 0.2% 0.5% 0.9% 1.2% 1.5% 1.8% 2.2% 2.5% 2.8% 3.2%3.3 -7.4% -7.1% -6.8% -6.4% -6.1% -5.8% -5.4% -5.1% -4.8% -4.5% -4.1% -3.8% -3.5% -3.1% -2.8% -2.5% -2.2% -1.8% -1.5% -1.2% -0.9% -0.5% -0.2% 0.1% 0.5% 0.8% 1.1% 1.4% 1.8% 2.1% 2.4% 2.8% 3.1%3.4 -7.5% -7.1% -6.8% -6.5% -6.2% -5.8% -5.5% -5.2% -4.9% -4.5% -4.2% -3.9% -3.5% -3.2% -2.9% -2.6% -2.2% -1.9% -1.6% -1.2% -0.9% -0.6% -0.3% 0.1% 0.4% 0.7% 1.0% 1.4% 1.7% 2.0% 2.4% 2.7% 3.0%3.5 -7.5% -7.2% -6.9% -6.5% -6.2% -5.9% -5.6% -5.2% -4.9% -4.6% -4.3% -3.9% -3.6% -3.3% -2.9% -2.6% -2.3% -2.0% -1.6% -1.3% -1.0% -0.7% -0.3% 0.0% 0.3% 0.7% 1.0% 1.3% 1.6% 2.0% 2.3% 2.6% 2.9%3.6 -7.6% -7.3% -6.9% -6.6% -6.3% -6.0% -5.6% -5.3% -5.0% -4.6% -4.3% -4.0% -3.7% -3.3% -3.0% -2.7% -2.4% -2.0% -1.7% -1.4% -1.0% -0.7% -0.4% -0.1% 0.3% 0.6% 0.9% 1.2% 1.6% 1.9% 2.2% 2.6% 2.9%3.7 -7.6% -7.3% -7.0% -6.7% -6.3% -6.0% -5.7% -5.4% -5.0% -4.7% -4.4% -4.1% -3.7% -3.4% -3.1% -2.7% -2.4% -2.1% -1.8% -1.4% -1.1% -0.8% -0.5% -0.1% 0.2% 0.5% 0.8% 1.2% 1.5% 1.8% 2.2% 2.5% 2.8%3.8 -7.7% -7.4% -7.1% -6.7% -6.4% -6.1% -5.7% -5.4% -5.1% -4.8% -4.4% -4.1% -3.8% -3.5% -3.1% -2.8% -2.5% -2.2% -1.8% -1.5% -1.2% -0.8% -0.5% -0.2% 0.1% 0.5% 0.8% 1.1% 1.4% 1.8% 2.1% 2.4% 2.7%3.9 -7.8% -7.4% -7.1% -6.8% -6.5% -6.1% -5.8% -5.5% -5.2% -4.8% -4.5% -4.2% -3.8% -3.5% -3.2% -2.9% -2.5% -2.2% -1.9% -1.6% -1.2% -0.9% -0.6% -0.3% 0.1% 0.4% 0.7% 1.0% 1.4% 1.7% 2.0% 2.3% 2.7%4.0 -7.8% -7.5% -7.2% -6.8% -6.5% -6.2% -5.9% -5.5% -5.2% -4.9% -4.6% -4.2% -3.9% -3.6% -3.3% -2.9% -2.6% -2.3% -2.0% -1.6% -1.3% -1.0% -0.7% -0.3% 0.0% 0.3% 0.7% 1.0% 1.3% 1.6% 2.0% 2.3% 2.6%

s = [ ( r - g ) / ( 1 + g ) ] * d

Japanese Fiscal Stability Scenarios


JAPAN


-5.5 1.14


0.2 -9.3% -8.8% -8.2% -7.6% -7.1% -6.5% -5.9% -5.3% -4.8% -4.2% -3.6% -3.1% -2.5% -1.9% -1.4% -0.8% -0.2% 0.3% 0.9% 1.5% 2.0% 2.6% 3.2% 3.8% 4.3% 4.9% 5.5% 6.0% 6.6% 7.2% 7.7% 8.3% 8.9%0.3 -9.4% -8.9% -8.3% -7.7% -7.2% -6.6% -6.0% -5.5% -4.9% -4.3% -3.7% -3.2% -2.6% -2.0% -1.5% -0.9% -0.3% 0.2% 0.8% 1.4% 1.9% 2.5% 3.1% 3.6% 4.2% 4.8% 5.3% 5.9% 6.5% 7.0% 7.6% 8.2% 8.7%0.4 -9.5% -9.0% -8.4% -7.8% -7.3% -6.7% -6.1% -5.6% -5.0% -4.4% -3.9% -3.3% -2.7% -2.2% -1.6% -1.0% -0.5% 0.1% 0.7% 1.2% 1.8% 2.4% 3.0% 3.5% 4.1% 4.7% 5.2% 5.8% 6.4% 6.9% 7.5% 8.1% 8.6%0.5 -9.6% -9.1% -8.5% -7.9% -7.4% -6.8% -6.2% -5.7% -5.1% -4.5% -4.0% -3.4% -2.8% -2.3% -1.7% -1.1% -0.6% 0.0% 0.6% 1.1% 1.7% 2.3% 2.8% 3.4% 4.0% 4.5% 5.1% 5.7% 6.2% 6.8% 7.4% 7.9% 8.5%0.6 -9.7% -9.2% -8.6% -8.0% -7.5% -6.9% -6.3% -5.8% -5.2% -4.6% -4.1% -3.5% -2.9% -2.4% -1.8% -1.2% -0.7% -0.1% 0.5% 1.0% 1.6% 2.2% 2.7% 3.3% 3.9% 4.4% 5.0% 5.6% 6.1% 6.7% 7.3% 7.8% 8.4%0.7 -9.8% -9.3% -8.7% -8.1% -7.6% -7.0% -6.5% -5.9% -5.3% -4.8% -4.2% -3.6% -3.1% -2.5% -1.9% -1.4% -0.8% -0.2% 0.3% 0.9% 1.5% 2.0% 2.6% 3.2% 3.7% 4.3% 4.9% 5.4% 6.0% 6.6% 7.1% 7.7% 8.3%0.8 -9.9% -9.4% -8.8% -8.3% -7.7% -7.1% -6.6% -6.0% -5.4% -4.9% -4.3% -3.7% -3.2% -2.6% -2.0% -1.5% -0.9% -0.3% 0.2% 0.8% 1.4% 1.9% 2.5% 3.1% 3.6% 4.2% 4.7% 5.3% 5.9% 6.4% 7.0% 7.6% 8.1%0.9 -10.1% -9.5% -8.9% -8.4% -7.8% -7.2% -6.7% -6.1% -5.5% -5.0% -4.4% -3.8% -3.3% -2.7% -2.1% -1.6% -1.0% -0.5% 0.1% 0.7% 1.2% 1.8% 2.4% 2.9% 3.5% 4.1% 4.6% 5.2% 5.8% 6.3% 6.9% 7.5% 8.0%1.0 -10.2% -9.6% -9.0% -8.5% -7.9% -7.3% -6.8% -6.2% -5.6% -5.1% -4.5% -3.9% -3.4% -2.8% -2.3% -1.7% -1.1% -0.6% 0.0% 0.6% 1.1% 1.7% 2.3% 2.8% 3.4% 3.9% 4.5% 5.1% 5.6% 6.2% 6.8% 7.3% 7.9%1.1 -10.3% -9.7% -9.1% -8.6% -8.0% -7.4% -6.9% -6.3% -5.7% -5.2% -4.6% -4.1% -3.5% -2.9% -2.4% -1.8% -1.2% -0.7% -0.1% 0.5% 1.0% 1.6% 2.1% 2.7% 3.3% 3.8% 4.4% 5.0% 5.5% 6.1% 6.7% 7.2% 7.8%1.2 -10.4% -9.8% -9.2% -8.7% -8.1% -7.5% -7.0% -6.4% -5.9% -5.3% -4.7% -4.2% -3.6% -3.0% -2.5% -1.9% -1.4% -0.8% -0.2% 0.3% 0.9% 1.5% 2.0% 2.6% 3.2% 3.7% 4.3% 4.8% 5.4% 6.0% 6.5% 7.1% 7.7%1.3 -10.5% -9.9% -9.3% -8.8% -8.2% -7.7% -7.1% -6.5% -6.0% -5.4% -4.8% -4.3% -3.7% -3.2% -2.6% -2.0% -1.5% -0.9% -0.3% 0.2% 0.8% 1.4% 1.9% 2.5% 3.0% 3.6% 4.2% 4.7% 5.3% 5.9% 6.4% 7.0% 7.5%1.4 -10.6% -10.0% -9.4% -8.9% -8.3% -7.8% -7.2% -6.6% -6.1% -5.5% -4.9% -4.4% -3.8% -3.3% -2.7% -2.1% -1.6% -1.0% -0.4% 0.1% 0.7% 1.2% 1.8% 2.4% 2.9% 3.5% 4.0% 4.6% 5.2% 5.7% 6.3% 6.9% 7.4%1.5 -10.7% -10.1% -9.5% -9.0% -8.4% -7.9% -7.3% -6.7% -6.2% -5.6% -5.1% -4.5% -3.9% -3.4% -2.8% -2.2% -1.7% -1.1% -0.6% 0.0% 0.6% 1.1% 1.7% 2.2% 2.8% 3.4% 3.9% 4.5% 5.1% 5.6% 6.2% 6.7% 7.3%1.6 -10.8% -10.2% -9.6% -9.1% -8.5% -8.0% -7.4% -6.8% -6.3% -5.7% -5.2% -4.6% -4.0% -3.5% -2.9% -2.4% -1.8% -1.2% -0.7% -0.1% 0.4% 1.0% 1.6% 2.1% 2.7% 3.3% 3.8% 4.4% 4.9% 5.5% 6.1% 6.6% 7.2%1.7 -10.9% -10.3% -9.7% -9.2% -8.6% -8.1% -7.5% -6.9% -6.4% -5.8% -5.3% -4.7% -4.1% -3.6% -3.0% -2.5% -1.9% -1.3% -0.8% -0.2% 0.3% 0.9% 1.5% 2.0% 2.6% 3.1% 3.7% 4.3% 4.8% 5.4% 5.9% 6.5% 7.1%1.8 -11.0% -10.4% -9.9% -9.3% -8.7% -8.2% -7.6% -7.1% -6.5% -5.9% -5.4% -4.8% -4.3% -3.7% -3.1% -2.6% -2.0% -1.5% -0.9% -0.3% 0.2% 0.8% 1.3% 1.9% 2.5% 3.0% 3.6% 4.1% 4.7% 5.3% 5.8% 6.4% 6.9%1.9 -11.1% -10.5% -10.0% -9.4% -8.8% -8.3% -7.7% -7.2% -6.6% -6.0% -5.5% -4.9% -4.4% -3.8% -3.2% -2.7% -2.1% -1.6% -1.0% -0.4% 0.1% 0.7% 1.2% 1.8% 2.3% 2.9% 3.5% 4.0% 4.6% 5.1% 5.7% 6.3% 6.8%2.0 -11.2% -10.6% -10.1% -9.5% -8.9% -8.4% -7.8% -7.3% -6.7% -6.1% -5.6% -5.0% -4.5% -3.9% -3.4% -2.8% -2.2% -1.7% -1.1% -0.6% 0.0% 0.6% 1.1% 1.7% 2.2% 2.8% 3.4% 3.9% 4.5% 5.0% 5.6% 6.1% 6.7%2.1 -11.3% -10.7% -10.2% -9.6% -9.0% -8.5% -7.9% -7.4% -6.8% -6.3% -5.7% -5.1% -4.6% -4.0% -3.5% -2.9% -2.3% -1.8% -1.2% -0.7% -0.1% 0.4% 1.0% 1.6% 2.1% 2.7% 3.2% 3.8% 4.4% 4.9% 5.5% 6.0% 6.6%2.2 -11.4% -10.8% -10.3% -9.7% -9.1% -8.6% -8.0% -7.5% -6.9% -6.4% -5.8% -5.2% -4.7% -4.1% -3.6% -3.0% -2.5% -1.9% -1.3% -0.8% -0.2% 0.3% 0.9% 1.4% 2.0% 2.6% 3.1% 3.7% 4.2% 4.8% 5.4% 5.9% 6.5%2.3 -11.5% -10.9% -10.4% -9.8% -9.2% -8.7% -8.1% -7.6% -7.0% -6.5% -5.9% -5.3% -4.8% -4.2% -3.7% -3.1% -2.6% -2.0% -1.4% -0.9% -0.3% 0.2% 0.8% 1.3% 1.9% 2.5% 3.0% 3.6% 4.1% 4.7% 5.2% 5.8% 6.3%2.4 -11.6% -11.0% -10.5% -9.9% -9.3% -8.8% -8.2% -7.7% -7.1% -6.6% -6.0% -5.5% -4.9% -4.3% -3.8% -3.2% -2.7% -2.1% -1.6% -1.0% -0.4% 0.1% 0.7% 1.2% 1.8% 2.3% 2.9% 3.5% 4.0% 4.6% 5.1% 5.7% 6.2%2.5 -11.7% -11.1% -10.6% -10.0% -9.5% -8.9% -8.3% -7.8% -7.2% -6.7% -6.1% -5.6% -5.0% -4.4% -3.9% -3.3% -2.8% -2.2% -1.7% -1.1% -0.6% 0.0% 0.6% 1.1% 1.7% 2.2% 2.8% 3.3% 3.9% 4.4% 5.0% 5.6% 6.1%2.6 -11.8% -11.2% -10.7% -10.1% -9.6% -9.0% -8.4% -7.9% -7.3% -6.8% -6.2% -5.7% -5.1% -4.6% -4.0% -3.4% -2.9% -2.3% -1.8% -1.2% -0.7% -0.1% 0.4% 1.0% 1.6% 2.1% 2.7% 3.2% 3.8% 4.3% 4.9% 5.4% 6.0%2.7 -11.9% -11.3% -10.8% -10.2% -9.7% -9.1% -8.5% -8.0% -7.4% -6.9% -6.3% -5.8% -5.2% -4.7% -4.1% -3.6% -3.0% -2.4% -1.9% -1.3% -0.8% -0.2% 0.3% 0.9% 1.4% 2.0% 2.6% 3.1% 3.7% 4.2% 4.8% 5.3% 5.9%2.8 -12.0% -11.4% -10.9% -10.3% -9.8% -9.2% -8.6% -8.1% -7.5% -7.0% -6.4% -5.9% -5.3% -4.8% -4.2% -3.7% -3.1% -2.5% -2.0% -1.4% -0.9% -0.3% 0.2% 0.8% 1.3% 1.9% 2.4% 3.0% 3.5% 4.1% 4.7% 5.2% 5.8%2.9 -12.1% -11.5% -11.0% -10.4% -9.9% -9.3% -8.7% -8.2% -7.6% -7.1% -6.5% -6.0% -5.4% -4.9% -4.3% -3.8% -3.2% -2.7% -2.1% -1.6% -1.0% -0.4% 0.1% 0.7% 1.2% 1.8% 2.3% 2.9% 3.4% 4.0% 4.5% 5.1% 5.6%3.0 -12.2% -11.6% -11.1% -10.5% -10.0% -9.4% -8.9% -8.3% -7.7% -7.2% -6.6% -6.1% -5.5% -5.0% -4.4% -3.9% -3.3% -2.8% -2.2% -1.7% -1.1% -0.6% 0.0% 0.6% 1.1% 1.7% 2.2% 2.8% 3.3% 3.9% 4.4% 5.0% 5.5%3.1 -12.3% -11.7% -11.2% -10.6% -10.1% -9.5% -9.0% -8.4% -7.8% -7.3% -6.7% -6.2% -5.6% -5.1% -4.5% -4.0% -3.4% -2.9% -2.3% -1.8% -1.2% -0.7% -0.1% 0.4% 1.0% 1.5% 2.1% 2.7% 3.2% 3.8% 4.3% 4.9% 5.4%3.2 -12.4% -11.8% -11.3% -10.7% -10.2% -9.6% -9.1% -8.5% -8.0% -7.4% -6.8% -6.3% -5.7% -5.2% -4.6% -4.1% -3.5% -3.0% -2.4% -1.9% -1.3% -0.8% -0.2% 0.3% 0.9% 1.4% 2.0% 2.5% 3.1% 3.6% 4.2% 4.7% 5.3%3.3 -12.5% -11.9% -11.4% -10.8% -10.3% -9.7% -9.2% -8.6% -8.1% -7.5% -7.0% -6.4% -5.8% -5.3% -4.7% -4.2% -3.6% -3.1% -2.5% -2.0% -1.4% -0.9% -0.3% 0.2% 0.8% 1.3% 1.9% 2.4% 3.0% 3.5% 4.1% 4.6% 5.2%3.4 -12.6% -12.0% -11.5% -10.9% -10.4% -9.8% -9.3% -8.7% -8.2% -7.6% -7.1% -6.5% -6.0% -5.4% -4.8% -4.3% -3.7% -3.2% -2.6% -2.1% -1.5% -1.0% -0.4% 0.1% 0.7% 1.2% 1.8% 2.3% 2.9% 3.4% 4.0% 4.5% 5.1%3.5 -12.7% -12.1% -11.6% -11.0% -10.5% -9.9% -9.4% -8.8% -8.3% -7.7% -7.2% -6.6% -6.1% -5.5% -5.0% -4.4% -3.9% -3.3% -2.8% -2.2% -1.7% -1.1% -0.6% 0.0% 0.6% 1.1% 1.7% 2.2% 2.8% 3.3% 3.9% 4.4% 5.0%3.6 -12.8% -12.2% -11.7% -11.1% -10.6% -10.0% -9.5% -8.9% -8.4% -7.8% -7.3% -6.7% -6.2% -5.6% -5.1% -4.5% -4.0% -3.4% -2.9% -2.3% -1.8% -1.2% -0.7% -0.1% 0.4% 1.0% 1.5% 2.1% 2.6% 3.2% 3.7% 4.3% 4.8%3.7 -12.9% -12.3% -11.8% -11.2% -10.7% -10.1% -9.6% -9.0% -8.5% -7.9% -7.4% -6.8% -6.3% -5.7% -5.2% -4.6% -4.1% -3.5% -3.0% -2.4% -1.9% -1.3% -0.8% -0.2% 0.3% 0.9% 1.4% 2.0% 2.5% 3.1% 3.6% 4.2% 4.7%3.8 -13.0% -12.4% -11.9% -11.3% -10.8% -10.2% -9.7% -9.1% -8.6% -8.0% -7.5% -6.9% -6.4% -5.8% -5.3% -4.7% -4.2% -3.6% -3.1% -2.5% -2.0% -1.4% -0.9% -0.3% 0.2% 0.8% 1.3% 1.9% 2.4% 3.0% 3.5% 4.1% 4.6%3.9 -13.1% -12.5% -12.0% -11.4% -10.9% -10.3% -9.8% -9.2% -8.7% -8.1% -7.6% -7.0% -6.5% -5.9% -5.4% -4.8% -4.3% -3.7% -3.2% -2.6% -2.1% -1.5% -1.0% -0.4% 0.1% 0.7% 1.2% 1.8% 2.3% 2.9% 3.4% 3.9% 4.5%4.0 -13.1% -12.6% -12.1% -11.5% -11.0% -10.4% -9.9% -9.3% -8.8% -8.2% -7.7% -7.1% -6.6% -6.0% -5.5% -4.9% -4.4% -3.8% -3.3% -2.7% -2.2% -1.6% -1.1% -0.5% 0.0% 0.5% 1.1% 1.6% 2.2% 2.7% 3.3% 3.8% 4.4%

s = [ ( r - g ) / ( 1 + g ) ] * d

Spanish Fiscal Stability Scenarios


SPAIN


-4.7 0.43


0.2 -3.6% -3.3% -3.1% -2.9% -2.7% -2.5% -2.3% -2.0% -1.8% -1.6% -1.4% -1.2% -1.0% -0.7% -0.5% -0.3% -0.1% 0.1% 0.3% 0.6% 0.8% 1.0% 1.2% 1.4% 1.6% 1.9% 2.1% 2.3% 2.5% 2.7% 2.9% 3.2% 3.4%0.3 -3.6% -3.4% -3.2% -2.9% -2.7% -2.5% -2.3% -2.1% -1.9% -1.6% -1.4% -1.2% -1.0% -0.8% -0.6% -0.3% -0.1% 0.1% 0.3% 0.5% 0.7% 1.0% 1.2% 1.4% 1.6% 1.8% 2.0% 2.3% 2.5% 2.7% 2.9% 3.1% 3.3%0.4 -3.6% -3.4% -3.2% -3.0% -2.8% -2.6% -2.3% -2.1% -1.9% -1.7% -1.5% -1.3% -1.0% -0.8% -0.6% -0.4% -0.2% 0.0% 0.3% 0.5% 0.7% 0.9% 1.1% 1.3% 1.6% 1.8% 2.0% 2.2% 2.4% 2.6% 2.9% 3.1% 3.3%0.5 -3.7% -3.5% -3.2% -3.0% -2.8% -2.6% -2.4% -2.2% -1.9% -1.7% -1.5% -1.3% -1.1% -0.9% -0.6% -0.4% -0.2% 0.0% 0.2% 0.4% 0.6% 0.9% 1.1% 1.3% 1.5% 1.7% 1.9% 2.2% 2.4% 2.6% 2.8% 3.0% 3.2%0.6 -3.7% -3.5% -3.3% -3.1% -2.9% -2.6% -2.4% -2.2% -2.0% -1.8% -1.6% -1.3% -1.1% -0.9% -0.7% -0.5% -0.3% 0.0% 0.2% 0.4% 0.6% 0.8% 1.0% 1.3% 1.5% 1.7% 1.9% 2.1% 2.3% 2.5% 2.8% 3.0% 3.2%0.7 -3.8% -3.5% -3.3% -3.1% -2.9% -2.7% -2.5% -2.2% -2.0% -1.8% -1.6% -1.4% -1.2% -0.9% -0.7% -0.5% -0.3% -0.1% 0.1% 0.3% 0.6% 0.8% 1.0% 1.2% 1.4% 1.6% 1.9% 2.1% 2.3% 2.5% 2.7% 2.9% 3.1%0.8 -3.8% -3.6% -3.4% -3.1% -2.9% -2.7% -2.5% -2.3% -2.1% -1.9% -1.6% -1.4% -1.2% -1.0% -0.8% -0.6% -0.3% -0.1% 0.1% 0.3% 0.5% 0.7% 0.9% 1.2% 1.4% 1.6% 1.8% 2.0% 2.2% 2.5% 2.7% 2.9% 3.1%0.9 -3.8% -3.6% -3.4% -3.2% -3.0% -2.8% -2.5% -2.3% -2.1% -1.9% -1.7% -1.5% -1.2% -1.0% -0.8% -0.6% -0.4% -0.2% 0.0% 0.3% 0.5% 0.7% 0.9% 1.1% 1.3% 1.6% 1.8% 2.0% 2.2% 2.4% 2.6% 2.8% 3.1%1.0 -3.9% -3.7% -3.4% -3.2% -3.0% -2.8% -2.6% -2.4% -2.2% -1.9% -1.7% -1.5% -1.3% -1.1% -0.9% -0.6% -0.4% -0.2% 0.0% 0.2% 0.4% 0.6% 0.9% 1.1% 1.3% 1.5% 1.7% 1.9% 2.2% 2.4% 2.6% 2.8% 3.0%1.1 -3.9% -3.7% -3.5% -3.3% -3.1% -2.8% -2.6% -2.4% -2.2% -2.0% -1.8% -1.5% -1.3% -1.1% -0.9% -0.7% -0.5% -0.3% 0.0% 0.2% 0.4% 0.6% 0.8% 1.0% 1.2% 1.5% 1.7% 1.9% 2.1% 2.3% 2.5% 2.8% 3.0%1.2 -3.9% -3.7% -3.5% -3.3% -3.1% -2.9% -2.7% -2.4% -2.2% -2.0% -1.8% -1.6% -1.4% -1.2% -0.9% -0.7% -0.5% -0.3% -0.1% 0.1% 0.3% 0.6% 0.8% 1.0% 1.2% 1.4% 1.6% 1.8% 2.1% 2.3% 2.5% 2.7% 2.9%1.3 -4.0% -3.8% -3.6% -3.3% -3.1% -2.9% -2.7% -2.5% -2.3% -2.1% -1.8% -1.6% -1.4% -1.2% -1.0% -0.8% -0.6% -0.3% -0.1% 0.1% 0.3% 0.5% 0.7% 0.9% 1.2% 1.4% 1.6% 1.8% 2.0% 2.2% 2.4% 2.7% 2.9%1.4 -4.0% -3.8% -3.6% -3.4% -3.2% -3.0% -2.7% -2.5% -2.3% -2.1% -1.9% -1.7% -1.5% -1.2% -1.0% -0.8% -0.6% -0.4% -0.2% 0.0% 0.3% 0.5% 0.7% 0.9% 1.1% 1.3% 1.5% 1.8% 2.0% 2.2% 2.4% 2.6% 2.8%1.5 -4.1% -3.9% -3.6% -3.4% -3.2% -3.0% -2.8% -2.6% -2.4% -2.1% -1.9% -1.7% -1.5% -1.3% -1.1% -0.9% -0.6% -0.4% -0.2% 0.0% 0.2% 0.4% 0.6% 0.9% 1.1% 1.3% 1.5% 1.7% 1.9% 2.1% 2.4% 2.6% 2.8%1.6 -4.1% -3.9% -3.7% -3.5% -3.2% -3.0% -2.8% -2.6% -2.4% -2.2% -2.0% -1.8% -1.5% -1.3% -1.1% -0.9% -0.7% -0.5% -0.3% 0.0% 0.2% 0.4% 0.6% 0.8% 1.0% 1.2% 1.5% 1.7% 1.9% 2.1% 2.3% 2.5% 2.7%1.7 -4.1% -3.9% -3.7% -3.5% -3.3% -3.1% -2.9% -2.6% -2.4% -2.2% -2.0% -1.8% -1.6% -1.4% -1.2% -0.9% -0.7% -0.5% -0.3% -0.1% 0.1% 0.3% 0.6% 0.8% 1.0% 1.2% 1.4% 1.6% 1.8% 2.1% 2.3% 2.5% 2.7%1.8 -4.2% -4.0% -3.8% -3.5% -3.3% -3.1% -2.9% -2.7% -2.5% -2.3% -2.0% -1.8% -1.6% -1.4% -1.2% -1.0% -0.8% -0.6% -0.3% -0.1% 0.1% 0.3% 0.5% 0.7% 0.9% 1.2% 1.4% 1.6% 1.8% 2.0% 2.2% 2.4% 2.6%1.9 -4.2% -4.0% -3.8% -3.6% -3.4% -3.2% -2.9% -2.7% -2.5% -2.3% -2.1% -1.9% -1.7% -1.4% -1.2% -1.0% -0.8% -0.6% -0.4% -0.2% 0.0% 0.3% 0.5% 0.7% 0.9% 1.1% 1.3% 1.5% 1.7% 2.0% 2.2% 2.4% 2.6%2.0 -4.3% -4.0% -3.8% -3.6% -3.4% -3.2% -3.0% -2.8% -2.6% -2.3% -2.1% -1.9% -1.7% -1.5% -1.3% -1.1% -0.9% -0.6% -0.4% -0.2% 0.0% 0.2% 0.4% 0.6% 0.9% 1.1% 1.3% 1.5% 1.7% 1.9% 2.1% 2.3% 2.6%2.1 -4.3% -4.1% -3.9% -3.7% -3.4% -3.2% -3.0% -2.8% -2.6% -2.4% -2.2% -2.0% -1.7% -1.5% -1.3% -1.1% -0.9% -0.7% -0.5% -0.3% 0.0% 0.2% 0.4% 0.6% 0.8% 1.0% 1.2% 1.4% 1.7% 1.9% 2.1% 2.3% 2.5%2.2 -4.3% -4.1% -3.9% -3.7% -3.5% -3.3% -3.1% -2.8% -2.6% -2.4% -2.2% -2.0% -1.8% -1.6% -1.4% -1.1% -0.9% -0.7% -0.5% -0.3% -0.1% 0.1% 0.3% 0.6% 0.8% 1.0% 1.2% 1.4% 1.6% 1.8% 2.0% 2.3% 2.5%2.3 -4.4% -4.2% -3.9% -3.7% -3.5% -3.3% -3.1% -2.9% -2.7% -2.5% -2.3% -2.0% -1.8% -1.6% -1.4% -1.2% -1.0% -0.8% -0.6% -0.3% -0.1% 0.1% 0.3% 0.5% 0.7% 0.9% 1.1% 1.4% 1.6% 1.8% 2.0% 2.2% 2.4%2.4 -4.4% -4.2% -4.0% -3.8% -3.6% -3.4% -3.1% -2.9% -2.7% -2.5% -2.3% -2.1% -1.9% -1.7% -1.4% -1.2% -1.0% -0.8% -0.6% -0.4% -0.2% 0.0% 0.3% 0.5% 0.7% 0.9% 1.1% 1.3% 1.5% 1.7% 2.0% 2.2% 2.4%2.5 -4.5% -4.2% -4.0% -3.8% -3.6% -3.4% -3.2% -3.0% -2.8% -2.5% -2.3% -2.1% -1.9% -1.7% -1.5% -1.3% -1.1% -0.8% -0.6% -0.4% -0.2% 0.0% 0.2% 0.4% 0.6% 0.8% 1.1% 1.3% 1.5% 1.7% 1.9% 2.1% 2.3%2.6 -4.5% -4.3% -4.1% -3.9% -3.6% -3.4% -3.2% -3.0% -2.8% -2.6% -2.4% -2.2% -1.9% -1.7% -1.5% -1.3% -1.1% -0.9% -0.7% -0.5% -0.3% 0.0% 0.2% 0.4% 0.6% 0.8% 1.0% 1.2% 1.4% 1.7% 1.9% 2.1% 2.3%2.7 -4.5% -4.3% -4.1% -3.9% -3.7% -3.5% -3.3% -3.0% -2.8% -2.6% -2.4% -2.2% -2.0% -1.8% -1.6% -1.4% -1.1% -0.9% -0.7% -0.5% -0.3% -0.1% 0.1% 0.3% 0.5% 0.8% 1.0% 1.2% 1.4% 1.6% 1.8% 2.0% 2.2%2.8 -4.6% -4.4% -4.1% -3.9% -3.7% -3.5% -3.3% -3.1% -2.9% -2.7% -2.5% -2.2% -2.0% -1.8% -1.6% -1.4% -1.2% -1.0% -0.8% -0.5% -0.3% -0.1% 0.1% 0.3% 0.5% 0.7% 0.9% 1.1% 1.4% 1.6% 1.8% 2.0% 2.2%2.9 -4.6% -4.4% -4.2% -4.0% -3.8% -3.5% -3.3% -3.1% -2.9% -2.7% -2.5% -2.3% -2.1% -1.9% -1.6% -1.4% -1.2% -1.0% -0.8% -0.6% -0.4% -0.2% 0.0% 0.3% 0.5% 0.7% 0.9% 1.1% 1.3% 1.5% 1.7% 1.9% 2.2%3.0 -4.6% -4.4% -4.2% -4.0% -3.8% -3.6% -3.4% -3.2% -3.0% -2.7% -2.5% -2.3% -2.1% -1.9% -1.7% -1.5% -1.3% -1.1% -0.8% -0.6% -0.4% -0.2% 0.0% 0.2% 0.4% 0.6% 0.8% 1.1% 1.3% 1.5% 1.7% 1.9% 2.1%3.1 -4.7% -4.5% -4.3% -4.0% -3.8% -3.6% -3.4% -3.2% -3.0% -2.8% -2.6% -2.4% -2.1% -1.9% -1.7% -1.5% -1.3% -1.1% -0.9% -0.7% -0.5% -0.3% 0.0% 0.2% 0.4% 0.6% 0.8% 1.0% 1.2% 1.4% 1.6% 1.9% 2.1%3.2 -4.7% -4.5% -4.3% -4.1% -3.9% -3.7% -3.5% -3.2% -3.0% -2.8% -2.6% -2.4% -2.2% -2.0% -1.8% -1.6% -1.3% -1.1% -0.9% -0.7% -0.5% -0.3% -0.1% 0.1% 0.3% 0.5% 0.8% 1.0% 1.2% 1.4% 1.6% 1.8% 2.0%3.3 -4.8% -4.5% -4.3% -4.1% -3.9% -3.7% -3.5% -3.3% -3.1% -2.9% -2.6% -2.4% -2.2% -2.0% -1.8% -1.6% -1.4% -1.2% -1.0% -0.8% -0.5% -0.3% -0.1% 0.1% 0.3% 0.5% 0.7% 0.9% 1.1% 1.3% 1.6% 1.8% 2.0%3.4 -4.8% -4.6% -4.4% -4.2% -3.9% -3.7% -3.5% -3.3% -3.1% -2.9% -2.7% -2.5% -2.3% -2.1% -1.8% -1.6% -1.4% -1.2% -1.0% -0.8% -0.6% -0.4% -0.2% 0.0% 0.3% 0.5% 0.7% 0.9% 1.1% 1.3% 1.5% 1.7% 1.9%3.5 -4.8% -4.6% -4.4% -4.2% -4.0% -3.8% -3.6% -3.4% -3.1% -2.9% -2.7% -2.5% -2.3% -2.1% -1.9% -1.7% -1.5% -1.3% -1.0% -0.8% -0.6% -0.4% -0.2% 0.0% 0.2% 0.4% 0.6% 0.8% 1.0% 1.3% 1.5% 1.7% 1.9%3.6 -4.9% -4.7% -4.4% -4.2% -4.0% -3.8% -3.6% -3.4% -3.2% -3.0% -2.8% -2.6% -2.3% -2.1% -1.9% -1.7% -1.5% -1.3% -1.1% -0.9% -0.7% -0.5% -0.3% 0.0% 0.2% 0.4% 0.6% 0.8% 1.0% 1.2% 1.4% 1.6% 1.8%3.7 -4.9% -4.7% -4.5% -4.3% -4.1% -3.9% -3.6% -3.4% -3.2% -3.0% -2.8% -2.6% -2.4% -2.2% -2.0% -1.8% -1.6% -1.3% -1.1% -0.9% -0.7% -0.5% -0.3% -0.1% 0.1% 0.3% 0.5% 0.8% 1.0% 1.2% 1.4% 1.6% 1.8%3.8 -4.9% -4.7% -4.5% -4.3% -4.1% -3.9% -3.7% -3.5% -3.3% -3.1% -2.8% -2.6% -2.4% -2.2% -2.0% -1.8% -1.6% -1.4% -1.2% -1.0% -0.8% -0.5% -0.3% -0.1% 0.1% 0.3% 0.5% 0.7% 0.9% 1.1% 1.3% 1.5% 1.8%3.9 -5.0% -4.8% -4.6% -4.3% -4.1% -3.9% -3.7% -3.5% -3.3% -3.1% -2.9% -2.7% -2.5% -2.3% -2.0% -1.8% -1.6% -1.4% -1.2% -1.0% -0.8% -0.6% -0.4% -0.2% 0.0% 0.3% 0.5% 0.7% 0.9% 1.1% 1.3% 1.5% 1.7%4.0 -5.0% -4.8% -4.6% -4.4% -4.2% -4.0% -3.8% -3.6% -3.3% -3.1% -2.9% -2.7% -2.5% -2.3% -2.1% -1.9% -1.7% -1.5% -1.3% -1.0% -0.8% -0.6% -0.4% -0.2% 0.0% 0.2% 0.4% 0.6% 0.8% 1.0% 1.3% 1.5% 1.7%

s = [ ( r - g ) / ( 1 + g ) ] * d

Greek Fiscal Stability Scenarios


GREECE


-0.3 0.97


0.2 -8.0% -7.5% -7.0% -6.5% -6.0% -5.5% -5.0% -4.6% -4.1% -3.6% -3.1% -2.6% -2.1% -1.7% -1.2% -0.7% -0.2% 0.3% 0.8% 1.3% 1.7% 2.2% 2.7% 3.2% 3.7% 4.2% 4.7% 5.1% 5.6% 6.1% 6.6% 7.1% 7.6%0.3 -8.0% -7.6% -7.1% -6.6% -6.1% -5.6% -5.1% -4.7% -4.2% -3.7% -3.2% -2.7% -2.2% -1.7% -1.3% -0.8% -0.3% 0.2% 0.7% 1.2% 1.6% 2.1% 2.6% 3.1% 3.6% 4.1% 4.6% 5.0% 5.5% 6.0% 6.5% 7.0% 7.5%0.4 -8.1% -7.7% -7.2% -6.7% -6.2% -5.7% -5.2% -4.7% -4.3% -3.8% -3.3% -2.8% -2.3% -1.8% -1.4% -0.9% -0.4% 0.1% 0.6% 1.1% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% 4.9% 5.4% 5.9% 6.4% 6.9% 7.4%0.5 -8.2% -7.7% -7.3% -6.8% -6.3% -5.8% -5.3% -4.8% -4.4% -3.9% -3.4% -2.9% -2.4% -1.9% -1.5% -1.0% -0.5% 0.0% 0.5% 1.0% 1.5% 1.9% 2.4% 2.9% 3.4% 3.9% 4.4% 4.8% 5.3% 5.8% 6.3% 6.8% 7.3%0.6 -8.3% -7.8% -7.3% -6.9% -6.4% -5.9% -5.4% -4.9% -4.4% -4.0% -3.5% -3.0% -2.5% -2.0% -1.5% -1.1% -0.6% -0.1% 0.4% 0.9% 1.4% 1.8% 2.3% 2.8% 3.3% 3.8% 4.3% 4.7% 5.2% 5.7% 6.2% 6.7% 7.2%0.7 -8.4% -7.9% -7.4% -7.0% -6.5% -6.0% -5.5% -5.0% -4.5% -4.1% -3.6% -3.1% -2.6% -2.1% -1.6% -1.2% -0.7% -0.2% 0.3% 0.8% 1.3% 1.7% 2.2% 2.7% 3.2% 3.7% 4.2% 4.6% 5.1% 5.6% 6.1% 6.6% 7.1%0.8 -8.5% -8.0% -7.5% -7.0% -6.6% -6.1% -5.6% -5.1% -4.6% -4.1% -3.7% -3.2% -2.7% -2.2% -1.7% -1.3% -0.8% -0.3% 0.2% 0.7% 1.2% 1.6% 2.1% 2.6% 3.1% 3.6% 4.1% 4.5% 5.0% 5.5% 6.0% 6.5% 6.9%0.9 -8.6% -8.1% -7.6% -7.1% -6.7% -6.2% -5.7% -5.2% -4.7% -4.2% -3.8% -3.3% -2.8% -2.3% -1.8% -1.3% -0.9% -0.4% 0.1% 0.6% 1.1% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.4% 4.9% 5.4% 5.9% 6.4% 6.8%1.0 -8.7% -8.2% -7.7% -7.2% -6.7% -6.3% -5.8% -5.3% -4.8% -4.3% -3.9% -3.4% -2.9% -2.4% -1.9% -1.4% -1.0% -0.5% 0.0% 0.5% 1.0% 1.4% 1.9% 2.4% 2.9% 3.4% 3.9% 4.3% 4.8% 5.3% 5.8% 6.3% 6.7%1.1 -8.8% -8.3% -7.8% -7.3% -6.8% -6.3% -5.9% -5.4% -4.9% -4.4% -3.9% -3.5% -3.0% -2.5% -2.0% -1.5% -1.1% -0.6% -0.1% 0.4% 0.9% 1.3% 1.8% 2.3% 2.8% 3.3% 3.8% 4.2% 4.7% 5.2% 5.7% 6.2% 6.6%1.2 -8.8% -8.4% -7.9% -7.4% -6.9% -6.4% -6.0% -5.5% -5.0% -4.5% -4.0% -3.6% -3.1% -2.6% -2.1% -1.6% -1.2% -0.7% -0.2% 0.3% 0.8% 1.2% 1.7% 2.2% 2.7% 3.2% 3.7% 4.1% 4.6% 5.1% 5.6% 6.1% 6.5%1.3 -8.9% -8.4% -8.0% -7.5% -7.0% -6.5% -6.0% -5.6% -5.1% -4.6% -4.1% -3.6% -3.2% -2.7% -2.2% -1.7% -1.2% -0.8% -0.3% 0.2% 0.7% 1.2% 1.6% 2.1% 2.6% 3.1% 3.6% 4.0% 4.5% 5.0% 5.5% 6.0% 6.4%1.4 -9.0% -8.5% -8.1% -7.6% -7.1% -6.6% -6.1% -5.7% -5.2% -4.7% -4.2% -3.7% -3.3% -2.8% -2.3% -1.8% -1.3% -0.9% -0.4% 0.1% 0.6% 1.1% 1.5% 2.0% 2.5% 3.0% 3.5% 3.9% 4.4% 4.9% 5.4% 5.9% 6.3%1.5 -9.1% -8.6% -8.1% -7.7% -7.2% -6.7% -6.2% -5.7% -5.3% -4.8% -4.3% -3.8% -3.4% -2.9% -2.4% -1.9% -1.4% -1.0% -0.5% 0.0% 0.5% 1.0% 1.4% 1.9% 2.4% 2.9% 3.4% 3.8% 4.3% 4.8% 5.3% 5.7% 6.2%1.6 -9.2% -8.7% -8.2% -7.8% -7.3% -6.8% -6.3% -5.8% -5.4% -4.9% -4.4% -3.9% -3.4% -3.0% -2.5% -2.0% -1.5% -1.1% -0.6% -0.1% 0.4% 0.9% 1.3% 1.8% 2.3% 2.8% 3.3% 3.7% 4.2% 4.7% 5.2% 5.6% 6.1%1.7 -9.3% -8.8% -8.3% -7.8% -7.4% -6.9% -6.4% -5.9% -5.5% -5.0% -4.5% -4.0% -3.5% -3.1% -2.6% -2.1% -1.6% -1.1% -0.7% -0.2% 0.3% 0.8% 1.2% 1.7% 2.2% 2.7% 3.2% 3.6% 4.1% 4.6% 5.1% 5.5% 6.0%1.8 -9.4% -8.9% -8.4% -7.9% -7.5% -7.0% -6.5% -6.0% -5.5% -5.1% -4.6% -4.1% -3.6% -3.2% -2.7% -2.2% -1.7% -1.2% -0.8% -0.3% 0.2% 0.7% 1.1% 1.6% 2.1% 2.6% 3.1% 3.5% 4.0% 4.5% 5.0% 5.4% 5.9%1.9 -9.4% -9.0% -8.5% -8.0% -7.5% -7.1% -6.6% -6.1% -5.6% -5.2% -4.7% -4.2% -3.7% -3.2% -2.8% -2.3% -1.8% -1.3% -0.9% -0.4% 0.1% 0.6% 1.0% 1.5% 2.0% 2.5% 3.0% 3.4% 3.9% 4.4% 4.9% 5.3% 5.8%2.0 -9.5% -9.1% -8.6% -8.1% -7.6% -7.2% -6.7% -6.2% -5.7% -5.2% -4.8% -4.3% -3.8% -3.3% -2.9% -2.4% -1.9% -1.4% -1.0% -0.5% 0.0% 0.5% 1.0% 1.4% 1.9% 2.4% 2.9% 3.3% 3.8% 4.3% 4.8% 5.2% 5.7%2.1 -9.6% -9.1% -8.7% -8.2% -7.7% -7.2% -6.8% -6.3% -5.8% -5.3% -4.9% -4.4% -3.9% -3.4% -3.0% -2.5% -2.0% -1.5% -1.0% -0.6% -0.1% 0.4% 0.9% 1.3% 1.8% 2.3% 2.8% 3.2% 3.7% 4.2% 4.7% 5.1% 5.6%2.2 -9.7% -9.2% -8.8% -8.3% -7.8% -7.3% -6.9% -6.4% -5.9% -5.4% -4.9% -4.5% -4.0% -3.5% -3.0% -2.6% -2.1% -1.6% -1.1% -0.7% -0.2% 0.3% 0.8% 1.2% 1.7% 2.2% 2.7% 3.1% 3.6% 4.1% 4.6% 5.0% 5.5%2.3 -9.8% -9.3% -8.8% -8.4% -7.9% -7.4% -6.9% -6.5% -6.0% -5.5% -5.0% -4.6% -4.1% -3.6% -3.1% -2.7% -2.2% -1.7% -1.2% -0.8% -0.3% 0.2% 0.7% 1.1% 1.6% 2.1% 2.6% 3.0% 3.5% 4.0% 4.5% 4.9% 5.4%2.4 -9.9% -9.4% -8.9% -8.5% -8.0% -7.5% -7.0% -6.6% -6.1% -5.6% -5.1% -4.7% -4.2% -3.7% -3.2% -2.8% -2.3% -1.8% -1.3% -0.9% -0.4% 0.1% 0.6% 1.0% 1.5% 2.0% 2.5% 2.9% 3.4% 3.9% 4.4% 4.8% 5.3%2.5 -10.0% -9.5% -9.0% -8.5% -8.1% -7.6% -7.1% -6.6% -6.2% -5.7% -5.2% -4.7% -4.3% -3.8% -3.3% -2.8% -2.4% -1.9% -1.4% -0.9% -0.5% 0.0% 0.5% 0.9% 1.4% 1.9% 2.4% 2.8% 3.3% 3.8% 4.3% 4.7% 5.2%2.6 -10.0% -9.6% -9.1% -8.6% -8.2% -7.7% -7.2% -6.7% -6.3% -5.8% -5.3% -4.8% -4.4% -3.9% -3.4% -2.9% -2.5% -2.0% -1.5% -1.0% -0.6% -0.1% 0.4% 0.9% 1.3% 1.8% 2.3% 2.7% 3.2% 3.7% 4.2% 4.6% 5.1%2.7 -10.1% -9.7% -9.2% -8.7% -8.2% -7.8% -7.3% -6.8% -6.3% -5.9% -5.4% -4.9% -4.5% -4.0% -3.5% -3.0% -2.6% -2.1% -1.6% -1.1% -0.7% -0.2% 0.3% 0.8% 1.2% 1.7% 2.2% 2.7% 3.1% 3.6% 4.1% 4.5% 5.0%2.8 -10.2% -9.7% -9.3% -8.8% -8.3% -7.9% -7.4% -6.9% -6.4% -6.0% -5.5% -5.0% -4.5% -4.1% -3.6% -3.1% -2.6% -2.2% -1.7% -1.2% -0.8% -0.3% 0.2% 0.7% 1.1% 1.6% 2.1% 2.6% 3.0% 3.5% 4.0% 4.4% 4.9%2.9 -10.3% -9.8% -9.4% -8.9% -8.4% -7.9% -7.5% -7.0% -6.5% -6.0% -5.6% -5.1% -4.6% -4.2% -3.7% -3.2% -2.7% -2.3% -1.8% -1.3% -0.9% -0.4% 0.1% 0.6% 1.0% 1.5% 2.0% 2.5% 2.9% 3.4% 3.9% 4.3% 4.8%3.0 -10.4% -9.9% -9.4% -9.0% -8.5% -8.0% -7.6% -7.1% -6.6% -6.1% -5.7% -5.2% -4.7% -4.2% -3.8% -3.3% -2.8% -2.4% -1.9% -1.4% -0.9% -0.5% 0.0% 0.5% 0.9% 1.4% 1.9% 2.4% 2.8% 3.3% 3.8% 4.2% 4.7%3.1 -10.5% -10.0% -9.5% -9.1% -8.6% -8.1% -7.6% -7.2% -6.7% -6.2% -5.8% -5.3% -4.8% -4.3% -3.9% -3.4% -2.9% -2.5% -2.0% -1.5% -1.0% -0.6% -0.1% 0.4% 0.8% 1.3% 1.8% 2.3% 2.7% 3.2% 3.7% 4.2% 4.6%3.2 -10.6% -10.1% -9.6% -9.1% -8.7% -8.2% -7.7% -7.3% -6.8% -6.3% -5.8% -5.4% -4.9% -4.4% -4.0% -3.5% -3.0% -2.5% -2.1% -1.6% -1.1% -0.7% -0.2% 0.3% 0.8% 1.2% 1.7% 2.2% 2.6% 3.1% 3.6% 4.1% 4.5%3.3 -10.6% -10.2% -9.7% -9.2% -8.8% -8.3% -7.8% -7.3% -6.9% -6.4% -5.9% -5.5% -5.0% -4.5% -4.0% -3.6% -3.1% -2.6% -2.2% -1.7% -1.2% -0.8% -0.3% 0.2% 0.7% 1.1% 1.6% 2.1% 2.5% 3.0% 3.5% 4.0% 4.4%3.4 -10.7% -10.3% -9.8% -9.3% -8.8% -8.4% -7.9% -7.4% -7.0% -6.5% -6.0% -5.5% -5.1% -4.6% -4.1% -3.7% -3.2% -2.7% -2.3% -1.8% -1.3% -0.8% -0.4% 0.1% 0.6% 1.0% 1.5% 2.0% 2.4% 2.9% 3.4% 3.9% 4.3%3.5 -10.8% -10.3% -9.9% -9.4% -8.9% -8.5% -8.0% -7.5% -7.0% -6.6% -6.1% -5.6% -5.2% -4.7% -4.2% -3.8% -3.3% -2.8% -2.3% -1.9% -1.4% -0.9% -0.5% 0.0% 0.5% 0.9% 1.4% 1.9% 2.3% 2.8% 3.3% 3.8% 4.2%3.6 -10.9% -10.4% -10.0% -9.5% -9.0% -8.5% -8.1% -7.6% -7.1% -6.7% -6.2% -5.7% -5.3% -4.8% -4.3% -3.8% -3.4% -2.9% -2.4% -2.0% -1.5% -1.0% -0.6% -0.1% 0.4% 0.8% 1.3% 1.8% 2.3% 2.7% 3.2% 3.7% 4.1%3.7 -11.0% -10.5% -10.0% -9.6% -9.1% -8.6% -8.2% -7.7% -7.2% -6.8% -6.3% -5.8% -5.3% -4.9% -4.4% -3.9% -3.5% -3.0% -2.5% -2.1% -1.6% -1.1% -0.7% -0.2% 0.3% 0.8% 1.2% 1.7% 2.2% 2.6% 3.1% 3.6% 4.0%3.8 -11.1% -10.6% -10.1% -9.7% -9.2% -8.7% -8.2% -7.8% -7.3% -6.8% -6.4% -5.9% -5.4% -5.0% -4.5% -4.0% -3.6% -3.1% -2.6% -2.2% -1.7% -1.2% -0.7% -0.3% 0.2% 0.7% 1.1% 1.6% 2.1% 2.5% 3.0% 3.5% 3.9%3.9 -11.1% -10.7% -10.2% -9.7% -9.3% -8.8% -8.3% -7.9% -7.4% -6.9% -6.5% -6.0% -5.5% -5.1% -4.6% -4.1% -3.7% -3.2% -2.7% -2.2% -1.8% -1.3% -0.8% -0.4% 0.1% 0.6% 1.0% 1.5% 2.0% 2.4% 2.9% 3.4% 3.8%4.0 -11.2% -10.8% -10.3% -9.8% -9.4% -8.9% -8.4% -7.9% -7.5% -7.0% -6.5% -6.1% -5.6% -5.1% -4.7% -4.2% -3.7% -3.3% -2.8% -2.3% -1.9% -1.4% -0.9% -0.5% 0.0% 0.5% 0.9% 1.4% 1.9% 2.3% 2.8% 3.3% 3.7%

s = [ ( r - g ) / ( 1 + g ) ] * d

UK Fiscal Stability Scenarios


UK


-5.0 0.51


0.2 -4.2% -3.9% -3.7% -3.4% -3.2% -2.9% -2.7% -2.4% -2.1% -1.9% -1.6% -1.4% -1.1% -0.9% -0.6% -0.4% -0.1% 0.2% 0.4% 0.7% 0.9% 1.2% 1.4% 1.7% 1.9% 2.2% 2.5% 2.7% 3.0% 3.2% 3.5% 3.7% 4.0%0.3 -4.2% -4.0% -3.7% -3.5% -3.2% -3.0% -2.7% -2.5% -2.2% -1.9% -1.7% -1.4% -1.2% -0.9% -0.7% -0.4% -0.2% 0.1% 0.4% 0.6% 0.9% 1.1% 1.4% 1.6% 1.9% 2.1% 2.4% 2.7% 2.9% 3.2% 3.4% 3.7% 3.9%0.4 -4.3% -4.0% -3.8% -3.5% -3.3% -3.0% -2.8% -2.5% -2.2% -2.0% -1.7% -1.5% -1.2% -1.0% -0.7% -0.5% -0.2% 0.1% 0.3% 0.6% 0.8% 1.1% 1.3% 1.6% 1.8% 2.1% 2.3% 2.6% 2.9% 3.1% 3.4% 3.6% 3.9%0.5 -4.3% -4.1% -3.8% -3.6% -3.3% -3.1% -2.8% -2.6% -2.3% -2.0% -1.8% -1.5% -1.3% -1.0% -0.8% -0.5% -0.3% 0.0% 0.3% 0.5% 0.8% 1.0% 1.3% 1.5% 1.8% 2.0% 2.3% 2.6% 2.8% 3.1% 3.3% 3.6% 3.8%0.6 -4.4% -4.1% -3.9% -3.6% -3.4% -3.1% -2.9% -2.6% -2.3% -2.1% -1.8% -1.6% -1.3% -1.1% -0.8% -0.6% -0.3% -0.1% 0.2% 0.5% 0.7% 1.0% 1.2% 1.5% 1.7% 2.0% 2.2% 2.5% 2.8% 3.0% 3.3% 3.5% 3.8%0.7 -4.4% -4.2% -3.9% -3.7% -3.4% -3.2% -2.9% -2.6% -2.4% -2.1% -1.9% -1.6% -1.4% -1.1% -0.9% -0.6% -0.4% -0.1% 0.2% 0.4% 0.7% 0.9% 1.2% 1.4% 1.7% 1.9% 2.2% 2.4% 2.7% 3.0% 3.2% 3.5% 3.7%0.8 -4.5% -4.2% -4.0% -3.7% -3.5% -3.2% -3.0% -2.7% -2.4% -2.2% -1.9% -1.7% -1.4% -1.2% -0.9% -0.7% -0.4% -0.2% 0.1% 0.4% 0.6% 0.9% 1.1% 1.4% 1.6% 1.9% 2.1% 2.4% 2.6% 2.9% 3.2% 3.4% 3.7%0.9 -4.5% -4.3% -4.0% -3.8% -3.5% -3.3% -3.0% -2.7% -2.5% -2.2% -2.0% -1.7% -1.5% -1.2% -1.0% -0.7% -0.5% -0.2% 0.1% 0.3% 0.6% 0.8% 1.1% 1.3% 1.6% 1.8% 2.1% 2.3% 2.6% 2.8% 3.1% 3.4% 3.6%1.0 -4.6% -4.3% -4.1% -3.8% -3.6% -3.3% -3.0% -2.8% -2.5% -2.3% -2.0% -1.8% -1.5% -1.3% -1.0% -0.8% -0.5% -0.3% 0.0% 0.3% 0.5% 0.8% 1.0% 1.3% 1.5% 1.8% 2.0% 2.3% 2.5% 2.8% 3.0% 3.3% 3.6%1.1 -4.6% -4.4% -4.1% -3.9% -3.6% -3.3% -3.1% -2.8% -2.6% -2.3% -2.1% -1.8% -1.6% -1.3% -1.1% -0.8% -0.6% -0.3% -0.1% 0.2% 0.5% 0.7% 1.0% 1.2% 1.5% 1.7% 2.0% 2.2% 2.5% 2.7% 3.0% 3.2% 3.5%1.2 -4.7% -4.4% -4.2% -3.9% -3.6% -3.4% -3.1% -2.9% -2.6% -2.4% -2.1% -1.9% -1.6% -1.4% -1.1% -0.9% -0.6% -0.4% -0.1% 0.2% 0.4% 0.7% 0.9% 1.2% 1.4% 1.7% 1.9% 2.2% 2.4% 2.7% 2.9% 3.2% 3.4%1.3 -4.7% -4.5% -4.2% -3.9% -3.7% -3.4% -3.2% -2.9% -2.7% -2.4% -2.2% -1.9% -1.7% -1.4% -1.2% -0.9% -0.7% -0.4% -0.2% 0.1% 0.4% 0.6% 0.9% 1.1% 1.4% 1.6% 1.9% 2.1% 2.4% 2.6% 2.9% 3.1% 3.4%1.4 -4.8% -4.5% -4.2% -4.0% -3.7% -3.5% -3.2% -3.0% -2.7% -2.5% -2.2% -2.0% -1.7% -1.5% -1.2% -1.0% -0.7% -0.5% -0.2% 0.1% 0.3% 0.6% 0.8% 1.1% 1.3% 1.6% 1.8% 2.1% 2.3% 2.6% 2.8% 3.1% 3.3%1.5 -4.8% -4.5% -4.3% -4.0% -3.8% -3.5% -3.3% -3.0% -2.8% -2.5% -2.3% -2.0% -1.8% -1.5% -1.3% -1.0% -0.8% -0.5% -0.3% 0.0% 0.3% 0.5% 0.8% 1.0% 1.3% 1.5% 1.8% 2.0% 2.3% 2.5% 2.8% 3.0% 3.3%1.6 -4.8% -4.6% -4.3% -4.1% -3.8% -3.6% -3.3% -3.1% -2.8% -2.6% -2.3% -2.1% -1.8% -1.6% -1.3% -1.1% -0.8% -0.6% -0.3% -0.1% 0.2% 0.5% 0.7% 1.0% 1.2% 1.5% 1.7% 2.0% 2.2% 2.5% 2.7% 3.0% 3.2%1.7 -4.9% -4.6% -4.4% -4.1% -3.9% -3.6% -3.4% -3.1% -2.9% -2.6% -2.4% -2.1% -1.9% -1.6% -1.4% -1.1% -0.9% -0.6% -0.4% -0.1% 0.2% 0.4% 0.7% 0.9% 1.2% 1.4% 1.7% 1.9% 2.2% 2.4% 2.7% 2.9% 3.2%1.8 -4.9% -4.7% -4.4% -4.2% -3.9% -3.7% -3.4% -3.2% -2.9% -2.7% -2.4% -2.2% -1.9% -1.7% -1.4% -1.2% -0.9% -0.7% -0.4% -0.2% 0.1% 0.4% 0.6% 0.9% 1.1% 1.4% 1.6% 1.9% 2.1% 2.4% 2.6% 2.9% 3.1%1.9 -5.0% -4.7% -4.5% -4.2% -4.0% -3.7% -3.5% -3.2% -3.0% -2.7% -2.5% -2.2% -2.0% -1.7% -1.5% -1.2% -1.0% -0.7% -0.5% -0.2% 0.1% 0.3% 0.6% 0.8% 1.1% 1.3% 1.6% 1.8% 2.1% 2.3% 2.6% 2.8% 3.1%2.0 -5.0% -4.8% -4.5% -4.3% -4.0% -3.8% -3.5% -3.3% -3.0% -2.8% -2.5% -2.3% -2.0% -1.8% -1.5% -1.3% -1.0% -0.8% -0.5% -0.3% 0.0% 0.3% 0.5% 0.8% 1.0% 1.3% 1.5% 1.8% 2.0% 2.3% 2.5% 2.8% 3.0%2.1 -5.1% -4.8% -4.6% -4.3% -4.1% -3.8% -3.6% -3.3% -3.1% -2.8% -2.6% -2.3% -2.1% -1.8% -1.6% -1.3% -1.1% -0.8% -0.6% -0.3% -0.1% 0.2% 0.5% 0.7% 1.0% 1.2% 1.5% 1.7% 2.0% 2.2% 2.5% 2.7% 3.0%2.2 -5.1% -4.9% -4.6% -4.4% -4.1% -3.9% -3.6% -3.4% -3.1% -2.9% -2.6% -2.4% -2.1% -1.9% -1.6% -1.4% -1.1% -0.9% -0.6% -0.4% -0.1% 0.2% 0.4% 0.7% 0.9% 1.2% 1.4% 1.7% 1.9% 2.2% 2.4% 2.7% 2.9%2.3 -5.2% -4.9% -4.7% -4.4% -4.2% -3.9% -3.7% -3.4% -3.2% -2.9% -2.7% -2.4% -2.2% -1.9% -1.7% -1.4% -1.2% -0.9% -0.7% -0.4% -0.2% 0.1% 0.4% 0.6% 0.9% 1.1% 1.4% 1.6% 1.9% 2.1% 2.4% 2.6% 2.9%2.4 -5.2% -5.0% -4.7% -4.5% -4.2% -4.0% -3.7% -3.5% -3.2% -3.0% -2.7% -2.5% -2.2% -2.0% -1.7% -1.5% -1.2% -1.0% -0.7% -0.5% -0.2% 0.1% 0.3% 0.6% 0.8% 1.1% 1.3% 1.6% 1.8% 2.1% 2.3% 2.6% 2.8%2.5 -5.3% -5.0% -4.8% -4.5% -4.3% -4.0% -3.8% -3.5% -3.3% -3.0% -2.8% -2.5% -2.3% -2.0% -1.8% -1.5% -1.3% -1.0% -0.8% -0.5% -0.3% 0.0% 0.3% 0.5% 0.8% 1.0% 1.3% 1.5% 1.8% 2.0% 2.3% 2.5% 2.8%2.6 -5.3% -5.0% -4.8% -4.5% -4.3% -4.0% -3.8% -3.5% -3.3% -3.0% -2.8% -2.5% -2.3% -2.0% -1.8% -1.5% -1.3% -1.0% -0.8% -0.5% -0.3% 0.0% 0.2% 0.4% 0.7% 0.9% 1.2% 1.4% 1.7% 1.9% 2.2% 2.4% 2.7%2.7 -5.3% -5.1% -4.8% -4.6% -4.3% -4.1% -3.8% -3.6% -3.3% -3.1% -2.8% -2.6% -2.3% -2.1% -1.8% -1.6% -1.3% -1.1% -0.8% -0.6% -0.3% -0.1% 0.1% 0.4% 0.6% 0.9% 1.1% 1.4% 1.6% 1.9% 2.1% 2.4% 2.6%2.8 -5.4% -5.1% -4.9% -4.6% -4.4% -4.1% -3.9% -3.6% -3.4% -3.1% -2.9% -2.6% -2.4% -2.1% -1.9% -1.6% -1.4% -1.1% -0.9% -0.6% -0.4% -0.1% 0.1% 0.3% 0.6% 0.8% 1.1% 1.3% 1.6% 1.8% 2.1% 2.3% 2.6%2.9 -5.4% -5.2% -4.9% -4.7% -4.4% -4.2% -3.9% -3.7% -3.4% -3.2% -2.9% -2.7% -2.4% -2.2% -1.9% -1.7% -1.4% -1.2% -0.9% -0.7% -0.4% -0.2% 0.0% 0.3% 0.5% 0.8% 1.0% 1.3% 1.5% 1.8% 2.0% 2.3% 2.5%3.0 -5.5% -5.2% -5.0% -4.7% -4.5% -4.2% -4.0% -3.7% -3.5% -3.2% -3.0% -2.7% -2.5% -2.2% -2.0% -1.7% -1.5% -1.2% -1.0% -0.7% -0.5% -0.2% 0.0% 0.2% 0.5% 0.7% 1.0% 1.2% 1.5% 1.7% 2.0% 2.2% 2.5%3.1 -5.5% -5.3% -5.0% -4.8% -4.5% -4.3% -4.0% -3.8% -3.5% -3.3% -3.0% -2.8% -2.5% -2.3% -2.0% -1.8% -1.5% -1.3% -1.0% -0.8% -0.5% -0.3% 0.0% 0.2% 0.4% 0.7% 0.9% 1.2% 1.4% 1.7% 1.9% 2.2% 2.4%3.2 -5.6% -5.3% -5.1% -4.8% -4.6% -4.3% -4.1% -3.8% -3.6% -3.3% -3.1% -2.8% -2.6% -2.3% -2.1% -1.8% -1.6% -1.3% -1.1% -0.8% -0.6% -0.3% -0.1% 0.1% 0.4% 0.6% 0.9% 1.1% 1.4% 1.6% 1.9% 2.1% 2.4%3.3 -5.6% -5.4% -5.1% -4.9% -4.6% -4.4% -4.1% -3.9% -3.6% -3.4% -3.1% -2.9% -2.6% -2.4% -2.1% -1.9% -1.6% -1.4% -1.1% -0.9% -0.6% -0.4% -0.1% 0.1% 0.3% 0.6% 0.8% 1.1% 1.3% 1.6% 1.8% 2.1% 2.3%3.4 -5.7% -5.4% -5.2% -4.9% -4.7% -4.4% -4.2% -3.9% -3.7% -3.4% -3.2% -2.9% -2.7% -2.4% -2.2% -1.9% -1.7% -1.4% -1.2% -0.9% -0.7% -0.4% -0.2% 0.0% 0.3% 0.5% 0.8% 1.0% 1.3% 1.5% 1.8% 2.0% 2.3%3.5 -5.7% -5.5% -5.2% -5.0% -4.7% -4.5% -4.2% -4.0% -3.7% -3.5% -3.2% -3.0% -2.7% -2.5% -2.2% -2.0% -1.7% -1.5% -1.2% -1.0% -0.7% -0.5% -0.2% 0.0% 0.2% 0.5% 0.7% 1.0% 1.2% 1.5% 1.7% 2.0% 2.2%3.6 -5.7% -5.5% -5.2% -5.0% -4.8% -4.5% -4.3% -4.0% -3.8% -3.5% -3.3% -3.0% -2.8% -2.5% -2.3% -2.0% -1.8% -1.5% -1.3% -1.0% -0.8% -0.5% -0.3% 0.0% 0.2% 0.4% 0.7% 0.9% 1.2% 1.4% 1.7% 1.9% 2.2%3.7 -5.8% -5.5% -5.3% -5.0% -4.8% -4.5% -4.3% -4.1% -3.8% -3.6% -3.3% -3.1% -2.8% -2.6% -2.3% -2.1% -1.8% -1.6% -1.3% -1.1% -0.8% -0.6% -0.3% -0.1% 0.1% 0.4% 0.6% 0.9% 1.1% 1.4% 1.6% 1.9% 2.1%3.8 -5.8% -5.6% -5.3% -5.1% -4.8% -4.6% -4.3% -4.1% -3.9% -3.6% -3.4% -3.1% -2.9% -2.6% -2.4% -2.1% -1.9% -1.6% -1.4% -1.1% -0.9% -0.6% -0.4% -0.1% 0.1% 0.3% 0.6% 0.8% 1.1% 1.3% 1.6% 1.8% 2.1%3.9 -5.9% -5.6% -5.4% -5.1% -4.9% -4.6% -4.4% -4.1% -3.9% -3.7% -3.4% -3.2% -2.9% -2.7% -2.4% -2.2% -1.9% -1.7% -1.4% -1.2% -0.9% -0.7% -0.4% -0.2% 0.0% 0.3% 0.5% 0.8% 1.0% 1.3% 1.5% 1.8% 2.0%4.0 -5.9% -5.7% -5.4% -5.2% -4.9% -4.7% -4.4% -4.2% -3.9% -3.7% -3.5% -3.2% -3.0% -2.7% -2.5% -2.2% -2.0% -1.7% -1.5% -1.2% -1.0% -0.7% -0.5% -0.2% 0.0% 0.2% 0.5% 0.7% 1.0% 1.2% 1.5% 1.7% 2.0%

s = [ ( r - g ) / ( 1 + g ) ] * d

What needs to be done?....Rather a Lot !!

Source: OECD, Datastream, LODH Calculation

EQM % GDPGross Debt Net Debt Budget Balance Structural Balance Cyclically Adj Primary Balance Prim Bal Fiscal Adj

Germany 79.9 50.5 -4.0 -3.0 -0.7Spain 72.2 43.4 -9.2 -5.9 -4.7 0.6 5.4France 92.4 57.1 -7.4 -5.4 -3.2Italy 131.3 103.3 -5.0 -2.1 2.0Ireland 104.9 61.5 -32.3 -26.1 -5.5 0.9 6.4Greece 129.2 97.3 -8.3 -5.4 -0.3 1.4 1.8Portugal 92.9 63.2 -7.3 -6.1 -4.3 0.1 4.4Japan 198.4 114.0 -7.7 -6.7 -5.5 1.6 7.1UK 81.3 51.3 -9.6 -7.2 -5.0 0.3 5.2USA 92.8 67.8 -10.5 -8.8 -7.0 0.3 7.4

2010 [% of GDP]

Given 2010 starting Net Debt ratios, and assuming historical trend Real GDP Growth and Real Interest Rates, the necessary policy tightening is 4.5% -5.5 % in Spain and Portugal, 6.5% in Ireland and in excess of 7% in Japan and the USA.

At TREND GDP Growth and CURRENT Real Yields, the necessary adjustment is 9.7% of GDP in Ireland, 8.8% in Greece and 7.8% in Portugal…larger with inevitably slower Real GDP growth!

Default / Restructuring is both inevitable and unavoidable in those Countries.

Early Warning Signs

Source: IMF

The IMF recently published a “Fiscal Stress Index” and a “Fiscal Vulnerability Index” (see “Measuring Fiscal Vulnerability and Fiscal Stress: A Proposed Set of Indicators”, E Baldacci, J McHugh & I Petrova, IMF WP / 11 / 94, April 2011): the variables monitored are,

10 Year average Interest Rate – GDP Growth Rate gap….”solvency”

General Government Gross / Net debt….”debt burden”

Cyclically Adjusted Primary Balance….”correction for the cycle”

Total Fertility Rate….”population ageing”

Dependency Ratio Projections….”implied burden of ageing population”

Projected Pension and Health Expenditures….”social burden”

Current Gross Financing Needs….”rollover and new borrowing requirement”

Short Term Debt / Total Debt Outstanding….”vulnerability to rollover risk”

Debt Denominated in Foreign Currency….”exposure to Foreign Exchange Risk”

Proportion of Debt held by Non Residents….”non home bias risk”

Weighted Average Debt Maturity….”vulnerability to market sentiment”

Short Term External Debt….”drain, for EM countries, on FX resources”

Implications of Increased Government Leverage

Looking at just the post-War period, the same relationship appears to hold: achievable Real GDP Growth in the Advanced Economies declines materially (with obvious implications for sustainability and solvency) at debt ratios beyond the 90% threshold…

Reinhart & Rogoff [2007] illustrate a relationship [causality?] between Government Leverage and achievable Real GDP Growth rates. In the last 200 or so years, there appears to be a “break” in achievable GDP growth at Debt ratios above 90%..

Source:Reinhart & Rogoff (2008)

Twenty Advanced Economies Average & Median Real GDP Growth rates by Government Debt/GDP band : 1790 - 2009 [Reinhart & Rogoff, 2009]

3.7

3.0

3.4

1.7

3.9

3.1

2.8

1.9

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

<30% 30% - 60% 60% - 90% >90%

average

median

Twenty Advanced Economies Average & Median Real GDP Growth rates by Government Debt/GDP band : 1946 - 2009 [Reinhart & Rogoff, 2010]

3.8

2.9

3.5

-0.2

3.9

3

3.3

2.2

-0.5

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

<30% 30% - 60% 60% - 90% >90%

average

median

How to Tackle the Debt/Deficit problem?

Welfare Systems are under threat, and the evidence suggests those that are least effective will bear the brunt of adjustment ..without severe consequences! Greece, Spain [and Portugal] have particularly expensive and ineffective systems…

Fiscal Policy tightening implemented through cuts in Spending are far more likely to succeed [reduce the cyclically adjusted primary balance by at least 1.5% points of GDP] than are policies focussed upon increasing Revenue…

Source: Alberto Alesina « Fiscal Adjustments: Lessons from Recent History », Harvard, April 2010, Eurostat 2003

The Contribution of Expenditure versus Revenue Based Policy Measures to Fiscal Consolidation [ A Alesina, April 2010, Harvard, 107 adjustment periods from 1980- ]

67.4

56.0

38.9 37.3

32.6

44.0

61.162.7

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

Successful Expansionary Unsuccessful Contractionary

Primary Exp [cycl adj ]

Total Revenue [cycl adj ]

Percent of Households at Risk of Poverty BEFORE and AFTER Social Transfers [Eurostat, 2003]

32

29 2928

26 26

24 24

22 22 22

12

16

11 1112

18

21

16

19 19

12

0

5

10

15

20

25

30

35

40

Denmark Belgium Sw eden Finland France UK Greece Germany Italy Spain Holland

Before

After

Exposure to the Fiscal Problem Countries

US Banks are particularly exposed in Japan, with European banks having $3.4 trn in exposure to the US…

German and French banks are most exposed to the PIGS bloc : they account for one-third of TOTAL foreign bank exposure. They have approximately $305bn in exposure to Portugal, Ireland and Greece alone (30% of the total), with Spain another $320bn (38% of the total)!

Source: BIS, LODH Calculation

Total Bank Exposure to Spain, Greece and the PIGS [Portugal, Ireland, Greece & Spain] Bloc by Individual Country : $bn [BIS Q410 data]

53.034.0

2.713.1 7.4

258.3

370.5

35.0

302.0

119.3

0.0

50.0

100.0

150.0

200.0

250.0

300.0

350.0

400.0

450.0

France Germany Sw iss UK USA

Greece

PIGS

Total Bank Exposure to Japan : $bn [BIS Q410 data]

139.4

57.1

103.4

137.4

306.8

0

50

100

150

200

250

300

350

400

France Germany Sw iss UK USA

Japanese Equity Valuation....cheap at last!

This gives a range of implied annualized holding period returns from +5% to +14%, consistent with a substantial and positive implied equity risk premium, even under conditions where valuation multiples fall to record lows, for the first time in 40 years…

Japanese valuation is exceptionally low, by historical standards, in fact over half of listed Japanese companies trade at valuation below their book [or liquidation] value, balance sheet cash is one-third of the market cap [depresses RoE]..


Japan Equity Index Price / Trailing 10 year Reported Earnings

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0

100.0

Jan-80

Jan-82

Jan-84

Jan-86

Jan-88

Jan-90

Jan-92

Jan-94

Jan-96

Jan-98

Jan-00

Jan-02

Jan-04

Jan-06

Jan-08

Jan-10

Jan-12

Jan-14

Japanese Equity Index Projected 10 Year Holding Period Return with Trend 4% EPS Growth, Given Dividend Yield and Specified Terminal P / 10Yr E Ratio

-20.0%

-10.0%

0.0%

10.0%

20.0%

30.0%

Jan-87

Jan-88

Jan-89

Jan-90

Jan-91

Jan-92

Jan-93

Jan-94

Jan-95

Jan-96

Jan-97

Jan-98

Jan-99

Jan-00

Jan-01

Jan-02

Jan-03

Jan-04

Jan-05

Jan-06

Jan-07

Jan-08

Jan-09

Jan-10

Jan-11

Jan-12

Jan-13

Jan-14

Jan-15

trailing median P / 10yr E trailing minimum trailing maximum

Attractive European ex UK Equity Valuation....…

This gives a range of implied annualized holding period returns from +3.5% to +10%, consistent with a substantial and positive implied equity risk premium, even under conditions where valuation multiples fall to record lows…

In contrast with the US market, Europe ex UK valuation levels remain depressed and attractive, still substantially below bubble-like levels..


MSCI Europe ex UK Equity Index : Price / Trailing 10 Year EPS

0.0

10.0

20.0

30.0

40.0

50.0

60.0

Jan-80

Jan-82

Jan-84

Jan-86

Jan-88

Jan-90

Jan-92

Jan-94

Jan-96

Jan-98

Jan-00

Jan-02

Jan-04

Jan-06

Jan-08

Jan-10

Jan-12

Jan-14

MSCI Europe ex UK Equity Index Projected 10 Year Holding Period Return w ith Trend 4% EPS Growth, Given Dividend Yield and Specified Terminal P / Trailing 10 year E Ratio

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%Sep-86

Sep-87

Sep-88

Sep-89

Sep-90

Sep-91

Sep-92

Sep-93

Sep-94

Sep-95

Sep-96

Sep-97

Sep-98

Sep-99

Sep-00

Sep-01

Sep-02

Sep-03

Sep-04

Sep-05

Sep-06

Sep-07

Sep-08

Sep-09

Sep-10

Sep-11

Sep-12

Sep-13

Sep-14

Sep-15

trailing median P / Peak E trailing minimum trailing maximum

UK Equity Valuation....still undervalued

This gives a range of implied annualized holding period returns from +5% to +11%, consistent with a substantial and positive implied equity risk premium, even under conditions where valuation multiples fall to record lows…

UK equity market valuation remains attractive, even after the marked rally from the 2009 low: at levels observed in the early 1980s..


UK Equity Index : Price / Trailing 10yr Reported EPS

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

Jan-80

Jan-82

Jan-84

Jan-86

Jan-88

Jan-90

Jan-92

Jan-94

Jan-96

Jan-98

Jan-00

Jan-02

Jan-04

Jan-06

Jan-08

Jan-10

Jan-12

Jan-14

UK Equity Index Projected 10 Year Holding Period Return with Trend 6% EPS Growth, Given Dividend Yield and Specified Terminal P / 10yr E Ratio

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%Dec-86

Dec-87

Dec-88

Dec-89

Dec-90

Dec-91

Dec-92

Dec-93

Dec-94

Dec-95

Dec-96

Dec-97

Dec-98

Dec-99

Dec-00

Dec-01

Dec-02

Dec-03

Dec-04

Dec-05

Dec-06

Dec-07

Dec-08

Dec-09

Dec-10

Dec-11

Dec-12

Dec-13

Dec-14

Dec-15

trailing median trailing minimum trailing maximum

Emerging Markets...Imbalances

Emerging Market Equity returns are modestly positively correlated with Western Advanced Country growth rates, but not significantly…..

Emerging Market growth is a function of the willingness of the West to leverage [increase it’s debt] and no more!...the growth differential between developing and emerging countries is a direct consequence of a widening developed country current account deficit..


IMF Emerging Markets Bloc MINUS Advanced Economies bloc Real GDP Growth [%y/y] versus Advanced Economies Current Account Balance [$bn], 3 Year Moving Average

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

-550.0

-450.0

-350.0

-250.0

-150.0

-50.0

50.0

Emerging - Developed GDP % y/y Grow th

Advanced Economies Current Account , RHS INVERTED

Advanced Economies GDP Growth [IMF Data, %y/y, HORIZ AXIS] vs MSCI Emerging Market Index Total Return [%y/y, VERT AXIS] : 1988 - 2010

y = 19.3x + 3.5R2 = 0.2

-150.0

-100.0

-50.0

0.0

50.0

100.0

150.0

200.0

250.0

300.0

-4.0 -3.0 -2.0 -1.0 0.0 1.0 2.0 3.0 4.0 5.0

Emerging Markets...Imbalances and Equity valuation

The “apparently” low valuation multiple versus forward earnings [which are always forecast to be strong in Emerging Markets!] has no ability to predict one year forward index returns…..

As the US Current Account deficit expanded, and the share of the BRIC surplus rose correspondingly, the valuation discount of Emerging Equities evaporated and moved into premium….Emerging Equity valuation reflects an unsustainable external balance position


BRICs Current Account Surplus as a Percentage of the US Current Account Deficit versus the MSCI EM Equity Index Price / Book valuation premium / discount to the MSCI

World Index valuation : 1997-

y = 0.8x - 0.5R2 = 0.9

-70%

-60%

-50%

-40%

-30%

-20%

-10%

0%

10%

20%

-10%

0% 10%

20%

30%

40%

50%

60%

70%

80%

MSCI Emerging Market Index Price / 12 Month FORWARD Operating Earnings [horiz axis] vs MSCI Emerging Markets Index Total Return 12 Months FORWARD [vert axis] : 1990-

y = 0.4x + 24.7R2 = 0.0

-100

-80

-60

-40

-20

0

20

40

60

80

100

120

140

160

180

200

220

5.0 7.0 9.0 11.0 13.0 15.0 17.0 19.0 21.0 23.0 25.0

Russian Equity Valuation …

Assuming long run trend earnings per share growth, and a range of alternative terminal valuation multiples [trailing minimum, median and maximum], implied Russian Index returns are in the range -7% [assuming historically low valuation] to +8%…..

The Russian market is near equilibrium valuation at 6 * trailing peak reported earnings per share and 1.3 * book value..


MSCI Russia Price / Trailing Peak Reported Earnings

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

20.0

Dec-96

Dec-97

Dec-98

Dec-99

Dec-00

Dec-01

Dec-02

Dec-03

Dec-04

Dec-05

Dec-06

Dec-07

Dec-08

Dec-09

Dec-10

Dec-11

Dec-12

Dec-13

Dec-14

Dec-15

P / Peak E

trailing median

MSCI Russia Equity Index Projected 10 Year Holding Period Annualized Return, Assuming Normalized 5% per annum EPS Growth and Reversion to Given Terminal Price / Trailing

Peak Earnings Level

-20.0%

-10.0%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

Dec-96

Dec-97

Dec-98

Dec-99

Dec-00

Dec-01

Dec-02

Dec-03

Dec-04

Dec-05

Dec-06

Dec-07

Dec-08

Dec-09

Dec-10

Dec-11

Dec-12

Dec-13

Dec-14

Dec-15

Trailing Median [ 7.0 * peak earnings]

Trailing Maximum [ 17.2 * peak earnings ]

Trailing Minimum [ 1.1 * peak earnings ]

Russian Issues

The challenges facing Russia are :

• Inflation and Monetary Policy

• Fiscal Policy and Reform e.g. pensions, health and welfare

• Improving the “Investment Climate” with structural reform

• Potential GDP growth with a declining population : Productivity

• A “Rules Based” versus “Discretionary” policy environment

• Banking Supervision

• Avoiding the “Dutch Disease”

Emerging Markets...more than just Growth....

From current valuation levels, implied returns are very modest in the BIC bloc: for example, in India, assuming peak eps growth, implied holding period returns lie in the range of just 0% to +7%..that provides a negligible implied risk premium.

Emerging Market Growth and Equity Returns are negatively correlated [insignificantly]……the Tortoise beats the Hare!...strong growth is NOT a positive for relative equity returns

Source: Datastream, LODH Calculation, see P B Henry & P Kannan (2006) « Growth & Returns in Emerging Markets »

Emerging & Developing Economies GDP Growth [IMF Data, %y/y, HORIZ AXIS] vs MSCI Emerging Market Index Total Return [%y/y, VERT AXIS] : 1988 - 2010

y = -7.3x + 84.7R2 = 0.0

-100.0

-50.0

0.0

50.0

100.0

150.0

200.0

250.0

300.0

0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0 10.0

MSCI India Equity Index Projected 10 Year Holding Period Annualized Return, Assuming Normalized 6% per annum EPS Growth and Reversion to Given Terminal Price / Trailing

Peak Earnings Level

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

Jan-96

Jan-97

Jan-98

Jan-99

Jan-00

Jan-01

Jan-02

Jan-03

Jan-04

Jan-05

Jan-06

Jan-07

Jan-08

Jan-09

Jan-10

Jan-11

Jan-12

Jan-13

Jan-14

Jan-15

Trailing Median [ 13.9 * peak earnings]

Trailing Maximum [ 30.6 * peak earnings ]

Trailing Minimum [ 7.0 * peak earnings ]

Global Countries Ranking – May 2011

c Final Rank Valuation Risk Growth MoIT 1.0 1.0 12.0 17.0 8.0FR 2.0 5.0 10.0 12.0 5.0GR 3.0 9.0 4.0 9.0 4.0TU 4.0 4.0 3.0 14.0 7.0JP 5.0 2.0 16.0 1.0 20.0SP 6.0 3.0 15.0 16.0 10.0UK 7.0 8.0 6.0 18.0 3.0RU 8.0 6.0 20.0 2.0 11.0KO 9.0 14.0 1.0 5.0 1.0SW 10.0 7.0 18.0 3.0 13.0US 11.0 17.0 4.0 10.0 1.0CA 12.0 19.0 11.0 6.0 6.0SA 13.0 18.0 14.0 4.0 9.0MX 14.0 10.0 8.0 8.0 19.0HK 15.0 16.0 2.0 19.0 12.0TA 16.0 20.0 9.0 7.0 13.0AU 17.0 13.0 17.0 11.0 15.0CH 18.0 15.0 7.0 13.0 16.0BR 19.0 11.0 19.0 15.0 18.0IN 20.0 12.0 13.0 20.0 17.0

Country and Sector preferences

Rankings and change from previous month

Neutral

Positive

Negative

Turkey

Korea

Russia

South Africa

Mexico

Hong Kong

Taiwan

China

Brazil

India

BRIC bias

Neutral BRIC vs. other Emerging

Non-BRIC bias

Emerging Country RankingDeveloped Country Ranking

Italy

France

Germany

Japan

Spain

UK

Switzerland

US

Canada

Australia

European bias

Neutral Europe vs. US

US bias

Healthcare

Consumer Discretionary

Telecom

Consumer Staples

Energy

Industrials

Materials

Information Technology

Utilities

Financials

Defensive bias

Neutral Defensives vs. Cyclicals

Cyclical bias

Sector Ranking

Source: Lombard Odier

Consistent Yearly Out Performance (Fully Invested Strategy)

MSCI EW 20 countries Portfolio Portfolio19961997 20.2% 29.4% 62.8% 62.8%1998 16.9% -1.8% 19.2% 19.2%1999 27.5% 67.0% 133.5% 133.5%2000 -11.4% -10.6% 4.0% 4.0%2001 -14.4% 1.1% 33.7% 33.7%2002 -24.6% -16.2% -5.7% -5.7%2003 23.5% 37.7% 73.1% 73.1%2004 9.4% 13.9% 4.2% 4.2%2005 15.2% 27.8% 34.8% 34.8%2006 14.3% 23.8% 17.4% 17.4%2007 5.2% 16.3% 23.0% 23.0%2008 -40.9% -43.2% -43.5% -43.5%2009 26.2% 43.5% 46.7% 46.7%2010 9.3% 8.4% 15.3% 15.3%

YTD 2011 3.8% 2.7% 8.3% 8.3%

Back Testing the Strategy (fully invested) since Dec-96, log scale

Portfolio MSCI World% of Positive Months 65% 59%% of Months Out Performing the MSCI 66%

1.8

2.0

2.2

2.4

2.6

2.8

3.0

3.2

3.4

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Perf PortfolioPerf MSCI AC WldPerf EW 20 countries

Bull Market late 90’s Dot-com BubbleDec-96 Portfolio MSCI World May-00 Portfolio MSCI WorldApr-00 Mar-03

Annualized Return 58.9% 19.6% Annualized Return 12.4% -19.7%Avg Mo perf + 8.1% 4.4% Avg Mo perf + 6.4% 3.6%Avg Mo perf - -4.8% -4.1% Avg Mo perf - -4.6% -4.6%Vol 27.4% 16.5% Vol 24.1% 16.5%Beta 1.14 1.00 Beta 1.14 1.00Track Er vs MSCI AC 21.7% Track Er vs MSCI AC 18.1%Track Er vs EW 15.5% Track Er vs EW 12.5%Info ratio vs MSCI AC 1.81 Info ratio vs MSCI AC 1.78Info ratio vs EW 2.05 Info ratio vs EW 1.84Max Drawdown -30.6% -18.5% Max Drawdown -26.5% -46.9%Sharpe R (over 4% risk free rate) 2.00 0.94 Sharpe R (over 4% risk free rate) 0.35 -1.44 Bull Market mid-2000’s Sub prime Mortgage Crisis

Apr-03 Portfolio MSCI World Dec-07 Portfolio MSCI WorldNov-07 Mar-09

Annualized Return 32.3% 17.0% Annualized Return -44.4% -44.5%Avg Mo perf + 3.9% 2.5% Avg Mo perf + 3.4% 3.4%Avg Mo perf - -3.4% -1.6% Avg Mo perf - -7.5% -7.5%Vol 14.0% 8.2% Vol 22.5% 23.9%Beta 1.31 1.00 Beta 0.87 1.00Track Er vs MSCI AC 10.0% Track Er vs MSCI AC 8.9%Track Er vs EW 6.7% Track Er vs EW 5.6%Info ratio vs MSCI AC 1.53 Info ratio vs MSCI AC 0.01Info ratio vs EW 0.49 Info ratio vs EW 0.00Max Drawdown -15.1% -4.5% Max Drawdown -52.5% -51.9%Sharpe R (over 4% risk free rate) 2.02 1.59 Sharpe R (over 4% risk free rate) -2.15 -2.03 Recovery since the Sub prime Crisis Entire Period

Mar-09 Portfolio MSCI World Dec-96 Portfolio MSCI WorldMay-10 May-11

Annualized Return 69.7% 51.0% Annualized Return 23.9% 3.3%Avg Mo perf + 7.6% 5.6% Avg Mo perf + 5.7% 3.4%Avg Mo perf - -2.4% -1.4% Avg Mo perf - -4.7% -4.1%Vol 24.1% 16.4% Vol 22.9% 16.5%Beta 1.35 1.00 Beta 1.10 1.00Track Er vs MSCI AC 11.5% Track Er vs MSCI AC 15.1% 0%Track Er vs EW 7.5% Track Er vs EW 10.7% 0%Info ratio vs MSCI AC 1.63 Info ratio vs MSCI AC 1.36 0.0Info ratio vs EW 1.65 Info ratio vs EW 1.25 0.0Max Drawdown -10.0% -9.5% Max Drawdown -53.8% -53.8%Sharpe R (over 4% risk free rate) 2.73 2.86 Sharpe R (over 4% risk free rate) 0.87 -0.04

Out Performance over Various Time Periods

Investors will appreciate that past performance is not a reliable indicator of future performance

Valuation & Risk Premia Price to Book Price to Reported Earnings Price to Forward Earnings Market Cap to historical mean

Risk Beta

Growth / Economic Disequilibrium Sales Growth Reported Earnings Growth Forward Earnings Growth

Momentum Up revisions Momentum 6mnth Momentum 10mnth

Country and Sector Ranking Factors

The core drivers of investment returns

Country Model

Valuation & Risk Premia Price to Book Price to Reported Earnings Risk Premia Market Cap to GDP

Risk Beta Real Exchange Rate

Growth / Economic Disequilibrium Leading Economic Indicator Industrial Production Trade Balance

Momentum Up revisions Momentum 6mnth Momentum 10mnth

Sector Model

Developed Market bias

Neutral Emerging vs. Developed

Emerging Market bias

Defensive bias

Neutral Defensives vs. Cyclicals

Cyclical bias

Currencies…..Dollar, Sterling and the Euro

Sterling is undervalued, by approximately 5-10%, with interest differentials and capital flows consistent with 1.73 versus the USD…PPP at 1.65

Euro is overvalued, by approximately 10 -15%, with interest differentials and capital flows consistent with 1.24 versus the USD…PPP at 1.27


Actual Euro/US Dollar Exchange Rate vs MODELLED Exchange Rate [ derived from Euro interest differential vs BRIC countries and Euro weight in Developing Country FX

Reserves] : out of sample after 2007 , Rsq=93%

0.60

0.80

1.00

1.20

1.40

1.60

1.80

Q3 2

000

Q2 2

001

Q1 2

002

Q4 2

002

Q3 2

003

Q2 2

004

Q1 2

005

Q4 2

005

Q3 2

006

Q2 2

007

Q1 2

008

Q4 2

008

Q3 2

009

Q2 2

010

Q1 2

011

Q4 2

011

Q3 2

012

Q2 2

013

Q1 2

014

Q4 2

014

Q3 2

015

Actual

Modelled

Actual Sterling / Dollar Exchange Rate vs MODELLED Exchange Rate [ as a Function of the BRIC / UK Short Term Interest Rate Differential & the Sterling Weight in Developing

Country Foreign Exchange Reserves] : out of sample after 2007, Rsq = 82%

1.20

1.30

1.40

1.50

1.60

1.70

1.80

1.90

2.00

2.10

Q3 2000

Q2 2001

Q1 2002

Q4 2002

Q3 2003

Q2 2004

Q1 2005

Q4 2005

Q3 2006

Q2 2007

Q1 2008

Q4 2008

Q3 2009

Q2 2010

Q1 2011

Q4 2011

Q3 2012

Q2 2013

Q1 2014

Q4 2014

Q3 2015

Actual

Modelled

Currencies…..the Swiss Franc

The Swiss Franc is a Greek/Portuguese/Irish/Spanish default hedge, as shown in the correlation between the Greek CDS spread and the Euro / Swiss Franc exchange rate...the 20-25% valuation premium appears to reflect default risk, by and large..

Euro is undervalued, by approximately 20 -25% versus the Swiss Franc, with interest differentials and capital flows consistent with 0.63 cents..

Source: Datastream, Bloomberg, LODH Calculation

Actual Euro / Sw iss Franc vs MODELLED Swiss Franc / Euro [as a function of the BRIC vs Swiss interest differential and the Swiss Franc weight in Developing Country FX Reserves]

: out of sample after 2007, Rsq = 81%

0.60

0.65

0.70

0.75

0.80

Q3 2000

Q2 2001

Q1 2002

Q4 2002

Q3 2003

Q2 2004

Q1 2005

Q4 2005

Q3 2006

Q2 2007

Q1 2008

Q4 2008

Q3 2009

Q2 2010

Q1 2011

Q4 2011

Q3 2012

Q2 2013

Q1 2014

Q4 2014

Q3 2015

Actual

Modelled

Greek Government 5 Year Credit Default Swap Spread versus CHF/EUR Exchange Rate

-100.0

100.0

300.0

500.0

700.0

900.0

1100.0

1300.0

1500.008/08/2008

08/10/2008

08/12/2008

08/02/2009

08/04/2009

08/06/2009

08/08/2009

08/10/2009

08/12/2009

08/02/2010

08/04/2010

08/06/2010

08/08/2010

08/10/2010

08/12/2010

08/02/2011

08/04/2011

0.63

0.65

0.67

0.69

0.71

0.73

0.75

0.77

0.79

0.81

0.83

CDS Spread

CHF/Euro Exchange Rate - RHS

AppendixAppendix

A 3-factor model on commodities

• We developed a multi-factor model on commodities that provides us with timely buy signals on each of the 4 commodity segments (Agriculture, Energy, Industrial and Precious Metals)

• Our 3-factor model is based on

1. an economic/risk indicator (US recession barometer)

2. a price momentum component

3. a valuation proxy (deviation from a long-term mean of the relative roll yield of the commodity segment versus that of the commodity global index)

• The net signal on a commodity segment is positive only when ALL 3 factors are positive

• Monthly update of the signals• Backtested results are based on out-of-sample optimized parameters

3-factor model Commodity Model recommendations

Agriculture

Energy

Industrial Metals

Precious Metals

+

+

Net signal

-

-

+

Valuation proxy

+

-

-

+

Momentum

+

+

+

+

Economic cycle

+

+

+

April 2011

Source: Lombard Odier

Favor Energy and Agriculture. Negative Industrial Metals.Negative Precious Metals for 6th months (following 18 consecutive months of positive signal)

Performance of relative bets since last signal changeEnergy outperforms all segments, whilst Agriculture lags Precious Metals (using EXR indices)

Last signal change

Source: Datastream, Lombard Odier calculation

+

+

-

-Current signal

Performance since last signal change (as of May 2011)

12%

43%

19%

3%

11%

34%

19%

12%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

AG PM EN IM AG PM EN IM

Excess return index Spot index

Factor 1: Economic / Risk indicator

• Our US recession barometer is a good proxy for the economic and risk environment for commodities

• It is based on the levels and dynamics of 5 variables: 1) S&P 500, 2) T-Bill vs. CP spread, 3) 3m T-Bills vs. 10y yield spread, 4) payroll growth, 5) ISM manufacturing

• The indicator is reliable, with 89% correct signals (in or out of recession) since 1960Source: Bloomberg, Datastream, Lombard Odier calculation

US recession barometer

062 66 70 74 78 82 86 90 94 98 02 06 10

Recession signal (when all factors are "negative")

NBERofficial recessionperiods

As of May 2011, the

probability of recession in

the US is 20% (with only

payroll growth flashing red)

20%

100%

Signal is POSITIVE for all commodities when there is no recession

Factor 2: Price Momentum

Signal is POSITIVE when index level > optimal moving average


Agriculture: Price index (GSCI Excess Return) and optimal moving average

Energy: Price index (GSCI Excess Return) and optimal moving average

Precious Metals: Price index (GSCI Excess Return) and optimal moving average

Industrial Metals: Price index (GSCI Excess Return) and optimal moving average

Price index (GSCI EN EXR) Optimal movav

Price index (GSCI IM EXR)Optimal movav

Price index (GSCI PM EXR)Optimal movav

250

0

50

100

150

200

88 90 92 94 96 98 00 02 04 06 08 10

Price index (GSCI AG EXR) Optimal movav (44M)

0100200300400500600700800900

88 90 92 94 96 98 00 02 04 06 08 10

0

50

100

150

200

250

300

350

400

88 90 92 94 96 98 00 02 04 06 08 100

50

100

150

200

250

300

88 90 92 94 96 98 00 02 04 06 08 10

Factor 3: Relative roll yield as a valuation proxy

Signal is POSITIVE when relative roll deviation > 0


Agriculture: Deviation of the relative roll (segment vs. overall) from LT trend (z-score)

Energy: Deviation of the relative roll (segment vs. overall) from LT trend (z-score)

Industrial Metals: Deviation of the relative roll (segment vs. overall) from LT trend (z-score)

Rel roll deviation GSCI AGEXR index Rel roll deviation GSCI ENEXR index

Rel roll deviation

GSCI IM EXR index

Precious Metals: Deviation of the relative roll (segment vs. overall) from LT trend (z-score)

Rel roll deviation GSCI PM EXR index88 90 92 94 96 98 00 02 04 06 08 10

roll favorable to Precious Metals = POSITIVE

roll unfavorable toPrecious Metals = NEGATIVE

roll favorable to PM = POSITIVE

roll not fav to PM = NEGATIVE-2.00

-1.50

-1.00

-0.50

0.00

0.50

1.00

1.50

2.00

0

50

100

150

200

250

300

88 90 92 94 96 98 00 02 04 06 08 10

roll unfavorable to Energy =

NEGATIVE

roll favorable to Energy = POSITIVE

-2.00

-1.50

-1.00

-0.500.00

0.50

1.00

1.50

2.00

0100200300400500600700800900

roll unfavorable to Agriculture = NEGATIVE

roll favorable to Agriculture = POSITIVE

-2.00

-1.50

-1.00

-0.50

0.00

0.50

1.00

1.50

2.00

88 90 92 94 96 98 00 02 04 06 08 100

50

100

150

200

250

roll favorable to Industrial Metals =

POSITIVE

roll unfavorable to Industrial Metals =

NEGATIVE-2.00

-1.50

-1.00

-0.500.00

0.50

1.00

1.50

2.00

88 90 92 94 96 98 00 02 04 06 08 100

50

100

150200

250

300

350

400

Backtested results of the model strategy since 1988

Higher returns, lower volatility, more limited DD than benchmark


Model strategy (4 commodity segments) vs benchmark (GSCI)

The model strategy has a clear ABSOLUTE RETURN bias:

it participates on the upside with a lag, but tends to successfully avoid the drawdowns

Model Strategy(4 segments)

Annualized return5.67%

Annualized volatility6.38%

Sharpe Ratio (net)0.89

Max DD12.95%

GSCI EXR indexAnnualized return

3.08%Annualized volatility

21.39%Sharpe Ratio (net)

0.14Max DD70.11%

0

200

400

600

800

1000

1200

88 90 92 94 96 98 00 02 04 06 08 10

Benchmark (GSCI Excess Return Index) Model Strategy (4 segments)

Cross Asset Class SignalsMarket Timing Portfolios

US Equity Euro Equity US 10-yrs Gvt Bond Global REITs CommodityReturn 18.5% 17.2% 10.2% 25.6% 19.5%Volatility 10.0% 10.8% 6.1% 12.3% 14.4%Sharpe (4%) 1.45 1.22 1.02 1.76 1.08Best 12-Months Return 52.1% 42.5% 23.7% 72.9% 70.7%Worst 12-Month Return -0.6% -0.9% -3.6% -1.7% -16.6%

BenchmarksUS Equity Euro Equity US 10-yrs Gvt Bond Global REITs Commodity

Return 9.7% 1.8% 6.5% 15.2% 3.8%Volatility 14.9% 19.6% 7.4% 20.4% 20.6%Sharpe (4%) 0.38 -0.11 0.34 0.55 -0.01Best 12-Months Return 53.6% 49.1% 23.7% 110.8% 70.7%Worst 12-Month Return -43.3% -45.8% -10.5% -60.1% -60.4%

Buy signalTime in months US Equity Euro Equity US 10-yrs Gvt Bond Global REITs CommodityMedian 11 10 8 15 4Average 15 11 12 19 7min 1 1 1 1 1Max 49 40 45 45 20

Sell signalTime in months US Equity Euro Equity US 10-yrs Gvt Bond Global REITs CommodityMedian 2 13 2 7 2Average 6 9 4 6 4min 1 1 1 1 1Max 18 16 13 13 17

28.02.2011 US Equity Euro Equity US 10-yrs Gvt Bond Global REITs CommoditySignal hold hold sell hold hold% difference with the SMA 14.8% 10.0% -2.2% 14.4% 17.4%



Equity Markets

Market Timing Portfolios WRLD AC US JP UK GR FR SW BR CH IN RUReturn 17.4% 20.0% 19.0% 21.4% 22.8% 23.4% 20.5% 36.1% 32.9% 31.3% 58.9%Volatility 9.2% 10.7% 12.2% 11.4% 13.5% 13.6% 11.2% 21.0% 25.6% 21.7% 37.2%Sharpe (4%) 1.45 1.49 1.23 1.53 1.39 1.43 1.47 1.53 1.13 1.26 1.47Best 12-Months Return 41.0% 62.5% 79.9% 68.8% 85.2% 104.0% 69.7% 149.8% 156.5% 131.9% 332.6%Worst 12-Month Return -0.8% -0.6% -2.0% -0.9% -6.2% -2.5% -8.9% -0.4% -19.0% -13.9% -4.0%

Benchmarks WRLD AC US JP UK GR FR SW BR CH IN RUReturn 7.3% 11.1% 3.3% 11.7% 9.9% 11.1% 9.9% 21.1% 12.3% 13.6% 20.1%Volatility 14.5% 15.5% 19.3% 16.2% 21.2% 20.1% 16.5% 28.6% 37.2% 28.5% 54.7%Sharpe (4%) 0.23 0.46 -0.03 0.47 0.28 0.35 0.36 0.60 0.22 0.34 0.29Best 12-Months Return 48.8% 59.4% 79.9% 59.3% 85.2% 92.4% 69.7% 149.8% 156.5% 131.9% 350.6%Worst 12-Month Return -42.4% -43.1% -46.6% -32.7% -53.9% -43.7% -36.5% -44.5% -77.6% -56.3% -91.7%

BUYTime in months WRLD AC US JP UK GR FR SW BR CH IN RUMedian 9 11 4 10 5 8 5 6 8 6 5Average 15 14 7 13 11 10 10 12 8 10 7min 1 1 1 1 1 1 1 1 1 1 1Max 56 49 24 57 39 54 40 45 26 42 28Mode 1 1 1 10 1 1 3 1 8 1 1

SELLTime in months WRLD AC US JP UK GR FR SW BR CH IN RUMedian 5 2 6 2 3 2 3 5 5 5 2Average 6 5 6 3 5 4 4 4 7 6 4min 1 1 1 1 1 1 1 1 1 1 1Max 18 18 21 16 19 18 22 9 18 15 14Mode 3 1 1 2 2 1 1 2 1 1 1

28.02.2011 WRLD AC US JP UK GR FR SW BR CH IN RUSignal hold hold hold hold hold hold hold hold hold sell hold% difference with the SMA 11.0% 14.9% 10.8% 10.0% 12.5% 11.2% 4.7% 3.2% 2.9% -5.8% 17.3%

31.03.2011 WRLD AC US JP UK GR FR SW BR CH IN RUSignal hold hold hold hold hold hold hold hold hold hold hold% difference with the SMA 8.6% 12.6% 1.7% 7.2% 7.2% 6.6% 1.3% 4.2% 8.0% 2.0% 17.9%

29.04.2011 WRLD AC US JP UK GR FR SW BR CH IN RUSignal hold hold sell hold hold hold hold sell hold sell hold% difference with the SMA 8.5% 12.6% -0.4% 7.8% 11.5% 8.0% 4.7% -1.0% 6.6% -0.5% 11.2%

Equity Markets (continued)Market Timing Portfolios CD IT SP AU KO HK TW SA TU MXReturn 19.4% 25.5% 27.8% 20.7% 33.2% 28.5% 27.0% 25.4% 48.4% 40.1%Volatility 11.3% 19.0% 16.0% 11.7% 23.6% 21.1% 24.3% 14.9% 30.6% 21.7%Sharpe (4%) 1.36 1.13 1.49 1.43 1.24 1.16 0.95 1.44 1.45 1.66Best 12-Months Return 80.0% 181.7% 119.8% 95.3% 247.0% 117.5% 117.0% 71.3% 168.1% 189.5%Worst 12-Month Return -10.8% -8.6% -7.0% -2.7% -14.8% -12.1% -10.6% -3.7% -1.7% -9.1%

Benchmarks CD IT SP AU KO HK TW SA TU MXReturn 9.5% 9.7% 15.3% 10.9% 8.8% 12.8% 2.7% 15.1% 19.3% 29.1%Volatility 16.3% 24.3% 22.3% 17.5% 32.3% 29.2% 34.2% 20.7% 42.6% 26.8%Sharpe (4%) 0.34 0.24 0.51 0.39 0.15 0.30 -0.04 0.54 0.36 0.93Best 12-Months Return 84.8% 181.7% 119.8% 95.3% 244.8% 117.5% 97.4% 71.3% 122.8% 189.5%Worst 12-Month Return -39.4% -50.0% -40.7% -38.3% -51.2% -55.0% -71.9% -34.6% -51.2% -38.8%

BUYTime in months CD IT SP AU KO HK TW SA TU MXMedian 12 3 8 9 4 9 6 8 3 6Average 12 8 12 12 7 11 8 10 7 15min 1 1 1 1 1 1 1 1 1 1Max 42 51 57 57 25 42 19 41 21 56Mode 13 1 1 1 2 1 6 1 1 1

SELLTime in months CD IT SP AU KO HK TW SA TU MXMedian 4 4 3 2 4 4 8 2 1 4Average 5 5 5 4 5 5 8 3 2 4min 1 1 1 1 1 1 1 1 1 1Max 13 22 16 17 12 14 18 12 15 11Mode 1 1 1 2 4 2 1 1 1 1

28.02.2011 CD IT SP AU KO HK TW SA TU MXSignal hold hold hold hold hold hold hold hold sell hold% difference with the SMA 12.9% 10.3% 7.8% 7.0% 6.8% 7.9% 6.4% 7.1% -3.7% 7.2%

31.03.2011 CD IT SP AU KO HK TW SA TU MXSignal hold hold hold hold hold hold hold hold sell hold% difference with the SMA 10.6% 5.5% 2.7% 6.4% 12.8% 6.4% 5.0% 7.8% -1.1% 6.6%

29.04.2011 CD IT SP AU KO HK TW SA TU MXSignal hold hold hold hold hold hold hold hold hold hold% difference with the SMA 6.9% 7.6% 4.4% 4.9% 14.2% 6.2% 6.5% 8.1% 5.5% 3.4%

US Equity Market since 1870 (Shiller, Log Scale)

0.0

2.0

4.0

6.0

8.0

10.0

12.0

1871

1875

1880

1884

1888

1892

1896

1900

1905

1909

1913

1917

1921

1925

1930

1934

1938

1942

1946

1950

1955

1959

1963

1967

1971

1975

1980

1984

1988

1992

1996

2000

2005

2009

Market Timing Portfolio Benchmark Portfolio

Market Timing Portfolio Benchmark PortfolioReturn 16.1% 8.8%Volatility 10.4% 14.3%Sharpe (4%) 1.17 0.34Best 12-Months Return 169.9% 140.3%Worst 12-Month Return -5.6% -62.2%Frequency fully invested 69.4% 100%

Emerging Markets...Expected EPS Growth is Identical

Anyway….Ignore analysts who talk about the Price versus NEXT YEAR’S earnings ….it is irrelevant, it has NO predictive power at all! The price versus 12-month forward earnings tells you nothing at all about prospective EME returns...

Expected Earnings PER SHARE growth in the next year is identical in EM and Developed Markets…why pay a premium for the same growth rate, with a lower dividend yield?


MSCI Emerging Market Index Price / 12 Month FORWARD Operating Earnings [horiz axis] vs MSCI Emerging Markets Index Total Return 12 Months FORWARD [vert axis] : 1990-

y = 0.3x + 25.4R2 = 0.0

-100

-80

-60

-40

-20

0

20

40

60

80

100

120

140

160

180

200

220

5.0 7.0 9.0 11.0 13.0 15.0 17.0 19.0 21.0 23.0 25.0

12 Month FORWARD Consensus Earnings per Share Growth Expectations [% y/y] : Global Developed versus Emerging Markets

-10.0

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

Jan-8

8

Jan-9

0

Jan-9

2

Jan-9

4

Jan-9

6

Jan-9

8

Jan-0

0

Jan-0

2

Jan-0

4

Jan-0

6

Jan-0

8

Jan-1

0

Jan-1

2

Jan-1

4

Emerging Markets

Developed Markets

Large versus Small and Mid Cap…

Small Cap valuation is at extremes versus Large Cap stocks: given that Small Cap is a good proxy for Private Equity valuation, it signifies a high price for illiquidity and market risk and a low price for defensiveness…

Large Cap stocks have lagged badly in the rally since 2009 and are unusually cheap against Small and Mid Cap stocks: they are attractively valued and defensive at aggregate US market levels which are meaningfully overvalued…


MSCI USA Price / Trailing Peak Reported Earnings : Small Cap / Mid Cap and Large Cap

5.0

10.0

15.0

20.0

25.0

30.0

35.0

May-9

2

May-9

3

May-9

4

May-9

5

May-9

6

May-9

7

May-9

8

May-9

9

May-0

0

May-0

1

May-0

2

May-0

3

May-0

4

May-0

5

May-0

6

May-0

7

May-0

8

May-0

9

May-1

0

May-1

1

May-1

2

May-1

3

May-1

4

May-1

5

Mid

Small

Large

MSCI USA Price / Trailing Peak Reported Earnings : Small Cap / Large Cap

0.4

0.6

0.8

1.0

1.2

1.4

1.6

May-92

May-93

May-94

May-95

May-96

May-97

May-98

May-99

May-00

May-01

May-02

May-03

May-04

May-05

May-06

May-07

May-08

May-09

May-10

May-11

May-12

May-13

May-14

May-15

Small Cap as a Private Equity Proxy…

This implies comparatively low implied annualized holding period returns between -1% to 5%, with an implied risk premium from -3% to +4%…you don’t get early 1980s “Swenson PE returns” from current valuations and financing constraints…

Small Cap stocks are a highly correlated proxy for Private Equity Valuations / Returns: current Small Cap valuation is at elevated and unattractive levels..


US S&P600 SMALL CAP Equity Index Projected 10 Year Holding Period Return w ith Trend 6% EPS Growth, Given Dividend Yield and Specified Terminal P / 10 Yr E Ratio

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%O

ct-79

Oct-81

Oct-83

Oct-85

Oct-87

Oct-89

Oct-91

Oct-93

Oct-95

Oct-97

Oct-99

Oct-01

Oct-03

Oct-05

Oct-07

Oct-09

Oct-11

Oct-13

Oct-15

trailing median P / 10 yr E trailing minimum trailing maximum

USA S&P600 SMALL CAP Equity Index : Price / Trailing 10 Year EPS

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

Jan-80

Jan-82

Jan-84

Jan-86

Jan-88

Jan-90

Jan-92

Jan-94

Jan-96

Jan-98

Jan-00

Jan-02

Jan-04

Jan-06

Jan-08

Jan-10

Jan-12

Jan-14

Corporate Credit…..Fair Value

However, the Debt/Profit ratio and the Financing Gap [Free Cash Flow surplus / deficit], are consistent with narrower credit spreads…

Corporate Spreads at fair value, on the basis of Altman Z-Score variables…


Actual Long Dated Baa Credit Spread [FRB Quarterly Data] vs MODELLED Long Dated Baa Credit Spread [ using an Altman Z-Score Factor Model, out of sample after 2000 ]

0.00

1.00

2.00

3.00

4.00

5.00

6.00

Q1 1

955

Q2 1

957

Q3 1

959

Q4 1

961

Q1 1

964

Q2 1

966

Q3 1

968

Q4 1

970

Q1 1

973

Q2 1

975

Q3 1

977

Q4 1

979

Q1 1

982

Q2 1

984

Q3 1

986

Q4 1

988

Q1 1

991

Q2 1

993

Q3 1

995

Q4 1

997

Q1 2

000

Q2 2

002

Q3 2

004

Q4 2

006

Q1 2

009

Q2 2

011

Q3 2

013

Q4 2

015

Modelled

Actual

Actual Long Dated Baa Credit Spread [FRB Quarterly Data] vs MODELLED Long Dated Baa Credit Spread [ using the Debt / Profit ratio and Lagged Financing Gap ]

0.00

1.00

2.00

3.00

4.00

5.00

6.00Q

1 1955

Q2 1957

Q3 1959

Q4 1961

Q1 1964

Q2 1966

Q3 1968

Q4 1970

Q1 1973

Q2 1975

Q3 1977

Q4 1979

Q1 1982

Q2 1984

Q3 1986

Q4 1988

Q1 1991

Q2 1993

Q3 1995

Q4 1997

Q1 2000

Q2 2002

Q3 2004

Q4 2006

Q1 2009

Q2 2011

Q3 2013

Q4 2015

Modelled

Actual

Ten Year US Treasury Yield…Fair Value

Approximately 14.5% of Commercial Bank assets are held in Government Securities, still well below the level prevailing after the 1991 recession…

We have modelled, and can explain 78% of the variation in, US 10 Year Treasury Yields using just short rates and trailing inflation…the level of yields is currently in equilibrium on this basis….


US 10 Year Treasury Yield: Actual versus Modelled [based upon short rates and the inflation rate, Rsq = 78%]

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

Apr-71

Apr-73

Apr-75

Apr-77

Apr-79

Apr-81

Apr-83

Apr-85

Apr-87

Apr-89

Apr-91

Apr-93

Apr-95

Apr-97

Apr-99

Apr-01

Apr-03

Apr-05

Apr-07

Apr-09

Govt Yield Modelled Yield

US Government Securities / Total Assets (%) : US Domestic Commercial Banks

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

20.0%

22.0%

24.0%

08/01/1973

08/01/1975

08/01/1977

08/01/1979

08/01/1981

08/01/1983

08/01/1985

08/01/1987

08/01/1989

08/01/1991

08/01/1993

08/01/1995

08/01/1997

08/01/1999

08/01/2001

08/01/2003

08/01/2005

08/01/2007

08/01/2009

08/01/2011

Gold as an Inflation hedge …forget it..

A regression of Gold Inflation on UNEXPECTED Consumer Price Inflation shows much the same picture : a very ineffective, very modest hedge against inflation surprises….Gold is a very poor hedge against both realized and surprise inflation, confirming Prof Roy Jastram’s conclusion in “The Gold Constant”…

A regression of Gold Inflation on REALIZED Consumer Price Inflation shows Gold to be a very ineffective hedge : less than one fifth of the variation in Gold Inflation is explainable by Consumer Inflation and the coefficient is low


Gold Price (%y/y, horiz axis) vs Realized Inflation (%y/y, vert axis) : 1978 -

y = 0.05x + 3.47R2 = 0.19

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

-75.0 -25.0 25.0 75.0 125.0 175.0 225.0

Gold Price (%y/y, horiz axis) vs Unexpected Inflation (%y/y, vert axis, unexpected inflation = actual inflation - median one year expected inflation) : 1978 -

y = 0.03x - 0.12R2 = 0.18

-8.0

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

-50.0 0.0 50.0 100.0 150.0 200.0 250.0

Gold….sell Physical and buy a Mine

Silver / Gold price ratio at extremes …sell Silver / buy Gold [miners]…

The ratio of Gold Bullion / Miners is the yield on a Gold Mine….short physical / long the producer..$/Ounce of Gold = $/FC * FC/ounce of Gold. So higher Gold = lower dollar and/or higher foreign currency price of Gold..


Spot Gold Bullion Price (US$/Ounce) / Philadelphia Gold & Silver Index

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

10.0

Jan-84

Jan-86

Jan-88

Jan-90

Jan-92

Jan-94

Jan-96

Jan-98

Jan-00

Jan-02

Jan-04

Jan-06

Jan-08

Jan-10

Jan-12

Jan-14

Spot Silver Bullion Price (US$/Ounce) / Spot Gold Price (US$/Ounce)

01/01/2009, 1.301/06/2003, 1.2

01/03/1991, 1.0

01/03/1998, 2.2 01/03/2007, 2.1

0.5

1.0

1.5

2.0

2.5

3.0

Jan-84

Jan-86

Jan-88

Jan-90

Jan-92

Jan-94

Jan-96

Jan-98

Jan-00

Jan-02

Jan-04

Jan-06

Jan-08

Jan-10

Jan-12

Jan-14

“PIGS” Need to Turn German ..

Unit Labour Cost restraint implies absolute and relative cost / price deflation …unless Germany agrees to inflate?! The peripheral countries need to deflate nominal income in excess of 20%...unprecedented

Germany in the decade after the introduction of the Euro is the model PIGS need to follow…de-leveraging and cost discipline, the lost art of saving!


German Current Account / GDP [%] vs German Total Bank Lending to Individuals [% y/y]

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

12.0

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

Current Account / GDP [%]

Lending to Individuals [% y/y]

median debt grow th rate, 1990s

median debt grow th rate, 2000s

All Economy Unit Labour Costs [ 1999Q1 = 1 ]

0.90

0.95

1.00

1.05

1.10

1.15

1.20

1.25

1.30

1.35

1.40

Q1 1999

Q3 1999

Q1 2000

Q3 2000

Q1 2001

Q3 2001

Q1 2002

Q3 2002

Q1 2003

Q3 2003

Q1 2004

Q3 2004

Q1 2005

Q3 2005

Q1 2006

Q3 2006

Q1 2007

Q3 2007

Q1 2008

Q3 2008

Q1 2009

Q3 2009

Q1 2010

Q3 2010

Q1 2011

Q3 2011

Eurozone UK Germany

France Spain Ireland

China…Don’t Rely on the Consumer….

…China is already urbanized, overrun with capacity and with investment at 55% of GDP….and with bubbles in housing and equity

Consumers cannot spend what they do not have!...the Household share of National Income has declined markedly in the last decade..

Source: UN, IMF, National Data Sources

Chinese Household Income and Consumption as a % of GDP

46%

36%

90%

67%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Consumption

Income

96% of Chinese population lives in 46% of land mass

96% of US population lives on 66% of US land mass

USA has 4.2 mn km of Paved Roads / 80,000 km of Highways

China has 2.7 mn km of Paved Roads / 60,000 km of Highways

China uses per Capita Energy 6 * that for Italy / 3* that for the USA

Chinese Homeownership rate = 86%

US Homeownership rate = 67%

US Implied Index Returns: 2009 Low


Time Dividend Starting Implied Equity Holding Period Annualized ReturnHorizon (t) Yield P / 10yr E

10 3.2 14.4 2009 Market low

Terminal EPS %cagr (g)P / Peak E -8 -7.5 -7 -6.5 -6 -5.5 -5 -4.5 -4 -3.5 -3 -2.5 -2 -1.5 -1 -0.5 0 0.5 1 1.5 2 2.5 3 3.5 4 4.5 5 5.5 6 6.5 7 7.5 8

2 -11.4% -11.0% -10.5% -10.1% -9.7% -9.3% -8.9% -8.5% -8.1% -7.7% -7.3% -6.8% -6.4% -6.0% -5.6% -5.2% -4.8% -4.4% -4.0% -3.6% -3.2% -2.7% -2.3% -1.9% -1.5% -1.1% -0.7% -0.3% 0.1% 0.5% 1.0% 1.4% 1.8%3 -12.1% -11.6% -11.2% -10.8% -10.4% -9.9% -9.5% -9.1% -8.7% -8.2% -7.8% -7.4% -6.9% -6.5% -6.1% -5.7% -5.2% -4.8% -4.4% -4.0% -3.5% -3.1% -2.7% -2.2% -1.8% -1.4% -1.0% -0.5% -0.1% 0.3% 0.7% 1.2% 1.6%4 -11.7% -11.3% -10.8% -10.4% -9.9% -9.5% -9.1% -8.6% -8.2% -7.7% -7.3% -6.9% -6.4% -6.0% -5.5% -5.1% -4.7% -4.2% -3.8% -3.3% -2.9% -2.5% -2.0% -1.6% -1.1% -0.7% -0.3% 0.2% 0.6% 1.1% 1.5% 1.9% 2.4%5 -11.0% -10.6% -10.1% -9.7% -9.2% -8.8% -8.3% -7.9% -7.4% -7.0% -6.5% -6.1% -5.6% -5.2% -4.7% -4.3% -3.8% -3.4% -2.9% -2.5% -2.0% -1.6% -1.1% -0.7% -0.2% 0.2% 0.7% 1.1% 1.6% 2.0% 2.5% 2.9% 3.4%6 -10.3% -9.8% -9.4% -8.9% -8.4% -8.0% -7.5% -7.1% -6.6% -6.1% -5.7% -5.2% -4.8% -4.3% -3.9% -3.4% -2.9% -2.5% -2.0% -1.6% -1.1% -0.7% -0.2% 0.3% 0.7% 1.2% 1.6% 2.1% 2.6% 3.0% 3.5% 3.9% 4.4%7 -9.5% -9.0% -8.6% -8.1% -7.7% -7.2% -6.7% -6.3% -5.8% -5.3% -4.9% -4.4% -3.9% -3.5% -3.0% -2.5% -2.1% -1.6% -1.1% -0.7% -0.2% 0.3% 0.7% 1.2% 1.7% 2.1% 2.6% 3.0% 3.5% 4.0% 4.4% 4.9% 5.4%8 -8.8% -8.3% -7.8% -7.4% -6.9% -6.4% -5.9% -5.5% -5.0% -4.5% -4.1% -3.6% -3.1% -2.6% -2.2% -1.7% -1.2% -0.8% -0.3% 0.2% 0.7% 1.1% 1.6% 2.1% 2.5% 3.0% 3.5% 4.0% 4.4% 4.9% 5.4% 5.8% 6.3%9 -8.1% -7.6% -7.1% -6.6% -6.2% -5.7% -5.2% -4.7% -4.2% -3.8% -3.3% -2.8% -2.3% -1.9% -1.4% -0.9% -0.4% 0.0% 0.5% 1.0% 1.5% 2.0% 2.4% 2.9% 3.4% 3.9% 4.3% 4.8% 5.3% 5.8% 6.2% 6.7% 7.2%

10 -7.4% -6.9% -6.4% -5.9% -5.5% -5.0% -4.5% -4.0% -3.5% -3.1% -2.6% -2.1% -1.6% -1.1% -0.6% -0.2% 0.3% 0.8% 1.3% 1.8% 2.3% 2.7% 3.2% 3.7% 4.2% 4.7% 5.1% 5.6% 6.1% 6.6% 7.1% 7.6% 8.0%11 -6.8% -6.3% -5.8% -5.3% -4.8% -4.3% -3.8% -3.3% -2.9% -2.4% -1.9% -1.4% -0.9% -0.4% 0.1% 0.6% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.4% 4.9% 5.4% 5.9% 6.4% 6.9% 7.4% 7.9% 8.3% 8.8%12 -6.1% -5.7% -5.2% -4.7% -4.2% -3.7% -3.2% -2.7% -2.2% -1.7% -1.2% -0.7% -0.3% 0.2% 0.7% 1.2% 1.7% 2.2% 2.7% 3.2% 3.7% 4.2% 4.7% 5.2% 5.6% 6.1% 6.6% 7.1% 7.6% 8.1% 8.6% 9.1% 9.6%13 -5.6% -5.1% -4.6% -4.1% -3.6% -3.1% -2.6% -2.1% -1.6% -1.1% -0.6% -0.1% 0.4% 0.9% 1.4% 1.9% 2.4% 2.8% 3.3% 3.8% 4.3% 4.8% 5.3% 5.8% 6.3% 6.8% 7.3% 7.8% 8.3% 8.8% 9.3% 9.8% 10.3%14 -5.0% -4.5% -4.0% -3.5% -3.0% -2.5% -2.0% -1.5% -1.0% -0.5% 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% 5.0% 5.5% 6.0% 6.5% 7.0% 7.5% 8.0% 8.4% 8.9% 9.4% 9.9% 10.4% 10.9%15 -4.5% -4.0% -3.5% -3.0% -2.5% -2.0% -1.5% -1.0% -0.5% 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% 5.1% 5.6% 6.1% 6.6% 7.1% 7.6% 8.1% 8.6% 9.1% 9.6% 10.1% 10.6% 11.1% 11.6%16 -4.0% -3.5% -3.0% -2.5% -2.0% -1.5% -1.0% -0.4% 0.1% 0.6% 1.1% 1.6% 2.1% 2.6% 3.1% 3.6% 4.1% 4.6% 5.1% 5.6% 6.1% 6.6% 7.1% 7.6% 8.1% 8.6% 9.2% 9.7% 10.2% 10.7% 11.2% 11.7% 12.2%17 -3.5% -3.0% -2.5% -2.0% -1.5% -1.0% -0.5% 0.1% 0.6% 1.1% 1.6% 2.1% 2.6% 3.1% 3.6% 4.1% 4.6% 5.1% 5.6% 6.2% 6.7% 7.2% 7.7% 8.2% 8.7% 9.2% 9.7% 10.2% 10.7% 11.2% 11.7% 12.3% 12.8%18 -3.0% -2.5% -2.0% -1.5% -1.0% -0.5% 0.0% 0.5% 1.0% 1.6% 2.1% 2.6% 3.1% 3.6% 4.1% 4.6% 5.1% 5.6% 6.2% 6.7% 7.2% 7.7% 8.2% 8.7% 9.2% 9.7% 10.2% 10.8% 11.3% 11.8% 12.3% 12.8% 13.3%19 -2.6% -2.1% -1.6% -1.1% -0.5% 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.1% 3.6% 4.1% 4.6% 5.1% 5.6% 6.1% 6.7% 7.2% 7.7% 8.2% 8.7% 9.2% 9.7% 10.3% 10.8% 11.3% 11.8% 12.3% 12.8% 13.3% 13.8%20 -2.2% -1.7% -1.1% -0.6% -0.1% 0.4% 0.9% 1.4% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% 5.1% 5.6% 6.1% 6.6% 7.1% 7.6% 8.2% 8.7% 9.2% 9.7% 10.2% 10.7% 11.3% 11.8% 12.3% 12.8% 13.3% 13.8% 14.4%21 -1.8% -1.2% -0.7% -0.2% 0.3% 0.8% 1.3% 1.9% 2.4% 2.9% 3.4% 3.9% 4.5% 5.0% 5.5% 6.0% 6.5% 7.1% 7.6% 8.1% 8.6% 9.1% 9.7% 10.2% 10.7% 11.2% 11.7% 12.3% 12.8% 13.3% 13.8% 14.3% 14.8%22 -1.4% -0.8% -0.3% 0.2% 0.7% 1.2% 1.8% 2.3% 2.8% 3.3% 3.8% 4.4% 4.9% 5.4% 5.9% 6.5% 7.0% 7.5% 8.0% 8.5% 9.1% 9.6% 10.1% 10.6% 11.1% 11.7% 12.2% 12.7% 13.2% 13.8% 14.3% 14.8% 15.3%23 -1.0% -0.5% 0.1% 0.6% 1.1% 1.6% 2.2% 2.7% 3.2% 3.7% 4.3% 4.8% 5.3% 5.8% 6.3% 6.9% 7.4% 7.9% 8.4% 9.0% 9.5% 10.0% 10.5% 11.1% 11.6% 12.1% 12.6% 13.2% 13.7% 14.2% 14.7% 15.3% 15.8%24 -0.6% -0.1% 0.4% 1.0% 1.5% 2.0% 2.5% 3.1% 3.6% 4.1% 4.6% 5.2% 5.7% 6.2% 6.7% 7.3% 7.8% 8.3% 8.9% 9.4% 9.9% 10.4% 11.0% 11.5% 12.0% 12.5% 13.1% 13.6% 14.1% 14.6% 15.2% 15.7% 16.2%25 -0.3% 0.3% 0.8% 1.3% 1.9% 2.4% 2.9% 3.4% 4.0% 4.5% 5.0% 5.6% 6.1% 6.6% 7.1% 7.7% 8.2% 8.7% 9.2% 9.8% 10.3% 10.8% 11.4% 11.9% 12.4% 12.9% 13.5% 14.0% 14.5% 15.1% 15.6% 16.1% 16.6%26 0.1% 0.6% 1.1% 1.7% 2.2% 2.7% 3.3% 3.8% 4.3% 4.9% 5.4% 5.9% 6.5% 7.0% 7.5% 8.0% 8.6% 9.1% 9.6% 10.2% 10.7% 11.2% 11.8% 12.3% 12.8% 13.3% 13.9% 14.4% 14.9% 15.5% 16.0% 16.5% 17.1%27 0.4% 1.0% 1.5% 2.0% 2.6% 3.1% 3.6% 4.1% 4.7% 5.2% 5.7% 6.3% 6.8% 7.3% 7.9% 8.4% 8.9% 9.5% 10.0% 10.5% 11.1% 11.6% 12.1% 12.7% 13.2% 13.7% 14.3% 14.8% 15.3% 15.9% 16.4% 16.9% 17.5%28 0.7% 1.3% 1.8% 2.4% 2.9% 3.4% 4.0% 4.5% 5.0% 5.6% 6.1% 6.6% 7.2% 7.7% 8.2% 8.8% 9.3% 9.8% 10.4% 10.9% 11.4% 12.0% 12.5% 13.0% 13.6% 14.1% 14.6% 15.2% 15.7% 16.2% 16.8% 17.3% 17.8%29 1.1% 1.6% 2.1% 2.7% 3.2% 3.7% 4.3% 4.8% 5.4% 5.9% 6.4% 7.0% 7.5% 8.0% 8.6% 9.1% 9.6% 10.2% 10.7% 11.3% 11.8% 12.3% 12.9% 13.4% 13.9% 14.5% 15.0% 15.5% 16.1% 16.6% 17.2% 17.7% 18.2%30 1.4% 1.9% 2.5% 3.0% 3.5% 4.1% 4.6% 5.1% 5.7% 6.2% 6.8% 7.3% 7.8% 8.4% 8.9% 9.4% 10.0% 10.5% 11.1% 11.6% 12.1% 12.7% 13.2% 13.8% 14.3% 14.8% 15.4% 15.9% 16.4% 17.0% 17.5% 18.1% 18.6%31 1.7% 2.2% 2.8% 3.3% 3.8% 4.4% 4.9% 5.5% 6.0% 6.5% 7.1% 7.6% 8.2% 8.7% 9.2% 9.8% 10.3% 10.9% 11.4% 11.9% 12.5% 13.0% 13.6% 14.1% 14.6% 15.2% 15.7% 16.3% 16.8% 17.3% 17.9% 18.4% 18.9%32 2.0% 2.5% 3.1% 3.6% 4.1% 4.7% 5.2% 5.8% 6.3% 6.8% 7.4% 7.9% 8.5% 9.0% 9.5% 10.1% 10.6% 11.2% 11.7% 12.3% 12.8% 13.3% 13.9% 14.4% 15.0% 15.5% 16.0% 16.6% 17.1% 17.7% 18.2% 18.8% 19.3%33 2.3% 2.8% 3.3% 3.9% 4.4% 5.0% 5.5% 6.1% 6.6% 7.1% 7.7% 8.2% 8.8% 9.3% 9.9% 10.4% 10.9% 11.5% 12.0% 12.6% 13.1% 13.7% 14.2% 14.7% 15.3% 15.8% 16.4% 16.9% 17.5% 18.0% 18.5% 19.1% 19.6%34 2.5% 3.1% 3.6% 4.2% 4.7% 5.3% 5.8% 6.3% 6.9% 7.4% 8.0% 8.5% 9.1% 9.6% 10.2% 10.7% 11.2% 11.8% 12.3% 12.9% 13.4% 14.0% 14.5% 15.1% 15.6% 16.2% 16.7% 17.2% 17.8% 18.3% 18.9% 19.4% 20.0%35 2.8% 3.3% 3.9% 4.4% 5.0% 5.5% 6.1% 6.6% 7.2% 7.7% 8.3% 8.8% 9.4% 9.9% 10.5% 11.0% 11.5% 12.1% 12.6% 13.2% 13.7% 14.3% 14.8% 15.4% 15.9% 16.5% 17.0% 17.6% 18.1% 18.6% 19.2% 19.7% 20.3%36 3.1% 3.6% 4.2% 4.7% 5.3% 5.8% 6.4% 6.9% 7.5% 8.0% 8.5% 9.1% 9.6% 10.2% 10.7% 11.3% 11.8% 12.4% 12.9% 13.5% 14.0% 14.6% 15.1% 15.7% 16.2% 16.8% 17.3% 17.9% 18.4% 19.0% 19.5% 20.1% 20.6%37 3.3% 3.9% 4.4% 5.0% 5.5% 6.1% 6.6% 7.2% 7.7% 8.3% 8.8% 9.4% 9.9% 10.5% 11.0% 11.6% 12.1% 12.7% 13.2% 13.8% 14.3% 14.9% 15.4% 16.0% 16.5% 17.1% 17.6% 18.2% 18.7% 19.3% 19.8% 20.4% 20.9%38 3.6% 4.1% 4.7% 5.2% 5.8% 6.3% 6.9% 7.4% 8.0% 8.5% 9.1% 9.6% 10.2% 10.7% 11.3% 11.8% 12.4% 12.9% 13.5% 14.0% 14.6% 15.2% 15.7% 16.3% 16.8% 17.4% 17.9% 18.5% 19.0% 19.6% 20.1% 20.7% 21.2%39 3.8% 4.4% 4.9% 5.5% 6.0% 6.6% 7.1% 7.7% 8.2% 8.8% 9.4% 9.9% 10.5% 11.0% 11.6% 12.1% 12.7% 13.2% 13.8% 14.3% 14.9% 15.4% 16.0% 16.5% 17.1% 17.6% 18.2% 18.7% 19.3% 19.8% 20.4% 21.0% 21.5%40 4.1% 4.6% 5.2% 5.7% 6.3% 6.8% 7.4% 7.9% 8.5% 9.1% 9.6% 10.2% 10.7% 11.3% 11.8% 12.4% 12.9% 13.5% 14.0% 14.6% 15.1% 15.7% 16.3% 16.8% 17.4% 17.9% 18.5% 19.0% 19.6% 20.1% 20.7% 21.2% 21.8%

Implied Equity Return = (1+g) * ((Terminal PE / Start PE) ^ (1/t)) -1 + div yld * ((Start PE / Term PE +1) / 2)Implied Equity Risk Premium = Implied Equity Return - Real Government Bond Yield

US Implied Index Returns: May 2011



10 1.8 26.5


2 -15.9% -15.6% -15.2% -14.8% -14.4% -14.0% -13.6% -13.2% -12.9% -12.5% -12.1% -11.7% -11.3% -10.9% -10.5% -10.2% -9.8% -9.4% -9.0% -8.6% -8.2% -7.8% -7.5% -7.1% -6.7% -6.3% -5.9% -5.5% -5.1% -4.7% -4.4% -4.0% -3.6%3 -17.0% -16.6% -16.2% -15.8% -15.4% -15.0% -14.6% -14.2% -13.8% -13.4% -13.0% -12.6% -12.2% -11.8% -11.4% -11.0% -10.6% -10.2% -9.8% -9.4% -9.0% -8.6% -8.2% -7.8% -7.4% -7.0% -6.6% -6.2% -5.8% -5.4% -5.0% -4.6% -4.2%4 -16.9% -16.5% -16.1% -15.7% -15.2% -14.8% -14.4% -14.0% -13.6% -13.2% -12.8% -12.3% -11.9% -11.5% -11.1% -10.7% -10.3% -9.9% -9.4% -9.0% -8.6% -8.2% -7.8% -7.4% -7.0% -6.5% -6.1% -5.7% -5.3% -4.9% -4.5% -4.1% -3.6%5 -16.4% -16.0% -15.5% -15.1% -14.7% -14.3% -13.8% -13.4% -13.0% -12.6% -12.2% -11.7% -11.3% -10.9% -10.5% -10.0% -9.6% -9.2% -8.8% -8.3% -7.9% -7.5% -7.1% -6.6% -6.2% -5.8% -5.4% -5.0% -4.5% -4.1% -3.7% -3.3% -2.8%6 -15.8% -15.3% -14.9% -14.5% -14.0% -13.6% -13.2% -12.7% -12.3% -11.9% -11.4% -11.0% -10.6% -10.2% -9.7% -9.3% -8.9% -8.4% -8.0% -7.6% -7.1% -6.7% -6.3% -5.8% -5.4% -5.0% -4.6% -4.1% -3.7% -3.3% -2.8% -2.4% -2.0%7 -15.1% -14.7% -14.2% -13.8% -13.3% -12.9% -12.5% -12.0% -11.6% -11.2% -10.7% -10.3% -9.8% -9.4% -9.0% -8.5% -8.1% -7.7% -7.2% -6.8% -6.3% -5.9% -5.5% -5.0% -4.6% -4.2% -3.7% -3.3% -2.8% -2.4% -2.0% -1.5% -1.1%8 -14.4% -14.0% -13.6% -13.1% -12.7% -12.2% -11.8% -11.3% -10.9% -10.5% -10.0% -9.6% -9.1% -8.7% -8.2% -7.8% -7.4% -6.9% -6.5% -6.0% -5.6% -5.1% -4.7% -4.2% -3.8% -3.4% -2.9% -2.5% -2.0% -1.6% -1.1% -0.7% -0.3%9 -13.8% -13.4% -12.9% -12.5% -12.0% -11.6% -11.1% -10.7% -10.2% -9.8% -9.3% -8.9% -8.4% -8.0% -7.5% -7.1% -6.6% -6.2% -5.7% -5.3% -4.8% -4.4% -3.9% -3.5% -3.0% -2.6% -2.1% -1.7% -1.3% -0.8% -0.4% 0.1% 0.5%

10 -13.2% -12.8% -12.3% -11.9% -11.4% -10.9% -10.5% -10.0% -9.6% -9.1% -8.7% -8.2% -7.8% -7.3% -6.9% -6.4% -6.0% -5.5% -5.0% -4.6% -4.1% -3.7% -3.2% -2.8% -2.3% -1.9% -1.4% -1.0% -0.5% -0.1% 0.4% 0.8% 1.3%11 -12.6% -12.2% -11.7% -11.3% -10.8% -10.3% -9.9% -9.4% -9.0% -8.5% -8.1% -7.6% -7.1% -6.7% -6.2% -5.8% -5.3% -4.8% -4.4% -3.9% -3.5% -3.0% -2.6% -2.1% -1.6% -1.2% -0.7% -0.3% 0.2% 0.6% 1.1% 1.6% 2.0%12 -12.1% -11.6% -11.2% -10.7% -10.2% -9.8% -9.3% -8.8% -8.4% -7.9% -7.5% -7.0% -6.5% -6.1% -5.6% -5.2% -4.7% -4.2% -3.8% -3.3% -2.8% -2.4% -1.9% -1.5% -1.0% -0.5% -0.1% 0.4% 0.9% 1.3% 1.8% 2.2% 2.7%13 -11.6% -11.1% -10.6% -10.2% -9.7% -9.2% -8.8% -8.3% -7.8% -7.4% -6.9% -6.4% -6.0% -5.5% -5.0% -4.6% -4.1% -3.6% -3.2% -2.7% -2.2% -1.8% -1.3% -0.8% -0.4% 0.1% 0.6% 1.0% 1.5% 2.0% 2.4% 2.9% 3.3%14 -11.0% -10.6% -10.1% -9.6% -9.2% -8.7% -8.2% -7.8% -7.3% -6.8% -6.4% -5.9% -5.4% -4.9% -4.5% -4.0% -3.5% -3.1% -2.6% -2.1% -1.7% -1.2% -0.7% -0.3% 0.2% 0.7% 1.1% 1.6% 2.1% 2.6% 3.0% 3.5% 4.0%15 -10.6% -10.1% -9.6% -9.1% -8.7% -8.2% -7.7% -7.3% -6.8% -6.3% -5.8% -5.4% -4.9% -4.4% -4.0% -3.5% -3.0% -2.5% -2.1% -1.6% -1.1% -0.6% -0.2% 0.3% 0.8% 1.2% 1.7% 2.2% 2.7% 3.1% 3.6% 4.1% 4.5%16 -10.1% -9.6% -9.2% -8.7% -8.2% -7.7% -7.3% -6.8% -6.3% -5.8% -5.3% -4.9% -4.4% -3.9% -3.4% -3.0% -2.5% -2.0% -1.5% -1.1% -0.6% -0.1% 0.4% 0.8% 1.3% 1.8% 2.3% 2.7% 3.2% 3.7% 4.2% 4.6% 5.1%17 -9.7% -9.2% -8.7% -8.2% -7.7% -7.3% -6.8% -6.3% -5.8% -5.4% -4.9% -4.4% -3.9% -3.4% -3.0% -2.5% -2.0% -1.5% -1.1% -0.6% -0.1% 0.4% 0.9% 1.3% 1.8% 2.3% 2.8% 3.3% 3.7% 4.2% 4.7% 5.2% 5.6%18 -9.2% -8.8% -8.3% -7.8% -7.3% -6.8% -6.3% -5.9% -5.4% -4.9% -4.4% -3.9% -3.5% -3.0% -2.5% -2.0% -1.5% -1.1% -0.6% -0.1% 0.4% 0.9% 1.3% 1.8% 2.3% 2.8% 3.3% 3.8% 4.2% 4.7% 5.2% 5.7% 6.2%19 -8.8% -8.3% -7.9% -7.4% -6.9% -6.4% -5.9% -5.4% -5.0% -4.5% -4.0% -3.5% -3.0% -2.5% -2.1% -1.6% -1.1% -0.6% -0.1% 0.4% 0.8% 1.3% 1.8% 2.3% 2.8% 3.3% 3.7% 4.2% 4.7% 5.2% 5.7% 6.2% 6.7%20 -8.4% -7.9% -7.5% -7.0% -6.5% -6.0% -5.5% -5.0% -4.5% -4.1% -3.6% -3.1% -2.6% -2.1% -1.6% -1.1% -0.7% -0.2% 0.3% 0.8% 1.3% 1.8% 2.3% 2.7% 3.2% 3.7% 4.2% 4.7% 5.2% 5.7% 6.2% 6.6% 7.1%21 -8.1% -7.6% -7.1% -6.6% -6.1% -5.6% -5.1% -4.6% -4.1% -3.7% -3.2% -2.7% -2.2% -1.7% -1.2% -0.7% -0.2% 0.3% 0.7% 1.2% 1.7% 2.2% 2.7% 3.2% 3.7% 4.2% 4.6% 5.1% 5.6% 6.1% 6.6% 7.1% 7.6%22 -7.7% -7.2% -6.7% -6.2% -5.7% -5.2% -4.7% -4.2% -3.8% -3.3% -2.8% -2.3% -1.8% -1.3% -0.8% -0.3% 0.2% 0.7% 1.1% 1.6% 2.1% 2.6% 3.1% 3.6% 4.1% 4.6% 5.1% 5.6% 6.1% 6.5% 7.0% 7.5% 8.0%23 -7.3% -6.8% -6.3% -5.9% -5.4% -4.9% -4.4% -3.9% -3.4% -2.9% -2.4% -1.9% -1.4% -0.9% -0.4% 0.1% 0.6% 1.1% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% 5.0% 5.5% 6.0% 6.5% 7.0% 7.5% 8.0% 8.4%24 -7.0% -6.5% -6.0% -5.5% -5.0% -4.5% -4.0% -3.5% -3.0% -2.5% -2.0% -1.5% -1.0% -0.6% -0.1% 0.4% 0.9% 1.4% 1.9% 2.4% 2.9% 3.4% 3.9% 4.4% 4.9% 5.4% 5.9% 6.4% 6.9% 7.4% 7.9% 8.4% 8.9%25 -6.7% -6.2% -5.7% -5.2% -4.7% -4.2% -3.7% -3.2% -2.7% -2.2% -1.7% -1.2% -0.7% -0.2% 0.3% 0.8% 1.3% 1.8% 2.3% 2.8% 3.3% 3.8% 4.3% 4.8% 5.3% 5.8% 6.3% 6.8% 7.3% 7.8% 8.3% 8.8% 9.3%26 -6.3% -5.8% -5.3% -4.8% -4.3% -3.8% -3.3% -2.8% -2.3% -1.8% -1.3% -0.8% -0.3% 0.2% 0.7% 1.2% 1.7% 2.2% 2.7% 3.1% 3.6% 4.1% 4.6% 5.1% 5.6% 6.1% 6.6% 7.1% 7.6% 8.1% 8.6% 9.1% 9.6%27 -6.0% -5.5% -5.0% -4.5% -4.0% -3.5% -3.0% -2.5% -2.0% -1.5% -1.0% -0.5% 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% 5.0% 5.5% 6.0% 6.5% 7.0% 7.5% 8.0% 8.5% 9.0% 9.5% 10.0%28 -5.7% -5.2% -4.7% -4.2% -3.7% -3.2% -2.7% -2.2% -1.7% -1.2% -0.7% -0.2% 0.3% 0.8% 1.3% 1.8% 2.3% 2.8% 3.3% 3.8% 4.3% 4.8% 5.3% 5.8% 6.4% 6.9% 7.4% 7.9% 8.4% 8.9% 9.4% 9.9% 10.4%29 -5.4% -4.9% -4.4% -3.9% -3.4% -2.9% -2.4% -1.9% -1.4% -0.9% -0.4% 0.1% 0.6% 1.1% 1.6% 2.1% 2.7% 3.2% 3.7% 4.2% 4.7% 5.2% 5.7% 6.2% 6.7% 7.2% 7.7% 8.2% 8.7% 9.2% 9.7% 10.2% 10.7%30 -5.1% -4.6% -4.1% -3.6% -3.1% -2.6% -2.1% -1.6% -1.1% -0.6% -0.1% 0.4% 0.9% 1.4% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% 5.0% 5.5% 6.0% 6.5% 7.0% 7.5% 8.0% 8.5% 9.0% 9.5% 10.1% 10.6% 11.1%31 -4.9% -4.3% -3.8% -3.3% -2.8% -2.3% -1.8% -1.3% -0.8% -0.3% 0.2% 0.7% 1.2% 1.7% 2.3% 2.8% 3.3% 3.8% 4.3% 4.8% 5.3% 5.8% 6.3% 6.8% 7.3% 7.8% 8.4% 8.9% 9.4% 9.9% 10.4% 10.9% 11.4%32 -4.6% -4.1% -3.6% -3.1% -2.5% -2.0% -1.5% -1.0% -0.5% 0.0% 0.5% 1.0% 1.5% 2.0% 2.6% 3.1% 3.6% 4.1% 4.6% 5.1% 5.6% 6.1% 6.6% 7.1% 7.6% 8.2% 8.7% 9.2% 9.7% 10.2% 10.7% 11.2% 11.7%33 -4.3% -3.8% -3.3% -2.8% -2.3% -1.8% -1.2% -0.7% -0.2% 0.3% 0.8% 1.3% 1.8% 2.3% 2.8% 3.4% 3.9% 4.4% 4.9% 5.4% 5.9% 6.4% 6.9% 7.4% 8.0% 8.5% 9.0% 9.5% 10.0% 10.5% 11.0% 11.5% 12.0%34 -4.1% -3.5% -3.0% -2.5% -2.0% -1.5% -1.0% -0.5% 0.0% 0.6% 1.1% 1.6% 2.1% 2.6% 3.1% 3.6% 4.1% 4.7% 5.2% 5.7% 6.2% 6.7% 7.2% 7.7% 8.2% 8.8% 9.3% 9.8% 10.3% 10.8% 11.3% 11.8% 12.3%35 -3.8% -3.3% -2.8% -2.3% -1.7% -1.2% -0.7% -0.2% 0.3% 0.8% 1.3% 1.9% 2.4% 2.9% 3.4% 3.9% 4.4% 4.9% 5.5% 6.0% 6.5% 7.0% 7.5% 8.0% 8.5% 9.1% 9.6% 10.1% 10.6% 11.1% 11.6% 12.1% 12.7%36 -3.6% -3.0% -2.5% -2.0% -1.5% -1.0% -0.5% 0.1% 0.6% 1.1% 1.6% 2.1% 2.6% 3.1% 3.7% 4.2% 4.7% 5.2% 5.7% 6.2% 6.8% 7.3% 7.8% 8.3% 8.8% 9.3% 9.9% 10.4% 10.9% 11.4% 11.9% 12.4% 12.9%37 -3.3% -2.8% -2.3% -1.8% -1.2% -0.7% -0.2% 0.3% 0.8% 1.3% 1.9% 2.4% 2.9% 3.4% 3.9% 4.4% 5.0% 5.5% 6.0% 6.5% 7.0% 7.5% 8.1% 8.6% 9.1% 9.6% 10.1% 10.6% 11.2% 11.7% 12.2% 12.7% 13.2%38 -3.1% -2.6% -2.0% -1.5% -1.0% -0.5% 0.0% 0.6% 1.1% 1.6% 2.1% 2.6% 3.1% 3.7% 4.2% 4.7% 5.2% 5.7% 6.3% 6.8% 7.3% 7.8% 8.3% 8.8% 9.4% 9.9% 10.4% 10.9% 11.4% 12.0% 12.5% 13.0% 13.5%39 -2.8% -2.3% -1.8% -1.3% -0.8% -0.2% 0.3% 0.8% 1.3% 1.8% 2.4% 2.9% 3.4% 3.9% 4.4% 5.0% 5.5% 6.0% 6.5% 7.0% 7.6% 8.1% 8.6% 9.1% 9.6% 10.1% 10.7% 11.2% 11.7% 12.2% 12.7% 13.3% 13.8%40 -2.6% -2.1% -1.6% -1.1% -0.5% 0.0% 0.5% 1.0% 1.6% 2.1% 2.6% 3.1% 3.6% 4.2% 4.7% 5.2% 5.7% 6.2% 6.8% 7.3% 7.8% 8.3% 8.8% 9.4% 9.9% 10.4% 10.9% 11.5% 12.0% 12.5% 13.0% 13.5% 14.1%


US Implied Index Returns: 2000 Bull Market Peak



10 1.1 49.9 2000 Bubble Peak


2 -19.0% -18.7% -18.3% -17.9% -17.6% -17.2% -16.9% -16.5% -16.1% -15.8% -15.4% -15.0% -14.7% -14.3% -14.0% -13.6% -13.2% -12.9% -12.5% -12.1% -11.8% -11.4% -11.1% -10.7% -10.3% -10.0% -9.6% -9.2% -8.9% -8.5% -8.2% -7.8% -7.4%3 -20.8% -20.5% -20.1% -19.7% -19.3% -19.0% -18.6% -18.2% -17.8% -17.5% -17.1% -16.7% -16.3% -15.9% -15.6% -15.2% -14.8% -14.4% -14.1% -13.7% -13.3% -12.9% -12.5% -12.2% -11.8% -11.4% -11.0% -10.7% -10.3% -9.9% -9.5% -9.1% -8.8%4 -21.1% -20.7% -20.3% -19.9% -19.6% -19.2% -18.8% -18.4% -18.0% -17.6% -17.2% -16.8% -16.4% -16.1% -15.7% -15.3% -14.9% -14.5% -14.1% -13.7% -13.3% -13.0% -12.6% -12.2% -11.8% -11.4% -11.0% -10.6% -10.2% -9.8% -9.5% -9.1% -8.7%5 -20.9% -20.5% -20.1% -19.7% -19.3% -18.9% -18.5% -18.1% -17.7% -17.3% -16.9% -16.5% -16.1% -15.7% -15.3% -14.9% -14.5% -14.1% -13.7% -13.3% -12.9% -12.5% -12.1% -11.7% -11.3% -10.9% -10.5% -10.1% -9.7% -9.3% -9.0% -8.6% -8.2%6 -20.4% -20.0% -19.6% -19.2% -18.8% -18.4% -18.0% -17.6% -17.2% -16.8% -16.4% -16.0% -15.6% -15.2% -14.8% -14.4% -14.0% -13.6% -13.2% -12.8% -12.3% -11.9% -11.5% -11.1% -10.7% -10.3% -9.9% -9.5% -9.1% -8.7% -8.3% -7.9% -7.5%7 -19.9% -19.5% -19.1% -18.7% -18.3% -17.9% -17.5% -17.1% -16.6% -16.2% -15.8% -15.4% -15.0% -14.6% -14.2% -13.8% -13.4% -13.0% -12.5% -12.1% -11.7% -11.3% -10.9% -10.5% -10.1% -9.7% -9.3% -8.8% -8.4% -8.0% -7.6% -7.2% -6.8%8 -19.4% -19.0% -18.6% -18.2% -17.7% -17.3% -16.9% -16.5% -16.1% -15.7% -15.2% -14.8% -14.4% -14.0% -13.6% -13.2% -12.7% -12.3% -11.9% -11.5% -11.1% -10.7% -10.2% -9.8% -9.4% -9.0% -8.6% -8.2% -7.8% -7.3% -6.9% -6.5% -6.1%9 -18.9% -18.5% -18.0% -17.6% -17.2% -16.8% -16.4% -15.9% -15.5% -15.1% -14.7% -14.2% -13.8% -13.4% -13.0% -12.6% -12.1% -11.7% -11.3% -10.9% -10.5% -10.0% -9.6% -9.2% -8.8% -8.4% -7.9% -7.5% -7.1% -6.7% -6.2% -5.8% -5.4%

10 -18.4% -17.9% -17.5% -17.1% -16.7% -16.2% -15.8% -15.4% -15.0% -14.5% -14.1% -13.7% -13.3% -12.8% -12.4% -12.0% -11.6% -11.1% -10.7% -10.3% -9.9% -9.4% -9.0% -8.6% -8.1% -7.7% -7.3% -6.9% -6.4% -6.0% -5.6% -5.2% -4.7%11 -17.9% -17.4% -17.0% -16.6% -16.1% -15.7% -15.3% -14.9% -14.4% -14.0% -13.6% -13.1% -12.7% -12.3% -11.8% -11.4% -11.0% -10.6% -10.1% -9.7% -9.3% -8.8% -8.4% -8.0% -7.5% -7.1% -6.7% -6.3% -5.8% -5.4% -5.0% -4.5% -4.1%12 -17.4% -16.9% -16.5% -16.1% -15.6% -15.2% -14.8% -14.3% -13.9% -13.5% -13.0% -12.6% -12.2% -11.7% -11.3% -10.9% -10.4% -10.0% -9.6% -9.1% -8.7% -8.3% -7.8% -7.4% -7.0% -6.5% -6.1% -5.7% -5.2% -4.8% -4.4% -3.9% -3.5%13 -16.9% -16.5% -16.0% -15.6% -15.2% -14.7% -14.3% -13.9% -13.4% -13.0% -12.5% -12.1% -11.7% -11.2% -10.8% -10.4% -9.9% -9.5% -9.1% -8.6% -8.2% -7.7% -7.3% -6.9% -6.4% -6.0% -5.6% -5.1% -4.7% -4.2% -3.8% -3.4% -2.9%14 -16.5% -16.0% -15.6% -15.1% -14.7% -14.3% -13.8% -13.4% -12.9% -12.5% -12.1% -11.6% -11.2% -10.7% -10.3% -9.9% -9.4% -9.0% -8.5% -8.1% -7.7% -7.2% -6.8% -6.3% -5.9% -5.5% -5.0% -4.6% -4.1% -3.7% -3.3% -2.8% -2.4%15 -16.0% -15.6% -15.2% -14.7% -14.3% -13.8% -13.4% -12.9% -12.5% -12.0% -11.6% -11.2% -10.7% -10.3% -9.8% -9.4% -8.9% -8.5% -8.1% -7.6% -7.2% -6.7% -6.3% -5.8% -5.4% -5.0% -4.5% -4.1% -3.6% -3.2% -2.7% -2.3% -1.9%16 -15.6% -15.2% -14.7% -14.3% -13.8% -13.4% -12.9% -12.5% -12.1% -11.6% -11.2% -10.7% -10.3% -9.8% -9.4% -8.9% -8.5% -8.0% -7.6% -7.1% -6.7% -6.3% -5.8% -5.4% -4.9% -4.5% -4.0% -3.6% -3.1% -2.7% -2.2% -1.8% -1.3%17 -15.2% -14.8% -14.3% -13.9% -13.4% -13.0% -12.5% -12.1% -11.6% -11.2% -10.7% -10.3% -9.8% -9.4% -8.9% -8.5% -8.0% -7.6% -7.1% -6.7% -6.2% -5.8% -5.4% -4.9% -4.5% -4.0% -3.6% -3.1% -2.7% -2.2% -1.8% -1.3% -0.9%18 -14.8% -14.4% -13.9% -13.5% -13.0% -12.6% -12.1% -11.7% -11.2% -10.8% -10.3% -9.9% -9.4% -9.0% -8.5% -8.1% -7.6% -7.2% -6.7% -6.3% -5.8% -5.4% -4.9% -4.5% -4.0% -3.6% -3.1% -2.7% -2.2% -1.7% -1.3% -0.8% -0.4%19 -14.5% -14.0% -13.6% -13.1% -12.7% -12.2% -11.7% -11.3% -10.8% -10.4% -9.9% -9.5% -9.0% -8.6% -8.1% -7.7% -7.2% -6.8% -6.3% -5.8% -5.4% -4.9% -4.5% -4.0% -3.6% -3.1% -2.7% -2.2% -1.8% -1.3% -0.9% -0.4% 0.1%20 -14.1% -13.7% -13.2% -12.7% -12.3% -11.8% -11.4% -10.9% -10.5% -10.0% -9.6% -9.1% -8.6% -8.2% -7.7% -7.3% -6.8% -6.4% -5.9% -5.4% -5.0% -4.5% -4.1% -3.6% -3.2% -2.7% -2.3% -1.8% -1.3% -0.9% -0.4% 0.0% 0.5%21 -13.8% -13.3% -12.9% -12.4% -11.9% -11.5% -11.0% -10.6% -10.1% -9.6% -9.2% -8.7% -8.3% -7.8% -7.4% -6.9% -6.4% -6.0% -5.5% -5.1% -4.6% -4.1% -3.7% -3.2% -2.8% -2.3% -1.8% -1.4% -0.9% -0.5% 0.0% 0.4% 0.9%22 -13.4% -13.0% -12.5% -12.1% -11.6% -11.1% -10.7% -10.2% -9.8% -9.3% -8.8% -8.4% -7.9% -7.4% -7.0% -6.5% -6.1% -5.6% -5.1% -4.7% -4.2% -3.8% -3.3% -2.8% -2.4% -1.9% -1.5% -1.0% -0.5% -0.1% 0.4% 0.8% 1.3%23 -13.1% -12.7% -12.2% -11.7% -11.3% -10.8% -10.3% -9.9% -9.4% -8.9% -8.5% -8.0% -7.6% -7.1% -6.6% -6.2% -5.7% -5.2% -4.8% -4.3% -3.9% -3.4% -2.9% -2.5% -2.0% -1.5% -1.1% -0.6% -0.2% 0.3% 0.8% 1.2% 1.7%24 -12.8% -12.3% -11.9% -11.4% -10.9% -10.5% -10.0% -9.5% -9.1% -8.6% -8.2% -7.7% -7.2% -6.8% -6.3% -5.8% -5.4% -4.9% -4.4% -4.0% -3.5% -3.0% -2.6% -2.1% -1.6% -1.2% -0.7% -0.3% 0.2% 0.7% 1.1% 1.6% 2.1%25 -12.5% -12.0% -11.6% -11.1% -10.6% -10.2% -9.7% -9.2% -8.8% -8.3% -7.8% -7.4% -6.9% -6.4% -6.0% -5.5% -5.0% -4.6% -4.1% -3.6% -3.2% -2.7% -2.2% -1.8% -1.3% -0.8% -0.4% 0.1% 0.6% 1.0% 1.5% 2.0% 2.4%26 -12.2% -11.7% -11.3% -10.8% -10.3% -9.9% -9.4% -8.9% -8.5% -8.0% -7.5% -7.0% -6.6% -6.1% -5.6% -5.2% -4.7% -4.2% -3.8% -3.3% -2.8% -2.4% -1.9% -1.4% -1.0% -0.5% 0.0% 0.4% 0.9% 1.4% 1.9% 2.3% 2.8%27 -11.9% -11.4% -11.0% -10.5% -10.0% -9.6% -9.1% -8.6% -8.2% -7.7% -7.2% -6.7% -6.3% -5.8% -5.3% -4.9% -4.4% -3.9% -3.5% -3.0% -2.5% -2.0% -1.6% -1.1% -0.6% -0.2% 0.3% 0.8% 1.3% 1.7% 2.2% 2.7% 3.1%28 -11.6% -11.2% -10.7% -10.2% -9.7% -9.3% -8.8% -8.3% -7.9% -7.4% -6.9% -6.4% -6.0% -5.5% -5.0% -4.6% -4.1% -3.6% -3.1% -2.7% -2.2% -1.7% -1.3% -0.8% -0.3% 0.2% 0.6% 1.1% 1.6% 2.1% 2.5% 3.0% 3.5%29 -11.4% -10.9% -10.4% -9.9% -9.5% -9.0% -8.5% -8.0% -7.6% -7.1% -6.6% -6.2% -5.7% -5.2% -4.7% -4.3% -3.8% -3.3% -2.8% -2.4% -1.9% -1.4% -0.9% -0.5% 0.0% 0.5% 0.9% 1.4% 1.9% 2.4% 2.8% 3.3% 3.8%30 -11.1% -10.6% -10.1% -9.7% -9.2% -8.7% -8.2% -7.8% -7.3% -6.8% -6.3% -5.9% -5.4% -4.9% -4.4% -4.0% -3.5% -3.0% -2.5% -2.1% -1.6% -1.1% -0.6% -0.2% 0.3% 0.8% 1.3% 1.7% 2.2% 2.7% 3.2% 3.6% 4.1%31 -10.8% -10.4% -9.9% -9.4% -8.9% -8.5% -8.0% -7.5% -7.0% -6.6% -6.1% -5.6% -5.1% -4.6% -4.2% -3.7% -3.2% -2.7% -2.3% -1.8% -1.3% -0.8% -0.4% 0.1% 0.6% 1.1% 1.6% 2.0% 2.5% 3.0% 3.5% 3.9% 4.4%32 -10.6% -10.1% -9.6% -9.2% -8.7% -8.2% -7.7% -7.2% -6.8% -6.3% -5.8% -5.3% -4.9% -4.4% -3.9% -3.4% -2.9% -2.5% -2.0% -1.5% -1.0% -0.5% -0.1% 0.4% 0.9% 1.4% 1.8% 2.3% 2.8% 3.3% 3.8% 4.2% 4.7%33 -10.3% -9.9% -9.4% -8.9% -8.4% -7.9% -7.5% -7.0% -6.5% -6.0% -5.5% -5.1% -4.6% -4.1% -3.6% -3.1% -2.7% -2.2% -1.7% -1.2% -0.8% -0.3% 0.2% 0.7% 1.2% 1.6% 2.1% 2.6% 3.1% 3.6% 4.0% 4.5% 5.0%34 -10.1% -9.6% -9.1% -8.7% -8.2% -7.7% -7.2% -6.7% -6.3% -5.8% -5.3% -4.8% -4.3% -3.9% -3.4% -2.9% -2.4% -1.9% -1.4% -1.0% -0.5% 0.0% 0.5% 1.0% 1.4% 1.9% 2.4% 2.9% 3.4% 3.8% 4.3% 4.8% 5.3%35 -9.9% -9.4% -8.9% -8.4% -7.9% -7.5% -7.0% -6.5% -6.0% -5.5% -5.0% -4.6% -4.1% -3.6% -3.1% -2.6% -2.2% -1.7% -1.2% -0.7% -0.2% 0.3% 0.7% 1.2% 1.7% 2.2% 2.7% 3.2% 3.6% 4.1% 4.6% 5.1% 5.6%36 -9.6% -9.2% -8.7% -8.2% -7.7% -7.2% -6.7% -6.3% -5.8% -5.3% -4.8% -4.3% -3.8% -3.4% -2.9% -2.4% -1.9% -1.4% -0.9% -0.4% 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 2.9% 3.4% 3.9% 4.4% 4.9% 5.4% 5.8%37 -9.4% -8.9% -8.4% -8.0% -7.5% -7.0% -6.5% -6.0% -5.5% -5.1% -4.6% -4.1% -3.6% -3.1% -2.6% -2.1% -1.7% -1.2% -0.7% -0.2% 0.3% 0.8% 1.3% 1.7% 2.2% 2.7% 3.2% 3.7% 4.2% 4.7% 5.1% 5.6% 6.1%38 -9.2% -8.7% -8.2% -7.7% -7.3% -6.8% -6.3% -5.8% -5.3% -4.8% -4.3% -3.8% -3.4% -2.9% -2.4% -1.9% -1.4% -0.9% -0.4% 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 3.9% 4.4% 4.9% 5.4% 5.9% 6.4%39 -9.0% -8.5% -8.0% -7.5% -7.0% -6.5% -6.1% -5.6% -5.1% -4.6% -4.1% -3.6% -3.1% -2.6% -2.2% -1.7% -1.2% -0.7% -0.2% 0.3% 0.8% 1.3% 1.7% 2.2% 2.7% 3.2% 3.7% 4.2% 4.7% 5.2% 5.6% 6.1% 6.6%40 -8.8% -8.3% -7.8% -7.3% -6.8% -6.3% -5.8% -5.4% -4.9% -4.4% -3.9% -3.4% -2.9% -2.4% -1.9% -1.4% -1.0% -0.5% 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 3.9% 4.4% 4.9% 5.4% 5.9% 6.4% 6.9%


UK Implied Index Returns: 2009 Low


Time Dividend Starting MSCI UK Equity IndexHorizon (t) Yield P / 10yr E March 2009 Low

10 6.0 10.1


2 -3.6% -3.2% -2.8% -2.3% -1.9% -1.5% -1.1% -0.6% -0.2% 0.2% 0.6% 1.1% 1.5% 1.9% 2.3% 2.8% 3.2% 3.6% 4.0% 4.5% 4.9% 5.3% 5.8% 6.2% 6.6% 7.0% 7.5% 7.9% 8.3% 8.7% 9.2% 9.6% 10.0%3 -5.4% -5.0% -4.5% -4.1% -3.6% -3.2% -2.8% -2.3% -1.9% -1.4% -1.0% -0.5% -0.1% 0.3% 0.8% 1.2% 1.7% 2.1% 2.6% 3.0% 3.4% 3.9% 4.3% 4.8% 5.2% 5.7% 6.1% 6.5% 7.0% 7.4% 7.9% 8.3% 8.8%4 -5.6% -5.1% -4.7% -4.2% -3.7% -3.3% -2.8% -2.4% -1.9% -1.5% -1.0% -0.6% -0.1% 0.4% 0.8% 1.3% 1.7% 2.2% 2.6% 3.1% 3.6% 4.0% 4.5% 4.9% 5.4% 5.8% 6.3% 6.7% 7.2% 7.7% 8.1% 8.6% 9.0%5 -5.2% -4.7% -4.3% -3.8% -3.3% -2.9% -2.4% -1.9% -1.5% -1.0% -0.5% -0.1% 0.4% 0.9% 1.3% 1.8% 2.3% 2.7% 3.2% 3.7% 4.1% 4.6% 5.1% 5.5% 6.0% 6.5% 6.9% 7.4% 7.9% 8.3% 8.8% 9.3% 9.7%6 -4.6% -4.1% -3.7% -3.2% -2.7% -2.2% -1.8% -1.3% -0.8% -0.3% 0.1% 0.6% 1.1% 1.6% 2.0% 2.5% 3.0% 3.5% 3.9% 4.4% 4.9% 5.3% 5.8% 6.3% 6.8% 7.2% 7.7% 8.2% 8.7% 9.1% 9.6% 10.1% 10.6%7 -4.0% -3.5% -3.0% -2.5% -2.1% -1.6% -1.1% -0.6% -0.1% 0.4% 0.8% 1.3% 1.8% 2.3% 2.8% 3.2% 3.7% 4.2% 4.7% 5.2% 5.7% 6.1% 6.6% 7.1% 7.6% 8.1% 8.5% 9.0% 9.5% 10.0% 10.5% 11.0% 11.4%8 -3.3% -2.8% -2.4% -1.9% -1.4% -0.9% -0.4% 0.1% 0.6% 1.1% 1.6% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% 5.0% 5.5% 5.9% 6.4% 6.9% 7.4% 7.9% 8.4% 8.9% 9.4% 9.9% 10.3% 10.8% 11.3% 11.8% 12.3%9 -2.7% -2.2% -1.7% -1.2% -0.7% -0.2% 0.3% 0.8% 1.3% 1.8% 2.3% 2.7% 3.2% 3.7% 4.2% 4.7% 5.2% 5.7% 6.2% 6.7% 7.2% 7.7% 8.2% 8.7% 9.2% 9.7% 10.2% 10.7% 11.2% 11.6% 12.1% 12.6% 13.1%

10 -2.1% -1.6% -1.1% -0.6% -0.1% 0.4% 0.9% 1.4% 1.9% 2.4% 2.9% 3.4% 3.9% 4.4% 4.9% 5.4% 5.9% 6.4% 6.9% 7.4% 7.9% 8.4% 8.9% 9.4% 9.9% 10.4% 10.9% 11.4% 11.9% 12.4% 12.9% 13.4% 13.9%11 -1.5% -1.0% -0.4% 0.1% 0.6% 1.1% 1.6% 2.1% 2.6% 3.1% 3.6% 4.1% 4.6% 5.1% 5.6% 6.1% 6.6% 7.1% 7.6% 8.1% 8.6% 9.1% 9.6% 10.1% 10.6% 11.2% 11.7% 12.2% 12.7% 13.2% 13.7% 14.2% 14.7%12 -0.9% -0.4% 0.1% 0.7% 1.2% 1.7% 2.2% 2.7% 3.2% 3.7% 4.2% 4.7% 5.2% 5.7% 6.2% 6.8% 7.3% 7.8% 8.3% 8.8% 9.3% 9.8% 10.3% 10.8% 11.3% 11.8% 12.4% 12.9% 13.4% 13.9% 14.4% 14.9% 15.4%13 -0.3% 0.2% 0.7% 1.2% 1.7% 2.2% 2.8% 3.3% 3.8% 4.3% 4.8% 5.3% 5.8% 6.3% 6.9% 7.4% 7.9% 8.4% 8.9% 9.4% 9.9% 10.5% 11.0% 11.5% 12.0% 12.5% 13.0% 13.5% 14.0% 14.6% 15.1% 15.6% 16.1%14 0.2% 0.7% 1.3% 1.8% 2.3% 2.8% 3.3% 3.8% 4.4% 4.9% 5.4% 5.9% 6.4% 6.9% 7.5% 8.0% 8.5% 9.0% 9.5% 10.0% 10.5% 11.1% 11.6% 12.1% 12.6% 13.1% 13.6% 14.2% 14.7% 15.2% 15.7% 16.2% 16.7%15 0.7% 1.3% 1.8% 2.3% 2.8% 3.3% 3.9% 4.4% 4.9% 5.4% 5.9% 6.5% 7.0% 7.5% 8.0% 8.5% 9.1% 9.6% 10.1% 10.6% 11.1% 11.7% 12.2% 12.7% 13.2% 13.7% 14.3% 14.8% 15.3% 15.8% 16.3% 16.9% 17.4%16 1.2% 1.7% 2.3% 2.8% 3.3% 3.8% 4.4% 4.9% 5.4% 5.9% 6.5% 7.0% 7.5% 8.0% 8.6% 9.1% 9.6% 10.1% 10.6% 11.2% 11.7% 12.2% 12.7% 13.3% 13.8% 14.3% 14.8% 15.4% 15.9% 16.4% 16.9% 17.5% 18.0%17 1.7% 2.2% 2.8% 3.3% 3.8% 4.3% 4.9% 5.4% 5.9% 6.4% 7.0% 7.5% 8.0% 8.5% 9.1% 9.6% 10.1% 10.7% 11.2% 11.7% 12.2% 12.8% 13.3% 13.8% 14.3% 14.9% 15.4% 15.9% 16.4% 17.0% 17.5% 18.0% 18.6%18 2.2% 2.7% 3.2% 3.7% 4.3% 4.8% 5.3% 5.9% 6.4% 6.9% 7.5% 8.0% 8.5% 9.0% 9.6% 10.1% 10.6% 11.2% 11.7% 12.2% 12.8% 13.3% 13.8% 14.3% 14.9% 15.4% 15.9% 16.5% 17.0% 17.5% 18.0% 18.6% 19.1%19 2.6% 3.1% 3.7% 4.2% 4.7% 5.3% 5.8% 6.3% 6.9% 7.4% 7.9% 8.5% 9.0% 9.5% 10.1% 10.6% 11.1% 11.7% 12.2% 12.7% 13.2% 13.8% 14.3% 14.8% 15.4% 15.9% 16.4% 17.0% 17.5% 18.0% 18.6% 19.1% 19.6%20 3.0% 3.6% 4.1% 4.6% 5.2% 5.7% 6.2% 6.8% 7.3% 7.8% 8.4% 8.9% 9.4% 10.0% 10.5% 11.1% 11.6% 12.1% 12.7% 13.2% 13.7% 14.3% 14.8% 15.3% 15.9% 16.4% 16.9% 17.5% 18.0% 18.5% 19.1% 19.6% 20.2%21 3.4% 4.0% 4.5% 5.0% 5.6% 6.1% 6.7% 7.2% 7.7% 8.3% 8.8% 9.3% 9.9% 10.4% 11.0% 11.5% 12.0% 12.6% 13.1% 13.7% 14.2% 14.7% 15.3% 15.8% 16.3% 16.9% 17.4% 18.0% 18.5% 19.0% 19.6% 20.1% 20.6%22 3.8% 4.4% 4.9% 5.4% 6.0% 6.5% 7.1% 7.6% 8.1% 8.7% 9.2% 9.8% 10.3% 10.9% 11.4% 11.9% 12.5% 13.0% 13.6% 14.1% 14.6% 15.2% 15.7% 16.3% 16.8% 17.3% 17.9% 18.4% 19.0% 19.5% 20.0% 20.6% 21.1%23 4.2% 4.8% 5.3% 5.8% 6.4% 6.9% 7.5% 8.0% 8.6% 9.1% 9.6% 10.2% 10.7% 11.3% 11.8% 12.4% 12.9% 13.4% 14.0% 14.5% 15.1% 15.6% 16.2% 16.7% 17.2% 17.8% 18.3% 18.9% 19.4% 20.0% 20.5% 21.0% 21.6%24 4.6% 5.1% 5.7% 6.2% 6.8% 7.3% 7.9% 8.4% 8.9% 9.5% 10.0% 10.6% 11.1% 11.7% 12.2% 12.8% 13.3% 13.8% 14.4% 14.9% 15.5% 16.0% 16.6% 17.1% 17.7% 18.2% 18.8% 19.3% 19.8% 20.4% 20.9% 21.5% 22.0%25 4.9% 5.5% 6.0% 6.6% 7.1% 7.7% 8.2% 8.8% 9.3% 9.9% 10.4% 11.0% 11.5% 12.1% 12.6% 13.2% 13.7% 14.2% 14.8% 15.3% 15.9% 16.4% 17.0% 17.5% 18.1% 18.6% 19.2% 19.7% 20.3% 20.8% 21.4% 21.9% 22.5%26 5.3% 5.8% 6.4% 6.9% 7.5% 8.0% 8.6% 9.1% 9.7% 10.2% 10.8% 11.3% 11.9% 12.4% 13.0% 13.5% 14.1% 14.6% 15.2% 15.7% 16.3% 16.8% 17.4% 17.9% 18.5% 19.0% 19.6% 20.1% 20.7% 21.2% 21.8% 22.3% 22.9%27 5.6% 6.2% 6.7% 7.3% 7.8% 8.4% 8.9% 9.5% 10.0% 10.6% 11.1% 11.7% 12.2% 12.8% 13.4% 13.9% 14.5% 15.0% 15.6% 16.1% 16.7% 17.2% 17.8% 18.3% 18.9% 19.4% 20.0% 20.5% 21.1% 21.6% 22.2% 22.7% 23.3%28 6.0% 6.5% 7.1% 7.6% 8.2% 8.7% 9.3% 9.8% 10.4% 10.9% 11.5% 12.0% 12.6% 13.2% 13.7% 14.3% 14.8% 15.4% 15.9% 16.5% 17.0% 17.6% 18.1% 18.7% 19.2% 19.8% 20.4% 20.9% 21.5% 22.0% 22.6% 23.1% 23.7%29 6.3% 6.8% 7.4% 7.9% 8.5% 9.1% 9.6% 10.2% 10.7% 11.3% 11.8% 12.4% 12.9% 13.5% 14.1% 14.6% 15.2% 15.7% 16.3% 16.8% 17.4% 17.9% 18.5% 19.1% 19.6% 20.2% 20.7% 21.3% 21.8% 22.4% 22.9% 23.5% 24.1%30 6.6% 7.1% 7.7% 8.3% 8.8% 9.4% 9.9% 10.5% 11.1% 11.6% 12.2% 12.7% 13.3% 13.8% 14.4% 15.0% 15.5% 16.1% 16.6% 17.2% 17.7% 18.3% 18.9% 19.4% 20.0% 20.5% 21.1% 21.6% 22.2% 22.8% 23.3% 23.9% 24.4%31 6.9% 7.5% 8.0% 8.6% 9.1% 9.7% 10.3% 10.8% 11.4% 11.9% 12.5% 13.0% 13.6% 14.2% 14.7% 15.3% 15.8% 16.4% 17.0% 17.5% 18.1% 18.6% 19.2% 19.8% 20.3% 20.9% 21.4% 22.0% 22.6% 23.1% 23.7% 24.2% 24.8%32 7.2% 7.8% 8.3% 8.9% 9.4% 10.0% 10.6% 11.1% 11.7% 12.2% 12.8% 13.4% 13.9% 14.5% 15.0% 15.6% 16.2% 16.7% 17.3% 17.9% 18.4% 19.0% 19.5% 20.1% 20.7% 21.2% 21.8% 22.3% 22.9% 23.5% 24.0% 24.6% 25.1%33 7.5% 8.0% 8.6% 9.2% 9.7% 10.3% 10.9% 11.4% 12.0% 12.5% 13.1% 13.7% 14.2% 14.8% 15.4% 15.9% 16.5% 17.1% 17.6% 18.2% 18.7% 19.3% 19.9% 20.4% 21.0% 21.6% 22.1% 22.7% 23.2% 23.8% 24.4% 24.9% 25.5%34 7.8% 8.3% 8.9% 9.5% 10.0% 10.6% 11.2% 11.7% 12.3% 12.8% 13.4% 14.0% 14.5% 15.1% 15.7% 16.2% 16.8% 17.4% 17.9% 18.5% 19.1% 19.6% 20.2% 20.7% 21.3% 21.9% 22.4% 23.0% 23.6% 24.1% 24.7% 25.3% 25.8%35 8.0% 8.6% 9.2% 9.7% 10.3% 10.9% 11.4% 12.0% 12.6% 13.1% 13.7% 14.3% 14.8% 15.4% 16.0% 16.5% 17.1% 17.7% 18.2% 18.8% 19.4% 19.9% 20.5% 21.1% 21.6% 22.2% 22.8% 23.3% 23.9% 24.5% 25.0% 25.6% 26.2%36 8.3% 8.9% 9.4% 10.0% 10.6% 11.1% 11.7% 12.3% 12.9% 13.4% 14.0% 14.6% 15.1% 15.7% 16.3% 16.8% 17.4% 18.0% 18.5% 19.1% 19.7% 20.2% 20.8% 21.4% 21.9% 22.5% 23.1% 23.6% 24.2% 24.8% 25.3% 25.9% 26.5%37 8.6% 9.1% 9.7% 10.3% 10.9% 11.4% 12.0% 12.6% 13.1% 13.7% 14.3% 14.8% 15.4% 16.0% 16.5% 17.1% 17.7% 18.3% 18.8% 19.4% 20.0% 20.5% 21.1% 21.7% 22.2% 22.8% 23.4% 23.9% 24.5% 25.1% 25.7% 26.2% 26.8%38 8.8% 9.4% 10.0% 10.5% 11.1% 11.7% 12.3% 12.8% 13.4% 14.0% 14.5% 15.1% 15.7% 16.3% 16.8% 17.4% 18.0% 18.5% 19.1% 19.7% 20.2% 20.8% 21.4% 22.0% 22.5% 23.1% 23.7% 24.2% 24.8% 25.4% 26.0% 26.5% 27.1%39 9.1% 9.7% 10.2% 10.8% 11.4% 11.9% 12.5% 13.1% 13.7% 14.2% 14.8% 15.4% 16.0% 16.5% 17.1% 17.7% 18.2% 18.8% 19.4% 20.0% 20.5% 21.1% 21.7% 22.2% 22.8% 23.4% 24.0% 24.5% 25.1% 25.7% 26.3% 26.8% 27.4%40 9.3% 9.9% 10.5% 11.1% 11.6% 12.2% 12.8% 13.3% 13.9% 14.5% 15.1% 15.6% 16.2% 16.8% 17.4% 17.9% 18.5% 19.1% 19.7% 20.2% 20.8% 21.4% 22.0% 22.5% 23.1% 23.7% 24.3% 24.8% 25.4% 26.0% 26.5% 27.1% 27.7%

Return = (1+g) * ((Terminal PE / Start PE) ^ (1/t)) -1 + div yld * ((Start PE / Term PE +1) / 2)Risk Premium = Implied Return - Real Bond Yield

UK Implied Index Returns: May 2011


Time Dividend Starting MSCI UK Equity IndexHorizon (t) Yield P / 10yr E

10 3.1 15.6


2 -11.6% -11.2% -10.8% -10.4% -10.0% -9.6% -9.2% -8.8% -8.4% -8.0% -7.6% -7.2% -6.8% -6.4% -5.9% -5.5% -5.1% -4.7% -4.3% -3.9% -3.5% -3.1% -2.7% -2.3% -1.9% -1.5% -1.1% -0.7% -0.2% 0.2% 0.6% 1.0% 1.4%3 -12.5% -12.1% -11.7% -11.2% -10.8% -10.4% -10.0% -9.5% -9.1% -8.7% -8.3% -7.9% -7.4% -7.0% -6.6% -6.2% -5.7% -5.3% -4.9% -4.5% -4.0% -3.6% -3.2% -2.8% -2.3% -1.9% -1.5% -1.1% -0.6% -0.2% 0.2% 0.6% 1.1%4 -12.2% -11.8% -11.3% -10.9% -10.5% -10.0% -9.6% -9.2% -8.7% -8.3% -7.9% -7.4% -7.0% -6.5% -6.1% -5.7% -5.2% -4.8% -4.4% -3.9% -3.5% -3.1% -2.6% -2.2% -1.7% -1.3% -0.9% -0.4% 0.0% 0.4% 0.9% 1.3% 1.7%5 -11.6% -11.2% -10.7% -10.3% -9.8% -9.4% -8.9% -8.5% -8.0% -7.6% -7.1% -6.7% -6.2% -5.8% -5.4% -4.9% -4.5% -4.0% -3.6% -3.1% -2.7% -2.2% -1.8% -1.3% -0.9% -0.4% 0.0% 0.4% 0.9% 1.3% 1.8% 2.2% 2.7%6 -10.9% -10.4% -10.0% -9.5% -9.1% -8.6% -8.2% -7.7% -7.2% -6.8% -6.3% -5.9% -5.4% -5.0% -4.5% -4.1% -3.6% -3.2% -2.7% -2.2% -1.8% -1.3% -0.9% -0.4% 0.0% 0.5% 0.9% 1.4% 1.8% 2.3% 2.8% 3.2% 3.7%7 -10.2% -9.7% -9.2% -8.8% -8.3% -7.8% -7.4% -6.9% -6.5% -6.0% -5.5% -5.1% -4.6% -4.2% -3.7% -3.2% -2.8% -2.3% -1.8% -1.4% -0.9% -0.5% 0.0% 0.5% 0.9% 1.4% 1.8% 2.3% 2.8% 3.2% 3.7% 4.2% 4.6%8 -9.4% -9.0% -8.5% -8.0% -7.6% -7.1% -6.6% -6.2% -5.7% -5.2% -4.8% -4.3% -3.8% -3.4% -2.9% -2.4% -1.9% -1.5% -1.0% -0.5% -0.1% 0.4% 0.9% 1.3% 1.8% 2.3% 2.7% 3.2% 3.7% 4.1% 4.6% 5.1% 5.5%9 -8.7% -8.3% -7.8% -7.3% -6.9% -6.4% -5.9% -5.4% -5.0% -4.5% -4.0% -3.5% -3.1% -2.6% -2.1% -1.6% -1.2% -0.7% -0.2% 0.2% 0.7% 1.2% 1.7% 2.1% 2.6% 3.1% 3.6% 4.0% 4.5% 5.0% 5.5% 5.9% 6.4%

10 -8.1% -7.6% -7.1% -6.7% -6.2% -5.7% -5.2% -4.7% -4.3% -3.8% -3.3% -2.8% -2.3% -1.9% -1.4% -0.9% -0.4% 0.0% 0.5% 1.0% 1.5% 2.0% 2.4% 2.9% 3.4% 3.9% 4.3% 4.8% 5.3% 5.8% 6.3% 6.7% 7.2%11 -7.5% -7.0% -6.5% -6.0% -5.5% -5.0% -4.6% -4.1% -3.6% -3.1% -2.6% -2.1% -1.7% -1.2% -0.7% -0.2% 0.3% 0.7% 1.2% 1.7% 2.2% 2.7% 3.2% 3.6% 4.1% 4.6% 5.1% 5.6% 6.1% 6.5% 7.0% 7.5% 8.0%12 -6.9% -6.4% -5.9% -5.4% -4.9% -4.4% -3.9% -3.5% -3.0% -2.5% -2.0% -1.5% -1.0% -0.5% 0.0% 0.4% 0.9% 1.4% 1.9% 2.4% 2.9% 3.4% 3.9% 4.3% 4.8% 5.3% 5.8% 6.3% 6.8% 7.3% 7.7% 8.2% 8.7%13 -6.3% -5.8% -5.3% -4.8% -4.3% -3.8% -3.4% -2.9% -2.4% -1.9% -1.4% -0.9% -0.4% 0.1% 0.6% 1.1% 1.6% 2.1% 2.5% 3.0% 3.5% 4.0% 4.5% 5.0% 5.5% 6.0% 6.5% 7.0% 7.5% 7.9% 8.4% 8.9% 9.4%14 -5.8% -5.3% -4.8% -4.3% -3.8% -3.3% -2.8% -2.3% -1.8% -1.3% -0.8% -0.3% 0.2% 0.7% 1.2% 1.7% 2.2% 2.7% 3.1% 3.6% 4.1% 4.6% 5.1% 5.6% 6.1% 6.6% 7.1% 7.6% 8.1% 8.6% 9.1% 9.6% 10.1%15 -5.2% -4.7% -4.2% -3.7% -3.2% -2.7% -2.2% -1.8% -1.3% -0.8% -0.3% 0.2% 0.7% 1.2% 1.7% 2.2% 2.7% 3.2% 3.7% 4.2% 4.7% 5.2% 5.7% 6.2% 6.7% 7.2% 7.7% 8.2% 8.7% 9.2% 9.7% 10.2% 10.7%16 -4.7% -4.2% -3.7% -3.2% -2.7% -2.2% -1.7% -1.2% -0.7% -0.2% 0.3% 0.8% 1.3% 1.8% 2.3% 2.8% 3.3% 3.8% 4.3% 4.8% 5.3% 5.8% 6.3% 6.8% 7.3% 7.8% 8.3% 8.8% 9.3% 9.8% 10.3% 10.8% 11.3%17 -4.3% -3.8% -3.3% -2.8% -2.3% -1.7% -1.2% -0.7% -0.2% 0.3% 0.8% 1.3% 1.8% 2.3% 2.8% 3.3% 3.8% 4.3% 4.8% 5.3% 5.8% 6.3% 6.8% 7.3% 7.8% 8.3% 8.8% 9.3% 9.9% 10.4% 10.9% 11.4% 11.9%18 -3.8% -3.3% -2.8% -2.3% -1.8% -1.3% -0.8% -0.3% 0.2% 0.7% 1.3% 1.8% 2.3% 2.8% 3.3% 3.8% 4.3% 4.8% 5.3% 5.8% 6.3% 6.8% 7.3% 7.9% 8.4% 8.9% 9.4% 9.9% 10.4% 10.9% 11.4% 11.9% 12.4%19 -3.4% -2.9% -2.4% -1.8% -1.3% -0.8% -0.3% 0.2% 0.7% 1.2% 1.7% 2.2% 2.7% 3.3% 3.8% 4.3% 4.8% 5.3% 5.8% 6.3% 6.8% 7.3% 7.8% 8.4% 8.9% 9.4% 9.9% 10.4% 10.9% 11.4% 11.9% 12.4% 12.9%20 -3.0% -2.4% -1.9% -1.4% -0.9% -0.4% 0.1% 0.6% 1.1% 1.7% 2.2% 2.7% 3.2% 3.7% 4.2% 4.7% 5.2% 5.8% 6.3% 6.8% 7.3% 7.8% 8.3% 8.8% 9.3% 9.9% 10.4% 10.9% 11.4% 11.9% 12.4% 12.9% 13.4%21 -2.6% -2.0% -1.5% -1.0% -0.5% 0.0% 0.5% 1.1% 1.6% 2.1% 2.6% 3.1% 3.6% 4.1% 4.7% 5.2% 5.7% 6.2% 6.7% 7.2% 7.7% 8.3% 8.8% 9.3% 9.8% 10.3% 10.8% 11.4% 11.9% 12.4% 12.9% 13.4% 13.9%22 -2.2% -1.6% -1.1% -0.6% -0.1% 0.4% 0.9% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.6% 5.1% 5.6% 6.1% 6.6% 7.2% 7.7% 8.2% 8.7% 9.2% 9.7% 10.3% 10.8% 11.3% 11.8% 12.3% 12.8% 13.4% 13.9% 14.4%23 -1.8% -1.3% -0.7% -0.2% 0.3% 0.8% 1.3% 1.9% 2.4% 2.9% 3.4% 3.9% 4.5% 5.0% 5.5% 6.0% 6.5% 7.0% 7.6% 8.1% 8.6% 9.1% 9.6% 10.2% 10.7% 11.2% 11.7% 12.2% 12.8% 13.3% 13.8% 14.3% 14.8%24 -1.4% -0.9% -0.4% 0.1% 0.7% 1.2% 1.7% 2.2% 2.8% 3.3% 3.8% 4.3% 4.8% 5.4% 5.9% 6.4% 6.9% 7.5% 8.0% 8.5% 9.0% 9.5% 10.1% 10.6% 11.1% 11.6% 12.2% 12.7% 13.2% 13.7% 14.2% 14.8% 15.3%25 -1.1% -0.5% 0.0% 0.5% 1.0% 1.6% 2.1% 2.6% 3.1% 3.6% 4.2% 4.7% 5.2% 5.7% 6.3% 6.8% 7.3% 7.8% 8.4% 8.9% 9.4% 9.9% 10.5% 11.0% 11.5% 12.0% 12.6% 13.1% 13.6% 14.1% 14.7% 15.2% 15.7%26 -0.7% -0.2% 0.3% 0.9% 1.4% 1.9% 2.4% 3.0% 3.5% 4.0% 4.5% 5.1% 5.6% 6.1% 6.6% 7.2% 7.7% 8.2% 8.7% 9.3% 9.8% 10.3% 10.9% 11.4% 11.9% 12.4% 13.0% 13.5% 14.0% 14.5% 15.1% 15.6% 16.1%27 -0.4% 0.1% 0.7% 1.2% 1.7% 2.2% 2.8% 3.3% 3.8% 4.4% 4.9% 5.4% 5.9% 6.5% 7.0% 7.5% 8.1% 8.6% 9.1% 9.6% 10.2% 10.7% 11.2% 11.8% 12.3% 12.8% 13.3% 13.9% 14.4% 14.9% 15.5% 16.0% 16.5%28 -0.1% 0.5% 1.0% 1.5% 2.0% 2.6% 3.1% 3.6% 4.2% 4.7% 5.2% 5.8% 6.3% 6.8% 7.4% 7.9% 8.4% 8.9% 9.5% 10.0% 10.5% 11.1% 11.6% 12.1% 12.7% 13.2% 13.7% 14.2% 14.8% 15.3% 15.8% 16.4% 16.9%29 0.2% 0.8% 1.3% 1.8% 2.4% 2.9% 3.4% 4.0% 4.5% 5.0% 5.6% 6.1% 6.6% 7.2% 7.7% 8.2% 8.8% 9.3% 9.8% 10.4% 10.9% 11.4% 11.9% 12.5% 13.0% 13.5% 14.1% 14.6% 15.1% 15.7% 16.2% 16.7% 17.3%30 0.5% 1.1% 1.6% 2.1% 2.7% 3.2% 3.7% 4.3% 4.8% 5.4% 5.9% 6.4% 7.0% 7.5% 8.0% 8.6% 9.1% 9.6% 10.2% 10.7% 11.2% 11.8% 12.3% 12.8% 13.4% 13.9% 14.4% 15.0% 15.5% 16.0% 16.6% 17.1% 17.6%31 0.8% 1.4% 1.9% 2.5% 3.0% 3.5% 4.1% 4.6% 5.1% 5.7% 6.2% 6.7% 7.3% 7.8% 8.3% 8.9% 9.4% 9.9% 10.5% 11.0% 11.6% 12.1% 12.6% 13.2% 13.7% 14.2% 14.8% 15.3% 15.8% 16.4% 16.9% 17.4% 18.0%32 1.1% 1.7% 2.2% 2.7% 3.3% 3.8% 4.4% 4.9% 5.4% 6.0% 6.5% 7.0% 7.6% 8.1% 8.7% 9.2% 9.7% 10.3% 10.8% 11.3% 11.9% 12.4% 13.0% 13.5% 14.0% 14.6% 15.1% 15.6% 16.2% 16.7% 17.3% 17.8% 18.3%33 1.4% 2.0% 2.5% 3.0% 3.6% 4.1% 4.6% 5.2% 5.7% 6.3% 6.8% 7.3% 7.9% 8.4% 9.0% 9.5% 10.0% 10.6% 11.1% 11.7% 12.2% 12.7% 13.3% 13.8% 14.3% 14.9% 15.4% 16.0% 16.5% 17.0% 17.6% 18.1% 18.7%34 1.7% 2.2% 2.8% 3.3% 3.9% 4.4% 4.9% 5.5% 6.0% 6.6% 7.1% 7.6% 8.2% 8.7% 9.3% 9.8% 10.3% 10.9% 11.4% 12.0% 12.5% 13.0% 13.6% 14.1% 14.7% 15.2% 15.7% 16.3% 16.8% 17.4% 17.9% 18.4% 19.0%35 2.0% 2.5% 3.0% 3.6% 4.1% 4.7% 5.2% 5.8% 6.3% 6.8% 7.4% 7.9% 8.5% 9.0% 9.5% 10.1% 10.6% 11.2% 11.7% 12.3% 12.8% 13.3% 13.9% 14.4% 15.0% 15.5% 16.1% 16.6% 17.1% 17.7% 18.2% 18.8% 19.3%36 2.2% 2.8% 3.3% 3.9% 4.4% 4.9% 5.5% 6.0% 6.6% 7.1% 7.7% 8.2% 8.7% 9.3% 9.8% 10.4% 10.9% 11.5% 12.0% 12.6% 13.1% 13.6% 14.2% 14.7% 15.3% 15.8% 16.4% 16.9% 17.4% 18.0% 18.5% 19.1% 19.6%37 2.5% 3.0% 3.6% 4.1% 4.7% 5.2% 5.7% 6.3% 6.8% 7.4% 7.9% 8.5% 9.0% 9.6% 10.1% 10.7% 11.2% 11.7% 12.3% 12.8% 13.4% 13.9% 14.5% 15.0% 15.6% 16.1% 16.7% 17.2% 17.7% 18.3% 18.8% 19.4% 19.9%38 2.7% 3.3% 3.8% 4.4% 4.9% 5.5% 6.0% 6.6% 7.1% 7.6% 8.2% 8.7% 9.3% 9.8% 10.4% 10.9% 11.5% 12.0% 12.6% 13.1% 13.7% 14.2% 14.8% 15.3% 15.8% 16.4% 16.9% 17.5% 18.0% 18.6% 19.1% 19.7% 20.2%39 3.0% 3.5% 4.1% 4.6% 5.2% 5.7% 6.3% 6.8% 7.4% 7.9% 8.5% 9.0% 9.6% 10.1% 10.6% 11.2% 11.7% 12.3% 12.8% 13.4% 13.9% 14.5% 15.0% 15.6% 16.1% 16.7% 17.2% 17.8% 18.3% 18.9% 19.4% 20.0% 20.5%40 3.2% 3.8% 4.3% 4.9% 5.4% 6.0% 6.5% 7.1% 7.6% 8.2% 8.7% 9.3% 9.8% 10.4% 10.9% 11.5% 12.0% 12.6% 13.1% 13.7% 14.2% 14.8% 15.3% 15.9% 16.4% 17.0% 17.5% 18.0% 18.6% 19.1% 19.7% 20.2% 20.8%


UK Implied Index Returns: 2000 Bull Market Peak


Time Dividend Starting MSCI UK Equity IndexHorizon (t) Yield P / 10yr E 2000 Bull Market peak

10 2.2 29.5


2 -12.4% -12.0% -11.6% -11.2% -10.9% -10.5% -10.1% -9.7% -9.3% -8.9% -8.6% -8.2% -7.8% -7.4% -7.0% -6.7% -6.3% -5.9% -5.5% -5.1% -4.7% -4.4% -4.0% -3.6% -3.2% -2.8% -2.4% -2.1% -1.7% -1.3% -0.9% -0.5% -0.2%3 -14.9% -14.5% -14.1% -13.7% -13.3% -12.9% -12.5% -12.1% -11.7% -11.3% -10.9% -10.5% -10.1% -9.7% -9.3% -8.9% -8.5% -8.1% -7.7% -7.3% -6.9% -6.5% -6.1% -5.7% -5.3% -4.9% -4.5% -4.1% -3.7% -3.3% -2.9% -2.5% -2.2%4 -15.4% -15.0% -14.6% -14.2% -13.8% -13.4% -13.0% -12.6% -12.2% -11.8% -11.4% -10.9% -10.5% -10.1% -9.7% -9.3% -8.9% -8.5% -8.1% -7.7% -7.3% -6.9% -6.4% -6.0% -5.6% -5.2% -4.8% -4.4% -4.0% -3.6% -3.2% -2.8% -2.3%5 -15.4% -15.0% -14.5% -14.1% -13.7% -13.3% -12.9% -12.4% -12.0% -11.6% -11.2% -10.8% -10.3% -9.9% -9.5% -9.1% -8.7% -8.3% -7.8% -7.4% -7.0% -6.6% -6.2% -5.7% -5.3% -4.9% -4.5% -4.1% -3.6% -3.2% -2.8% -2.4% -2.0%6 -15.0% -14.6% -14.2% -13.8% -13.3% -12.9% -12.5% -12.1% -11.6% -11.2% -10.8% -10.3% -9.9% -9.5% -9.1% -8.6% -8.2% -7.8% -7.4% -6.9% -6.5% -6.1% -5.7% -5.2% -4.8% -4.4% -4.0% -3.5% -3.1% -2.7% -2.2% -1.8% -1.4%7 -14.6% -14.2% -13.7% -13.3% -12.9% -12.4% -12.0% -11.6% -11.1% -10.7% -10.3% -9.8% -9.4% -9.0% -8.5% -8.1% -7.7% -7.2% -6.8% -6.4% -5.9% -5.5% -5.1% -4.6% -4.2% -3.8% -3.3% -2.9% -2.5% -2.0% -1.6% -1.2% -0.7%8 -14.1% -13.7% -13.2% -12.8% -12.3% -11.9% -11.5% -11.0% -10.6% -10.1% -9.7% -9.3% -8.8% -8.4% -8.0% -7.5% -7.1% -6.6% -6.2% -5.8% -5.3% -4.9% -4.4% -4.0% -3.6% -3.1% -2.7% -2.3% -1.8% -1.4% -0.9% -0.5% -0.1%9 -13.6% -13.1% -12.7% -12.3% -11.8% -11.4% -10.9% -10.5% -10.0% -9.6% -9.2% -8.7% -8.3% -7.8% -7.4% -6.9% -6.5% -6.0% -5.6% -5.2% -4.7% -4.3% -3.8% -3.4% -2.9% -2.5% -2.0% -1.6% -1.2% -0.7% -0.3% 0.2% 0.6%

10 -13.1% -12.6% -12.2% -11.7% -11.3% -10.8% -10.4% -9.9% -9.5% -9.0% -8.6% -8.2% -7.7% -7.3% -6.8% -6.4% -5.9% -5.5% -5.0% -4.6% -4.1% -3.7% -3.2% -2.8% -2.3% -1.9% -1.4% -1.0% -0.5% -0.1% 0.4% 0.8% 1.3%11 -12.6% -12.1% -11.7% -11.2% -10.8% -10.3% -9.9% -9.4% -9.0% -8.5% -8.1% -7.6% -7.2% -6.7% -6.3% -5.8% -5.3% -4.9% -4.4% -4.0% -3.5% -3.1% -2.6% -2.2% -1.7% -1.3% -0.8% -0.4% 0.1% 0.5% 1.0% 1.5% 1.9%12 -12.1% -11.7% -11.2% -10.7% -10.3% -9.8% -9.4% -8.9% -8.5% -8.0% -7.5% -7.1% -6.6% -6.2% -5.7% -5.3% -4.8% -4.3% -3.9% -3.4% -3.0% -2.5% -2.1% -1.6% -1.1% -0.7% -0.2% 0.2% 0.7% 1.1% 1.6% 2.1% 2.5%13 -11.6% -11.2% -10.7% -10.3% -9.8% -9.3% -8.9% -8.4% -8.0% -7.5% -7.0% -6.6% -6.1% -5.7% -5.2% -4.7% -4.3% -3.8% -3.4% -2.9% -2.4% -2.0% -1.5% -1.0% -0.6% -0.1% 0.3% 0.8% 1.3% 1.7% 2.2% 2.6% 3.1%14 -11.2% -10.7% -10.3% -9.8% -9.3% -8.9% -8.4% -7.9% -7.5% -7.0% -6.5% -6.1% -5.6% -5.2% -4.7% -4.2% -3.8% -3.3% -2.8% -2.4% -1.9% -1.4% -1.0% -0.5% -0.1% 0.4% 0.9% 1.3% 1.8% 2.3% 2.7% 3.2% 3.7%15 -10.8% -10.3% -9.8% -9.4% -8.9% -8.4% -7.9% -7.5% -7.0% -6.5% -6.1% -5.6% -5.1% -4.7% -4.2% -3.7% -3.3% -2.8% -2.3% -1.9% -1.4% -0.9% -0.5% 0.0% 0.5% 0.9% 1.4% 1.9% 2.3% 2.8% 3.3% 3.7% 4.2%16 -10.3% -9.9% -9.4% -8.9% -8.5% -8.0% -7.5% -7.0% -6.6% -6.1% -5.6% -5.2% -4.7% -4.2% -3.7% -3.3% -2.8% -2.3% -1.9% -1.4% -0.9% -0.5% 0.0% 0.5% 1.0% 1.4% 1.9% 2.4% 2.8% 3.3% 3.8% 4.2% 4.7%17 -9.9% -9.5% -9.0% -8.5% -8.0% -7.6% -7.1% -6.6% -6.1% -5.7% -5.2% -4.7% -4.2% -3.8% -3.3% -2.8% -2.4% -1.9% -1.4% -0.9% -0.5% 0.0% 0.5% 1.0% 1.4% 1.9% 2.4% 2.9% 3.3% 3.8% 4.3% 4.7% 5.2%18 -9.5% -9.1% -8.6% -8.1% -7.6% -7.2% -6.7% -6.2% -5.7% -5.2% -4.8% -4.3% -3.8% -3.3% -2.9% -2.4% -1.9% -1.4% -1.0% -0.5% 0.0% 0.5% 0.9% 1.4% 1.9% 2.4% 2.8% 3.3% 3.8% 4.3% 4.7% 5.2% 5.7%19 -9.2% -8.7% -8.2% -7.7% -7.2% -6.8% -6.3% -5.8% -5.3% -4.8% -4.4% -3.9% -3.4% -2.9% -2.5% -2.0% -1.5% -1.0% -0.5% -0.1% 0.4% 0.9% 1.4% 1.9% 2.3% 2.8% 3.3% 3.8% 4.2% 4.7% 5.2% 5.7% 6.2%20 -8.8% -8.3% -7.8% -7.3% -6.9% -6.4% -5.9% -5.4% -4.9% -4.5% -4.0% -3.5% -3.0% -2.5% -2.1% -1.6% -1.1% -0.6% -0.1% 0.4% 0.8% 1.3% 1.8% 2.3% 2.8% 3.2% 3.7% 4.2% 4.7% 5.2% 5.6% 6.1% 6.6%21 -8.4% -7.9% -7.5% -7.0% -6.5% -6.0% -5.5% -5.0% -4.6% -4.1% -3.6% -3.1% -2.6% -2.1% -1.7% -1.2% -0.7% -0.2% 0.3% 0.8% 1.2% 1.7% 2.2% 2.7% 3.2% 3.7% 4.1% 4.6% 5.1% 5.6% 6.1% 6.6% 7.0%22 -8.1% -7.6% -7.1% -6.6% -6.1% -5.7% -5.2% -4.7% -4.2% -3.7% -3.2% -2.7% -2.3% -1.8% -1.3% -0.8% -0.3% 0.2% 0.7% 1.1% 1.6% 2.1% 2.6% 3.1% 3.6% 4.1% 4.5% 5.0% 5.5% 6.0% 6.5% 7.0% 7.5%23 -7.8% -7.3% -6.8% -6.3% -5.8% -5.3% -4.8% -4.3% -3.8% -3.4% -2.9% -2.4% -1.9% -1.4% -0.9% -0.4% 0.1% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.4% 4.9% 5.4% 5.9% 6.4% 6.9% 7.4% 7.9%24 -7.4% -6.9% -6.4% -6.0% -5.5% -5.0% -4.5% -4.0% -3.5% -3.0% -2.5% -2.0% -1.5% -1.1% -0.6% -0.1% 0.4% 0.9% 1.4% 1.9% 2.4% 2.9% 3.3% 3.8% 4.3% 4.8% 5.3% 5.8% 6.3% 6.8% 7.3% 7.8% 8.2%25 -7.1% -6.6% -6.1% -5.6% -5.1% -4.7% -4.2% -3.7% -3.2% -2.7% -2.2% -1.7% -1.2% -0.7% -0.2% 0.3% 0.8% 1.2% 1.7% 2.2% 2.7% 3.2% 3.7% 4.2% 4.7% 5.2% 5.7% 6.2% 6.7% 7.1% 7.6% 8.1% 8.6%26 -6.8% -6.3% -5.8% -5.3% -4.8% -4.3% -3.8% -3.4% -2.9% -2.4% -1.9% -1.4% -0.9% -0.4% 0.1% 0.6% 1.1% 1.6% 2.1% 2.6% 3.1% 3.6% 4.1% 4.5% 5.0% 5.5% 6.0% 6.5% 7.0% 7.5% 8.0% 8.5% 9.0%27 -6.5% -6.0% -5.5% -5.0% -4.5% -4.0% -3.5% -3.0% -2.5% -2.0% -1.6% -1.1% -0.6% -0.1% 0.4% 0.9% 1.4% 1.9% 2.4% 2.9% 3.4% 3.9% 4.4% 4.9% 5.4% 5.9% 6.4% 6.9% 7.4% 7.9% 8.4% 8.9% 9.3%28 -6.2% -5.7% -5.2% -4.7% -4.2% -3.7% -3.2% -2.7% -2.2% -1.7% -1.2% -0.7% -0.3% 0.2% 0.7% 1.2% 1.7% 2.2% 2.7% 3.2% 3.7% 4.2% 4.7% 5.2% 5.7% 6.2% 6.7% 7.2% 7.7% 8.2% 8.7% 9.2% 9.7%29 -5.9% -5.4% -4.9% -4.4% -3.9% -3.4% -2.9% -2.4% -1.9% -1.4% -0.9% -0.4% 0.1% 0.6% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% 5.0% 5.5% 6.0% 6.5% 7.0% 7.5% 8.0% 8.5% 9.0% 9.5% 10.0%30 -5.7% -5.2% -4.7% -4.2% -3.7% -3.2% -2.7% -2.2% -1.7% -1.2% -0.7% -0.2% 0.3% 0.8% 1.3% 1.8% 2.3% 2.9% 3.4% 3.9% 4.4% 4.9% 5.4% 5.9% 6.4% 6.9% 7.4% 7.9% 8.4% 8.9% 9.4% 9.9% 10.4%31 -5.4% -4.9% -4.4% -3.9% -3.4% -2.9% -2.4% -1.9% -1.4% -0.9% -0.4% 0.1% 0.6% 1.1% 1.6% 2.1% 2.6% 3.1% 3.6% 4.2% 4.7% 5.2% 5.7% 6.2% 6.7% 7.2% 7.7% 8.2% 8.7% 9.2% 9.7% 10.2% 10.7%32 -5.1% -4.6% -4.1% -3.6% -3.1% -2.6% -2.1% -1.6% -1.1% -0.6% -0.1% 0.4% 0.9% 1.4% 1.9% 2.4% 2.9% 3.4% 3.9% 4.4% 4.9% 5.5% 6.0% 6.5% 7.0% 7.5% 8.0% 8.5% 9.0% 9.5% 10.0% 10.5% 11.0%33 -4.9% -4.4% -3.9% -3.4% -2.9% -2.4% -1.8% -1.3% -0.8% -0.3% 0.2% 0.7% 1.2% 1.7% 2.2% 2.7% 3.2% 3.7% 4.2% 4.7% 5.2% 5.7% 6.2% 6.8% 7.3% 7.8% 8.3% 8.8% 9.3% 9.8% 10.3% 10.8% 11.3%34 -4.6% -4.1% -3.6% -3.1% -2.6% -2.1% -1.6% -1.1% -0.6% -0.1% 0.4% 0.9% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% 5.0% 5.5% 6.0% 6.5% 7.0% 7.5% 8.0% 8.6% 9.1% 9.6% 10.1% 10.6% 11.1% 11.6%35 -4.4% -3.9% -3.4% -2.9% -2.4% -1.8% -1.3% -0.8% -0.3% 0.2% 0.7% 1.2% 1.7% 2.2% 2.7% 3.2% 3.8% 4.3% 4.8% 5.3% 5.8% 6.3% 6.8% 7.3% 7.8% 8.3% 8.8% 9.3% 9.9% 10.4% 10.9% 11.4% 11.9%36 -4.1% -3.6% -3.1% -2.6% -2.1% -1.6% -1.1% -0.6% -0.1% 0.4% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% 5.0% 5.5% 6.1% 6.6% 7.1% 7.6% 8.1% 8.6% 9.1% 9.6% 10.1% 10.6% 11.2% 11.7% 12.2%37 -3.9% -3.4% -2.9% -2.4% -1.9% -1.4% -0.8% -0.3% 0.2% 0.7% 1.2% 1.7% 2.2% 2.7% 3.2% 3.8% 4.3% 4.8% 5.3% 5.8% 6.3% 6.8% 7.3% 7.8% 8.4% 8.9% 9.4% 9.9% 10.4% 10.9% 11.4% 11.9% 12.5%38 -3.7% -3.2% -2.7% -2.1% -1.6% -1.1% -0.6% -0.1% 0.4% 0.9% 1.4% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% 5.0% 5.5% 6.1% 6.6% 7.1% 7.6% 8.1% 8.6% 9.1% 9.6% 10.2% 10.7% 11.2% 11.7% 12.2% 12.7%39 -3.5% -2.9% -2.4% -1.9% -1.4% -0.9% -0.4% 0.1% 0.6% 1.2% 1.7% 2.2% 2.7% 3.2% 3.7% 4.2% 4.8% 5.3% 5.8% 6.3% 6.8% 7.3% 7.8% 8.4% 8.9% 9.4% 9.9% 10.4% 10.9% 11.4% 12.0% 12.5% 13.0%40 -3.2% -2.7% -2.2% -1.7% -1.2% -0.7% -0.2% 0.4% 0.9% 1.4% 1.9% 2.4% 2.9% 3.5% 4.0% 4.5% 5.0% 5.5% 6.0% 6.5% 7.1% 7.6% 8.1% 8.6% 9.1% 9.6% 10.2% 10.7% 11.2% 11.7% 12.2% 12.7% 13.3%


Russia Implied Index Returns: 2006 Peak


Time Dividend Starting Implied Equity Holding Period Annualized ReturnHorizon (t) Yield P / Peak E

10 1.2 15.7 MSCI Russia Index 2006 Peak


2 -19.6% -19.2% -18.8% -18.4% -18.0% -17.6% -17.2% -16.8% -16.4% -16.0% -15.6% -15.2% -14.7% -14.3% -13.9% -13.5% -13.1% -12.7% -12.3% -11.9% -11.5% -11.1% -10.7% -10.3% -9.9% -9.5% -9.0% -8.6% -8.2% -7.8% -7.4% -7.0% -6.6%3 -18.2% -17.7% -17.3% -16.9% -16.5% -16.0% -15.6% -15.2% -14.8% -14.3% -13.9% -13.5% -13.1% -12.6% -12.2% -11.8% -11.4% -11.0% -10.5% -10.1% -9.7% -9.3% -8.8% -8.4% -8.0% -7.6% -7.1% -6.7% -6.3% -5.9% -5.4% -5.0% -4.6%4 -16.7% -16.3% -15.8% -15.4% -14.9% -14.5% -14.1% -13.6% -13.2% -12.8% -12.3% -11.9% -11.5% -11.0% -10.6% -10.2% -9.7% -9.3% -8.8% -8.4% -8.0% -7.5% -7.1% -6.7% -6.2% -5.8% -5.4% -4.9% -4.5% -4.0% -3.6% -3.2% -2.7%5 -15.4% -14.9% -14.5% -14.0% -13.6% -13.1% -12.7% -12.2% -11.8% -11.4% -10.9% -10.5% -10.0% -9.6% -9.1% -8.7% -8.2% -7.8% -7.3% -6.9% -6.4% -6.0% -5.6% -5.1% -4.7% -4.2% -3.8% -3.3% -2.9% -2.4% -2.0% -1.5% -1.1%6 -14.2% -13.7% -13.3% -12.8% -12.4% -11.9% -11.5% -11.0% -10.6% -10.1% -9.6% -9.2% -8.7% -8.3% -7.8% -7.4% -6.9% -6.5% -6.0% -5.6% -5.1% -4.6% -4.2% -3.7% -3.3% -2.8% -2.4% -1.9% -1.5% -1.0% -0.6% -0.1% 0.3%7 -13.1% -12.7% -12.2% -11.7% -11.3% -10.8% -10.4% -9.9% -9.4% -9.0% -8.5% -8.0% -7.6% -7.1% -6.7% -6.2% -5.7% -5.3% -4.8% -4.4% -3.9% -3.4% -3.0% -2.5% -2.0% -1.6% -1.1% -0.7% -0.2% 0.3% 0.7% 1.2% 1.6%8 -12.2% -11.7% -11.2% -10.7% -10.3% -9.8% -9.3% -8.9% -8.4% -7.9% -7.5% -7.0% -6.5% -6.1% -5.6% -5.1% -4.7% -4.2% -3.7% -3.3% -2.8% -2.3% -1.9% -1.4% -0.9% -0.5% 0.0% 0.5% 0.9% 1.4% 1.9% 2.3% 2.8%9 -11.3% -10.8% -10.3% -9.8% -9.4% -8.9% -8.4% -8.0% -7.5% -7.0% -6.5% -6.1% -5.6% -5.1% -4.6% -4.2% -3.7% -3.2% -2.8% -2.3% -1.8% -1.3% -0.9% -0.4% 0.1% 0.6% 1.0% 1.5% 2.0% 2.4% 2.9% 3.4% 3.9%10 -10.5% -10.0% -9.5% -9.0% -8.5% -8.1% -7.6% -7.1% -6.6% -6.2% -5.7% -5.2% -4.7% -4.2% -3.8% -3.3% -2.8% -2.3% -1.9% -1.4% -0.9% -0.4% 0.1% 0.5% 1.0% 1.5% 2.0% 2.5% 2.9% 3.4% 3.9% 4.4% 4.8%11 -9.7% -9.2% -8.7% -8.3% -7.8% -7.3% -6.8% -6.3% -5.8% -5.4% -4.9% -4.4% -3.9% -3.4% -2.9% -2.5% -2.0% -1.5% -1.0% -0.5% 0.0% 0.4% 0.9% 1.4% 1.9% 2.4% 2.8% 3.3% 3.8% 4.3% 4.8% 5.3% 5.7%12 -9.0% -8.5% -8.0% -7.5% -7.1% -6.6% -6.1% -5.6% -5.1% -4.6% -4.1% -3.6% -3.2% -2.7% -2.2% -1.7% -1.2% -0.7% -0.2% 0.2% 0.7% 1.2% 1.7% 2.2% 2.7% 3.2% 3.7% 4.1% 4.6% 5.1% 5.6% 6.1% 6.6%13 -8.3% -7.9% -7.4% -6.9% -6.4% -5.9% -5.4% -4.9% -4.4% -3.9% -3.4% -2.9% -2.5% -2.0% -1.5% -1.0% -0.5% 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 2.9% 3.4% 3.9% 4.4% 4.9% 5.4% 5.9% 6.4% 6.9% 7.4%14 -7.7% -7.2% -6.7% -6.2% -5.7% -5.3% -4.8% -4.3% -3.8% -3.3% -2.8% -2.3% -1.8% -1.3% -0.8% -0.3% 0.2% 0.7% 1.2% 1.7% 2.2% 2.7% 3.2% 3.6% 4.1% 4.6% 5.1% 5.6% 6.1% 6.6% 7.1% 7.6% 8.1%15 -7.1% -6.6% -6.1% -5.6% -5.1% -4.7% -4.2% -3.7% -3.2% -2.7% -2.2% -1.7% -1.2% -0.7% -0.2% 0.3% 0.8% 1.3% 1.8% 2.3% 2.8% 3.3% 3.8% 4.3% 4.8% 5.3% 5.8% 6.3% 6.8% 7.3% 7.8% 8.3% 8.8%16 -6.6% -6.1% -5.6% -5.1% -4.6% -4.1% -3.6% -3.1% -2.6% -2.1% -1.6% -1.1% -0.6% -0.1% 0.4% 0.9% 1.4% 1.9% 2.4% 2.9% 3.4% 3.9% 4.4% 4.9% 5.4% 5.9% 6.4% 6.9% 7.4% 7.9% 8.4% 8.9% 9.4%17 -6.1% -5.6% -5.1% -4.6% -4.0% -3.5% -3.0% -2.5% -2.0% -1.5% -1.0% -0.5% 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% 5.0% 5.5% 6.0% 6.5% 7.0% 7.5% 8.0% 8.6% 9.1% 9.6% 10.1%18 -5.6% -5.1% -4.5% -4.0% -3.5% -3.0% -2.5% -2.0% -1.5% -1.0% -0.5% 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.1% 3.6% 4.1% 4.6% 5.1% 5.6% 6.1% 6.6% 7.1% 7.6% 8.1% 8.6% 9.1% 9.6% 10.2% 10.7%19 -5.1% -4.6% -4.1% -3.6% -3.0% -2.5% -2.0% -1.5% -1.0% -0.5% 0.0% 0.5% 1.0% 1.5% 2.0% 2.6% 3.1% 3.6% 4.1% 4.6% 5.1% 5.6% 6.1% 6.6% 7.1% 7.7% 8.2% 8.7% 9.2% 9.7% 10.2% 10.7% 11.2%20 -4.6% -4.1% -3.6% -3.1% -2.6% -2.1% -1.6% -1.0% -0.5% 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.1% 3.6% 4.1% 4.6% 5.1% 5.6% 6.1% 6.6% 7.2% 7.7% 8.2% 8.7% 9.2% 9.7% 10.2% 10.7% 11.3% 11.8%21 -4.2% -3.7% -3.2% -2.6% -2.1% -1.6% -1.1% -0.6% -0.1% 0.4% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.6% 5.1% 5.6% 6.1% 6.6% 7.1% 7.6% 8.2% 8.7% 9.2% 9.7% 10.2% 10.7% 11.3% 11.8% 12.3%22 -3.8% -3.3% -2.7% -2.2% -1.7% -1.2% -0.7% -0.2% 0.4% 0.9% 1.4% 1.9% 2.4% 3.0% 3.5% 4.0% 4.5% 5.0% 5.5% 6.1% 6.6% 7.1% 7.6% 8.1% 8.6% 9.2% 9.7% 10.2% 10.7% 11.2% 11.7% 12.3% 12.8%23 -3.4% -2.8% -2.3% -1.8% -1.3% -0.8% -0.2% 0.3% 0.8% 1.3% 1.8% 2.3% 2.9% 3.4% 3.9% 4.4% 4.9% 5.5% 6.0% 6.5% 7.0% 7.5% 8.1% 8.6% 9.1% 9.6% 10.1% 10.7% 11.2% 11.7% 12.2% 12.7% 13.3%24 -3.0% -2.5% -1.9% -1.4% -0.9% -0.4% 0.2% 0.7% 1.2% 1.7% 2.2% 2.8% 3.3% 3.8% 4.3% 4.8% 5.4% 5.9% 6.4% 6.9% 7.5% 8.0% 8.5% 9.0% 9.5% 10.1% 10.6% 11.1% 11.6% 12.2% 12.7% 13.2% 13.7%25 -2.6% -2.1% -1.6% -1.0% -0.5% 0.0% 0.5% 1.1% 1.6% 2.1% 2.6% 3.2% 3.7% 4.2% 4.7% 5.3% 5.8% 6.3% 6.8% 7.4% 7.9% 8.4% 8.9% 9.4% 10.0% 10.5% 11.0% 11.5% 12.1% 12.6% 13.1% 13.6% 14.2%26 -2.2% -1.7% -1.2% -0.7% -0.1% 0.4% 0.9% 1.4% 2.0% 2.5% 3.0% 3.5% 4.1% 4.6% 5.1% 5.7% 6.2% 6.7% 7.2% 7.8% 8.3% 8.8% 9.3% 9.9% 10.4% 10.9% 11.4% 12.0% 12.5% 13.0% 13.5% 14.1% 14.6%27 -1.9% -1.4% -0.8% -0.3% 0.2% 0.8% 1.3% 1.8% 2.3% 2.9% 3.4% 3.9% 4.5% 5.0% 5.5% 6.0% 6.6% 7.1% 7.6% 8.1% 8.7% 9.2% 9.7% 10.3% 10.8% 11.3% 11.8% 12.4% 12.9% 13.4% 14.0% 14.5% 15.0%28 -1.5% -1.0% -0.5% 0.0% 0.6% 1.1% 1.6% 2.2% 2.7% 3.2% 3.8% 4.3% 4.8% 5.3% 5.9% 6.4% 6.9% 7.5% 8.0% 8.5% 9.1% 9.6% 10.1% 10.6% 11.2% 11.7% 12.2% 12.8% 13.3% 13.8% 14.4% 14.9% 15.4%29 -1.2% -0.7% -0.1% 0.4% 0.9% 1.4% 2.0% 2.5% 3.0% 3.6% 4.1% 4.6% 5.2% 5.7% 6.2% 6.8% 7.3% 7.8% 8.4% 8.9% 9.4% 10.0% 10.5% 11.0% 11.5% 12.1% 12.6% 13.1% 13.7% 14.2% 14.7% 15.3% 15.8%30 -0.9% -0.4% 0.2% 0.7% 1.2% 1.8% 2.3% 2.8% 3.4% 3.9% 4.4% 5.0% 5.5% 6.0% 6.6% 7.1% 7.6% 8.2% 8.7% 9.2% 9.8% 10.3% 10.8% 11.4% 11.9% 12.4% 13.0% 13.5% 14.0% 14.6% 15.1% 15.6% 16.2%31 -0.6% 0.0% 0.5% 1.0% 1.6% 2.1% 2.6% 3.2% 3.7% 4.2% 4.8% 5.3% 5.8% 6.4% 6.9% 7.4% 8.0% 8.5% 9.1% 9.6% 10.1% 10.7% 11.2% 11.7% 12.3% 12.8% 13.3% 13.9% 14.4% 14.9% 15.5% 16.0% 16.5%32 -0.3% 0.3% 0.8% 1.3% 1.9% 2.4% 2.9% 3.5% 4.0% 4.6% 5.1% 5.6% 6.2% 6.7% 7.2% 7.8% 8.3% 8.9% 9.4% 9.9% 10.5% 11.0% 11.5% 12.1% 12.6% 13.1% 13.7% 14.2% 14.8% 15.3% 15.8% 16.4% 16.9%33 0.0% 0.6% 1.1% 1.6% 2.2% 2.7% 3.3% 3.8% 4.3% 4.9% 5.4% 5.9% 6.5% 7.0% 7.6% 8.1% 8.6% 9.2% 9.7% 10.3% 10.8% 11.3% 11.9% 12.4% 12.9% 13.5% 14.0% 14.6% 15.1% 15.6% 16.2% 16.7% 17.3%34 0.3% 0.8% 1.4% 1.9% 2.5% 3.0% 3.5% 4.1% 4.6% 5.2% 5.7% 6.2% 6.8% 7.3% 7.9% 8.4% 8.9% 9.5% 10.0% 10.6% 11.1% 11.7% 12.2% 12.7% 13.3% 13.8% 14.4% 14.9% 15.4% 16.0% 16.5% 17.1% 17.6%35 0.6% 1.1% 1.7% 2.2% 2.8% 3.3% 3.8% 4.4% 4.9% 5.5% 6.0% 6.5% 7.1% 7.6% 8.2% 8.7% 9.3% 9.8% 10.3% 10.9% 11.4% 12.0% 12.5% 13.0% 13.6% 14.1% 14.7% 15.2% 15.8% 16.3% 16.8% 17.4% 17.9%36 0.9% 1.4% 1.9% 2.5% 3.0% 3.6% 4.1% 4.7% 5.2% 5.7% 6.3% 6.8% 7.4% 7.9% 8.5% 9.0% 9.6% 10.1% 10.6% 11.2% 11.7% 12.3% 12.8% 13.4% 13.9% 14.4% 15.0% 15.5% 16.1% 16.6% 17.2% 17.7% 18.2%37 1.1% 1.7% 2.2% 2.8% 3.3% 3.9% 4.4% 4.9% 5.5% 6.0% 6.6% 7.1% 7.7% 8.2% 8.8% 9.3% 9.8% 10.4% 10.9% 11.5% 12.0% 12.6% 13.1% 13.7% 14.2% 14.7% 15.3% 15.8% 16.4% 16.9% 17.5% 18.0% 18.6%38 1.4% 1.9% 2.5% 3.0% 3.6% 4.1% 4.7% 5.2% 5.8% 6.3% 6.9% 7.4% 7.9% 8.5% 9.0% 9.6% 10.1% 10.7% 11.2% 11.8% 12.3% 12.9% 13.4% 14.0% 14.5% 15.0% 15.6% 16.1% 16.7% 17.2% 17.8% 18.3% 18.9%39 1.6% 2.2% 2.7% 3.3% 3.8% 4.4% 4.9% 5.5% 6.0% 6.6% 7.1% 7.7% 8.2% 8.8% 9.3% 9.9% 10.4% 11.0% 11.5% 12.0% 12.6% 13.1% 13.7% 14.2% 14.8% 15.3% 15.9% 16.4% 17.0% 17.5% 18.1% 18.6% 19.2%40 1.9% 2.4% 3.0% 3.5% 4.1% 4.6% 5.2% 5.7% 6.3% 6.8% 7.4% 7.9% 8.5% 9.0% 9.6% 10.1% 10.7% 11.2% 11.8% 12.3% 12.9% 13.4% 14.0% 14.5% 15.1% 15.6% 16.2% 16.7% 17.3% 17.8% 18.4% 18.9% 19.5%

Return = (1+g) * ((Terminal PE / Start PE) ^ (1/t)) -1 + div yld * ((Start PE / Term PE +1) / 2)

Russia Implied Index Returns: 2009 Low



10 4.0 2.4 MSCI Russia Index 2009 Low


2 -5.4% -4.9% -4.4% -3.9% -3.4% -2.9% -2.4% -1.9% -1.4% -1.0% -0.5% 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 3.9% 4.4% 4.9% 5.4% 5.9% 6.4% 6.9% 7.4% 7.9% 8.4% 8.8% 9.3% 9.8% 10.3%3 -2.5% -1.9% -1.4% -0.9% -0.4% 0.1% 0.6% 1.1% 1.6% 2.1% 2.7% 3.2% 3.7% 4.2% 4.7% 5.2% 5.7% 6.2% 6.7% 7.2% 7.8% 8.3% 8.8% 9.3% 9.8% 10.3% 10.8% 11.3% 11.8% 12.3% 12.9% 13.4% 13.9%4 -0.1% 0.4% 0.9% 1.5% 2.0% 2.5% 3.0% 3.6% 4.1% 4.6% 5.1% 5.7% 6.2% 6.7% 7.2% 7.8% 8.3% 8.8% 9.3% 9.9% 10.4% 10.9% 11.4% 12.0% 12.5% 13.0% 13.5% 14.1% 14.6% 15.1% 15.6% 16.2% 16.7%5 1.8% 2.4% 2.9% 3.4% 4.0% 4.5% 5.0% 5.6% 6.1% 6.7% 7.2% 7.7% 8.3% 8.8% 9.3% 9.9% 10.4% 10.9% 11.5% 12.0% 12.6% 13.1% 13.6% 14.2% 14.7% 15.2% 15.8% 16.3% 16.9% 17.4% 17.9% 18.5% 19.0%6 3.5% 4.0% 4.6% 5.1% 5.7% 6.2% 6.8% 7.3% 7.8% 8.4% 8.9% 9.5% 10.0% 10.6% 11.1% 11.7% 12.2% 12.8% 13.3% 13.9% 14.4% 15.0% 15.5% 16.1% 16.6% 17.1% 17.7% 18.2% 18.8% 19.3% 19.9% 20.4% 21.0%7 4.9% 5.5% 6.0% 6.6% 7.1% 7.7% 8.3% 8.8% 9.4% 9.9% 10.5% 11.0% 11.6% 12.1% 12.7% 13.3% 13.8% 14.4% 14.9% 15.5% 16.0% 16.6% 17.1% 17.7% 18.3% 18.8% 19.4% 19.9% 20.5% 21.0% 21.6% 22.1% 22.7%8 6.2% 6.8% 7.3% 7.9% 8.5% 9.0% 9.6% 10.1% 10.7% 11.3% 11.8% 12.4% 13.0% 13.5% 14.1% 14.7% 15.2% 15.8% 16.3% 16.9% 17.5% 18.0% 18.6% 19.2% 19.7% 20.3% 20.8% 21.4% 22.0% 22.5% 23.1% 23.7% 24.2%9 7.4% 7.9% 8.5% 9.1% 9.6% 10.2% 10.8% 11.4% 11.9% 12.5% 13.1% 13.6% 14.2% 14.8% 15.3% 15.9% 16.5% 17.1% 17.6% 18.2% 18.8% 19.3% 19.9% 20.5% 21.0% 21.6% 22.2% 22.7% 23.3% 23.9% 24.5% 25.0% 25.6%

10 8.4% 9.0% 9.6% 10.1% 10.7% 11.3% 11.9% 12.5% 13.0% 13.6% 14.2% 14.8% 15.3% 15.9% 16.5% 17.1% 17.6% 18.2% 18.8% 19.4% 19.9% 20.5% 21.1% 21.7% 22.2% 22.8% 23.4% 24.0% 24.5% 25.1% 25.7% 26.3% 26.8%11 9.4% 10.0% 10.6% 11.1% 11.7% 12.3% 12.9% 13.5% 14.0% 14.6% 15.2% 15.8% 16.4% 16.9% 17.5% 18.1% 18.7% 19.3% 19.9% 20.4% 21.0% 21.6% 22.2% 22.8% 23.3% 23.9% 24.5% 25.1% 25.7% 26.2% 26.8% 27.4% 28.0%12 10.3% 10.9% 11.5% 12.0% 12.6% 13.2% 13.8% 14.4% 15.0% 15.6% 16.2% 16.7% 17.3% 17.9% 18.5% 19.1% 19.7% 20.3% 20.8% 21.4% 22.0% 22.6% 23.2% 23.8% 24.4% 24.9% 25.5% 26.1% 26.7% 27.3% 27.9% 28.5% 29.1%13 11.1% 11.7% 12.3% 12.9% 13.5% 14.1% 14.7% 15.3% 15.9% 16.4% 17.0% 17.6% 18.2% 18.8% 19.4% 20.0% 20.6% 21.2% 21.8% 22.4% 22.9% 23.5% 24.1% 24.7% 25.3% 25.9% 26.5% 27.1% 27.7% 28.3% 28.9% 29.4% 30.0%14 11.9% 12.5% 13.1% 13.7% 14.3% 14.9% 15.5% 16.1% 16.7% 17.3% 17.9% 18.5% 19.1% 19.6% 20.2% 20.8% 21.4% 22.0% 22.6% 23.2% 23.8% 24.4% 25.0% 25.6% 26.2% 26.8% 27.4% 28.0% 28.6% 29.2% 29.8% 30.4% 31.0%15 12.6% 13.2% 13.8% 14.4% 15.0% 15.6% 16.2% 16.8% 17.4% 18.0% 18.6% 19.2% 19.8% 20.4% 21.0% 21.6% 22.2% 22.8% 23.4% 24.0% 24.6% 25.2% 25.8% 26.4% 27.0% 27.6% 28.2% 28.8% 29.4% 30.0% 30.6% 31.2% 31.8%16 13.3% 13.9% 14.5% 15.1% 15.7% 16.4% 17.0% 17.6% 18.2% 18.8% 19.4% 20.0% 20.6% 21.2% 21.8% 22.4% 23.0% 23.6% 24.2% 24.8% 25.4% 26.0% 26.6% 27.2% 27.8% 28.4% 29.0% 29.6% 30.2% 30.8% 31.4% 32.0% 32.6%17 14.0% 14.6% 15.2% 15.8% 16.4% 17.0% 17.6% 18.2% 18.8% 19.5% 20.1% 20.7% 21.3% 21.9% 22.5% 23.1% 23.7% 24.3% 24.9% 25.5% 26.1% 26.7% 27.3% 28.0% 28.6% 29.2% 29.8% 30.4% 31.0% 31.6% 32.2% 32.8% 33.4%18 14.6% 15.2% 15.8% 16.4% 17.1% 17.7% 18.3% 18.9% 19.5% 20.1% 20.7% 21.3% 21.9% 22.6% 23.2% 23.8% 24.4% 25.0% 25.6% 26.2% 26.8% 27.4% 28.0% 28.7% 29.3% 29.9% 30.5% 31.1% 31.7% 32.3% 32.9% 33.5% 34.2%19 15.2% 15.8% 16.4% 17.1% 17.7% 18.3% 18.9% 19.5% 20.1% 20.7% 21.4% 22.0% 22.6% 23.2% 23.8% 24.4% 25.0% 25.6% 26.3% 26.9% 27.5% 28.1% 28.7% 29.3% 29.9% 30.6% 31.2% 31.8% 32.4% 33.0% 33.6% 34.2% 34.9%20 15.8% 16.4% 17.0% 17.6% 18.2% 18.9% 19.5% 20.1% 20.7% 21.3% 21.9% 22.6% 23.2% 23.8% 24.4% 25.0% 25.7% 26.3% 26.9% 27.5% 28.1% 28.7% 29.4% 30.0% 30.6% 31.2% 31.8% 32.4% 33.1% 33.7% 34.3% 34.9% 35.5%21 16.3% 16.9% 17.6% 18.2% 18.8% 19.4% 20.0% 20.7% 21.3% 21.9% 22.5% 23.1% 23.8% 24.4% 25.0% 25.6% 26.2% 26.9% 27.5% 28.1% 28.7% 29.3% 30.0% 30.6% 31.2% 31.8% 32.4% 33.1% 33.7% 34.3% 34.9% 35.5% 36.2%22 16.8% 17.5% 18.1% 18.7% 19.3% 20.0% 20.6% 21.2% 21.8% 22.5% 23.1% 23.7% 24.3% 24.9% 25.6% 26.2% 26.8% 27.4% 28.1% 28.7% 29.3% 29.9% 30.5% 31.2% 31.8% 32.4% 33.0% 33.7% 34.3% 34.9% 35.5% 36.2% 36.8%23 17.3% 18.0% 18.6% 19.2% 19.8% 20.5% 21.1% 21.7% 22.4% 23.0% 23.6% 24.2% 24.9% 25.5% 26.1% 26.7% 27.4% 28.0% 28.6% 29.2% 29.9% 30.5% 31.1% 31.7% 32.4% 33.0% 33.6% 34.2% 34.9% 35.5% 36.1% 36.7% 37.4%24 17.8% 18.5% 19.1% 19.7% 20.3% 21.0% 21.6% 22.2% 22.9% 23.5% 24.1% 24.7% 25.4% 26.0% 26.6% 27.3% 27.9% 28.5% 29.1% 29.8% 30.4% 31.0% 31.7% 32.3% 32.9% 33.5% 34.2% 34.8% 35.4% 36.1% 36.7% 37.3% 37.9%25 18.3% 18.9% 19.6% 20.2% 20.8% 21.4% 22.1% 22.7% 23.3% 24.0% 24.6% 25.2% 25.9% 26.5% 27.1% 27.8% 28.4% 29.0% 29.6% 30.3% 30.9% 31.5% 32.2% 32.8% 33.4% 34.1% 34.7% 35.3% 36.0% 36.6% 37.2% 37.9% 38.5%26 18.7% 19.4% 20.0% 20.6% 21.3% 21.9% 22.5% 23.2% 23.8% 24.4% 25.1% 25.7% 26.3% 27.0% 27.6% 28.2% 28.9% 29.5% 30.1% 30.8% 31.4% 32.0% 32.7% 33.3% 33.9% 34.6% 35.2% 35.8% 36.5% 37.1% 37.7% 38.4% 39.0%27 19.2% 19.8% 20.4% 21.1% 21.7% 22.4% 23.0% 23.6% 24.3% 24.9% 25.5% 26.2% 26.8% 27.4% 28.1% 28.7% 29.3% 30.0% 30.6% 31.3% 31.9% 32.5% 33.2% 33.8% 34.4% 35.1% 35.7% 36.3% 37.0% 37.6% 38.2% 38.9% 39.5%28 19.6% 20.2% 20.9% 21.5% 22.1% 22.8% 23.4% 24.1% 24.7% 25.3% 26.0% 26.6% 27.3% 27.9% 28.5% 29.2% 29.8% 30.4% 31.1% 31.7% 32.4% 33.0% 33.6% 34.3% 34.9% 35.5% 36.2% 36.8% 37.5% 38.1% 38.7% 39.4% 40.0%29 20.0% 20.6% 21.3% 21.9% 22.6% 23.2% 23.8% 24.5% 25.1% 25.8% 26.4% 27.0% 27.7% 28.3% 29.0% 29.6% 30.2% 30.9% 31.5% 32.2% 32.8% 33.4% 34.1% 34.7% 35.4% 36.0% 36.7% 37.3% 37.9% 38.6% 39.2% 39.9% 40.5%30 20.4% 21.0% 21.7% 22.3% 23.0% 23.6% 24.3% 24.9% 25.5% 26.2% 26.8% 27.5% 28.1% 28.7% 29.4% 30.0% 30.7% 31.3% 32.0% 32.6% 33.2% 33.9% 34.5% 35.2% 35.8% 36.5% 37.1% 37.7% 38.4% 39.0% 39.7% 40.3% 41.0%31 20.8% 21.4% 22.1% 22.7% 23.4% 24.0% 24.6% 25.3% 25.9% 26.6% 27.2% 27.9% 28.5% 29.2% 29.8% 30.4% 31.1% 31.7% 32.4% 33.0% 33.7% 34.3% 35.0% 35.6% 36.3% 36.9% 37.5% 38.2% 38.8% 39.5% 40.1% 40.8% 41.4%32 21.2% 21.8% 22.4% 23.1% 23.7% 24.4% 25.0% 25.7% 26.3% 27.0% 27.6% 28.3% 28.9% 29.6% 30.2% 30.9% 31.5% 32.1% 32.8% 33.4% 34.1% 34.7% 35.4% 36.0% 36.7% 37.3% 38.0% 38.6% 39.3% 39.9% 40.6% 41.2% 41.8%33 21.5% 22.2% 22.8% 23.5% 24.1% 24.8% 25.4% 26.1% 26.7% 27.4% 28.0% 28.6% 29.3% 29.9% 30.6% 31.2% 31.9% 32.5% 33.2% 33.8% 34.5% 35.1% 35.8% 36.4% 37.1% 37.7% 38.4% 39.0% 39.7% 40.3% 41.0% 41.6% 42.3%34 21.9% 22.5% 23.2% 23.8% 24.5% 25.1% 25.8% 26.4% 27.1% 27.7% 28.4% 29.0% 29.7% 30.3% 31.0% 31.6% 32.3% 32.9% 33.6% 34.2% 34.9% 35.5% 36.2% 36.8% 37.5% 38.1% 38.8% 39.4% 40.1% 40.7% 41.4% 42.0% 42.7%35 22.2% 22.9% 23.5% 24.2% 24.8% 25.5% 26.1% 26.8% 27.4% 28.1% 28.7% 29.4% 30.0% 30.7% 31.3% 32.0% 32.6% 33.3% 34.0% 34.6% 35.3% 35.9% 36.6% 37.2% 37.9% 38.5% 39.2% 39.8% 40.5% 41.1% 41.8% 42.4% 43.1%36 22.5% 23.2% 23.9% 24.5% 25.2% 25.8% 26.5% 27.1% 27.8% 28.4% 29.1% 29.7% 30.4% 31.1% 31.7% 32.4% 33.0% 33.7% 34.3% 35.0% 35.6% 36.3% 36.9% 37.6% 38.2% 38.9% 39.6% 40.2% 40.9% 41.5% 42.2% 42.8% 43.5%37 22.9% 23.5% 24.2% 24.8% 25.5% 26.2% 26.8% 27.5% 28.1% 28.8% 29.4% 30.1% 30.7% 31.4% 32.1% 32.7% 33.4% 34.0% 34.7% 35.3% 36.0% 36.7% 37.3% 38.0% 38.6% 39.3% 39.9% 40.6% 41.2% 41.9% 42.6% 43.2% 43.9%38 23.2% 23.8% 24.5% 25.2% 25.8% 26.5% 27.1% 27.8% 28.5% 29.1% 29.8% 30.4% 31.1% 31.7% 32.4% 33.1% 33.7% 34.4% 35.0% 35.7% 36.3% 37.0% 37.7% 38.3% 39.0% 39.6% 40.3% 41.0% 41.6% 42.3% 42.9% 43.6% 44.2%39 23.5% 24.2% 24.8% 25.5% 26.1% 26.8% 27.5% 28.1% 28.8% 29.4% 30.1% 30.8% 31.4% 32.1% 32.7% 33.4% 34.1% 34.7% 35.4% 36.0% 36.7% 37.4% 38.0% 38.7% 39.3% 40.0% 40.7% 41.3% 42.0% 42.6% 43.3% 43.9% 44.6%40 23.8% 24.5% 25.1% 25.8% 26.5% 27.1% 27.8% 28.4% 29.1% 29.8% 30.4% 31.1% 31.7% 32.4% 33.1% 33.7% 34.4% 35.0% 35.7% 36.4% 37.0% 37.7% 38.4% 39.0% 39.7% 40.3% 41.0% 41.7% 42.3% 43.0% 43.6% 44.3% 45.0%


Russia Implied Index Returns: May 2011



10 1.5 6.2 MSCI Russia Index May-11


2 -14.7% -14.3% -13.8% -13.4% -12.9% -12.5% -12.0% -11.6% -11.2% -10.7% -10.3% -9.8% -9.4% -8.9% -8.5% -8.0% -7.6% -7.1% -6.7% -6.2% -5.8% -5.4% -4.9% -4.5% -4.0% -3.6% -3.1% -2.7% -2.2% -1.8% -1.3% -0.9% -0.4%3 -12.1% -11.6% -11.2% -10.7% -10.3% -9.8% -9.3% -8.9% -8.4% -7.9% -7.5% -7.0% -6.5% -6.1% -5.6% -5.1% -4.7% -4.2% -3.7% -3.3% -2.8% -2.4% -1.9% -1.4% -1.0% -0.5% 0.0% 0.4% 0.9% 1.4% 1.8% 2.3% 2.8%4 -10.0% -9.5% -9.1% -8.6% -8.1% -7.6% -7.1% -6.7% -6.2% -5.7% -5.2% -4.7% -4.3% -3.8% -3.3% -2.8% -2.4% -1.9% -1.4% -0.9% -0.4% 0.0% 0.5% 1.0% 1.5% 2.0% 2.4% 2.9% 3.4% 3.9% 4.3% 4.8% 5.3%5 -8.3% -7.8% -7.3% -6.8% -6.3% -5.8% -5.3% -4.8% -4.3% -3.9% -3.4% -2.9% -2.4% -1.9% -1.4% -0.9% -0.4% 0.1% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% 5.0% 5.4% 5.9% 6.4% 6.9% 7.4%6 -6.8% -6.3% -5.8% -5.3% -4.8% -4.3% -3.8% -3.3% -2.8% -2.3% -1.8% -1.3% -0.8% -0.3% 0.2% 0.7% 1.2% 1.7% 2.2% 2.7% 3.2% 3.7% 4.2% 4.7% 5.2% 5.7% 6.2% 6.7% 7.2% 7.7% 8.2% 8.7% 9.2%7 -5.4% -4.9% -4.4% -3.9% -3.4% -2.9% -2.4% -1.9% -1.4% -0.9% -0.4% 0.1% 0.6% 1.1% 1.6% 2.1% 2.6% 3.2% 3.7% 4.2% 4.7% 5.2% 5.7% 6.2% 6.7% 7.2% 7.7% 8.2% 8.7% 9.2% 9.7% 10.2% 10.7%8 -4.3% -3.8% -3.3% -2.7% -2.2% -1.7% -1.2% -0.7% -0.2% 0.3% 0.8% 1.4% 1.9% 2.4% 2.9% 3.4% 3.9% 4.4% 5.0% 5.5% 6.0% 6.5% 7.0% 7.5% 8.0% 8.5% 9.1% 9.6% 10.1% 10.6% 11.1% 11.6% 12.1%9 -3.2% -2.7% -2.2% -1.7% -1.2% -0.6% -0.1% 0.4% 0.9% 1.4% 2.0% 2.5% 3.0% 3.5% 4.0% 4.6% 5.1% 5.6% 6.1% 6.6% 7.1% 7.7% 8.2% 8.7% 9.2% 9.7% 10.3% 10.8% 11.3% 11.8% 12.3% 12.9% 13.4%10 -2.3% -1.7% -1.2% -0.7% -0.2% 0.4% 0.9% 1.4% 1.9% 2.4% 3.0% 3.5% 4.0% 4.5% 5.1% 5.6% 6.1% 6.6% 7.2% 7.7% 8.2% 8.7% 9.3% 9.8% 10.3% 10.8% 11.4% 11.9% 12.4% 12.9% 13.5% 14.0% 14.5%11 -1.4% -0.9% -0.3% 0.2% 0.7% 1.3% 1.8% 2.3% 2.8% 3.4% 3.9% 4.4% 5.0% 5.5% 6.0% 6.6% 7.1% 7.6% 8.1% 8.7% 9.2% 9.7% 10.3% 10.8% 11.3% 11.8% 12.4% 12.9% 13.4% 14.0% 14.5% 15.0% 15.6%12 -0.6% 0.0% 0.5% 1.0% 1.6% 2.1% 2.6% 3.2% 3.7% 4.2% 4.8% 5.3% 5.8% 6.4% 6.9% 7.4% 8.0% 8.5% 9.0% 9.6% 10.1% 10.6% 11.2% 11.7% 12.2% 12.8% 13.3% 13.8% 14.4% 14.9% 15.4% 16.0% 16.5%13 0.2% 0.7% 1.3% 1.8% 2.3% 2.9% 3.4% 4.0% 4.5% 5.0% 5.6% 6.1% 6.6% 7.2% 7.7% 8.3% 8.8% 9.3% 9.9% 10.4% 11.0% 11.5% 12.0% 12.6% 13.1% 13.6% 14.2% 14.7% 15.3% 15.8% 16.3% 16.9% 17.4%14 0.9% 1.4% 2.0% 2.5% 3.1% 3.6% 4.2% 4.7% 5.2% 5.8% 6.3% 6.9% 7.4% 7.9% 8.5% 9.0% 9.6% 10.1% 10.7% 11.2% 11.7% 12.3% 12.8% 13.4% 13.9% 14.5% 15.0% 15.5% 16.1% 16.6% 17.2% 17.7% 18.3%15 1.6% 2.1% 2.7% 3.2% 3.8% 4.3% 4.8% 5.4% 5.9% 6.5% 7.0% 7.6% 8.1% 8.7% 9.2% 9.8% 10.3% 10.9% 11.4% 11.9% 12.5% 13.0% 13.6% 14.1% 14.7% 15.2% 15.8% 16.3% 16.9% 17.4% 18.0% 18.5% 19.0%16 2.2% 2.7% 3.3% 3.8% 4.4% 4.9% 5.5% 6.0% 6.6% 7.1% 7.7% 8.2% 8.8% 9.3% 9.9% 10.4% 11.0% 11.5% 12.1% 12.6% 13.2% 13.7% 14.3% 14.8% 15.4% 15.9% 16.5% 17.0% 17.6% 18.1% 18.7% 19.2% 19.8%17 2.8% 3.3% 3.9% 4.5% 5.0% 5.6% 6.1% 6.7% 7.2% 7.8% 8.3% 8.9% 9.4% 10.0% 10.5% 11.1% 11.6% 12.2% 12.7% 13.3% 13.9% 14.4% 15.0% 15.5% 16.1% 16.6% 17.2% 17.7% 18.3% 18.8% 19.4% 19.9% 20.5%18 3.4% 3.9% 4.5% 5.0% 5.6% 6.1% 6.7% 7.3% 7.8% 8.4% 8.9% 9.5% 10.0% 10.6% 11.1% 11.7% 12.3% 12.8% 13.4% 13.9% 14.5% 15.0% 15.6% 16.2% 16.7% 17.3% 17.8% 18.4% 18.9% 19.5% 20.0% 20.6% 21.2%19 3.9% 4.5% 5.0% 5.6% 6.1% 6.7% 7.3% 7.8% 8.4% 8.9% 9.5% 10.1% 10.6% 11.2% 11.7% 12.3% 12.9% 13.4% 14.0% 14.5% 15.1% 15.6% 16.2% 16.8% 17.3% 17.9% 18.4% 19.0% 19.6% 20.1% 20.7% 21.2% 21.8%20 4.4% 5.0% 5.5% 6.1% 6.7% 7.2% 7.8% 8.4% 8.9% 9.5% 10.0% 10.6% 11.2% 11.7% 12.3% 12.9% 13.4% 14.0% 14.5% 15.1% 15.7% 16.2% 16.8% 17.3% 17.9% 18.5% 19.0% 19.6% 20.2% 20.7% 21.3% 21.8% 22.4%21 4.9% 5.5% 6.0% 6.6% 7.2% 7.7% 8.3% 8.9% 9.4% 10.0% 10.6% 11.1% 11.7% 12.3% 12.8% 13.4% 14.0% 14.5% 15.1% 15.6% 16.2% 16.8% 17.3% 17.9% 18.5% 19.0% 19.6% 20.2% 20.7% 21.3% 21.9% 22.4% 23.0%22 5.4% 6.0% 6.5% 7.1% 7.7% 8.2% 8.8% 9.4% 9.9% 10.5% 11.1% 11.6% 12.2% 12.8% 13.3% 13.9% 14.5% 15.0% 15.6% 16.2% 16.7% 17.3% 17.9% 18.4% 19.0% 19.6% 20.1% 20.7% 21.3% 21.8% 22.4% 23.0% 23.5%23 5.8% 6.4% 7.0% 7.6% 8.1% 8.7% 9.3% 9.8% 10.4% 11.0% 11.5% 12.1% 12.7% 13.3% 13.8% 14.4% 15.0% 15.5% 16.1% 16.7% 17.2% 17.8% 18.4% 19.0% 19.5% 20.1% 20.7% 21.2% 21.8% 22.4% 22.9% 23.5% 24.1%24 6.3% 6.9% 7.4% 8.0% 8.6% 9.1% 9.7% 10.3% 10.9% 11.4% 12.0% 12.6% 13.2% 13.7% 14.3% 14.9% 15.4% 16.0% 16.6% 17.2% 17.7% 18.3% 18.9% 19.4% 20.0% 20.6% 21.2% 21.7% 22.3% 22.9% 23.5% 24.0% 24.6%25 6.7% 7.3% 7.9% 8.4% 9.0% 9.6% 10.2% 10.7% 11.3% 11.9% 12.5% 13.0% 13.6% 14.2% 14.8% 15.3% 15.9% 16.5% 17.1% 17.6% 18.2% 18.8% 19.4% 19.9% 20.5% 21.1% 21.7% 22.2% 22.8% 23.4% 23.9% 24.5% 25.1%26 7.1% 7.7% 8.3% 8.8% 9.4% 10.0% 10.6% 11.2% 11.7% 12.3% 12.9% 13.5% 14.0% 14.6% 15.2% 15.8% 16.3% 16.9% 17.5% 18.1% 18.7% 19.2% 19.8% 20.4% 21.0% 21.5% 22.1% 22.7% 23.3% 23.8% 24.4% 25.0% 25.6%27 7.5% 8.1% 8.7% 9.2% 9.8% 10.4% 11.0% 11.6% 12.1% 12.7% 13.3% 13.9% 14.5% 15.0% 15.6% 16.2% 16.8% 17.4% 17.9% 18.5% 19.1% 19.7% 20.3% 20.8% 21.4% 22.0% 22.6% 23.1% 23.7% 24.3% 24.9% 25.5% 26.0%28 7.9% 8.5% 9.1% 9.6% 10.2% 10.8% 11.4% 12.0% 12.5% 13.1% 13.7% 14.3% 14.9% 15.4% 16.0% 16.6% 17.2% 17.8% 18.4% 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22.0% 22.6% 23.2% 23.8% 24.4% 25.0% 25.6% 26.2% 26.8% 27.4% 28.0% 28.5%34 10.0% 10.6% 11.1% 11.7% 12.3% 12.9% 13.5% 14.1% 14.7% 15.3% 15.9% 16.5% 17.1% 17.7% 18.3% 18.8% 19.4% 20.0% 20.6% 21.2% 21.8% 22.4% 23.0% 23.6% 24.2% 24.8% 25.4% 26.0% 26.6% 27.1% 27.7% 28.3% 28.9%35 10.3% 10.9% 11.5% 12.1% 12.6% 13.2% 13.8% 14.4% 15.0% 15.6% 16.2% 16.8% 17.4% 18.0% 18.6% 19.2% 19.8% 20.4% 21.0% 21.6% 22.2% 22.8% 23.3% 23.9% 24.5% 25.1% 25.7% 26.3% 26.9% 27.5% 28.1% 28.7% 29.3%36 10.6% 11.2% 11.8% 12.4% 13.0% 13.6% 14.2% 14.7% 15.3% 15.9% 16.5% 17.1% 17.7% 18.3% 18.9% 19.5% 20.1% 20.7% 21.3% 21.9% 22.5% 23.1% 23.7% 24.3% 24.9% 25.5% 26.1% 26.7% 27.3% 27.9% 28.5% 29.1% 29.7%37 10.9% 11.5% 12.1% 12.7% 13.3% 13.9% 14.5% 15.1% 15.7% 16.3% 16.9% 17.4% 18.0% 18.6% 19.2% 19.8% 20.4% 21.0% 21.6% 22.2% 22.8% 23.4% 24.0% 24.6% 25.2% 25.8% 26.4% 27.0% 27.6% 28.2% 28.8% 29.4% 30.0%38 11.2% 11.8% 12.4% 13.0% 13.6% 14.2% 14.8% 15.4% 16.0% 16.6% 17.2% 17.8% 18.4% 19.0% 19.6% 20.2% 20.8% 21.4% 22.0% 22.6% 23.2% 23.8% 24.3% 24.9% 25.5% 26.1% 26.7% 27.3% 27.9% 28.5% 29.1% 29.7% 30.3%39 11.4% 12.0% 12.6% 13.3% 13.9% 14.5% 15.1% 15.7% 16.3% 16.9% 17.5% 18.1% 18.7% 19.3% 19.9% 20.5% 21.1% 21.7% 22.3% 22.9% 23.5% 24.1% 24.7% 25.3% 25.9% 26.5% 27.1% 27.7% 28.3% 28.9% 29.5% 30.1% 30.7%40 11.7% 12.3% 12.9% 13.5% 14.1% 14.7% 15.3% 15.9% 16.5% 17.1% 17.7% 18.4% 19.0% 19.6% 20.2% 20.8% 21.4% 22.0% 22.6% 23.2% 23.8% 24.4% 25.0% 25.6% 26.2% 26.8% 27.4% 28.0% 28.6% 29.2% 29.8% 30.4% 31.0%


Documents

Paul Marson, Lombard Odier "Prevailing Winds"