Global Outlook

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Global Outlook
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Global Outlook - GDP

• 2009 2010 2011 2012
• Global -2.2 3.8 3.9 3.5
• Developed -3.5 2.6 3.0 2.9
• US -2.6 2.8 3.6 3.0
• Euroland -4.0 1.7 1.8 1.9
• Japan -5.2 4.3 2.5 2.0
• Emerging 1.3 7.1 6.1 6.0
• Asia 5.6 9.0 7.7 7.5
• China 9.1 10.3 9.6 9.0
• Europe -5.3 4.0 4.0 4.6
• Latin -2.4 6.0 4.5 4.1

Source JPMorgan Jesper Koll
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Global Outlook - CPI

• 2009 2010 2011 2012
• Global 1.3 3.4 3.5 3.5
• Developed 0.6 1.5 1.8 1.8
• US 1.5 1.2 1.5 1.6
• Euroland 0.4 2.0 2.0 1.9
• Japan -2.0 -0.5 0.0 1.0
• Emerging 3.9 5.6 5.9 6.2
• Asia 2.7 5.0 5.0 5.0
• China 0.7 4.7 5.6 4.5
• Europe 6.2 6.6 7.2 5.8
• Latin 5.3 6.7 7.7 7.8

Source JPMorgan Jesper Koll note ? Oct-Dec
compared to Oct-Dec previous year
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Japan Inc. V-Shaped Profit Recovery
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2011 Focus Labor Market
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Sweet-Spot
55
Yen
65
Age
40-45
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Why Japan ?
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No Lost Decade
Relentless Focus on Research Development
Spending (total RD spending by public and
private sector as of GDP)
Japan
Japan
US
US
Germany
Germany
France
Source National Institute of Population and
Social Security Research
Source NIPSSR
10
Global Patent Applications

• 2004 2009
• US 43,350 45,790 2,440
• Japan 20,264 29,827 9,563
• Germany 15,214 16,736 1,522
• Korea 3,558 8,066 4,508
• China 1,706 7,946 6,240
• Total 122,610 155,900 33,290

Source Jesper Koll Wolrd Intellectual Property
Organization
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Who is Afraid of China ?
Percent of each countries exports that compete
head-to-head with Made-in-China Products in the
US market
1990 1995 2000 2005 2009e
Japan 3 8 16 25 29
Korea 25 28 37 50 55
Taiwan 27 40 50 78 81
Singapore 15 19 35 45 51
Indonesia 49 60 68 72 78
Malaysia 37 37 47 72 79
Philippines 42 46 46 75 82
Thailand 36 48 56 77 85
Source C.H.Kwan RIETI / NRI Jesper Koll
Merrill Lynch estimates for 2009
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Cool Nippon
Do You Think This Countrys Products Are
Cool? Response By Consumers In Different Cities
Source Nikkei Note ChinaBeijin, Shanghai,
Guangzhou
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Japan Profit Sensitivity

• 1 Domestic Growth ? 5
• 1 Global Growth ? 18
• 10 Yen Move ? 10

Note Jesper Koll Calculations
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Legacy Problem
Fiscal Deficit Forced BoJ Balance Sheet
Expansion Normalizing both BoJ and Fiscal
Policy Forces Volatility
Source National Institute of Population and
Social Security Research
Source BoJ and Mikuni Company
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Problem Inefficient Tax System

• Tax Multiplier
• Japan 0.4
• Euroland 0.9
• Germany 0.9
• US 1.0
• Korea 1.3
• OECD 0.9

Note Tax Multiplier is the average over past
three years, 2005-2007 based on OECD estimates
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International Students in US

• Total Graduate School
• Japan 33,974 6,862 20
• Korea 69,124 24,677 36
• India 94,563 68,280 72
• China 81,127 53,057 65
• Germany 8,907 3,670 41

Source Institute for International Education
Jesper Koll
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Yes, The Yen Floats On Water
Source Washington Post
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Whos Got The Power?
Top Heavy - Stagnant Middle Declining
Front-End
Population by Age Groups Million People
Source METI
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Upside Down Debate

• Interest Rates Fiscal
• Demographics Employment
• Agriculture
• Taxes

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Problem Inefficient Tax System

• Tax Multiplier
• Japan 0.6
• Euroland 0.9
• Germany 0.9
• US 1.0
• Korea 1.3
• OECD 0.9

Note Tax Multiplier is the average over past
three years, 2005-2007 based on OECD estimates
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Excess Liquidity !
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No Return to Big Government
Post-Koizumi leaders must cut rising social
security, debt service and local transfers ? ?
unpopular
Japan Fiscal Spending By Major Category
Source MoF Note FY 1965-1996 Settlement, FY
2006 Initial Budget
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Budget Realities
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Radical Break ?
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Poor Japan
Private Wealth Barely Covers Public Deficit
All Public Debt can be paid off with 93 of
Household Financial Assets
Japan Net Household Financial Assets and Public
Sector Debt As of GDP
Source US Federal Reserve, Michal Taylor, Jesper
Koll
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Rich America
Private Wealth Far Exceeds Public Deficit All
Federal Debt can be paid off with 41 of
Household Financial Assets
US Net Household Financial Assets and Public
Sector Debt As of GDP
Source US Federal Reserve, Michal Taylor, Jesper
Koll
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Upside Down Debate

• Growth Kapital Labor Innovation
• US
• Europe
• Japan
• China

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AgriculturalReform
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Legacy Problem
Fiscal Deficit Forced BoJ Balance Sheet
Expansion Normalizing both BoJ and Fiscal
Policy Forces Volatility
Source National Institute of Population and
Social Security Research
Source BoJ and Mikuni Company
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AgriculturalReform
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Real EstateBOOM
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Appendix
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The New Japan
New Economic Reality New Social Reality

• End 2010 Unemployment 5 6
• Back to 3.5 Unemployment
• 2-years Growth (2011-12) 2.8 3.8
• 3-years Growth (2011-13) 2.0 2.8

Source Jesper Koll Local Stats Offices
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The New America
New Economic Reality New Social Reality

• End 2010 Unemployment 9 10
• Back to 6 Unemployment
• 2-years Growth (2011-12) 5.1 6.5
• 3-years Growth (2011-13) 4.1 5.0

Source Jesper Koll Local Stats Offices
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Money Matters
Financial Asset Growth Multiplier Ratio to
GDP Growth

• US 1985-95 1996-06 07
• Loans 1.8 2.3 2.1
• other credit 1.2 3.8 5.8
• total 3.0 6.1 7.9
• Japan 1980-85 1985-90 87
• Loans 1.2 2.1 3.7
• other credit 0.5 0.9 1.1
• total 1.7 3.0 4.8

Source Jesper Koll BoJ Fed
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Bold Bernanke
xx
Base Money / GDP
Source Various Government Agencies Morgan
Stanley
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Global Supply-Side Revolution ----gt End of Cold
War Frees Up New Investment Opportunities
----gt Global Flow of Goods and Services
Accelerates ----gt Third Industrial Revolution
Think the Unthinkable !
Break The Rules !
Be Scared !
Source Jesper Koll
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Globalization China Challenge
Compared to Past Economic Empire Transitions, The
China Challenge Is Huge
Source IMF Jesper Koll
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Global Reality From Cost Competition
Brand Value
??
Lower Cost
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Global Reality To Ruthless Brand Competition
Brand Value
Toyota
Geely
Lower Cost
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No Lost Decade
Relentless Focus on Research Development
Spending (total RD spending by public and
private sector as of GDP)
Japan
Japan
US
US
Germany
Germany
France
Source National Institute of Population and
Social Security Research
Source NIPSSR
51
Global Patent Applications

• 2004 2009
• US 43,350 45,790 2,440
• Japan 20,264 29,827 9,563
• Germany 15,214 16,736 1,522
• Korea 3,558 8,066 4,508
• China 1,706 7,946 6,240
• Total 122,610 155,900 33,290

Source Jesper Koll Wolrd Intellectual Property
Organization
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Patent Powerhouses

• Panasonic 1,891 6
• Huawei Technologies 1,847 24
• Bosch 1,586 10
• Philips 1,295 29
• Qualcomm 1,280 3
• Ericson 1,240 34
• LG Electronics 1,090 14
• NEC 1.069 4
• Toyota 1,068 4
• Sharp 997 3

Source Jesper Koll Wolrd Intellectual Property
Organization
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Cool Nippon
Do You Think This Countrys Products Are
Cool? Response By Consumers In Different Cities
Source Nikkei Note ChinaBeijin, Shanghai,
Guangzhou
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Japan Profit Sensitivity

• 1 Domestic Growth ? 5
• 1 Global Growth ? 18
• 10 Yen Move ? 10

Note Jesper Koll Calculations
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Global Player
Outward MA Accelerating Sharply
Source Thomson Financial, Merrill Lynch
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Rich America
Private Wealth Far Exceeds Public Deficit All
Federal Debt can be paid off with 41 of
Household Financial Assets
US Net Household Financial Assets and Public
Sector Debt As of GDP
Source US Federal Reserve, Michal Taylor, Jesper
Koll
57

Poor Japan
Private Wealth Barely Covers Public Deficit
All Public Debt can be paid off with 93 of
Household Financial Assets
Japan Net Household Financial Assets and Public
Sector Debt As of GDP
Source US Federal Reserve, Michal Taylor, Jesper
Koll
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International Students in US

• 98 01 04 08
• Total 481,280 547,867 572,509 623,808
• Japan 47,073 46,497 40,835 33,974
• Korea 42,890 45,685 52,484 69,124
• India 33,818 54,664 79,736 94,563
• China 46,958 59,939 61,765 81,127
• Germany 9,309 10,128 8,745 8,907

Source Institute for International Education
Jesper Koll
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Globalization at Home

• Workers Students
• US 13.4 5.8
• England 15.9 25.7
• Germany 11.4 12.4
• France 12.4 11.7
• Australia 28.9 28.6
• Japan 0.7 3.5

Note Students international university
students relative to domestic high-school
graduates
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Global Reality Check

• GDP Growth Growth
• US 14.2 trn 2 284 bn 284bn
• Japan 4.9 trn 1 49 bn
• ASIA 10.3 trn 5 515 bn
  564bn
• China 4.3 trn 7 301 bn
• A-Tigers 3.8 trn 4 152 bn
• India 1.2 trn 5 60 bn
• Australia 1.0 bn 2 20 bn
• Euroland 13.6 trn 1 136 bn 216
  bn
• New Europe 1.6 trn 2 32 bn
• Russia 1.6 trn 3 48 bn

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The New America
New Economic Reality New Social Reality

• End 2009 Unemployment 9 10
• Back to 6 Unemployment
• 2-years Growth (2010-11) 6.1 7.5
• 3-years Growth (2010-12) 5.1 6.0

Source Jesper Koll Local Stats Offices
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Capex Poised For Recovery
ccc
US Capital Stock Age Growth
Source US Bureau of Economic Analysis, Michal
Taylor, Jesper Koll
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America Inc More Than Finance
Non-Financial Earnings Very Strong
US Equity Earnings
Source Morgan Stanley G. Miniack
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Made By America
About 60 of US corporate Profits Are Sourced
Globally
US Profits Global versus Local
Source Morgan Stanley G. Miniack
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Upside Down Debate

• Interest Rates
• Employment
• Agriculture
• Taxes

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ImpossibleIm Possible
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JapanOptimist
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Global GDP V - Recovery
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?????????

• K
• and
• J

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4.3 ?X 2/3D 1/3