byron wien 3q_2012_optimistic_about_the_outlook_contrarian_or_delusional_v3_for_upload

7/30/2019 Byron Wien 3q_2012_optimistic_about_the_outlook_contrarian_or_delusional_v3_for_upload

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Optimistic about the Outlook:Contrarian or Delusional?

Byron R. WienVice Chairman, Blackstone Advisory Partners L.P.

Tel: 212.583.5055Email:[email protected]

If you would like to receive future monthly market commentary publications by Byron Wien,please email [email protected].
mailto:[email protected]:[email protected]


2/63

1

The Ten Surprises of 2012

1. The extraction of oil and gas from shale and rock begins to be a game

changer. The price of oil drifts back to $85 a barrel and the United

States becomes less dependent on Middle East supply. Deposits in

Poland, Ukraine and elsewhere prove promising as well. Increased

production from Libya and Iraq and reduced demand resulting fromthe slowdown in world-wide economic activity contribute to the

price decline.

2. Earnings for American corporations continue to move higher, driving

the Standard & Poors 500 above 1400. Raw material prices continuesoft and business leaders successfully adjust to slower economic

growth by using technology to reduce the labor and logistical

component of goods and services sold; profit margins stay high.

*

These surprises were announced Tuesday, January 3, 2012. The definition of a surprise is an event that the average

investment professional would assign a one out of three chance of taking place, but where I believe the event is

probable, with better than a 50% chance of happening


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2

The Ten Surprises of 2012 (Contd)

3. The U.S. economy gets its second wind. Real growth exceeds 3% and

the unemployment rate drops below 8%. Recession fears and eventhe new normal view of prolonged slow growth are called into

question. Capital spending, exports and the consumer drive the

economy, overcoming fiscal drag. The drop in the price of oil and the

rise in the stock market improve both consumer confidence and

spending patterns.

4. The recovering economy and the declining unemployment rate help

President Obama convince the voters that he didnt do such a bad

job in his first term after all. He is viewed as a good speaker but a

poor leader who is running against Mitt Romney, viewed asuninspired and whose positions on many issues are unclear.

Democrats take back the House of Representatives but lose the

Senate in an anti-incumbent wave.

*


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3

The Ten Surprises of2012 (Contd)

5. Europe finally develops a broad plan to deal with its sovereign debt

problem and moves closer to fiscal cohesion. The European CentralBank, the International Monetary Fund, the European Financial

Stability Facility and the European Union band together to keep all

the countries within the Union and to continue the euro as the

continents currency. Greece has a major restructuring of its debt;

Spain and Ireland strengthen their finances during the year, but Italysuffers a voluntary restructuring. A meltdown of the banks is

avoided, but imposed austerity causes Europe to suffer a recession.

6. The computer replaces conventional armaments as the principal

weapon of terrorists and geopolitical adversaries. Eastern Europeanand Asian hackers invade the data banks of major international

financial institutions, causing temporary bank closures. An alarmed

G-20 meets to address the problem.

*


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4


7. Concerned over rapid money supply growth in the developed world,

investors buy the currencies of countries that seem to be managingtheir economies sensibly. Scandinavian currencies, the Australian

and Singapore dollar and the Korean won benefit.

8. Congress decides its dysfunctionality is harmful to both parties and

acts before the November election to deal with the failure of the

Super Committee to develop a program to reduce the U.S. budget

deficit by $1.2 trillion over ten years. Both defense and Medicare are

cut significantly; subsidies for agriculture are reduced and tax

deductions for oil, gas and real estate partnerships are modified.Obama pledges to let some aspects of the Bush tax cut program

continue if he is reelected.

*


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5


9. The Arab Spring finally overcomes Bashar al-Assad and his familys

rule over Syria ends. While Assads fall might have been inevitable,it has important ripple effects throughout the region, weakening

Hamas and Hezbollah and further isolating Iran.

10. After two years of poor stock market performance while their

economies came through with high-single-digit real growth, the

emerging markets finally have a good year. Growth slows

somewhat but favorable valuations enable China, India and Brazil

indexes to appreciate 15%20%.

*


7/636

North Dakota: Daily Oil Production January 2000 to November 2011

________________________________________________

Source: Claireville Capital.


8/637

Radical Asset Allocation

*

Asset Class % Reasoning

High-Quality Multinational

Growth Stocks

10% Ten to fifteen times earnings 2.5% yield. Reasonable growth

Emerging Market Equities 20% Five to ten percent growth over the next five years.Reasonable valuations. Volatile

Hedge Funds (as revised) 20% Satisfactory positive performance in good markets; lessdownside in bad markets

Private Equity 10% Strong return on capital over investment period

Real Estate 10% Limited new construction. Increasing value for existingproperties

Gold 5% Insurance against financial calamity

Agricultural commodities

and natural resources

5% Rising standard of living in the developing world

High Yield Securities 15% Exceptional returns. Wide spread with Treasurys. Limiteddownside if no recession occurs

Cash 5% Reserve for fund needs

h h C i i l hi h ill fl h


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What Are the Critical Factors Which Will Influence theFinancial Markets during 2012?

1. The Election

2. The U.S. Economy

3. The Looming Budget Threat

4. The European Sovereign Credit Crisis5. China and the Emerging Markets


10/63

The Election


11/6310

Odds of Republicans Winning

________________________________________________

Source: Intrade; Strategas Research Partners.

Presidency House and Senate

30

35

40

45

50

55

60

65

7/1/11 10/1/11 1/1/12 4/1/12

Obama

Republicans

40

45

50

55

60

65

70

75

80

85

90

1/1/11 5/1/11 9/1/11 1/1/12 5/1/12

Republicans

Control the Senate

Republicans

Control the House


12/6311

The Most Important Factor Determining the Election Outcome

________________________________________________

Source: Strategas Research Partners.

Real Per Capita Income Growth and Presidents

Re-Election Share of the Popular Vote

Real Disposable Personal Income Per Capita

(YoY)

Apr 2012:

-0.1%

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

2007 2008 2009 2010 2011 2012

35%

40%

45%

50%

55%

60%

65%

-2% 0% 2% 4% 6% 8%

%o

fTwo-PartyV

ote

2010

Midterm

Carter

Obama

Clinton

Bush I

Bush II

Nixon

Johnson

Reagan

Winning Campaigns

Losing Campaigns

Real Per Capita Disposable Income, 4 QTR Rolling, YoY


13/63


14/6313

Where the Democrats Believe They Are

________________________________________________


WA

12

OR

7

CA

55

NV

6

AK

3

AZ

11

UT

6

ID

4

MT

3

WY

3

NM

5

TX

38

ND

3

SD

3

NE

5

KS

6

OK

7 AR

6

MO

10

LA

8

MS

6

AL

9

GA

16

SC

9

IN

11

IL

20

MI

16

KY8

TN 11

WV

5

PA

20

NY

29

VT

3

ME4

3

4

CO

9

OH

18

IA

6

WI

10

MN

10

FL

29

VA

13

NC

15

NH

4MACT

11

7RI 4

NJ 14

DE 3

MD 10

DC

HI

Obama (D) 243

Republican (R) 191

Undecided 104

270

Maine Split

Nebraska Split


15/6314

President Obamas Four Pillars: 2008 vs. Today

________________________________________________


30

40

50

60

70

80

90

100

African Americans Latinos 1829 Independents

Pct. of Vote Obama Received in 2008 Election Obama's Polling Numbers Vs. Romney Through 5/27/2012


16/6315

Presidential Approval Rating in March of Re-Election Year

________________________________________________


0

10

20

30

40

50

60

70

80

Truman Eisenhower Johnson Nixon Carter Reagan Bush I Clinton Bush II Obama

Either Lost Re-Election or Didn't Run Won Re-Election


17/6316

Partisan Control, S&P Performance

________________________________________________


(1933-2010, Excl. 2001-02)

15.1% 15.1%

9.3%

7.9%

4.9%

0%

2%

4%

6%

8%

10%

12%

14%

16%

R Congress,

DPresident

R Congress,

RPresident

D Congress,

D President

GOP Sen /

Dem House /

GOP President

D Congress,

R President


18/63

The U.S. Economy


19/6318

U.S. Consumer Sentiment and Spending

________________________________________________

Source: ISI Group.

Jan 2012:

9,483.9

U.S. Consumer Sentiment

(University of Michigan)

U.S. Real Consumer Spending

50

55

60

65

70

75

80

85

2008 2009 2010 2011 2012

8,600

8,700

8,800

8,900

9,000

9,100

9,200

9,300

9,400

9,500

2005 2006 2007 2008 2009 2010 2011 2012


20/6319

2

4

6

8

10

12

14

1998 2000 2002 2004 2006 2008 2010 2012

80

85

90

95

100

105

1998 2000 2002 2004 2006 2008 2010 2012

________________________________________________

Source: ISI Group.

U.S. Industrial Production and U.S. Vehicle Production

*

Apr 2012:

97.4

Apr 2012:

10.7

U.S. Industrial Production U.S. Vehicle Production


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20

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

1988 1992 1996 2000 2004 2008 2012________________________________________________

Source: ISI Group.

U.S. Operating Rate and Productivity

*

Apr 2012:

79.2%

Mar 2012:

0.5

U.S. Operating Rate U.S. Productivity, 4 Qtr. Avg. Y/Y%

65%

67%

69%

71%

73%

75%

77%

79%

81%

83%

85%

1998 2000 2002 2004 2006 2008 2010 2012


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21

40

45

50

55

60

65

1/1/10 10/22/10 8/12/11 6/1/12

118

120

122

124

126

128

130

132

134

136

1/1/10 10/22/10 8/12/11 6/1/12

ECRI Leading Index

________________________________________________

Source: ISI Group.

ECRI Leading Index First Call Earnings Revisions, SA by ISI,

13-Week Average


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22

U.S. Existing House Sales and Price Index

________________________________________________

Source: ISI Group.

3.5

4.0

4.5

5.0

5.5

6.0

6.5

7.0

7.5

1/31/98 12/6/00 10/13/03 8/18/06 6/24/09 4/30/12

U.S. Existing House Sales, 3-Month Average U.S. House Price Index (Case-Shiller)

Mar 2012:

0.1%

-2.5%

-2.0%

-1.5%

-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

2005 2006 2007 2008 2009 2010 2011 2012


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23

Components of the 2013 Fiscal Drag

________________________________________________


($ in billions)

Total: -$547

2010 Tax Cut

Extension

-303.3

Payroll Tax, UI

-92.7

Healthcare Sequester

-12.0

Non-Defense

Mandatory Sequester

-12.0

Defense Sequester

-55.0

Non-DefenseDisc Sequester

-31.0

Affordable Care Act

Taxes

-26.0

Other

-14.8


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24

Size of Federal Tax Increases

________________________________________________


(% of GDP)

1.7%

0.4% 0.4%

1.1%

0.2%

0.6% 0.4%

0.6%

3.5%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

'68 '69 '80 '82 '84 '86 '90 '93 '13

The coming fiscal dragdwarfs the size of any

previous tax increase


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25

Annual Change in the Number of S&P 500 Companies Paying a Dividend

________________________________________________


-40

-30

-20

-10

0

10

20

30

'81 '84 '87 '90 '93 '96 '99 '02 '05 '08 '11

Cap Gains

and Dividends@ 15%

1986 Tax Reform Act

equalized capital gains

until the late 1990

income tax increaseDividend

Tax

Increase Cap

Gains Cut

Cap gains tax rate was

half of dividends, leading

to a shedding of dividendpayments in the late 90's

Financial

Crisis


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26

S&P 500 Buybacks and Dividends

________________________________________________


(Quarterly, $ in billions)

$0

$50

$100

$150

$200

$250

'98 '00 '02 '04 '06

Pre-Tax Cut Post Tax Cut


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27

Buffet Rule: No Bang for the Buck

________________________________________________


Americans' View of the Buffett Rule byPolitical Affiliation (Gallup)

Buffett Rule Revenues &President's Budget Projected Spending($ TN, 10-Year Estimate)

43

63

74

54

33

24

0

20

40

60

80

Republicans Independents Democrats

Favor

Oppose

0.05

46.96

$0

$10

$20

$30

$40

$50

Buffett Rule Revenue Obama's Projected

Spending


29/63

28

Net Tax Increases in the ACA

________________________________________________


($ in billions)

-0.5

911.9

37.9

48.2 45.3

57.162.3

78.6

88.2

-$10

$0

$10

$20

$30

$40

$50

$60

$70

$80

$90

$100

'09 '10 '11 '12 '13 '14 '15 '16 '17 '18

Tax increases imposed

to finance healthcare

ramps up January 1

Individual Income Tax Revenues as a Percentage of GDP and


30/63

29

Individual Income Tax Revenues as a Percentage of GDP andTop Individual Income Tax Rate

________________________________________________


0%

25%

50%

75%

100%

0

3

6

9

12

'34 '42 '50 '58 '66 '74 '82 '90 '98 '06

Top Marginal Income

Tax Rate, Right

Individual Income

Tax Revenues as

Pct Of GDP, Left


31/63

30

Statutory Corporate Tax Rates By Region

________________________________________________


20

25

30

35

40

45

50

55

'81 '84 '87 '90 '93 '96 '99 '02 '05 '08 '11

United States

OECD (ex-US)


32/63

The Looming Budget Threat


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32

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

1947 1951 1955 1959 1963 1967 1971 1975 1979 1983 1987 1991 1995 1999 2003 2007 2011

12%

14%

16%

18%

20%

22%

24%

26%

1947 1951 1955 1959 1963 1967 1971 1975 1979 1983 1987 1991 1995 1999 2003 2007 2011

Government Spending as a % of GDP Taxes as a % of GDP

Taxes and Government Spending

________________________________________________

Source: Ned Davis Research.

(65.25-year Average = -1.6% of GDP)

Deficit as a % of GDP

Surplus as a % of GDP3/31/2012 =

-6.5% of GDP

(Quarterly Data, 3/31/473/31/12)

Government Spending as a % of GDP

(65.25-year Average = 19.7% of GDP)3/31/2012 = 24.0% of GDP

Taxes as a % of GDP

(65.25-year Average = 18.0% of GDP)

3/31/2012 = 17.5%

*


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33

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

'80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12

CarterReagan

Bush I

Clinton

Bush II

Obama

U.S. Government Debt($ in billion)

________________________________________________


FY 2012 (OMB Est.) = $16.3TN

*


35/63

34

1%

2%

3%

4%

5%

6%

7%

00 02 04 06 08 10 12

Weighted Average Cost of Marketable Debt

U.S. Outstanding Sovereign Debt by MaturityTimeline

________________________________________________


Weighted Average Cost of Marketable Debt

*

28.1%

30.8%

23.8%

7.2%10.1%

0%

5%

10%

15%

20%

25%

30%

35%

0-12M 1-3 YR 4-7 YR 8-10 YR 10+ YR

May 2012:

2.16%


36/63

35

5

10

15

20

25

'70 '75 '80 '85 '90 '95 '00 '05 '10 '15 '20

________________________________________________

Source: Gluskin Sheff & Associates.

A Challenging Environment for the Federal Government

Interest Payments / Revenue Gross Federal Debt as a Percentage of GDP

*

30

40

50

60

70

80

90

100

110

'70 '75 '80 '85 '90 '95 '00 '05 '10 '15 '20

Diminishing Returns from Debt-Financing by Decade


37/63

36

Diminishing Returns from Debt Financing by Decade12/31/1949 3/31/2012

____________________________________________

Source: Ned Davis Research.*Last 5.25 years using most recent data available.

($ in billions)

*

Date Range

Decade Change

inDebt

Decade

Change in GDP

Debt /

GDP

12/31/1949 12/31/1959 $337.6 $248.0 1.36

12/31/1959 12/31/1969 $751.9 $491.3 1.53

12/31/1969 12/31/1979 $2,783.1 $1,654.9 1.68

12/31/1979 12/31/1989 $8,556.3 $2,922.3 2.93

12/31/1989 12/31/1999 $12,646.1 $4,026.0 3.14

12/31/1999 12/31/2009 $27,712.6 $4,479.7 6.19

12/31/2006 03/31/2012* $8,410.2 $1,869.8 4.50


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37

Heres What Occupy Wall Street Is All About

Mean Household Income Received, By Income Category (2010 Dollars, 1980 =100)

________________________________________________

Source: Strategas Research Partners. U.S. Census Bureau, Current Population Survey, Annual Social and Economic Supplements. For information on confidentialityprotection, sampling error, nonsampling error, and definitions, see www.census.gov/apsd/techdoc/cps/cpsmar11.pdf[PDF].

% Change in Mean Household Income Received, By Income Category (2010$, 19802010)

Top 20%

Top 5%

Bottom 20%

Middle 60%

80

100

120

140

160

180

200

80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10

1.6%

14.3%

44.8%

64.3%

0%

10%

20%

30%

40%

50%

60%

70%

Lowest fifth Middle 60% Highest fifth Top 5 percent

Estimated Net Inflows to Bond, Equity, and Money Market


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38

Estimated Net Inflows to Bond, Equity, and Money MarketMutual Funds (1/5/2007 6/1/2012)

(20)

(10)

0

10

20

Jan-07 May-07 Oct-07 Feb-08 Jul-08 Dec-08 Apr-09 Sep-09 Jan-10 Jun-10 Nov-10 Mar-11 Aug-11 Dec-11 May-12

(40)

(30)

(20)

(10)

010

20

Jan-07 May-07 Oct-07 Feb-08 Jul-08 Dec-08 Apr-09 Sep-09 Jan-10 Jun-10 Nov-10 Mar-11 Aug-11 Dec-11 May-12

(150)

(100)

(50)

0

50

100

Jan-07 May-07 Oct-07 Feb-08 Jul-08 Dec-08 Apr-09 Sep-09 Jan-10 Jun-10 Nov-10 Mar-11 Aug-11 Dec-11 May-12________________________________________________


Mean = 3.81

(in $ billions)

Money going

to bonds

*

Bond Mutual Funds6/1/12:

-0.32

Mean = 1.30

Equity Mutual Funds6/1/12:

1.49

Money Market Mutual Funds6/1/12:

7.86

Mean = -2.54

Not stocks


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39

Average Holding Period for Stocks in Years (Bain & Co.)

________________________________________________


8.0

6.0

3.1

2.0

1.2

0.7

0

1

2

3

4

5

6

7

8

9

1960 1970 1980 1990 2000 2007


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40

Comparing 2012 Correction to 2010 & 2011 -- Summary

________________________________________________


Technical Similar, esp. to 2010; watch for divergences

Sentiment Similar; pessimistic enough for a bottom

Valuation Stocks cheaper than 2010 and 2011

Economic U.S.: expansion more mature now;

fiscal cliff less immediate in 2010 and 2011

Global: Eurozone recession; monetary policy friendlier


42/63

41

30

35

40

45

50

55

60

65

70

75

80

Jul-2002 Jul-2003 Jul-2004 Jul-2005 Jul-2006 Jul-2007 Jul-2008 Jun-2009 Jun-2010 Jun-2011 Jun-2012

650

800

950

1,100

1,250

1,400

1,550

1,700

Jul-2002 Jul-2003 Jul-2004 Jul-2005 Jul-2006 Jul-2007 Jul-2008 Jun-2009 Jun-2010 Jun-2011 Jun-2012

NDR Crowd Sentiment Poll (7/31/2002 6/12/2012)

________________________________________________


*

S&P 500 Index

NDR Crowd Sentiment Poll 6/12/2012:

50.4

Extremes generated when sentiment reading:

Rises above 61.5% = Extreme Optimism

Declines below 55.5% = Extreme Pessimism

Average value of indicator at:

Optimistic extremes (down arrows) = 67.9

Pessimistic extremes (up arrows) = 46.4

Average spread between extremes = 21.5

Sentiment must reverse by 10 percentage

points to signal an extreme in addition to

the above extreme levels reached.

Arrows represent extremes in optimism and

pessimism. They do not represent buy and

sell signals and can only be known for certain

(and added to the chart) in hindsight

53.5

33.9

68.1

43.8

54.8

73.5

55.4

67.1 69.6

49.742.5

69.5

38.0 37.130.9

46.8

69.8

40.5

73.0

50.3

63.259.4

75.766.6

71.970.5 72.2

58.1 62.270.7

51.947.3 46.6 49.9 47.6

32.5

51.3

38.4

Extreme Optimism (Bearish)

Extreme Pessimism (Bullish)

S&P 500 Gain / Annum When:

12/1/19956/12/2012

NDR Crowd Sentiment Poll is: Gain/Annum % of Time

Above 61.5 0.8 37.7

Between 55.5 and 61.5 4.8 20.8

55.5 and Below 8.7 41.5

33.9

70.7


43/63

The European Sovereign Credit Crisis


44/63

43

Europes Balance of Payments Crisis

________________________________________________


-20%

-15%

-10%

-5%

0%

5%

-15% -10% -5% 0% 5% 10% 15%

ChangeinRealG

DP(20082012)

Avg Current Account Balance % GDP (20002012)

Greece

Latvia

Estonia

Portugal

Lithuania

Spain

Ireland

Italy

France GermanyBelgium

NetherlandsFinland

Luxembourg


45/63

44

Fed Balance Sheet vs. ECB Balance Sheet (millions)

(in millions)

*

________________________________________________


1,250

1,650

2,050

2,450

2,850

3,250

$500

$1,000

$1,500

$2,000

$2,500

$3,000

'08 '09 '10 '11 '12

U.S. Total Assets (EUR)

Fed, left

ECB, right


46/63

45

85

90

95

100

105

110

115

1998 2000 2002 2004 2006 2008 2010 2012

-6%

-4%

-2%

0%

2%

4%

6%

1998 2000 2002 2004 2006 2008 2010 2012

________________________________________________

Source: ISI Group.

Eurozone Real GDP YoY and Industrial Production

1Q 2012:

-0.1% Mar 2012:

99.0

Eurozone Real GDP YoY Eurozone Industrial Production

l d l ( )


47/63

46

(10)

0

10

20

30

40

50

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

________________________________________________

Source: ISI Group.

Germany Real Trade Surplus(4 Qtr. Avg.)

1Q 2012:

39.2

B d Yi ld


48/63

47

Bond Yields

________________________________________________


Italy 10-Yr Government Bond Yield Spain 10-Yr Government Bond Yield

6/12/12:

6.17%

6/12/12:

6.71%

4.4%

4.9%

5.4%

5.9%

6.4%

6.9%

7.4%

7.9%

Jan-11 Mar-11 Jun-11 Aug-11 Oct-11 Jan-12 Mar-12 Jun-12

4.8%

5.3%

5.8%

6.3%

6.8%

7.3%

Jan-11 Mar-11 Jun-11 Aug-11 Oct-11 Jan-12 Mar-12 Jun-12

PIIGS G G D b % GDP


49/63

48

PIIGS Government Gross Debt % GDP

________________________________________________


70%

75%

80%

85%

90%

95%

100%

105%

110%

115%

'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12

E T t l B k D it


50/63

49

Eurozone Total Bank Deposits

________________________________________________

Source: Strategas Research Partners and Bloomberg as of March 2012.

3/31/2011

( in billions)

3/31/2012

( in billions) Y/Y% (sorted)

France 1,400.8 1,511.0 7.9%

Finland 103.5 109.9 6.2%

Malta 9.0 9.6 5.8%

Estonia 7.8 8.2 5.7%

Slovakia 33.3 35.0 5.1%

Portugal 156.8 164.7 5.1%

Germany 2,064.4 2,156.8 4.5%

Netherlands 556.2 580.9 4.4%

Austria 265.5 276.9 4.3%

Belgium 353.1 363.7 3.0%

Italy 994.2 1,023.8 3.0%

Eurozone 7,384.2 7,592.1 2.8%

Cyprus 40.8 41.7 2.2%

Slovenia 19.0 19.3 1.7%Ireland 130.9 126.2 -3.6%

Spain 968.3 929.9 -4.0%

Luxembourg 87.0 74.5 -14.4%

Greece 193.7 160.0 -17.4%

It l B i C fid S i R l R t il S l


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Italy Business Confidence vs. Spain Real Retail Sales

________________________________________________

Source: ISI Group.

65

75

85

95

105

115

125

1/1/96 5/2/98 8/31/00 12/31/02 5/1/05 8/31/07 12/30/09 5/1/12

Italy Business Confidence Spain Real Retail Sales


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China and the Emerging Markets

Chi R l GDP Y Y


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6%

8%

10%

12%

14%

16%

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

________________________________________________

Source: ISI Group.

China Real GDP YoY

1Q 2012:

8.1%

China Ind strial Prod ction and Nominal Retail Sales


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0%

5%

10%

15%

20%

25%

30%

1996 1998 2000 2002 2004 2006 2008 2010 2012

0

100

200

300

400

500

600

700

800

900

1,000

1998 2000 2002 2004 2006 2008 2010 2012

________________________________________________

Source: ISI Group.

China Industrial Production and Nominal Retail Sales

Mar 2012:

930.8

Apr 2012:

14.7%

China Industrial Production China Nominal Retail Sales (3-month Avg. YoY)

China Consumer Spending As % GDP


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30%

35%

40%

45%

50%

55%

78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10

China Consumer Spending As % GDP

________________________________________________

Source: National Bureau of Statistics and Strategas Research Partners.

Innovation Is Going On Everywhere


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Innovation Is Going On Everywhere

Invention Patent Applications(thousands)

Share of U.S. Invention Patent Applications(by Origin)

________________________________________________

Source: Strategas Research Partners and World Intellactual Property Organization.

0

100,000

200,000

300,000

400,000

500,000

600,000

1900 1928 1955 1983 2010

Germany Japan USA China

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

1963 1971 1979 1987 1995 2003 2010

US % Util Foreign % Util

Brazil / India


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40%

45%

50%

55%

60%

65%

Apr-05 Sep-06 Feb-08 Jul-09 Dec-10 May-12

________________________________________________

Source: ISI Group.

Brazil / India

India MFG PMI Brazil MFG PMI

*

May 201254.8%

35%

40%

45%

50%

55%

60%

Feb-06 May-07 Aug-08 Nov-09 Feb-11 May-12

May 201251.4%

Brazil Mixed Fundamentals for the Bovespa


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25,000

30,000

35,000

40,000

45,000

50,000

55,000

60,000

65,000

70,000

75,000

2006 2007 2008 2009 2010 2011 2012

150

170

190

210

230

250

270

290

310

330

350

2006 2007 2008 2009 2010 2011 2012________________________________________________

Source: ISI Group.

Brazil Mixed Fundamentals for the Bovespa

1Q 2012:281.3 e

6/13/12:

55,650.5

Brazil EPS (MSCI) 4-Qtr. Sum Brazil Bovespa

India Consumer Spending Likely to Accelerate to +8 0%


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4%

5%

6%

7%

8%

9%

10%

11%

2006 2007 2008 2009 2010 2011 2012

(20%)

(10%)

0%

10%

20%

30%

40%

50%

2006 2007 2008 2009 2010 2011 2012________________________________________________

Source: ISI Group.

India Consumer Spending Likely to Accelerate to +8.0%

May 2012:

8.9%

1Q 2012:

6.3%

India Auto Sales, 3-month Avg.(YoY%)

India Real Consumer Spending(YoY%)

Disclaimer


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Disclaimer

The views expressed in this commentary are the personal views of Byron Wien of Blackstone Advisory Partners L.P.(together with its affiliates, Blackstone) and do not necessarily reflect the views of Blackstone itself. The views

expressed reflect the current views of Mr. Wien as of the date hereof and neither Mr. Wien nor Blackstoneundertakes to advise you of any changes in the views expressed herein.

Blackstone and others associated with it may have positions in and effect transactions in securities of companiesmentioned or indirectly referenced in this commentary and may also perform or seek to perform investmentbanking services for those companies. Blackstone and/or its employees have or may have a long or short positionor holding in the securities, options on securities, or other related investments of those companies.Investment concepts mentioned in this commentary may be unsuitable for investors depending on their specificinvestment objectives and financial position. Where a referenced investment is denominated in a currency otherthan the investor's currency, changes in rates of exchange may have an adverse effect on the value or price of orincome derived from the investment.

Tax considerations, margin requirements, commissions and other transaction costs may significantly affect theeconomic consequences of any transaction concepts referenced in this commentary and should be reviewedcarefully with one's investment and tax advisors. Certain assumptions may have been made in this commentary asa basis for any indicated returns. No representation is made that any indicated returns will be achieved. Differingfacts from the assumptions may have a material impact on any indicated returns. Past performance is notnecessarily indicative of future performance. The price or value of investments to which this commentary relates,directly or indirectly, may rise or fall. This commentary does not constitute an offer to sell any security or thesolicitation of an offer to purchase any security.To recipients in the United Kingdom: this commentary has been issued by Blackstone Advisory Partners L.P. andapproved by The Blackstone Group International Partners LLP, which is authorized and regulated by the FinancialServices Authority. The Blackstone Group International Partners LLP and/or its affiliates may be providing or mayhave provided significant advice or investment services, including investment banking services, for any companymentioned or indirectly referenced in this commentary. The investment concepts referenced in this commentarymay be unsuitable for investors depending on their specific investment objectives and financial position.This commentary isdisseminated in Japan by The Blackstone Group Japan KK and in Hong Kong by The BlackstoneGroup (HK) Limited.


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Live Q & A


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Poll Results


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Optimistic about the Outlook:Contrarian or Delusional?

Byron R. WienVice Chairman, Blackstone Advisory Partners L.P.

Tel: 212.583.5055Email:[email protected]

If you would like to receive future monthly market commentary publications by Byron Wien,please email [email protected].
mailto:[email protected]:[email protected]

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