#MIGlobal

Global inflation tracking oil prices

-100

-50

0

50

100

150

200

0

1

2

3

4

5

6

7

8

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Percent change year-over-year

Brent oil (right)

Global inflation (left)

Percent change year-over-year

Source: Thomson Reuters.

#MIGlobal

Substantial growth in emerging and developing markets Share of world GDP (%), based on purchasing-power-parity (PPP)

30

35

40

45

50

55

60

65

1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020

Advanced economies

Developing economies

Source: International Monetary Fund Apr 2015.

Percent

#MIGlobal

Emerging Asia and Sub-Saharan Africa to lead global growth GDP growth rate at constant prices

0

1

2

3

4

5

6

7

8

9

10

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Percent

Sub-Saharan Africa

Advanced economies

Source: IMF WEO.

Emerging and developing Asia

#MIGlobal

Six-fold increase in FDI to Sub-Saharan Africa

$6.7

$15.0

$11.5 $14.3

$11.7

$19.5 $16.4

$30.0

$39.5 $36.8

$32.5

$42.7 $40.0 $40.6

0

5

10

15

20

25

30

35

40

45

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

US$ billions

Sources: Bloomberg, Milken Institute.

#MIGlobal

India projected to become fastest growing BRIC GDP growth rate at constant prices

-10

-5

0

5

10

15

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Brazil China India RussiaPercent

Source: IMF WEO.

#MIGlobal

U.S. equities separating from the pack Stock indices in U.S. dollars

50

70

90

110

130

150

170

190

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Japan U.S. Europe U.K.Index (2005 = 100)

Source: Thomson Reuters.

Indices used: Nikkei 225, S&P 500, Stoxx Europe 600, FTSE 100.

#MIGlobal

Brazil and Russia lagging among BRIC equities Stock indices in U.S. dollars

0

100

200

300

400

500

600

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Brazil Russia India ChinaIndex (2005 = 100)

Source: Thomson Reuters.

Indices used: Bovespa, Russian Micex, S&P SENSEX, Shanghai SE A Share.

#MIGlobal

Unemployment rates around the world

2

3

4

5

6

7

8

9

10

11

12

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

U.S. U.K. Euro area JapanPercent

Source: IMF WEO.

OECD projection

#MIGlobal

Consumer confidence reaches multi-year highs

95

96

97

98

99

100

101

102

103

2009 2010 2011 2012 2013 2014 2015

Euro area Japan U.K. U.S.Index

Source: Thomson Reuters.

#MIGlobal

G4 central bank balance sheets

0

10

20

30

40

50

60

70

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

U.S. U.K. Euro area JapanPercent of GDP

Source: Thomson Reuters.

#MIGlobal

Abenomics transforming monetary base

0

50

100

150

200

250

300

350

2008 2009 2010 2011 2012 2013 2014 2015

Bank of Japan holdings of Japanese gov't bonds Monetary baseTrillion yen

Source: Thomson Reuters.

#MIGlobal

Japan finally breaches 2% inflation target

-3

-2

-1

0

1

2

3

4

5

2009 2010 2011 2012 2013 2014 2015

Percent year-over-year

Core inflation (excludes food and energy)

2% inflation target

Source: Thomson Reuters.

Headline inflation

#MIGlobal

Repeated QE has led to unprecedented amount of Fed assets Total assets of Federal Reserve banks

0

1

2

3

4

5

2007 2009 2011 2013 2015

US$ trillions

Nov. 2008: QE1 announced

Mar. 2009: QE1 expanded

Nov. 2010: QE2 announced

Sep. 2011: “Operation Twist”

Sep. 2012 QE3 announced

Dec. 2013 “Tapering” begins

Oct. 2014 End QE3

Source: Thomson Reuters.

#MIGlobal

Fed Funds futures don’t see rate hike until December Implied probability of target rate greater than 0.25, by 2015 meeting date

4% 8%

25%

31%

50%

0

10

20

30

40

50

60

June July September October December

Percent chance

Sources: Bloomberg, Milken Institute.

As of 4/24/2015.

#MIGlobal

Record low 10-year Treasury yields

0

2

4

6

8

10

12

14

16

18

1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015

Percent

Average: 6.5%

Source: Bloomberg.

#MIGlobal

Real interest rates trending downward US Federal Funds rate minus year-over-year core inflation

-4

-2

0

2

4

6

8

10

12Percent

Source: Thomson Reuters.

#MIGlobal

American and British households deleveraging

100

110

120

130

140

150

160

170

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Percent of disposable income

U.S.

U.K.

Source: Thomson Reuters.

#MIGlobal

Major currencies depreciating against the dollar

75

80

85

90

95

100

105

Index (Jan 2014 = 100)

Pound

Source: Thomson Reuters.

Euro

Yen

#MIGlobal

Higher U.S. wage growth could be on the horizon

0

2

4

6

8

10

12

14

16

18

20

1

2

3

4

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Percent change year-over-year

Small businesses planning to raise compensation (RHS, lagged 1 year)

Percent

U.S. average hourly earnings

Sources: National Federation of Independent Business, Thomson Reuters.

#MIGlobal

Euro zone headline inflation turns negative

-1

0

1

2

3

4

5

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Percent change year-over-year

Headline

Core

Source: Thomson Reuters.

#MIGlobal

Global Growth Drivers: China and US Punch Above Their

Weight Class As Euro Area and Japan Underperform

Country Weight (percent)

2014 Growth Rate (percent)

Contribution to 2014 Global

Growth (percent)

Global Growth

100 2.7 100

United States

23 2.4 20

Euro Area 17 0.9 6

China 13 7.4 36

Japan 6 0.0 0

Others 40 -- 38

Source: Citi Research

US and China Contributed More than

½ of 2014 Global GDP Growth

#MIGlobal

Why Has the U.S. Recovery Been So Weak? US Growth Still Range-bound Around 2½ to 3 Percent

Source: Citi Research.

Strong Headwinds

● Housing collapse

● Household leverage

better but still high

● Low (wage) income

growth

● Employment growth

slower than past

expansions

● Skewed income and

wealth distribution

#MIGlobal

Household Leverage Limits Consumer Spending Growth Ratio of consumer debt to disposable income

Source: Citi Research.

● Consumer debt burdens are

improving but remain high

● Deleveraging continues for

non-student debt

● Student loans still rising

#MIGlobal

Low Labor Market “Dynamism” Belies Strong Labor Market Low Hiring and Separations Lead to Low Wages and Slow Productivity Growth

Source: Citi Research.

No Wage Pressures

● Slow hiring keeps

wages down.

● Low quit rate

dampens productivity.

● Low gross labor

market turnover

implies search

inefficiencies can

remain high.