Interesting numbers from Kleinwort Benson CIO dinner. House price to wage index is scary - London houses sell for 6.9 times average wage. In Beijing, the figure is 22 times.

1. CIO Dinner - Cambridge
23 October 2013

2. Centuries, decades and years of average real returns
Credit
Cash
Equity
5.70
1800s (1902-1999)
Bonds
6.20
1900s (1900-1999)
0.90
1.50
2.40
1.60
8.80
1910s
-2.50
-4.50
-2.30
1920s
5.80
6.60
Real Estate
7.50
1900s (1900-1909)
Commodities
16.90
1930s
9.00
2.40
5.80
2.50
1940s
-2.70
-5.30
-2.90
3.50
1950s
-1.10
-0.10
-1.40
16.70
1960s
-0.80
1.60
0.10
5.20
1970s
-1.20
-1.00
-1.70
-1.30
12.80
2.40
1980s
7.60
3.20
6.70
11.80
5.30
6.20
1990s
5.30
2.00
4.80
15.10
1.00
2.80
2000s (2000-2009)
5.20
0.10
4.10
-3.40
2.50
4.70
2010-2013*
3.64
-2.07
1.93
6.36
-3.91
14.62
Average
2.77
0.57
2.02
6.68
3.54
5.77
Median
3.64
0.90
1.76
6.28
2.50
4.30
44
42
33
25
20
0
Miss Rate (%)
Source: Kleinwort Benson; Datastream, Ilmanen (2011) - Expected returns: An investor's guide to harvesting market rewards
3.90
2

3. Central banks
The Japanese have arrived to the “high-stakes” QE game late, and they’re all in
Central banks balance sheet (% of nominal GDP1)

The Fed and the BoJ have had notable increases in
their balance sheets over the second quarter of 2013

The Bank of Japan claims that it will double its
money supply within 24 months – though it is
starting from a much more burdened position

All central bank balance sheets have expanded in
2013, with the exception of the UK
39%
2007 Data
Latest 4Q GDP
26%
26%
22%
21%
17%
7%
UK
6%
US
Eurozone
Japan
Source:Bloomberg, Office of National Statistics, Bureau of Economic Analysis, Eurostat, Economic and Social Research Institute, National Central Banks
1. Balance sheet and GDP data as Q2 2013.
3

4. Mountains of debt
Deleveraging? It is more like re-leveraging
Gross Government Debt as % of GDP

Since 2007, the US, UK, Germany, France and the
PIIGS have increased their government debt by $12
trillion

Government debt in the UK has increased by £760
billion in five years, raising debt as a percentage of
GDP from 44% to 93%
2007
108 107
2013
100
95
94
67
92
2017
66
44
US
42 41
39
UK
Eurozone
BRIC
4
Source: IMF, Bloomberg
1. 2013 and 2017 figures are IMF forecasts

5. Equity valuations
Equities are at pre-crisis valuations
Global equities: price to book ratio
1980 – Sep 2013*
Expensive
3.0
2.2x
2.0
1.8x
1.9
1.0
P/B
Average pre-1995
Average post-1995
Cheap
0.0
1980
1991
2002
2013
5
Source: Datastream, Kleinwort Benson calculations * As of 1 September 2013

6. The Great Depression
...had some great years too
US Equity Returns
1929 - 1939
51%
39%
27%
23%
0%
-3%
-15%
-18%
-32%
-38%
-48%
1929
1930
1931
Source: Barclays Equity Gilts Study 2012
1932
1933
1934
1935
1936
1937
1938
1939
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7. The Great Depression
After a horrific loss, stocks rallied over 250% from a deeply undervalued position
US Equity Returns ($100 invested in 1928)
1929 - 1939
$100
100
90
80
70
$66
60
50
$49
40
30
$25
20
1928
1929
1930
1931
1932
1933
1934
1935
1936
1937
1938
1939
7
Source: Barclays Equity Gilts Study 2012

8. IMF house price to wage ratio
Chinese Tier 1 cities are more expensive than developed market cities
25
22.3
20
15.9
15
12.6
9.2
10
5
4.4
5.1
5.5
5.7
6.2
6.3
6.9
10
12.7
10.3
7.2
0
Source: IMF, Credit Suisse research
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