Natural Resources and

Rising Worldwide Demand

Recession to recovery: Double-dip ahead?

Source: World Economic Outlook, International Monetary Fund, September 2011 update.

-6

-4

-2

0

2

4

6

8

10

1980 1985 1990 1995 2000 2005 2010 2015

Emerging and developing economies

Advanced economies

World

Real GDP growth, percent

Inflation pressure rising in emerging countries

Sources: OECD, Milken Institute.

-2

0

2

4

6

8

10

12

14

16

18

2007 2008 2009 2010 2011

% change in consumer price index, 3-month rolling average

Brazil

China

India

Russia

2.0

4.0

6.0

8.0

10.0

12.0

14.0

Q1 10

Q2 10

Q3 10

Q4 10

Q1 11

Q2 11

Q3 11

Q4 11

Q1 12

Q2 12

Q3 12

Q4 12

Percent

Russia

China

Brazil

India

End of the era of cheap capital?

Source: Bloomberg.

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

Q1 10

Q2 10

Q3 10

Q4 10

Q1 11

Q2 11

Q3 11

Q4 11

Q1 12

Q2 12

Q3 12

Q4 12

Percent

U.K.

U.S.

Euro zone

Investment returns for selected asset classes

Sources: Bloomberg, Milken Institute.

$341

$224$200

$183

$108 $105

0

100

200

300

400

Emerging markets

U.S. high-yield bonds

U.S. AAA corporates

U.S. Treasuries Commodities S&P 500

As of September2011, a $100 investment made in December 2000 gives you:

Will structural forces push commodity prices

above previous peaks?

Sources: Haver Analytics, IMF, Milken Institute.

0

50

100

150

200

250

300

350

400

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

Real commodity price index, 2000=100

Food

Crude oil

Real commodity prices in a long-term

historical context

Sources: Haver Analytics, IMF, Milken Institute.

0

100

200

300

400

500

600

700

1957 1963 1969 1975 1981 1987 1993 1999 2005 2011

Real commodity price index, 2000=100

Food

Crude oil

Real commodity prices

Sources: International Monetary Fund.

0

50

100

150

200

250

300

350

400

450

1980 1984 1988 1992 1996 2000 2004 2008 2012 2016

Index 1995=100

Oil

Metals

Gold

Outlook for commodity prices

Monthly, 2003–2012

Sources: International Monetary Fund, Milken Institute.

Forecast

Energy

Food

Agricultural raw materials

Metals

Beverage

50

100

150

200

250

300

350

400

450

500

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Commodity prices, Jan. 2003 = 100Commodity prices, Jan. 2003 = 100

0

200

400

600

800

1,000

1,200

1,400

1,600

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

Iron ore

Uranium

Copper

Zinc

Aluminum

Price index, 2000=100

Outlook for metal prices

2003–2012 (Projections after 2010)

Sources: International Monetary Fund, Milken Institute.

Forecast

Oil prices in real terms 1861 to Q3 2011

Sources: BP Amoco's, Bloomberg, Bureau of Labor Statistics, Milken Institute.

Note: 1861-1944 U.S. average.1945-1983 Arabian Light posted at Ras Tanura.1984 onward Brent dated. 1861-2009 figures calculated by BP. 2010 and 2011

figures calculated by MI staff using data from Bloomberg and Bureau of Labor Statistics.

0

20

40

60

80

100

120

1861 1871 1881 1891 1901 1911 1921 1931 1941 1951 1961 1971 1981 1991 2001 Q3 2011

Average crude oil price in 2010 dollars, US$ per barrel

Recent run-up in the price of gold

Source: World Gold Council.

0

400

800

1,200

1,600

2,000

1971 1976 1981 1986 1991 1996 2001 2006 2011

US$ per ounce

World primary energy consumption 2010 vs. 2035 projection

OECD countries

46%

China20%

India, Russia and

Brazil13%

Other non-OECD

countries21%

2010

OECD countries

37%

China25%

India, Russia and

Brazil15%

Other non-OECD

countries23%

2035

Source: U.S. Energy Information Administration

Aggregate metal consumption: China’s path

mirrors the exponential growth in its manufacturing sector

0

2

4

6

8

10

12

14

16

0 5 10 15 20 25 30 35 40 45

China

U.S.

Euro area

Japan

Consumption per capita (kilograms)

Real GDP per capita (US$ thousands)

Source: International Monetary Fund.

Copper consumption

Source: Ernst & Young.

China35%

Other Asia Pacific

24%

Western Europe

21%

United States

8%

Latin America

5%

Others5%

Africa2%

Refined copper consumption, 2010

The effect of economic growth and population

growth: Food markets to grow by 109% in ten years

Sources: Rabobank, based on KEO, Economist Intelligence Unit and FAO.

0

500

1,000

1,500

2,000

2,500

3,000

3,500

Size of food market, US$ billions

Growth 2020

Food markets 2010

Africa China

India Indonesia

EU-11 U.S. + Canada

Oceania Russia

S. America Other

Current and projected coal consumption

Non-OECD Asia

0

20

40

60

80

100

120

140

160

1980 2007 2020 Estimate 2035 Estimate

Coal consumption (quadrillion Btu)

Source: Energy Information Administration

World consumption of natural gas Projection after 2010

0

20

40

60

80

100

120

140

160

180

2005 2010 2015 2020 2025 2030 2035

Trillion cubic feet

OECD countries

Non-OECD countries

Source: Energy Information Administration

Commodities: low correlation with other

asset classes

0.04

0.11

0.19

-0.32-0.40

-0.30

-0.20

-0.10

0.00

0.10

0.20

0.30

U.S. equity Global equity

U.S. high yield

U.S. government

bond

Return correlation with commodities (Q1 1986-Q1 2011)

Sources: Bloomberg, Milken Institute.

Note: Measured quarterly from Q1 1986 to Q1 2011.

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