A New Global Perspective - Milken Institute · Milken Institute Summit - London October 10, 2012...

Milken Institute Summit - London

October 10, 2012

Michael Milken Chairman, The Milken Institute

A New Global Perspective

1. Pessimism vs. Optimism

2. The Rise of the Global Middle Class

3. Ideas That are Changing the World

4. The Promise of Bioscience

5. Growth: The Key to Prosperity


“This ‘telephone’ has too many

shortcomings to be seriously

considered as a means of

communication. The device is

inherently of no value to us.”

Western Union internal memo, 1876

The Telephone - 1876

“Everything that can be invented

has been invented.”

Charles H. Duell Commission of U.S. Office of Patents

On Everything New - 1899

“There is no reason anyone would

want a computer in their home.”

Ken Olson, CEO Digital Equipment Corporation

1977

The Computer - 1977

• “The battle to feed all of humanity is over. In the 1970s

and 1980s hundreds of millions of people will starve to

death.”

• “The oceans will die by 1979.”

• “U.S. life expectancy will drop to 42 years by 1980.”

• England will not exist in the year 2000.

(Books and speeches, 1968-70.)

Predictions of eminent

biologist Paul Ehrlich

“Research studies now project

that one in five—listen to me,

hard to believe—one in five

heterosexuals could be dead

from AIDS at the end of the

next three years. That’s by

1990. One in five.”

- Oprah Winfrey

1987

Dow Jones Industrial Average

Jan.

1973

Dec.

1974

1067

570

“I’ll never buy another stock!”


Jan.

1973

Dec.

1974

Sept.

1976

1067

570

1025

Dow Industrials: 1973-77 and 2008-12

September 24, 2012

5000

7000

9000

11000

13000

500

600

700

800

900

1000

578 on Dec. 6, 19746,547 on March 9, 2009

DJIA, 1973-1977 DJIA, 2008-present

• Europe’s economies in crisis

• Iran is building a nuclear weapon

• Arab Spring turning into anarchy

• Israel will start a war

• Oil prices will skyrocket

• The U.S. faces a fiscal cliff

• China’s economy is slowing down

Roubini’s Litany of Doom

• Up 108% since 2009 bottom

• Up 13.7% year to date


• Unrealistic assumptions about rates of return on

assets.

• Falling ratios of current workers to retirees.

• Workers who pay in to the system for too few years.

• Pensioners who live longer than the original system

planners assumed.

Entitlements – The Math Doesn’t Add Up

Pensions for Greece’s Most Dangerous Jobs

• High-risk workers are eligible for early retirement:

• Full government pension benefits

• Age 50 for women, 55 for men

• Who qualifies?

• 580 job categories

• 700,000 workers (14% of workforce)

Source: NY Times, 3/11/10.

High-Risk Occupations in Greece

Coal Mining Bomb Disposal


High-Risk Occupations in Greece


Radio Hosts?

(“Bacteria on microphones”)

Hairdressers?

(“Exposure to hair dyes”)

Good News on Poverty

“We are in the midst of the fastest period of

poverty reduction the world has ever seen.”

“Millions of Chinese have been lifted out of

poverty thanks to trade.”

“Just since 2000, we have halved the

proportion of people suffering from hunger.”

Laurence Chandy and Geoffrey Gertz

Brookings Institution

“Never before this generation has

the average person been able to

have someone else prepare his

meals.” Matt Ridley The Rational Optimist

How Prosperous We’ve Become

1750 BC Sesame-oil lamp 50 hours work

1800 Tallow candle 6 hours

1880 Kerosene lamp 15 minutes

1950 Filament light bulb 8 seconds

2011 Compact fluorescent bulb ½ second

Another Definition of Prosperity Amount of Work Required to “Earn” an Hour of Reading Light

Source: Matt Ridley, The Rational Optimist

Down on the Farm

Source: McGraw Hill advertisement

Financial

Resources

Human

Resources Natural

Resource

s

http://www.oldmasterdrawings.com/html/chantron-landscape_3.shtml?tour=cf

P = Prosperity

Ft = Financial Technology

HC = Human Capital

SC = Social Capital

RA = Real Assets

P=SFti*(SHCi+SSCi+SRAi)

Human capital is the

largest asset class.

Highly skilled, entrepreneurial

and educated immigrants are

crucial to any nation’s

prosperity.

Market Capitalization: 1950

Europe

26%

Japan

9%

U.S.

59%

Other

6%

US + Japan = 68%

Europe

17%

U.S.

29%

Japan

40%

Other

14%

US + Japan = 69%


Europe

23%

Japan

7%

U.S.

34%

Other

36% US + Japan = 41%


Source: Bloomberg, 10/4/2012.

Between 1870 and 1950, Americans added

almost one year of education each decade.

By 1960, the highest average grade level in

the U.S. exceeded every other nation by

two years.

Since 1960, we have made no progress and

several other nations have surpassed us.

Source: Claudia Goldin and Lawrence Katz / The Race between Education and Technology

Source: Edward Gordon, “Winning the Global Talent Showdown”

The Jobs Problem

(It Isn’t Jobs – It’s Trained Workers)

125

100

75

50

25

Millions

123,000,000 high-skilled jobs will

be available

in 2020

50,000,000 Americans will qualify

for those jobs

Housing 33%

Transportation 18%

Food 13%

Insurance/pensions 11%

Healthcare 6%

Entertainment 5%

Apparel and services 4%

Supplemental Education 2%

Consumer Spending

Source: U.S. Bureau of Labor Statistics/CLSA

U.S. Asia Food 23%

Supplemental Education 15%

Housing 10%

Clothing 8%

Other 8%

Transportation 6%

Healthcare 5%

Communication 5%

By 2025, more Chinese will

speak English than the citizens

of all English-speaking nations

… combined.

Percentage of Population in Asia’s Middle Class

Sources: Euromonitor; World Bank; CLSA Asia-Pacific Markets / 2010

India

Philippines

Indonesia

Thailand

Malaysia 2014 2009

China

70% 60% 50% 40% 10% 0% 30% 20%

Source: Eurostat (EU27 projections)

India’s Developing Middle Class Percent of Total Population by Age

100%

60%

20%

2000

40%

80%

2008 2020 2030

Wealthy

Middle Class

Aspiring Middle

Class

Impoverished

5%

31%

46%

14%

Foreign-born Founders of California

Engineering and Technology Companies

Sources: Institute of International Education, Kauffman Foundation.

India

26%

Taiwan

17%

Other

44%

China

13%

60% of the nearly 1 million Chinese

people with assets over 10 million

yuan ($1.6 million) are thinking about

emigrating to the U.S. or Europe.

Source: U.S. Department of Homeland Security (WSJ 2/22/12 “Plan B for China’s Wealthy: Moving to the U.S./Europe)

U.S.-based Companies Expand in Asia & Pacific

The World’s Economic Clout Moves East Leading Cities Ranked by GDP

• More than 20 of the world’s Top 50 cities will be

located in Asia by 2025, up from 8 in 2007.

• More than half of Europe’s Top 50 cities will drop off

the list, as will three in North America.

• Shanghai and Beijing will outrank Los Angeles and

London … Mumbai and Doha will surpass Munich and

Denver.

Source: McKinsey Global Institute (March 2011)

Global Middle-Class Consumer Spending

Source: Morgan Stanley, OECD.

EU30%

U.S.21%

Japan8%

China4%

India2%

Other Asia9%

Rest of the world

26%

2009

EU14%

U.S.7%

Japan4%

China18%

India23%

Other Asia14%

Rest of the world

20%

2030

The Three Stages of New Ideas

1. It can’t be done.

2. It probably can be done, but it’s

not worth doing.

3. I knew it was a good idea all along!

Arthur C. Clarke

Cost of Raw Materials & Energy

1920’s Automobile

60% <2%

Today’s Microchip

Crowdsourcing

1,385 teams

1,651 participants from 39 countries

23,443 entries

56% from U.S.

Improve Healthcare - Win US$3,000,000

www.heritagehealthprize.com

http://www.heritagehealthprize.com/

Team able to build the best

‘environmental detectors’

able to detect any of the

top 100 pathogens.

Bioterrorism Detection X PRIZE $10M

Crisis: Deepwater Horizon Oil Spill April 20, 2010

Crisis: Deepwater Horizon Oil Spill

• Oil flowed unabated – 53,000 gallons a day –

into the Gulf of Mexico for three months

• Up to 180,000-square kilometer area

• Time needed to cap the well: 5 months

• Average daily oil collection rate: 2000 barrels

per day

Fred Giovannitti …

• Las Vegas tattoo artist

• Oil-spill expert

Financial Technology

Source: Nobel Laureate Myron Scholes

Six Functions of a Financial System • Transacting and enhancing trade

(domestic and international)

• Financing large scale projects (teams and capital)

• Transfer of resources (savings, retirement, health care)

• Risk sharing and risk reduction (reserves, diversification, insurance)

• Pricing and valuation signals (market price signals and liquidity provision)

• Reduction of market frictions and deadweight costs (hidden information)

Financial Technologies

• Collateralized loan obligations

• Collateralized bond obligations

• Securitized mortgages

• Securitized credit cards

• Derivatives

“There can be no

liberty unless there is

economic liberty.”

Margaret Thatcher

Sources: S&P LCD, JPMorgan (4/12/2010).

Institutional Investor Base for

Non-investment Grade Loans

20%

40%

60%

80%

100%

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

Banks CLOs Hedge, distressed and

high-yield funds

Prime rate funds, financial

and insurance companies

European credit is a bank market Bonds and loans as a share of total corp. debt

Sources: ECB

“The most important financial

innovation that I have seen the past 20

years is the automatic teller machine…I

wish someone would give me one shred of

neutral evidence that financial

innovation leads to economic growth.

One shred of evidence.”

Paul Volcker Former Chairman, Federal Reserve

59

Source: Edward Altman – 2012 Q1.

$0.2

$0.4

$0.6

$0.8

$1.0

$1.2

$1.4

$1.6

1971 1976 1981 1986 1991 1996 2001 2006 2011

Historical Growth of U.S. High-Yield Market $US trillions

America Goes to Work U.S. and Fortune 500 Employment

00 95 90 85 80 75 70

200

180

160

140

120

100

80

60

U.S. = +62 million jobs

Fortune 500 = minus 4 million

New financial

technologies are

fully implemented

Index 1970 = 100

Modern capital

markets begin

62

SO2 Market Benefits

US Clean Air Act 1990

Acid Rain Program annual benefits (2010): $122B

Costs (2010): $3B

This is a 40-to-1 benefit/cost ratio

Rep

rod

uctio

n o

r qu

ota

tion

of th

is m

ate

rial is

exp

ressly

forb

idd

en

with

ou

t

the

co

nse

nt o

f the

Au

tho

r. 20

12

En

viro

nm

en

tal F

ina

ncia

l Pro

du

cts

LL

C

63

SO2 Reductions Annual Mean Ambient SO2 Concentration

1989 - 1991 2004 - 2006

Energy

Traditional Drilling

Spindletop (Beaumont, TX), 1901

Drilling Depth: 1,139 feet

Modern Techniques

Marcellus Shale (Pennsylvania), 2012

Drilling Depth: 9,000 feet

Technology Game Changer

Source: U.S Energy Information Administration.

Major Shale Basins Around the World

Defending the Persian Gulf from 1976

to 2007 cost America $7.3 trillion.

Source: Stern, R.J., United States cost of military force projection in the Persian Gulf, 1976–2007. Energy Policy (2010), doi:10.1016/j.enpol.2010.01.013

• Aircraft carriers

• War on terrorism

• Wars in Iraq/Afghanistan

• Maintain troops overseas

• Foreign aid

• Intelligence operations

• Oil price volatility

• Homeland security

Expanded Natural gas Hydropower Geothermal

Biomass and Ethanol Tidal wave power Oil Shale

Technology is not the problem.

FORTUNE explored these energy solutions …

Expanded natural gas Hydropower Volcanic (Geothermal)

Biomass and Ethanol Ocean and Tidal power

Source: Fortune Magazine, 1938.

Oil shale

… back in 1938.

Each life is priceless…

but in economic terms, over the past two

centuries, as much as 50% of all economic

growth can be traced to advances in health.

The Value of Health

1820 1900 1950 2010

26

Years

31

Years

49

Years

67

Years

Source: United Nations Development Program

+5

+18

+18 +36

Worldwide Life Expectancy Growth

Top Causes of Death

Source: U.S. Centers of Disease Control

1. Pneumonia/flu

2. Tuberculosis

3. Heart disease

4. Diarrhea

5. Stroke

1. Heart disease

2. Cancer

3. Stroke

4. Respiratory disease

5. Accidents

1900 2010

In 1960, life expectancy in East Asia

was 39 years.

By 1990, it had increased to 67 years.

Today, it exceeds 70.

Source: World Bank and John Lechleiter, CEO, Eli Lilly & Co., quoted in The Wall Street Journal, Nov. 19, 2011

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

$100M

$10M

$1M

$100K

$10K

$1,000

Source: National Institutes of

Health

Beijing Genomics Institute

Outlook for Biomedical Research Spending

(2012) 20%

10%

0%

-10%

China India

Brazil Korea Japan

Germany

Australia UK

France

US Canada

Source: OECD – Government Budget Appropriations or Outlays for Research and Development (2012)

Singapore

Source: OECD (2004-2009); Measured

and self-reported

International Obesity Rates Percent of Adult Population

30%

20%

10%

U.S.

U.K.

Spain Germany

Poland France Italy Norwa

y

Japan S.

Korea India

China

Failure to address chronic diseases

adequately costs the

U.S. economy more than

$1 trillion annually.

Chronic Disease Study

MRIs: A Bigger Picture

Maximum patient weight:

• 1997: 300 pounds

• 2002: 440 pounds

• 2011: 660 pounds

Celebration of Science - 2012

DNA Pioneer James Watson

AIDS pioneering researcher Tony Fauci and

Earvin “Magic” Johnson

U.S. Energy Sec’y Steven Chu

National Science Foundation

Director Subra Suresh

Elias Zerhouni, President,

Global R&D, Sanofi

Objectives:

• Demonstrate returns on

bioscience investment

• Honor achievements in

scientific research

• Illustrate the potential for

future advances

• Recommit to funding medical

research on a national and

international basis

An organization dedicated to shortening

the time to find cures and better

treatments for all life-threatening diseases

• Michael J. Fox Foundation for Parkinson's Research

• MPD Foundation

• Multiple Myeloma Research Foundation

• Muscular Dystrophy Assoc.

• Myelin Repair Foundation

• Nathaniel Adamczyk Foundation

• New York Stem Cell Foundation

• The Nicholas Conor Institute

• One Mind for Research

• OneWorld Health

• Pancreatic Cancer Action Network

• Parent Project Muscular Dystrophy

• Parkinson's Action Network

• Progeria Research Foundation

• Prostate Cancer Foundation

• Rett Syndrome Research Trust

• Susan G. Komen for the Cure

• TGen

• Tuberous Sclerosis Alliance

• VascularCures

TRAIN

• Accelerate Brain Cancer Cure

• Accelerated Cure Project for Multiple Sclerosis

• Addario Lung Cancer Medical Institute

• Adenoid Cystic Carcinoma Research Foundation

• Alliance for Aging Research

• Alpha-1 Foundation

• ALS Therapy Development Institute

• Alzheimer’s Association

• Alzheimer’s Drug Discovery Foundation

• Autism Speaks

• Ben & Catherine Ivy Foundation

• Bonnie J. Addario Lung Cancer Foundation

• Cancer Research Institute

• Charley’s Fund

• CHDI Management

• Children's Tumor Foundation

• Chordoma Foundation

• Citizens United for Research in Epilepsy

• Cure Alzheimer's Fund

• CureDuchenne

• Cystic Fibrosis Foundation

• Damon Runyon Cancer Research Foundation

• Dr. Susan Love Research Foundation

• The Epilepsy Therapy Development Project

• FastForward, LLC (National MS Society)

• Focused Ultrasound Surgery Foundation

• Foundation Fighting Blindness

• Hide and Seek Foundation

• Hydrocephalus Association

• Institute for OneWorld Health

• International AIDS Vaccine Initiative

• International Mental Health Research Org.

• Jain Foundation

• Juvenile Diabetes Research Foundation

• Leukemia & Lymphoma Society

• Life Raft Group

• Lymphoma Research Foundation

• Melanoma Research Alliance

Pathway to Treatment

What is the most

powerful force the

world has ever

produced?

(x-h2) + (y-k2)

-b b2-4ac

x-x1

y = cekt

y-y1

c2 = a2 + b2

m =

e = mc2

1.

2.

3.

4.

5.

6.

7.

8.

P = SFti*(SHCi+SSCi+SRAi)

c = 2r

2a

m =

r =

Einstein answered with which of these formulas?

#4 – “Compound interest.”

y=Cekt

A=Pert

a = Future Value

P = Original Principal

r = Rate

t = Time

$25,000-a-year @ 0%

$6,642-a-year @ 6%

$1,304-a-year @ 12%

(or a one-time investment of $10,747)

Rate of Return Concerns

How to Save $1-Million in 40 Years

Question:

When Elvis Presley died in 1977, how many

people listed their occupation as “Elvis

Impersonator”?

1. 100 - 200

2. 300 - 400

3. 500-600

4. 1,000 – 2,000

5. More than 5,000

#1 – 174 impersonators in 1977.

More than 84,000 today.

By 2050 – one of every 3 people on earth?

1996 Olympics

• 1 gold medal

• 15 medals

• Rank: #20

Great Britain’s Olympic Performance

In 1997, National Lottery

funding in the U.K. was

directed into elite-athlete

training for the first time.

In 2000, the British team

won 11 gold medals. Gold Medal:

Matthew Pinsent

Steve Redgrave Rowing: Men’s Coxless

Pair

1996 Olympics

• 1 gold medal

• 15 medals

• Rank: #20


Gold Medal:

Matthew Pinsent

Steve Redgrave Rowing: Men’s Coxless

Pair

2012 Olympics

• 29 gold

medals

• 65 total gold

medals

• Rank: #3


Women’s Team Pursuit Mo Farrah

5,000/10,000 meters Jessica Ennis

Heptathlon

Equestrian Team Greg Rutherford - Long Jump Women’s Pairs Rowing

“In every Olympic sport there is all

that matters in life. Humans

stretched to the limit of their

abilities, inspired by what they can

achieve, driven by their talent to

work harder than they can believe

possible, living for the moment but

making an indelible mark upon

history.”

- Sebastian Coe Chairman, 2012 London Organising Committee

2x 1500-meter Olympic Champion

1984

2012

Milken Institute Summit - London

October 10, 2012

Michael Milken Chairman, The Milken Institute


A New Global Perspective - Milken Institute · Milken Institute Summit - London October 10, 2012...

Documents

Transcript of A New Global Perspective - Milken Institute · Milken Institute Summit - London October 10, 2012...