1. Themes for the Decade
April 2013
1

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Four Main Themes for the Next Decade
2
 The devaluation of money versus real assets.
This has been occurring in the last decade and will continue throughout this decade.
 Outperformance of equities markets with low levels of Debt-to-GDP versus equities markets with
high levels of Debt-to-GDP.
BRIC, Next 11 Emerging Markets will outperform Developed Equity Markets.
 High-yielding stocks are appealing.
High-yielding, stable, partly-monopolistic, inelastic-demand stocks will remain attractive given interest
rates are likely to remain low for many years.
 Direct and indirect taxes will continue to rise.
Overview
Source: Castlestone Management.

3. www.castlestonemanagement.com
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
$4,000
1946 1957 1968 1979 1990 2001 2012
US Federal Expenditure
US Government Revenue
 Changes in population growth and government spending on Social Security and Medicare have permanently
increased Expenditure creating an eternal deficit between the two: Expenditure and Revenue.
Government Expenditure vs. Government Revenue
Source: Castlestone Management & Bloomberg. Data as at February 2013.
BillionsofDollars
Themes for the Decade

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23%
20%
19%
6%
13%
18%
US Expenditure 2011
Medicare & Medicaid
Social Security
Defense Department
Net Interest
Other Mandatory
Discretionary
4%
8%
19%
3%
24%
41%
US Expenditure 1960's
Medicare & Medicaid
Social Security
Defense Department
Net Interest
Other Mandatory
Discretionary
Expenditure has permanently changed
This is similar for other developed markets (Europe, Japan, Canada)
 Social Security & Welfare spending across Europe and North America has permanently changed budgets across
developed markets.
Permanent Expenditure Changes
Sources: Castlestone Management & Congressional Budget Office, http://www.bis.org/ Data as at February 2013.
Themes for the Decade

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Four Stages of a Secular Bear Market
Themes for the Decade
Source: Morgan Stanley Research, Castlestone Management & Bloomberg. Chart represents the typical secular bear market on a sample of 19 such bear markets and overlaid by the dates of the recent market trend.
Note: Past performance cannot be relied on as a guide to future performance.
40
60
80
100
120
140
160
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
MSCI Europe Price Index Since June 2007
Typical Secular Bear Market
TYPICAL REBOUND
RALLY: +71% over
17 months
TYPICAL BEAR
MARKET: -57%
over 30 months
TYPICAL NEXT
CORRECTION:
-25% over 13
months
TYPICAL TRADING RANGE:
52% wide 5.6 years long

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Source: Castlestone Management & Bloomberg. Data range January 1990 – February 2013.
Note: Past performance cannot be relied on as a guide to future performance.
Strong Correlation Between Gold and M1
PM16
%Return
The Devaluation of Money vs. Real Assets
Moneysupply/US$bn
0%
50%
100%
150%
200%
250%
300%
350%
400%
450%
500%
600
800
1000
1200
1400
1600
1800
2000
2200
2400
2600
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
M1 Money Supply
Gold Spot Price

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Precious Metals Will Outperform
The Devaluation of Money vs. Real Assets
Source: Castlestone Management & Bloomberg. Data range February 2000 – November 2012.
Note: Past performance cannot be relied on as a guide to future performance.
0%
100%
200%
300%
400%
500%
600%
700%
900
1100
1300
1500
1700
1900
2100
2300
2500
2000 2002 2004 2006 2008 2010 2012
M1 Money Supply
Gold Spot Price
Barclays Precious Metals Index
%GoldandPMReturns
Moneysupply/US$bn

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400
600
800
1000
1200
1400
1600
1800
2000
800
1000
1200
1400
1600
1800
2000
2200
2400
2600
Jan-2008 Nov-2008 Sep-2009 Jul-2010 May-2011 Mar-2012 Jan-2013
M1 Money Supply (LHS)
Gold Spot $/oz. (RHS)
Relationship Will Continue as in 2008
Source: Castlestone Management & Bloomberg. Data range January 2008 – January 2013.
Note: Past performance cannot be relied on as a guide to future performance.
Moneysupply/US$bn
Divergence
US$/oz.
Convergence
Divergence
The Devaluation of Money vs. Real Assets

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-100%
-50%
0%
50%
100%
150%
200%
2000 2002 2004 2006 2008 2010 2012
Emerging Markets Index
S&P 500 Index (US)
Nikkei 225 Index (Japan)
Equities Show Close to Zero Percent Returns
Source: Castlestone Management & Bloomberg. Data range February 2000 – December 2012.
Note: Past performance cannot be relied on as a guide to future performance.
Debt-to-GDP
%Returns

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Source: Bloomberg & Castlestone Management. Data as at February 2013.
Developed vs. Developing Countries
+3.8% +1.1%
+15.4%
Annual equity returns for Developed and Emerging
market countries over the past ten years
%Debt/GDP
Debt-to-GDP
0%
30%
60%
90%
120%
150%
180%
210%
240% Japan
USA
Canada
Germany
France
UK
Egypt
Mexico
Nigeria
South
Korea
Vietnam
Turkey
Pakistan
Philippines
Indonesia
-4%
0%
-3.22% -1.2%
+12.05
+15.77%
+14.49%
+5.5%
+12%
+13.4%
+20.64%
+21.5%

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High Income Class: China and N11
Source: Castlestone Management & GS Global ECS Research, Global Economics Paper No: 170, http://www.ryanallis.com/wp-content/uploads/2008/07/expandingmiddle.pdf
N1105
0
100
200
300
400
500
600
700
800
900
1000
2010 2020 2030 2040 2050
Brazil
China
India
Russia
US
Western Europe
Japan
N 11
The number of people with incomes
above $30,000 in 2007 PPP
Debt-to-GDP

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Global Growth Potential
Source: Castlestone Management & GS Global ECS Research.
N1105
4.90% 4.80%
3.70%
2.10%
0%
1%
2%
3%
4%
5%
6%
N 11 BRIC World G7
By 2050 N11 could 1) Be significantly larger than the US
2) Become twice the size of Europe 3) Account for a fifth of the global economy
Debt-to-GDP
N11 – Key Driver for Growth:
Average Growth Rate (2011-2050)

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Source: Castlestone Management & Bloomberg. Data as at February 2013.
High-Yielding Stocks
Some High-Yielding Stocks Remain Attractive
High-yielding, stable, partly-monopolistic, inelastic-demand stocks
McDonald’s +3.08% Deutsche Telecom +8.49% Trustworth +5.09%
Vodafone +6.56% Telstra Corp +8.68% Sasol +4.51%
Coca Cola +2.67 Singapore Telecom +5.59% Vodacom +5.81%

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Source: The Big Picture, http://www.ritholtz.com/blog/wp-content/uploads/2010/04/top-rate.jpg
Taxes Need to Increase as They Have Historically
Taxes & Debt

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0%
25%
50%
75%
100%
125%
1907 1922 1937 1952 1967 1982 1997 2012
US Marginal Tax Rate
US Gross Public Debt % GDP
US Marginal Tax Rate vs. Gross Public Debt
Taxes & Debt
Source: Castlestone Management & Bloomberg. Data as at February 2013.

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The Only Solution to This Problem
Source: Darren Whittingham, http://www.shutterstock.com
Taxes & Debt

17. Important Information
Appendix
CMD
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