KKR Insights 120305

8/2/2019 KKR Insights 120305

1/16

InsIghts

GLOBAL MACRO

TRENDS

InsIghts

GLOBAL MACRO

TRENDSMarch 2012

8/2/2019 KKR Insights 120305

2/16

2 KKR InsIghts: global Macro trends

U.S. Housing:A Changing Dynamic

Te usi maket was te ist t uae i tis

atest ecmic cisisad it is am te ast t

ece. As we k aead, we see a umbe key

sitie deemets udi i te ew me

maket. Desite tese imemets, wee,

eadwids sti emai i te existi me maket.

We detai w tese css-cuets ae ikey t

ud ad wat ae te key imicatis te U.S.

ecmy ad its iest base.

KKR global MacRo & asset

allocatIon teaM

henRy h. McVey

Head of Global Macro &

Asset Allocation

+1 (212) [email protected]

DaVID R. McnellIs


FRances b. lIM


Rebecca J. RaMsey


MaIn oFFIce

K Kvi r & c. l.P.

9 W 57 ssui 4200nw Yk, nw Yk 10019+ 1 (212) 750-8300

coMPany locatIons

Usa nw Yk, s Fi, Wi,d.c., M Pk, hu eURoPe l,Pi asIa h K, biji, dui, tky,

Mumi, su aUstRalIa syy

2012 K Kvi r & c. l.P.a ri rv.

8/2/2019 KKR Insights 120305

3/16

KKR InsIghts: global Macro trends

I u iuu pp f KKr Ii i i o 2011,

w w y u uii i i mki

pii u iy f p, mi w

k m i m-i m-u

impy jumpi fm pi ju u i

my upp u ii i.

a i f ky ipu f y u m i u-

k f ui i ui, w u w wu

iu u ppiv U.s. ui mk i ff

u m uk. a i , w ff fiv kyui:

1. suu ui iviy i f pimy

u vy ku i ii m

pi w i fm w . t fi i yi

upwi i ui mk ypiy mpi

u f mi vy i u i im. hu-

i y u f 3% f gdP vy i 2009 vu

ii v f u 19% i fi y f vy

y. s, w im 48% te jbs st dui te

dwtu wee bady eated t usi mj wi

j w i Ui s.

2. W iv u fmi , u, u-

i v w m, ui w ii

, iky impv i qu . ou

i w ui 750,000 ui i 2012;

850,000 ui i 2013; 1.05 mii ui i 2014. by m-

pi, u i 707,000 f 2012 828,000 f

2013, pivy. (t i u u y 2014

f y.) ov y, w iv ii ui-

iviy u m 30,000 pi j

v my U.s. py imy U.s. gdP

w y 2550 i pi v p y. giv

ui ivm j u f m

uiz 125-i-pi gdP fm 2007 2010,

uu ik i wu w.

3. t w i w ik upik i ewui

vum i u miy if pi f existi m.

W im i i i ivy f 6.4

mii u mi u f . t iu 3.3 mii

u i f ii f wi

, y, f m pi i mi-

y ppi. W pi i ivy wi pu

m pi w 60 i pi i y, fw y 1.3%

ppii i 2013 3.3% ppii i 2014 (Exibit 1).

W u ukwm pi f impi i wp u i uiky u quiky wi f

py p umpi f y ui -

ivy ivy m k w

i i wi ii .

4. hw ui ff u gdP f? n f -

ui- pii- ff, w im ui

mk wi u f 0.4 p pi f u 2012 U.s.

gdP w f f 2.3%. Iu i i f i

iwi f ppimy 45 i pi mmi fm

f p f w ii m , ff y vy

m wi fm iui m pi pii

y.

5. W u uk impy f pi i? Fi, w

p piv pi fw iiy i m-

ui, u p w imii yi

f wip u pii f pm

i ju wi, i u viw. hwv, w iv

iiiiv y F hui Fi ay (FhFa)

imp fi p w wi i p. W i m pi fuii mpi iky

i u fm my p v,

my p iv ivm ppuii. hmuii

mpi my i pfm w, , u i k v

ii mj wi f , my f mpi

quiy uii v iiy ppi

ii f iv pi. Fiy, u viw pi

ppii f m pi v fw y impi

U.s. um wi iky pi iifi

u i w. W u mii U.s. um w

iu puui vu im u piv um

, iu i, i pmui

wy m y w f im pumu m mi--i-im um.

ny m y ik . s y i,

J l w, i u f u i-pi

u ui f ui mk. simpy pu, w

v ui i, i u f, i w

fm i f v 125 i pi U.s. gdP pi

iu f 2550 i pi i f ik u mk

ui my iv, i u viw. s y, i.

h u m-i: Y, ui- iviy f

i mj mi piiv, u i imp piiv

u (i) i i i wi mi vy w w

i my U.s. yi ui, iui mufui

u; (ii) v m u i ui u p i

w uiiiy piv , wi i

y ff iu u f vm

wizi.

1

2

3

4

5

8/2/2019 KKR Insights 120305

4/16


exhIbIt 1

Housing Forecasts

2012 2013 2014

hoUsehold ForMatIon (000s) 850 1,000 1,300

hoUsIng starts (000s) 750 850 1,050

hoMe PrIce aPPrecIatIon Y/Y -0.6% 1.3% 3.3%

su: KKr g M a ai im Fuy 29, 2012.

How much has housing affected the recovery?

bf w u w ui i , -

viw w i . dpi up mu f iquiiy

ij i ym, U.s. my fi iv

u vy wi piii, k, m-

w v pii. giv w f mi w f

ui g ri1, w ku u-

qu vy w iv iy (Exibit 2). Fu, i

ii p f u ku vy.

exhIbIt 2

Thus Far, the Recovery in GDP Growth Has Been Subpar

1954

1958

1961

1970

1975

1980

1982

19912001

2009

Actual

2009

Regression

Predicted

y = -1.8453x + 0.0162

R = 0.78210%

2%

4%

6%

8%

10%

12%

-6%-5%-4%-3%-2%-1%0%

RealGDPGrowthinFir

stYearofRecovery

(%)

Peak to Trough Real GDP Decline (%)

d Juy 31, 2012. su: buu f emi ayi, KKrg M a ai.

1 ri i dm 2007 i Ju2009 w i W W II. su: nberp://www../y.m.

exhIbIt 3

Unprecedented Amount of Stimulus

PeaKgdP

troUghgdP

length

(Months)

declIneIn

realgdP

stIMUlUs as % oF gdP

Mon-

etarY

FIscal

coM-

bIned

aUg-29 Mar-33 43 27.0% 3.4% 4.9% 8.3%

MaY-37 JUn-38 13 3.4 0.0 2.2 2.2

noV-48 oct-49 11 1.7 -2.2 5.5 3.3

JUl-53 MaY-54 10 2.7 0.0 -1.4 -1.4

aUg-57 aPr-58 8 3.2 0.0 3.2 3.2

aPr-60 Feb-61 10 1.0 0.7 1.0 1.7

dec-69 noV-70 11 0.2 0.3 2.4 2.7

noV-73 Mar-75 16 3.1 0.9 3.1 4.0

Jan-80 JUl-80 6 2.2 0.4 1.1 1.5

JUl-81 noV-82 16 2.6 0.3 3.5 2.8

JUl-90 Mar-91 8 1.3 1.0 1.8 2.8

Mar-01 noV-01 8 0.2 1.3 5.9 7.2

dec-07 JUn-09 18 5.1 18.3* 19.2* 37.5*

*KKr M a ai im Juy 31, 201su: F rv, ci bu offi, g Ir ov api 3, 2009.

Wy vy iff i im? dpi up-

imuu ff (Exibit 3), ui iviy p

m f iui iii mi v

i im u i y i 1960. a Exibit 4 w, piv

ii p ju 3% f u i gdP

mp ii v f 19%. a , ui-

iui gdP w ju 7% i 2009 mp 27% v

. ti mk u, v my w v

i f 2009, U.s. ui mk w i i

ppi ii, wi i u ui umpi (Exibit 5

8/2/2019 KKR Insights 120305

5/16


exhIbIt 4

Unlike Normal Recoveries, Housing is Not Acting as aTailwind

YearoFtroUgh

realgdP

realgdPgroWth,

FIrs

tYearoF

recoVerY

hoUsIng contrIbUtIon to FIrstYear oF reboUnd In real gdP

PrIV

ate

resIdentIal

InVe

stMent

hoU

sIng&

UtIl

ItIes

serVIces

tota

lhoUs-

Ingrelated

1961 6.3% 11% 11% 21%

1970 4.5% 38% 15% 53%

1975 6.1% 22% 5% 27%

1982 7.7% 27% 8% 35%

1991 2.6% 23% 11% 35%

2001 2.3% 11% 3% 14%

2009 3.3% 3% 3% 7%

aVerage 4.7% 19% 8% 27%

d Juy 31, 2012. ru i fi y f vyfwi u gdP2. su: buu f emi ayi, KKrg M a ai.

2

2 W u y 1980 i u uy, y i yi m i ni buu f emi r (nber) w ivy mi i miu, gdP w 1.22%. t1980 i k p i f my i i , piv ii ivm w 116p w, i w, i iui w w -95% fwi y. t myuquy p i i i i 1982.

exhIbIt 5

Private Consumption Normally Acts as an Offset to aDrop in GDP

-12%-22%

39%

-16%

23%14%

69%

-33%

109%

-46%-60%

-40%

-20%

0%

20%

40%

60%

80%

100%

120%

1954 1958 1961 1970 1975 1980 1982 1991 2001 2009

Private Consumption Contribution to Real

GDP during Recessions

Consumption was a big offset to the

recessions in 1982 and 2001

d Juy 31, 2012. su: buu f emi ayi, KKg M a ai.

o mu i iip w j

ui mk. by fi, u w ui

ui- j ypiy mk up 1316% f -f

py, u 48% f j i g ri mm

fm w w m ui- iui (Exibit 6). t

, mpym i i i i u, wi

ui ui- j 17.9 mii, iy up

fm u f 17.6 mii i 2010u f y fm i p

f 21.8 mii i 2007. n upiiy, u i i

ui ui- j mj

fm mpym iui i Ui s. If

i w, i i j w i impvi, piuy m

yu up, wi iifi iu m

ui (Exibit 7).

Subdued housing activity is

8/2/2019 KKR Insights 120305

6/16


exhIbIt 6

Half of the Jobs Lost in the Great Recession wereConstruction and Housing Related

MIllIons oF JobsaUto

related

constrUc-tIon & hoUs-Ing related

totalnonFarMPaYrolls

PeaK In 2007 4.20 21.83 138.02

troUgh In 2010 3.40 17.61 129.24

Jobs lost 0.80 4.22 8.78

% change -19% -19% -6%

contrIbUtIon tototal Jobs lost

9% 48% 100%

as oF Jan 2012 3.63 17.91 132.41

% vS. TroUgh 7% 2% 2%

au iui iu M Vi P Mufui,ri M Vi & P d, rpi & Misvi. cui iui iu li, cui,W Pu, nmi Mi Pu, Fuiu & rPu, W t f du g, Fuiu & hmFuii s, ei & appi s, buii Mi& g suppy s, tuk tpi, r e, r& li, aiu & eii svi, svi tbuii & dwi. d Juy 31, 2012. su: buu fl sii.

exhIbIt 7

The Younger Age Groups are Gaining Jobs, and TheseMatter Most for Home Sales

age groUP (Yrs) nonFarM PaYroll groWthY/Y

16-17 -8.5%

18-19 7.0%

20-24 3.4%

25-34 1.4%

35-44 -0.6%

45-54 -1.0%

correlatIon oF eMPloYMent bY age groUPagaInst exIstIng hoMe sales

age (Yrs) correlatIon lead (lag)

20-24 50.7% 10

25-34 43.1% 13

35-44 28.8% 11

45-54 24.6% 13

55-64 17.7% 11

d dm 31, 2011. ci fm 1967-201su: buu f l sii, ni aii f r,KKr g M a ai r.

Our base case for housing demand is now a constructive one

a eii i: I I m m, i ju

I y wi pm . W p eii pp w

yi u ymi f U.s. ui m

k, i f iff ipu i. F

w v pyi i, ui m, w iv,

pu y iu i i u fmi

wi i u w iv y wk my w

w, m f. a i , Exibit 8 w, u

fmi i w my 600,000 u p y

ju 0.5% uiz i (iv iwi f

114 mii u). Y w ik f u fmi i u i j w impv i

ii iizi f i i

-ffi pii uvy, wi w i f

f m ppv.3

3 a f 1Q2012. su: F rv, hv.

We do not think an uptick innewhousing volume is enough

to materially lift the price ofexistinghomes.

8/2/2019 KKR Insights 120305

7/16


exhIbIt 8

Current Household Formation is Below Its Pre-CrisisAnnual Rate of Around 1.2%

8/2/2019 KKR Insights 120305

8/16


lki , w ik i i p u-p-

u i iu vi k i p-2001 quiii-

um v f 1.13. ou wk w i k 8 y f ui

k u if (20012009), w u imi im

fm f u u i u quiiium

(20092017) i, viv , i u viw. F

i u y 2017, u wi w u 45 i

pi f v u i ui ivy.

Exibit 13 i pmi i ui f, f

mki m viv umpi u ui f mii

mpii fm mi m ( ).

W mii ui f f 750,000

ii ui i y 2012; 850,000 ui i 2013; 1.05

mii i 2014. t f iy v u,

wi 707,000 ui f 2012 828,000 f

2013. (t i 2014 u f f y.)4 W up

u f vi fm u u f u viw

k f ui wi f mu p

w w 2017. I , w f w u-

i wi qui mm mu f w u

w w w . I kpi wi i viw, w

iv iifi pi f ii ivy upu

4 d Juy 31, 2012. cu im fmgm s, du bk, bk ami Mi ly, JPMM, M sy, Zm & ai.

i i p ii i miy p ii

w pp fi j. a u, w ik i wi k

y fi up f my f ui.

exhIbIt 12

We Think the Ratio of Houses Per Household MayCorrect Between Now and 2017

Jan-01

1.13

Jan-09

1.17

Dec-11

1.16

1.10

1.11

1.12

1.13

1.14

1.15

1.16

1.17

1.18

84 88 91 95 98 02 05 09 12 16

U.S. Housing Units Per Household

Rose rapidly for eight

years starting in 2001

Our base case is

for an eight-year

correction cycle

(i.e., through 2017)Consistently near

1.13 pre-2001

d dm 31, 2011. su: cu buu, hv.

exhIbIt 13

Which Means the Housing Stock Growth Rate Needs to Hold Slightly Below the Household Growth Rate

2011 2012e 2013e 2014e 2015e 2016e 2017e

u.s. HouseHolDs (000)

start oF Year 113,402 114,058 114,908 115,907 117,207 118,608 120,208

+ net hoUsehold ForMatIon 656 850 1,000 1,300 1,400 1,600 1,800

end oF Year 114,058 114,908 115,907 117,207 118,608 120,208 122,007

groWTh rATE 0.58% 0.75% 0.87% 1.12% 1.19% 1.35% 1.50%

u.s. Housing units (000)

start oF Year 131,975 132,474 133,109 133,834 134,749 135,748 136,908

+ neW UnIts constrUcted 582 750 850 1,050 1,150 1,250 1,400

+ MobIle hoMe PlaceMents 50 60 75 90 100 110 120

- scraPPage 133 175 200 225 250 200 200

end oF Year 132,474 133,109 133,834 134,749 135,748 136,908 138,228

groWTh rATE 0.38% 0.48% 0.55% 0.68% 0.74% 0.85% 1.0%

hoUSES pEr hShlD (EnD of Yr.) 1.16 1.16 1.15 1.15 1.14 1.14 1.13

d Fuy 29, 2012. = KKr gMaa im. su: cu buu, KKr g M a ai r.

8/2/2019 KKR Insights 120305

9/16


Wi u u fmi ui f

uiz, y my uffiiumi y miiz

pvi m iwi f j i gdP w i

mi y, piuy iv w wv i

y. ci fwi: t U.s. my 4.2 mii

ui ui- j fm pk u w

2007 2010. dui wu, yy ui mpi

f y ppimy 1.5 mii, my ppimy

2.7 j f vy ui ui mp (Exibit 14). giv u

f p f ii ui i y 168,000

ui i 2012, 100,000 i 2013 200,000 i 2014, ppiui- j i wu qu ppimy 454,000

j i 2012 (38,000 p m, v), 270,000 j i 2013

(23,000 p m), 540,000 j i 2014 (45,000 p m).

I m f gdP, u wk w p- w fi

f w ui j wi ppimy $63,000 f p-

i pw U.s. my. I ii, w im

u u wi ppimy $200,000 ii

fi ivm. Pii , w im vy

100,000 im u ui p y u u 0.25%

u U.s. gdP w. a , u ui f

wu qu 0.4% ii gdP w i 2012, 0.25% i

2013, 0.5% i 2014.

exhIbIt 14

Housing Could Add About 40bp to GDP growth in 201

constrUc-tIon Jobs

000s

hoUsIngcoMPle-

tIons 000s

PeaK 21,827 2,110

troUgh 17,606 555

change -4,221 -1,555

Jobs lost Per start 2.7

estIMates

constrUc-tIon Jobs

gaIned

hoUsIngcoMPle-

tIons 000sIncreMentalcoMPletIons

2011 actUal 221 582

2012e 454 750 168

2013e 270 850 100

2014e 540 1,050 200

contrIbUtIon to gdP assUMIng IncreMental IncoMe oF $63KPer neW Job, and neW hoMe PrIce oF $200K

$ bIllIons Jobs starts total % gdP

2012e 29 34 62 0.4%

2013e 17 20 37 0.2%

2014e 34 40 74 0.5%

hui cui iui iu li,cui, W Pu, nmi Mi Pu, Fuiu

& r Pu, W t f du g, Fuiu &hm Fuii s, ei & appi s, buiiMi & g suppy s, tuk tpi, r e,r & li, aiu & eii svi, svi buii & dwi. e = KKr gMaa im. d Juy31, 2012. su: buu f l sii, cu buu, IMF WeoKKr g M a ai r.

Supply headwinds will keep a lid on home prices

Wi fi m i y, i p i mpi

i iffiui i wi fi uppy. t i

u wi uppy i u vim i

my u ii uu fu p. s, i mp impify u fi, w yz f

mj ifu w iv iv uppy i f u

i qui: (i) vii uppy f m f ; (ii) f

m; (iii) ivy f m iqui; (iv)

vm ivi. W u v m f p

f isibe ivy, w w uy f m

ivy f m iqui u ex

cess (w) ivy. W imp f vm

ivi ff u mi uppy f.

u yi, w u m pp y ki w mu

Even a modest rebound in housing

could help bring greater growthsustainability to the private sector,which is necessary to offset the

continued burden of excessgovernment debt and downsizing.

8/2/2019 KKR Insights 120305

10/16


fiu i v i ii i

im uppy, pp fwi fum, m-up

yi f iu.

ou im i i u 3.3 mii m

i ju k vim m i

kpi wi ii f ui ivy (

Exibit 20 f i). Fu pm upi u i:

V s f H fr sa. ti y iu w

ii m f v upiu u w ivy wi i f uppy f m

v y i mk u i fu p,

iky fu. a f dm 2011, k f

ii m f w u 2.1 mii, uy i i wi

v w 1982 2005, wi k f w m

f w 157,000, wi i w w v f 313,000

w 1963 2004 (Exibits 15 ad 16).

exhIbIt 15

Stock of Existing Homes for Sale is Roughly In-Line withAverages

Dec-2011

2.1million

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

3,500,000

1980 1990 2000 2010

Existing Homes Available for Sale

Average 1982-2005Units

Average 1982-2005= 2.1 million

d dm 31, 2011. su: ni aii f r,hv.

exhIbIt 16

Supply of New Homes for Sale is Below Historic Averag

Dec-2011

157

0

100

200

300

400

500

600

1965 1975 1985 1995 2005

New Homes Available for Sale

Average 1963-2004

Units

Average 1963-2004= 313 thousand

d dm 31, 2011. su: cu buu, hv.

Dq. t uy 50.3 mii m u

i i Ui s, f wi 4.1 mii, 8.15% f

uy iqu. bf fii ii f 2008,

v u f iqui w u 4.7%5. Ui u

- fmwk, u yi impi iqui

v y m u i u 345 i pi

1.7 mii m (Exibit 17).

Frr. I , m iqu f u 90-

y m mv fm iqu y fu.

t fu iui i Ui s mk

mi k, v fu f y i f

ii.6 ou yi w u fu f 2.

mii (4.38% f m)7 i ui iifiy v

i p-ii v f 1.07%. Pu wy, w im f

u i f m fu v 3%, 1

mii ui, u 2012 (Exibit 18).

5 a f 4Q2011. su: M bk aii l Psvi.

6 t ii i y viw vi i Ju 2007 wi p f w b s upim fu viyiv i m uii. su: nw Yk tim p://pi.yim.m/p/w/ui/mpi/__mpi/i.m.

7 Ibid. 5.

Despite unprecedented stimulus

efforts, housing activityrepresented the smallest shareof contribution to the initialeconomic recovery this time

around in the cycle since 1960.

8/2/2019 KKR Insights 120305

11/16


exhIbIt 17

Delinquencies are About 345 Basis Points Above the Pre-Crisis Levels

Jan-2010

10.97%

Dec-2011

8.15%

2

3

4

5

6

7

8

9

10

11

12

1970 1980 1990 2000 2010

Loans Past Due % Total Unemployment Rate

Average % Past Due1972-2006 4.70%

Umpym f Juy 31, 2012, p u fdm 31, 2011. su: buu f l sii, 2006-2011 lPsappi ayi, p-2006, M bk aii, hv.

exhIbIt 18

2.1m or 4.38% of Homes Are in Foreclosure

Dec-20104.64%

Dec-114.38%

Dec-123.2%

Dec-132.0%

Dec-141.1%

0

1

2

3

4

5

1980 1985 1990 1995 2000 2005 2010

Foreclosures % Total Loans

Average 1985-2006

KKR Estimate

Average 1985-2006= 1.07%

a f 4Q2011. su: M bk aii, hv.

gvr irv. ry, om miii pu

i f pp p y w f ym

(fm harP haMP harP 2.08

) f u iiui. t FhFa9 y u iiiiv

w quifi iv pu p f f ppi

f vi i ppi. W iv iiiiv

8 harP i hm aff rfi Pm i mww u i m pym. haMP i hm affMifii Pm i mw w i ffu. harP 2.0 i vi harP mw i pmwi k ff i dm 2011.

9 t FhFa i F hui Fi ay wi w u f hui emi rvy a f 2008. t FhFav Fi M, Fi M, F hm l bk.

wi m impfu m f fm u i

qui ci ppv, u i i i

piv pi. Mv, m ppi f-

up, w iv vi u i f w

wi iky . t m-wip y f

320 i pi 66% wi i 34%

(Exibit 19), w ik fvi vu w

ip wi iu uiy u my pi

Wi p f haMP harP, wi um f mw

v i mv fm iquy ( kw i u). F pup f u yi,

um u f u 20%i i wi m f

u pui y U.s. ki wi u

u ivy f vi m y 0.7 mii10.

Pui fiu f m, uppy, iqu

fu, fi f vm iviu

ui i w i v u 3.3 mii i excess uppy

m iv ii : 0.7 mi

i fm k f m f ui, 1.6 mii fm fu

1.7 mii fm iqui 0.7 mii fm v-

m-iu ui i uppy (Exibit 20).

exhIbIt 19

Rental Demand has Surged Ahead of Home OwnershipSince the Great Recession

30

31

32

33

34

35

65

66

67

68

69

70

2000 2002 2004 2006 2008 2010 2012

Homeownership Rate % (Left Axis)

Renter Occupied Rate % (Right Axis)

su: M sy r p d 6, 2011 wi i mifii f 16%, 30%, 31%, 31%, 45% bfa, gMac

W, c, ow pivy.

10 su: baMl, ci sui fm Juy 2012.

8/2/2019 KKR Insights 120305

12/16


exhIbIt 23

Supply Demand House Price Sensitivity

montHssupply

DisposAble income gRowtH y/y

0% 1% 2% 3% 4% 5%

5.0 -2.3% -1.1% 0.1% 1.4% 2.6% 3.8%

5.5 -2.6% -1.3% -0.1% 1.1% 2.4% 3.6%

6.0 -2.8% -1.6% -0.3% 0.9% 2.1% 3.3%

6.5 -3.0% -1.8% -0.6% 0.7% 1.9% 3.1%

7.0 -3.3% -2.0% -0.8% 0.4% 1.6% 2.9%

7.5 -3.5% -2.3% -1.0% 0.2% 1.4% 2.6%

8.0 -3.7% -2.5% -1.3% -0.1% 1.2% 2.4%

8.5 -4.0% -2.8% -1.5% -0.3% 0.9% 2.2%

9.0 -4.2% -3.0% -1.8% -0.5% 0.7% 1.9%

9.5 -4.5% -3.2% -2.0% -0.8% 0.5% 1.7%

10.0 -4.7% -3.5% -2.2% -1.0% 0.2% 1.5%

c i m pi im ui i m w im pi i fui f m uppy f m ipim. su: ni aii f r, cu buu, KKrg M a ai r.

t fm f iu pi m-pi ppii i iifi-

, w iv. Wy? bu , Exibit 25w,

w i i mp f w u 40%

i f f 2005u i i pi p pu i

w ju 31% f w y f 2011. I, i

m wu w ui i fi

i v, fi iz $4.7 ii12 ui fii

ii. by mpi, ui w uy i

$387 ii ui 2001 wu. a m im m

pi w fi, im w i . a u,

--p- im pik y m f

U.s. ppui.

12 t mp u f y $4.7 iiw 4Q2007 2Q2009, u pk--u, -u w f y $5.7 ii w 2Q2007 1Q2009. su:F rv b, Fw f Fu

exhIbIt 24

Debt to Income Ratios Have Soared, Particularly in theMiddle Income Area

0%

20%

40%

60%

80%

100%

120%

140%

160%

180%

0-20 20-40 40-60 60-80 80-90 90-100

Debt-to-Income Ratios by Income Percentile

Percentile Income

2001 2004 2007 2009

Smaller increasesin lower income

brackets

Middle income groups had the highestincrease in debt-to-income ratios

d--Im ui mi ivi y mi f im y im pi. a f 2009, wi i M/api 2012. su: tii suvy f cum Fi,F rv, KKr g M a ai r.

Housing demand has been

plagued by a serious contractionin household formationbut

we think the rate of householdformation is about to change sinc

job growth has improved andcredit conditions are stabilizing

8/2/2019 KKR Insights 120305

13/16


exhIbIt 25

Real Estate has Generally Been a Buffer for Net Worth,Except in 2009, When Equities and Home Prices Fell

u.s. HouseHolD bAlAnce sHeets DuRing pAst RecessionscHAnge in net woRtH FRom peAK to tRougH ReAl gDp (us$b)

us$b

net

Worth

total

assets

eQUItIes

real

estate

other

assets

totallI-

abIlItIes

1954 49 55 21 10 24 6

1958 37 39 13 0 26 2

1961 59 76 29 13 34 17

1970 116 125 70 19 36 9

1975 546 616 -48 169 495 70

1980 1,061 1,161 389 271 501 100

1982 1,020 1,127 245 246 635 107

1991 752 896 286 26 585 145

2001 -1,980 -1,723 -2,372 387 262 256

2009 -13,569 -13,832 -7,823 -4,704 -1,304 -263

Recent peAK, tRougH, AnD cuRRent net woRtH (us$b)

Jun-07 66,763 80,664 21,971 24,446 34,248 13,902

mAR-09 50,423 64,536 10,973 18,764 34,799 14,113

sep-11 57,353 71,120 15,989 18,311 36,819 13,767

a f 3Q2011. su: F rv b, Fw f Fu, buu femi ayi, hv.

How does housing affect our U.S. economic outlook?

over e yer, weve evelpe vriey f frecin mel,

in wic we ue p-wn mcr inpu in n emp frec

rw ren, incluin ur U.s. gdP rw-lein inicr. a

Exhibit 26 belw w, e mel been effecive in e p

ienifyin mjr urnin pin in e ecnmic cycle. a e m-

men, e mel i eliverin mely cnrucive mee, fre-

cin yer-ver-yer rel gdP rw will ccelere 2.3%in 2012 frm e lukewrm 1.6% pce f 2011. huin influence ur

gdP inicr vi rncin-civiy fcr (pecificlly exiin

me le) n price fcr (pecificlly e cne in uel

wel, f wic 31.9% i uin-rele). Exhibit 27illure

e recen ccelerin in exiin me le i n imprn

piive fcr fr e mel, in 45 bi pin ur 2012

gdP frec. We view uin urnver prxy fr e el

f e lbr mrke, fr uel frmin, n fr cnumer

niml piri (umn emin rive cnumer cnfience).

a menine previuly, ur funmenl nlyi i fer

uel frmin n rner incme rw my pur cn-

rucin civiy in 2012, wic cul rnle in 0.4% cnrib

in gdP rw. We believe imilr ynmic i bein cpure

by e exiin-me-le fcr f ur quniive mel. In erm

f me price, e mel ue e 60-bi-pin ecline

we frec fr 2012 i n lm impercepible r n e 2012

gdP ulkne f merely inle bi pin. te uin-we

effec picke up by e mel re mll i pin, wic we

mke funmenl ene, ince me equiy in n le ee

ve recenly fe river f cnumer pycly.

exhIbIt 26

Our U.S. GDP Indicator Forecasts a Modest Uptick inReal Growth in 2012

Dec-11a1.6%

Dec-12e2.3%

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12

Actual Model Predicted

U.S. Real GDP Y/Y - Leading Indicator

R-squared = 74%

ou gdP li Ii i i f ipu iu f. a = au; e = eim; gdP = g dmi Pud Fuy 6, 2012. su: bm, hv, KKr gM a ai.

exhIbIt 27

Boosted Meaningfully By an Uptick In Existing HomeSales

2.6%

+0.45%

-0.01%

-0.76%2.3%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

Baseline Faster

Existing

Home Sales

Pace

Slight

Decline in

Housing

Wealth

Other

Factors

Forecast

Impact of Housing-Related Factors on OurReal GDP Lead Indicator for Dec-2012

ou gdP li Ii i i f ipu iu f. a = au; e = eim; gdP = g dmi Pud Fuy 6, 2012. su: bm, hv, KKr gM a ai.

8/2/2019 KKR Insights 120305

14/16


Summary: Investment opportunities

a w i v, i imp piiv ki

p i ui mk. spifiy, u w

p up m, mu y u fmi, i iky

iv ui v u pi i mi

qu. t w i i i wi u viw

piv, yi f my pfmi

u ik. I i i wi u-

i i piivy iui 0.25-0.50% u gdP

w i Ui s.

ai i kp, w ivm ppuii i v

. Fi, w ik i wi ppuiy f piv

pi uy m f pup. a ,

F hui Fi ay wm u pi p

ik ivy f 3.3 mii m vi f .

aiiy, w ik m pi impvm u

-. a mm, m impvm y iu

$26.0 ii i , i w w i pk f $29.6 ii

i 2006.13 by mpi, w ik i mui quii

ppi, u iv i f 2.0 iv mk, i i

imp f iv im i y. W iv

i i viy f ui iviy my piypiiv f f ii f fi im ivm u-

u ik ui- uii.

Wii ii m mk, wv, w ik iviy

pi my k i m im w m mk

u. t w i vm pii w

iqui fu impvi, wi u ff

mifu piiv i fuu. ti uiuy pimii

viwpi i iifi i u f 31.9% f

iiviu w i Ui s.14

13 a f J 2012. hm Impvm ri s = buii Mi,g equipm & suppy d ri s. su: cu buu,hv.

14 a f 3Q2011. su: F rv Fw f Fu, hv.

The good news is that governmenpolicies toward delinquencies anforeclosures are improving, whic

could affect as a meaningfulpositive in the future.

8/2/2019 KKR Insights 120305

15/16


Important Information

te views expessed in is pesenaion ae epesona views of heny MVey of KobegKavisrobes & co. l.P. (ogee wi is affiiaes, KKr)and do no neessaiy efe eviews of KKr isef.te views expessed efe e uen views of M.MVey as of e daeeeof and neie M. MVeyno KKr undeakes o advise you of any angesin e viewsexpessed eein. In addiion, e viewsexpessed do no neessaiy efe e opinions ofanyinvesmen pofessiona a KKr, and may no beefeed in e saegies and podus aKKr of-fes. KKr and is affiiaes may ave posiions (ong o

so) o engage in seuiiesansaions a ae noonsisen wi e infomaion and views expessed inispesenaion.

ti pi pp y fifmi pup. t ifmi ii i y u f ii, my up y uqu mk v f . c p pvi i f iuiv pup y. t ifmi ii pi vp iy/

i fm u iv i; wv,i KKr M. MVyu uy,quy mp f u ifmi. niii iu ivm, , vi i i i i mki iv-m ii.

t u ivm ywi ufu. hii mk i ii f u fuu mk vi fuu pfm f ypiu ivm wimy iff miy, u i up u. ti i i uj . t i u i

wi iv, u i my iifi-y iff w . ti piu viw u p mm-i iii f ff uy y ui-i p y ivm y.

t ifmi i i pi my i p-ji fw-ki m ifuu v, , f pi -i ii i, i y u f ii. t i u

uv wi iv, my iifiy iff fm w . tifmi i i pi, iui m i fii ui mk , i u mk ii, wi wi fuu my up y uqu mk v .

t ivm y m iu my uui f iv pi ipifi ivm jiv fii iuiP i f f uy my ff vu, pi im f ivm vy.

ni KKr M. MVy um y uy , uk up fw ki m. npi wy, p impi, i m iv y ff KKr, M. MVy y p uy mp fif ifmi i i i pi piiiy iiiy i p f y u i-fmi. by pi i pi, ipikw i ui p f fi m.

8/2/2019 KKR Insights 120305

16/16

www.kkr.com

Documents

KKR Insights 120305