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Portfolio Strategy & Quantitative Research
Peter Gibson
Managing Director
Jeff Evans
Executive Director
Click to edit Master title styleUnderstanding How the World Changed in
1998
20 Years of Challenges
Long Depression vs
Productivity Innovation Page 2
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Evidence
Page 3
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Selected Asset Classes 12-month ReturnsSelected Asset Classes 12-month Returns
(Oct 21, 2011 – Oct 19, 2012)(Oct 21, 2011 – Oct 19, 2012)
Source: CIBC World Markets Inc., Bloomberg
Page 4
7.17%
3.72%
1.35%
14.42%
18.33%
16.03%
5.07%
4.53%
0.48%
16.18%
4.83%
7.04%
0.0% 6.0% 12.0% 18.0% 24.0%
TSX Composite
CDN C10y Bonds
CDN 5-7y Bonds
CDN Cash
CDN High Yield Bonds
S&P 500
NASDAQ 100
US C10y Bonds
US 5-7y Bonds
US Cash
US High Yield Bonds
Gold
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Canada and US Equities, Bonds and T-bills Historical ReturnCanada and US Equities, Bonds and T-bills Historical Return
Source: Bloomberg and CIBC World Markets Inc. Page 5
CD
N E
quiti
es
CD
N C
10y
Bond
s
CD
N C
orp
AA
CD
N C
ash
0%
2%
4%
6%
8%
10%
12%
14%
5 Year 10 Year 20 Year
US
Equi
ties
US
C10
y Bo
nds
US
Cor
p AA
A
US
Cas
h
0%
2%
4%
6%
8%
10%
12%
14%
5 Year 10 Year 20 Year
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0.1
1
10
100
1000
Jan
-13
Jan
-20
Jan
-27
Jan
-34
Jan
-41
Jan
-48
Jan
-55
Jan
-62
Jan
-69
Jan
-76
Jan
-83
Jan
-90
Jan
-97
Jan
-04
Stock Real Bond Real Bill Real Series4
Source: CIBC World Markets Inc.
True Secular bear markets only occur 6 times in 160 years usually lasting 13-14 years. Lower stock returns & much higher volatility
recently 60% of individual stock returns resulted from market & sector NOT individual company fundamentals
Great Great DepressionDepression
& &
DeflationDeflation
““Painted Rates” Painted Rates”
very low & very low & stable with stable with
modest modest sustainable sustainable
growthgrowthSecular Secular
inflation & inflation & rising rising ratesrates
Bond Bond Market Market losseslosses
This This one one
started started in 1998in 1998
US Asset Classes Real Return
Page 6
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Why?
Page 7
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Too Much Debt
The Reason Growth is Weaker, Returns are
Lower and Volatility is Higher
Page 8
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US Debt to GDP Both Momentarily CLOSE to 100%US Debt to GDP Both Momentarily CLOSE to 100%
Source: CIBC World Markets Inc., BloombergPage 9
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Canadian Debt to GDPCanadian Debt to GDP
Source: CIBC World Markets Inc., BloombergPage 10
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How?
Page 11
Click to edit Master title style1. Record U.S. Government Debt GDP
2. Record Consumer Debt 2/3 of Economic Growth Due Consumer
“Self-restraint from spending, but , not yet!”
3. Record Current Account Deficit
CONCLUSION: CANNOT INFLATE AWAY DEBT AND DEFLATION IS NOT AN
OPTION
+
+
Page 12
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Keeping Bond Investors Happy Might Demand a Keeping Bond Investors Happy Might Demand a Dangerously Weak economy Dangerously Weak economy
Bond Yield Floors Also Exist Which Coincide With The Bond Yield Floors Also Exist Which Coincide With The Outright Risk of DeflationOutright Risk of Deflation
(The Relationship Between Stock Prices And Bond Yields Changed In 1998)
Interest Interest RatesRates
Stock Stock PricesPrices
Bond Yields (i.e. 4.5 – 5%)Bond Yields (i.e. 4.5 – 5%)
Economy Economy Dangerously Dangerously WeakWeak
( P/Es )( P/Es )
Interest Interest RatesRates
Stock Stock PricesPrices
( P/Es )( P/Es )
RatesRates
“Man is the only kind of varmint that sets his own trap, baits it, then steps in it” - Steinbeck
Page 13
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750
850
950
1050
1150
1250
1350
1450
1550
1650
3.5
4
4.5
5
5.5
6
6.5
7
Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03
U.S. 10-Year Bond Yield (left) S&P 500 Price (right)
The Positive Correlation Warned Loudly of the Risks of Deflation and a Potential Debt Crisis Starting in 1998
S&P 500 Price and Bond Yields
Fed cuts rates, stock market falls
(first time in 50 years)
Rates fall, stock prices fall anyway
Source: CIBC World Markets Inc.
Page 14
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Source: CIBC World Markets Inc.
History States:
That Falling Bond Yields
and
Falling Stock Prices
Coincide with Deflation and Economic Depression
Monthly S&P 500 P/E levels from 2006-present
Monthly S&P 500 P/E levels from 2006-present
The Long The Long DepressionDepression
The Great The Great DepressionDepression
Two of the Two of the Worst Worst Stock Stock
Market Market Collapses Collapses
in 160 in 160 YearsYears
Only Times in History Previously: The Long Depression & The Great Depression Thus: Lower P/E’s, Average Returns &
Higher Vol
““We are not retreating we are advancing in We are not retreating we are advancing in another direction”-General MacArthuranother direction”-General MacArthur
Page 15
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US Real Rates & Positive Bond Yield/Stock Price US Real Rates & Positive Bond Yield/Stock Price CorrelationCorrelation
JAN1
800
AUG
1806
MAR
1813
OCT
1819
MAY
1826
DEC1
832
JUL1
839
FEB1
846
SEP1
852
APR1
859
NOV1
865
JUN1
872
JAN1
879
AUG
1885
MAR
1892
OCT
1898
May
1905
Dec1
911
Jul1
918
Feb1
925
Sep1
931
Apr1
938
Nov1
944
Jun1
951
Jan1
958
Aug1
964
Mar
1971
Oct
1977
May
1984
Dec1
990
Jul1
997
Feb2
004
Sep2
010
-6
-4
-2
0
2
4
6
8
10
12
14
positive bond yield/stock px correlation and falling bond yield on annual basis M1 Mutiplier US Real Rates (RHS)
Long Depression Great Depression
Source: Bloomberg, U.S. Federal Reserve and CIBC World Markets Inc.Page 16
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Investment Implications
Page 17
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Page 18
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P/E Differences Between 80’s/90’s and Today
1980’s / 1990’s After 2003
P
E
x
14%
e.g.:+5% p.a.due to falling interest rates
P = 18% p.a.
P
E
x
8% -
10%
Constantorfalling at 1% p.a.
P = 8% p.a.
Page 19
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200
400
600
800
1000
1200
1400
1600
1800
Jan-
93
Jan-
94
Jan-
95
Jan-
96
Jan-
97
Jan-
98
Jan-
99
Jan-
00
Jan-
01
Jan-
02
Jan-
03
Jan-
04
Jan-
05
Jan-
06
Jan-
07
Jan-
08
Jan-
09
Jan-
10
Jan-
11
0
5
10
15
20
25
30
35
S&P 500 index S&P 500 Adjusted P/E (RHS)
Index P/E
P/E COMPRESSION on Average S&P 500 Prices Up BUT S&P 500 P/E’s Down
Source: Bloomberg and CIBC World Markets Inc.
Expand, Compress, Panic…; (9 Times Earnings by 2015?)Also Since 1998: Risk Premia and Credit Spreads Increased
Price UP
BUT P/E Compression
Page 20
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Source: CIBC World Markets Inc., Bloomberg
Page 21
TSX & S&P 500 Price Earning RatioTSX & S&P 500 Price Earning Ratio
0
5
10
15
20
25
30
35
40
Dec
-70
Dec
-72
Dec
-74
Dec
-76
Dec
-78
Dec
-80
Dec
-82
Dec
-84
Dec
-86
Dec
-88
Dec
-90
Dec
-92
Dec
-94
Dec
-96
Dec
-98
Dec
-00
Dec
-02
Dec
-04
Dec
-06
Dec
-08
Dec
-10
S&P 500 P/E
TSX P/E
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Volatility and Opportunity In The Great DepressionVolatility and Opportunity In The Great Depression
010,000,00020,000,00030,000,00040,000,00050,000,00060,000,00070,000,000
Jan-30 Jan-32 Jan-34 Jan-36 Jan-38 Jan-40
Perfectly Correct
1930 1932 1934 1936 19381930 1932 1934 1936 1938
BondsBonds
TBillsTBills
EquitiEquiti
eses
BondsBonds
TBillsTBills
EquitiEquiti
eses
$1MM $60,470,000+50.7%+/-4.38
Source: CIBC World Markets Inc.
Required 88 perfectly correct switches in 10 years
Page 22
Click to edit Master title styleAVOID TORPEDO’S
1980’s/1990’s
20 stock portfolio +30% but one torpedo
VERSUS
+6% ave and…Page 23
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Why RORO?
Low Returns,
Higher Volatility and
Partially Cancel Out
Forces TAA ! Page 24
Click to edit Master title styleThe Long Term Problem Facing Pensions
SAS, Cash on Balance Sheets, +Correlation
Economy or Pensions
Higher Rates? NO
Page 25
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Pension Implications of Low Returns & Positive Correlation (Need for Twist)
IF TSX & S&P 500 return of 8.1% coincides with: 3% bond yield & $ Parity
i.e. TSX 13,150 S&P 500 1,480 Bond Yield 3%
Income & Growth = 3.76% (Asset Mix: 55/40/5)
Growth = 4.79% (Asset Mix: 65/30/5)
HALF of S&P 500 companies have pension net funding ratios of LESS than 70%
Page 26
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Previous Crisis Risks
Interest Rate Spikes
Page 27
Click to edit Master title style1833 Second Bank of United StatesWall Street NOW Unregulated !!!Economic Swings amplified
Central Bank no longer existsUntil 1912/1913 Federal Reserve ActMarket Frequently appears irrational
1837 SPIKESPIKE Panic
DepressionDepressionBank Failures, Crisis in confidencePayment in Specie stopped
1846 SPIKESPIKE Financing of Mexican WarSouthern Bond Default
1857 SPIKE SPIKE Panic of 1857 – 1860(3)
DepressionDepressionFailure of Ohio Life & Trust caused repatriation of European investments in US Rails massive business failures
1861 SPIKESPIKE
-------1861-1929 Industrial Trusts
US Civil war 1861-65
Railways and Robbers Barons---------
1869-71 SPIKE SPIKE Black FridayDebt Crisis/ Market Crash
End of Post Civil war expansion
Page 28
Click to edit Master title style1873-79 SPIKE 100bpsSPIKE 100bps Panic
DepressionDepression (from 5% bond yield)
Failure of Largest US BankJay Cooke & Co. / Financial chaos in Europe/ Coinage Act of 1873/ Adoption of Gold Standard
1893-96 SPIKE 100bpsSPIKE 100bps DepressionDepression(from 3% bond yield)
Failure of US, Reading RailroadStock market collapseBanking Collapse Govt Deficit & Gold StdRun on Gold Repatriation of European investments
1900 Return to GOLD STANDARD
1901 Crisis
1903 Rising YieldsRising YieldsRichmans Panic
1906 San Francisco Earthquake & Fire
The long Depression 1873 – 1896 (23 years) EDISON GENERAL ELECTRIC & 50 yrs Finance Power
Deflation 1869 – 1896 Yet rising Global Industrial Production
Collapse Vienna Stock Market / 1890 Baring Brothers Bailed Out
Page 29
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Necessarily Lower Rates
Event Driven
Page 30
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Third Time Lucky? Secularly Lower Rates, Safe Third Time Lucky? Secularly Lower Rates, Safe Haven Status Haven Status
QEs, Operation Twists and Major EventsQEs, Operation Twists and Major Events
Source: CIBC World Markets Inc., Wikipedia
Page 31
400
600
800
1000
1200
1400
1600
1800
2000
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
1998 Russian
Financial Crisis
Dot-com
Bubble
September
11 Attacks
1997 Asian
Financial Crisis
2008 Financial
Crisis
European
Sovereign
Debt Crisis
2009 Dubai
Debt Crisis
August 2011
Stock
Markets Fall
Operation
Twist
QE1
QE2
QE3
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Source: CIBC World Markets Inc., Bloomberg
Page 32
1982 - Present
0
0.2
0.4
0.6
0.8
1
1.2
Aug-
82
Aug-
84
Aug-
86
Aug-
88
Aug-
90
Aug-
92
Aug-
94
Aug-
96
Aug-
98
Aug-
00
Aug-
02
Aug-
04
Aug-
06
Aug-
08
Aug-
10
TSX / S&P 500
TSX Annual Return: 9.7%S&P 500 Annual Return: 11.2%
Don’t Confuse Risk ON and Secular GrowthDon’t Confuse Risk ON and Secular GrowthTSX Versus S&P 500 (1982 - Present)TSX Versus S&P 500 (1982 - Present)
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Interest Rates and Individual Stocks
Vs
Fundamentals
Page 33
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In Direct Contrast to 1950’s Buy and Hold
Even Recently 50-60% of Stock Returns Correlated with
Market Thus with Rates
Page 34
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60% of the Return, on Average, from Individual US Stocks is the Direct Result of Rallies and Declines
in the S&P500 INDEX!!!
Source: CIBC World Markets Inc., Reuters
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
Jan-
00
May
-00
Sep-
00
Jan-
01
May
-01
Sep-
01
Jan-
02
May
-02
Sep-
02
Jan-
03
May
-03
Sep-
03
Jan-
04
May
-04
Sep-
04
Jan-
05
May
-05
Sep-
05
Jan-
06
May
-06
Sep-
06
Jan-
07
May
-07
Sep-
07
Jan-
08
May
-08
Sep-
08
Jan-
09
May
-09
Sep-
09
Jan-
10
May
-10
Sep-
10
Jan-
11
May
-11
Sep-
11
Market Market + Sector
Page 35
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Linking Rates and
the Stock Market
Page 36
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Floor/Ceiling
The Most Important Source of Returns and
the Related
Risk On and Risk Off Environment
Page 37
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* TPP - Equity returns are peak to trough, bond returns match equity peak to trough dates but Bond TPP are in brackets
Source: CIBC World Markets Inc., Bloomberg (Updated Jan 5, 2012. Data as of Jan04)
US Bond Yield Peaks (Ceilings) and Troughs (Floors) Have Defined the Stock Market Rebounds
and Collapses“Never forecast anything you can calculate”
TSX Buy & Hold 8.34% +109% -43% +168% -43% TSX +85% (Mar 11)
-10.3% since Mar 11, 2011
Bond B&H Canada 6.64%24.81%
(38.81% TPP*)17.33%
Page 38
100% SWITCHING US: 15.95% Canada 18.14%PERFECT US: 36.26% Canada 35.87%
70/30 REBALANCING US: 10.47% Canada 12.42%
(24.28% TPP*)
S&P 500 Buy & Holdsince 1998 low
4.67% pa +57% -50% +94% -57% + 101% (to Mar11)
Bond Buy & Hold 6.51% pa37%
(50% TPP*)20.17%
(32.26% TPP*)
0
200
400
600
800
1000
1200
1400
1600
1800
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
S&
P 5
00
In
de
x
.
0
1
2
3
4
5
6
7
8
9
Bo
nd
Yie
ld (
%)
.
S&P 500 (LHS) 10-yr U.S. bond yield
1995 ceiling
1997 ceiling
4.8% ceiling
0%
Term Structure
2002 ceiling
3.65%
4.1%
3.0% Desired long term average
2.0% Ultimate floor
BUY
3.5% Excess debt floorBUY
SELL2000 ceiling
SELL5.2% ceiling
4% 1997 floor BUY
2003 ceiling (5.9%)
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Bond Yield Floors – The Main Concern at Present is the Expected Inflation Component vs Default
Premium“Last Exit before Drug Inspection Station”
1997 – Can Bond Yields Fall Without Lower Inflation or Deflation?2010 – Bond Yield Floors: It Doesn’t Add Up
0
0.5
1
1.52
2.5
3
3.5
4
4.5
55.5
6
6.5
7
3% to 3.25%50bps
50 bps CDS Default Premia
200bps 10-year TIPS Expected Inflation Rate
50 bps CDS Default Premia
4% to 4.25%
If Expected Inflation Becomes
1%
50 bps IRP
50 bps IRP
If Expected Inflation 1.5%
100bps
Term Premium?
100bps
Term Premium
100bps
Term Premium?
Growing Debt Crisis
5% Floor
If U.S. was perceived as bankrupt & CDS Premia
expand 200bps
50 bps IRP??
100bps
Term Premium?
100bps to 200bps CDS Premia
Depending on TRP, TS
Deflation Still Bond Yield stuck
at 2% to 3%
2.5%
100bps
Term Premium?
100 bps IRP
50 bps CDS Premia
i.e. 450bps Expected Inflation
Current Floor in this Range Without Safe Haven
Reserve Currency Status
If Default Premia Expanded causing higher rates and much weaker
economic growth, higher rates for the wrong reason
Expected -200bps Deflation boosts real rate but usually a disaster for growth, therefore, REAL rate 4.00% to 4.5% with 2% Deflation &
200bps other components
Example Secular Inflation
7%
Page 39
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- FACTOR 4 - - FACTOR 4 - U.S. Bond Yield Term StructureU.S. Bond Yield Term Structure
Source: CIBC World Markets Inc., Reuters
Page 40
Term Premium=0.50
Expected Inflation=2.15
Inflation Risk Premium=0.50
CDS Premium=0.70
-0.5
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
11/2
4/20
09
1/24
/201
0
3/24
/201
0
5/24
/201
0
7/24
/201
0
9/24
/201
0
11/2
4/20
10
1/24
/201
1
3/24
/201
1
5/24
/201
1
7/24
/201
1
9/24
/201
1
11/2
4/20
11
1/24
/201
2
3/24
/201
2
5/24
/201
2
Term Premium Ex pected Inflation Inflation Risk Premium CDS Premium Nominal Bond Yield Safe Hav en Premium
Bond Yield
Safe Haven
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Cleveland Fed 10-year Inflation Expectations Estimate
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
Jan-82 Jan-85 Jan-88 Jan-91 Jan-94 Jan-97 Jan-00 Jan-03 Jan-06 Jan-09
Source: Cleveland Fed and CIBC World Markets Inc.
Page 41
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Important US Bond Yield Reference Levels (Jan 2012) The US Safe Haven Advantage--The Key to Timing Stocks:
Combination of Yield Levels & ROE Trends
Source: Bloomberg and CIBC World Markets Inc. Page 42
Ceiling 4.1%
3% - 3.2%
2.5%
2.0% US Safe Haven Levels
1.67% Lowest level in 91,300 days (250 Years)
Buy Bonds if US$ Stable & ROE Falling
Excessive Debt “Floor”
Probable 20-30 year target level
Probable FED two year target if globally coord action
Better Range
TSX 14000 but getting close to ceiling
Buy US Stocks if ROE Rising
Extreme Risk IF S&P500 ROE Falling
RECOVERY
SAFE
HAVEN
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Confidence A
Delicate Balancing Act
QE Crucial but Diminishing Returns,
Housing Needs Time
Page 43
Page 44
US M1 Money Multiplier US M1 Money Multiplier Diminishing Returns to QE ? Need TimeDiminishing Returns to QE ? Need Time
Source: CIBC World Markets Inc., Bloomberg
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US Housing InventoriesUS Housing Inventories
Page 45Source: CIBC World Markets Inc., Bloomberg
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U.S. Bank Security Holdings As % Of Bank Assets And U.S. Bank Security Holdings As % Of Bank Assets And U.S. 10y1y Yield Spread U.S. 10y1y Yield Spread
21
22
23
24
25
26
27
28
29
30
Jan-73 Jan-76 Jan-79 Jan-82 Jan-85 Jan-88 Jan-91 Jan-94 Jan-97 Jan-00 Jan-03 Jan-06 Jan-09
-4
-3
-2
-1
0
1
2
3
4
Securities as a % of Bank Lending US 1s10s
Source: Federal Reserve Board and CIBC World Markets Inc.
Page 46
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Page 47
How the Yield Curve Flattens is Crucial
Tilt Flattens May Work If 35/65
Playing With Fire
Safe Haven Strategy
If 35% Economic Growth & If 65%
Flattens YES
But NOT Likely Favourable
+
++
Probably NOT Good Today
Flatten Yes BUT Not The Same As Tilt & Long End Down
May Contribute to Economic Growth
Flatten From Long End
~ 0%
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Source: CMHC, Teranet & National Bank
Page 48
Canada Housing Starts & Price IndexCanada Housing Starts & Price Index
0
50
100
150
200
250
300
350
Sep-
90
Sep-
92
Sep-
94
Sep-
96
Sep-
98
Sep-
00
Sep-
02
Sep-
04
Sep-
06
Sep-
08
Sep-
10
Sep-
12
(in th
ousa
nds)
0
20
40
60
80
100
120
140
160
180
CA Housing Starts (LHS)
CA Housing Price (RHS)
Click to edit Master title style
Source: U.S. Census Bureau & Case-Shiller
Page 49
U.S. Housing Starts & Price IndexU.S. Housing Starts & Price Index
0
500
1000
1500
2000
2500
Sep-
90
Sep-
91
Sep-
92
Sep-
93
Sep-
94
Sep-
95
Sep-
96
Sep-
97
Sep-
98
Sep-
99
Sep-
00
Sep-
01
Sep-
02
Sep-
03
Sep-
04
Sep-
05
Sep-
06
Sep-
07
Sep-
08
Sep-
09
Sep-
10
Sep-
11
Sep-
12
(in th
ousa
nds)
0
50
100
150
200
250
US Housing Starts (LHS)
US Housing Price (RHS)
Click to edit Master title style
Source: STCA
Page 50
Canada Employment LevelCanada Employment Level
(in thousands)
10,000
12,000
14,000
16,000
18,000
20,000
22,000
24,000
Sep-
90
Sep-
91
Sep-
92
Sep-
93
Sep-
94
Sep-
95
Sep-
96
Sep-
97
Sep-
98
Sep-
99
Sep-
00
Sep-
01
Sep-
02
Sep-
03
Sep-
04
Sep-
05
Sep-
06
Sep-
07
Sep-
08
Sep-
09
Sep-
10
Sep-
11
Sep-
12
600
700
800
900
1,000
1,100
1,200
1,300
1,400
1,500
CA Total
CA Construction
Click to edit Master title style
Source: Bureau of Labor Statistics
Page 51
U.S. Employment LevelU.S. Employment Level
(in thousands)
80,000
100,000
120,000
140,000
160,000
180,000
200,000
Sep-
90
Sep-
91
Sep-
92
Sep-
93
Sep-
94
Sep-
95
Sep-
96
Sep-
97
Sep-
98
Sep-
99
Sep-
00
Sep-
01
Sep-
02
Sep-
03
Sep-
04
Sep-
05
Sep-
06
Sep-
07
Sep-
08
Sep-
09
Sep-
10
Sep-
11
Sep-
12
4,000
5,000
6,000
7,000
8,000
9,000
10,000
US Total
US Construction
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Ultimate Financial Risk
Page 52
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Five Factor AnalysisFive Factor Analysis
Source: CIBC World Markets Inc., Bloomberg
Page 53
Factor Rank*
Bond Yield•Current Ceiling: 3.65%•Current Bond Yield: 1.5% - Well below the ceiling•Bond Yield Momentum: Negative
1
Currency•Weekly Momentum: Positive•Monthly Momentum: Positive
1
ROE/GDP•S&P 500 ROE: Still up but losing momentum - Neutral•GDP: Remain positive low level – Neutral or Negative
4
Default Premium•Weekly Momentum: Positive•Monthly Momentum: Positive
5
Bid to Cover Ratio
•Weekly Momentum: Positive•Monthly Momentum: Positive•Though the momentums remain positive, they are diminishing
3
Overall 3
* Positive:1, Negative:5
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RORO
&
Rotations
(RORORO)Page 54
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Source: CIBC World Markets Inc., Bloomberg
Page 55
0
2
4
6
8
10
12
14
16
18
Dec
-70
Dec
-72
Dec
-74
Dec
-76
Dec
-78
Dec
-80
Dec
-82
Dec
-84
Dec
-86
Dec
-88
Dec
-90
Dec
-92
Dec
-94
Dec
-96
Dec
-98
Dec
-00
Dec
-02
Dec
-04
Dec
-06
Dec
-08
Dec
-10
S&P 500 Yield
US 10y Bond Yield
Sustainable YieldSustainable YieldU.S. Dividend Yield v.s. 10 year Gov’t Bond YieldU.S. Dividend Yield v.s. 10 year Gov’t Bond Yield
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Source: CIBC World Markets Inc., Bloomberg
Page 56
Canada Dividend Yield v.s. 10 year Gov’t Bond Canada Dividend Yield v.s. 10 year Gov’t Bond YieldYield
0
2
4
6
8
10
12
14
16
18
20
Dec
-70
Dec
-72
Dec
-74
Dec
-76
Dec
-78
Dec
-80
Dec
-82
Dec
-84
Dec
-86
Dec
-88
Dec
-90
Dec
-92
Dec
-94
Dec
-96
Dec
-98
Dec
-00
Dec
-02
Dec
-04
Dec
-06
Dec
-08
Dec
-10
TSX Yield
CA 10y Bond Yield*
* CA Long-Term Bond Yield is used during 1976 - 1982
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- FACTOR 3 - - FACTOR 3 - Income Statement
Source: Reuters and CIBC World Markets Inc.
Dividends Paid To Common Shareholders (Standardized)
Page 57
0.75
0.8
0.85
0.9
0.95
1
1.05
1.1
Aug-08 Apr-09 Dec-09 Aug-10 Apr-11 Dec-11
World S&P 500
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- FACTOR 3 - - FACTOR 3 - Income Statement
Source: Reuters and CIBC World Markets Inc.
Dividends Paid To Common Shareholders (Standardized)
Page 58
0.75
0.8
0.85
0.9
0.95
1
1.05
1.1
Aug-08 Apr-09 Dec-09 Aug-10 Apr-11 Dec-11
World S&P TSX
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S&P 500 and S&P 500 VAE S&P 500 and S&P 500 VAE (Value-Added Exporters)(Value-Added Exporters)
Page 59Source: CIBC World Markets Inc.
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TSX Financials, Info Tech and TelecomTSX Financials, Info Tech and Telecom
Source: CIBC World Markets Inc. Page 60
Sector Weights Trailing ROEΔ Ex. EPS growth Earning Surprise
FIN 29.7% 0.26 -1.7% 3.1%
IT 1.5% -0.78 19.8% -4.9%
TEL 4.2% 0.37 7.0% 5.3%
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TSX Equity Only NO Asset Allocation Here
Source: CIBC World Markets Inc., Reuters
Page 61
0
2
4
6
8
10
12
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
New TSX
New TSXAnnual Return 15.2% 5.0%Accumulated Return 863.9% 118.0%Annual Volatility 17.1% 15.7%
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S&P 500 Version 1 Equity Only NO Asset Allocation S&P 500 Version 1 Equity Only NO Asset Allocation HereHere
Source: CIBC World Markets Inc., ReutersPage 62
0
0.5
1
1.5
2
2.5
3
3.5
4
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
SPX Ver. 1 SPX
Ver. 1 SPXAnnual Return 10.5% 5.6%Accumulated Return 232.6% 93.2%Annual Volatility 18.0% 17.5%
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S&P TSX ROE Volatility IndicesS&P TSX ROE Volatility Indices
Source: CIBC World Markets Inc., Reuters
Page 63
0
0.5
1
1.5
2
2.5
3
9/30/199
8
9/30/199
9
9/30/200
0
9/30/200
1
9/30/200
2
9/30/200
3
9/30/200
4
9/30/200
5
9/30/200
6
9/30/200
7
9/30/200
8
9/30/200
9
9/30/201
0
9/30/201
1
9/30/201
2
0
0.5
1
1.5
2
2.5
ROE Vol
ROE Stable
ROE Vol/Stable
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S&P TSX Value & Growth IndicesS&P TSX Value & Growth Indices
Source: CIBC World Markets Inc., Reuters
Page 64
0
1
2
3
4
5
6
9/30/199
8
9/30/199
9
9/30/200
0
9/30/200
1
9/30/200
2
9/30/200
3
9/30/200
4
9/30/200
5
9/30/200
6
9/30/200
7
9/30/200
8
9/30/200
9
9/30/201
0
9/30/201
1
9/30/201
2
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
1.8
CA Growth
CA Value
Growth/Value