Blintzes With Dave 051810

8/9/2019 Blintzes With Dave 051810

1/4

David A. Rosenberg May 18, 2010Chief Economist & Strategist Economic [email protected]+ 1 416 681 8919

MARKET MUSINGS & DATA DECIPHERING

Blintzes with DaveWHAT HAPPENS IN VEGAS ...

One can only take anecdotes so far, but this email from Vince (one of our readers)

really resonated. Again, from the mold of Benjamin Roth and more evidence that

we are indeed in the throes of a modern-day depression:

Indeed, the U.S. is still in the

throes of a modern day

depression

It was encouraging to see

the U.S. home builders less

pessimistic in May, but come

on, at 22 on the NAHB index,this is still an awfully

depressed level

Just returned from a road trip to Las Vegas from Salt Lake City. A

few observations:

Weekend hotel rooms in Vegas were easy to come by. Checked the

web sites of 10 good hotels and rooms were available in all 10.

Passed a huge Walmart distribution center outside of St. George, Utah.

The building was surrounded by hundreds of empty tractor trailers.

Obviously, unused for some time. Ive passed this center many times

over the years and have never seen anything like it.

Just north of Vegas, off Route 15, there was a mega parking lot, fenced

with razor wire, containing literally tens of thousands of cars. The lot

stretched on for several miles. The cars appeared to be new. No signs,

so no idea whats going on there but I wonder where are that new

Detroit production is ending up?

Very close to the car park is another huge parking area filled with earthmoving and other construction equipment. Again, stretching for a mile

or more. Here there is a sign indicating the date for the next auction.

Apparently, all of that stuff is for sale. Talk about overcapacity.

We are still in serious, deep doldrums.

Wish I had this before my recent debates with James Paulsen and Brian Belski!

PUTTING THE NAHB HOUSING MARKET INDEX INTO PERSPECTIVE

It was indeed encouraging to see the U.S. home builders less pessimistic in May,

but at 22 on the National Association of Home Builders (NAHB) housing market

index, come on, it is still an awfully depressed level. The worst this metric ever got

in the 1990-91 recession was 20, and in 2001-02, it never got lower than 46 just to put a 22 print into context.

The one fly in the ointment was that even as the home builders raised their sales

expectations to 28 from 25 in April, in the same month we saw households trim

their home buying plans (to 150 from 154 in April and 156 in March, according to

the University of Michigan consumer sentiment survey).

Please see important disclosures at the end of this document.

Gluskin Sheff + Associates Inc. is one of Canadas pre-eminent wealth management firms. Founded in 1984 and focused primarily on high networth private clients, we are dedicated to meeting the needs of our clients by delivering strong, risk-adjusted returns together with the highest

level of personalized client service. For more information or to subscribe to Gluskin Sheff economic reports,

visitwww.gluskinsheff.com


2/4

May 18, 2010 BLINTZES WITH DAVE

BIG FISCAL RESTRAINT COMING

For the first time in a year, a

significant chink showed upin the armour in the U.S.

manufacturing sector

The newswires were all over

the fact that U.S. housing

starts soared in April. But

stop the presses; this spurt

is likely a one-off response

ahead of the homebuyers tax

credit expiry

We had thought that 2011 was going to be a watershed year with the end of the

Bush tax cuts and the onset of the Obama tax hikes draining at least two

percentage points from GDP growth next year. But based on what a slate of

cash-strapped State governments are about to do to close their huge fiscal gaps,

we may not have to wait that long. According to the USA Today, Arizona is on the

precipice of hiking its sales rate from 5.6% to 6.6%; Kansas is set to raise its

sales tax a full point too on July 1, to 6.3%; Alabama, the same move and a half

dozen states as well.

IS THE MANUFACTURING CYCLE PEAKING IN THE U.S.?

We shall see, but for the first time in a year, a significant chink showed up in the

armour of one of these industrial diffusion indices in the U.S. The Feds Empire

State manufacturing survey dropped in May, to 19.1 from that ripping 31.9

reading in April to stand at the lowest level in four months (and the steepestmonthly slide since December 2009).

While the stock market did bounce back to finish roughly flat yesterday, cyclical

giants like Alcoa (-2.1%) and CAT (-1.7%) closed in the red column. Defensives

such as Kraft, P&G and WMT rose as the complexion of this market continues to

change and shift its pro-growth image.

THE NOT-SO-RESILIENT CONSUMER

Its bad enough that Walmart guided lower, but what it had to say about

spending trends had the frugality label all over it. Traffic was soft. Spending on

discretionary items faltered. Food prices are deflating. The only segment that

was solid was the pharma category. Electronics and entertainment sales were

below expectations, as were apparel sales.

THE HOUSE THAT ROARED

The newswires were all over the fact that U.S. housing starts soared 5.8% in

April, to an annualized rate of 672,000 units. But stop the presses. What didnt

make the headlines was that this spurt was a one-off response to the last

second sales splurge ahead of the homebuyers tax credit expiry.

Building permits, which have the tendency of leading housing starts, actually

plunged 11.5%, to an annualized rate of 606,000 units (with singles down

10.7% and multi-unit permits sinking 14.7%). For what its worth, this was the

largest decline in permits since December 2008. Single-family permits are

down to a six-month low and the declines are broadly based on a regional basis.

In other words, this was a weak report despite the headline.

DEFLATION ARRIVES EARLY

U.S. producer prices fell 0.1% in April. Just wait until the full brunt of the U.S.

dollar strength and falloff in commodity prices hits the data. The year-over-year

trend slowed to 5.5% in April from the nearby peak of 6.0% in March.

Page 2 of 4


3/4


Gluskin Sheffat a Glance

Gluskin Sheff+ Associates Inc. is one of Canadas pre-eminent wealth management firms.Founded in 1984 and focused primarily on high net worth private clients, we are dedicated to theprudent stewardship of our clients wealth through the delivery of strong, risk-adjustedinvestment returns together with the highest level of personalized client service.OVERVIEW

As of March31, 2010, the Firm managedassets of$5.6 billion.

Gluskin Sheff became a publicly tradedcorporation on the Toronto StockExchange (symbol: GS) in May2006 andremains54% owned by its senior

management and employees. We havepublic company accountability andgovernance with a private companycommitment to innovation and service.

Our investment interests are directlyaligned with those of our clients, asGluskin Sheffs management andemployees are collectively the largestclient of the Firms investment portfolios.

We offer a diverse platform of investmentstrategies (Canadian and U.S. equities,Alternative and Fixed Income) andinvestment styles (Value, Growth and

Income).1

The minimum investment required toestablish a client relationship with theFirm is $3 million for Canadian investorsand $5 million for U.S. & Internationalinvestors.

PERFORMANCE

$1 million invested in our Canadian ValuePortfolio in 1991 (its inception date)

would have grown to $11.7million2

onMarch31, 2010 versus $5.7million for theS&P/TSX Total Return Index over the

same period.$1 million usd invested in our U.S.Equity Portfolio in 1986 (its inceptiondate) would have grown to $8.7millionusd

2on March 31, 2010 versus $6.9

million usd for the S&P500TotalReturn Index over the same period.

INVESTMENT STRATEGY & TEAM

We have strong and stable portfoliomanagement, research and client serviceteams. Aside from recent additions, ourPortfolio Managers have been with theFirm for a minimum of ten years and wehave attracted best in class talent at all

levels. Our performance results are thoseof the team in place.

Our investmentinterests are directlyaligned with those ofour clients, as Gluskin

Sheffs management andemployees arecollectively the largestclient of the Firmsinvestment portfolios.

$1 million invested in our

Canadian Value Portfolio

in 1991 (its inception

date) would have grown to

$11.7 million2 on March

31, 2010 versus $5.7

million for the S&P/TSX

Total Return Index over

the same period.

We have a strong history of insightfulbottom-up security selection based onfundamental analysis.

For long equities, we look for companieswith a history of long-term growth andstability, a proven track record,shareholder-minded management and ashare price below our estimate of intrinsic

value. We look for the opposite inequities that we sell short.

For corporate bonds, we look for issuers

with a margin of safety for the paymentof interest and principal, and yields whichare attractive relative to the assessedcredit risks involved.

We assemble concentrated portfolios our top ten holdings typically representbetween 25% to 45% of a portfolio. In this

way, clients benefit from the ideas inwhich we have the highest conviction.

Our success has often been linked to ourlong history of investing in under-followed and under-appreciated smalland mid cap companies both in Canada

and the U.S.

PORTFOLIO CONSTRUCTION

In terms of asset mix and portfolioconstruction, we offer a unique marriagebetween our bottom-up security-specificfundamental analysis and our top-downmacroeconomic view.

Page 3 of 4

For further information,

please contact

[email protected]

Notes:Unless otherwise noted, all values are in Canadian dollars.

1. Not all investment strategies are available to non-Canadian investors. Please contact Gluskin Sheff for information specific to your situation.2. Returns are based on the composite of segregated Value and U.S. Equity portfolios, as applicable, and are presented net of fees and expenses.


4/4


IMPORTANT DISCLOSURES

Copyright 2010 Gluskin Sheff + Associates Inc. (Gluskin Sheff). All rights

reserved. This report is prepared for the use of Gluskin Sheff clients andsubscribers to this report and may not be redistributed, retransmitted ordisclosed, in whole or in part, or in any form or manner, without the expresswritten consent of Gluskin Sheff. Gluskin Sheff reports are distributedsimultaneously to internal and client websites and other portals by GluskinSheff and are not publicly available materials. Any unauthorized use ordisclosure is prohibited.

Gluskin Sheff may own, buy, or sell, on behalf of its clients, securities ofissuers that may be discussed in or impacted by this report. As a result,readers should be aware that Gluskin Sheff may have a conflict of interest

that could affect the objectivity of this report. This report should not beregarded by recipients as a substitute for the exercise of their own judgmentand readers are encouraged to seek independent, third-party research onany companies covered in or impacted by this report.

Individuals identified as economists do not function as research analystsunder U.S. law and reports prepared by them are not research reports underapplicable U.S. rules and regulations. Macroeconomic analysis isconsidered investment research for purposes of distribution in the U.K.

under the rules of the Financial Services Authority.

Neither the information nor any opinion expressed constitutes an offer or aninvitation to make an offer, to buy or sell any securities or other financialinstrument or any derivative related to such securities or instruments (e.g.,options, futures, warrants, and contracts for differences). This report is notintended to provide personal investment advice and it does not take intoaccount the specific investment objectives, financial situation and theparticular needs of any specific person. Investors should seek financialadvice regarding the appropriateness of investing in financial instrumentsand implementing investment strategies discussed or recommended in thisreport and should understand that statements regarding future prospectsmay not be realized. Any decision to purchase or subscribe for securities inany offering must be based solely on existing public information on suchsecurity or the information in the prospectus or other offering documentissued in connection with such offering, and not on this report.

Securities and other financial instruments discussed in this report, orrecommended by Gluskin Sheff, are not insured by the Federal DepositInsurance Corporation and are not deposits or other obligations of anyinsured depository institution. Investments in general and, derivatives, inparticular, involve numerous risks, including, among others, market risk,counterparty default risk and liquidity risk. No security, financial instrumentor derivative is suitable for all investors. In some cases, securities andother financial instruments may be difficult to value or sell and reliableinformation about the value or r isks related to the security or financialinstrument may be difficult to obtain. Investors should note that incomefrom such securities and other financial instruments, if any, may fluctuateand that price or value of such securities and instruments may rise or fall

and, in some cases, investors may lose their entire principal investment.

Past performance is not necessarily a guide to future performance. Levelsand basis for taxation may change.

Foreign currency rates of exchange may adversely affect the value, price orincome of any security or financial instrument mentioned in this report.Investors in such securities and instruments effectively assume currencyrisk.

Materials prepared by Gluskin Sheff research personnel are based on publicinformation. Facts and views presented in this material have not beenreviewed by, and may not reflect information known to, professionals inother business areas of Gluskin Sheff. To the extent this report discussesany legal proceeding or issues, it has not been prepared as nor is itintended to express any legal conclusion, opinion or advice. Investorsshould consult their own legal advisers as to issues of law relating to thesubject matter of this report. Gluskin Sheff research personnels knowledgeof legal proceedings in which any Gluskin Sheff entity and/or its directors,officers and employees may be plaintiffs, defendants, co-defendants or co-plaintiffs with or involving companies mentioned in this report is based onpublic information. Facts and views presented in this material that relate to

any such proceedings have not been reviewed by, discussed with, and maynot reflect information known to, professionals in other business areas ofGluskin Sheff in connection with the legal proceedings or matters relevant

to such proceedings.

Any information relating to the tax status of financial instruments discussedherein is not intended to provide tax advice or to be used by anyone toprovide tax advice. Investors are urged to seek tax advice based on theirparticular circumstances from an independent tax professional.

The information herein (other than disclosure information relating to GluskinSheff and its affiliates) was obtained from various sources and GluskinSheff does not guarantee its accuracy. This report may contain links to

third-party websites. Gluskin Sheff is not responsible for the content of anythird-party website or any linked content contained in a third-party website.Content contained on such third-party websites is not part of this report andis not incorporated by reference into this report. The inclusion of a link in

this report does not imply any endorsement by or any affiliation with GluskinSheff.

All opinions, projections and estimates constitute the judgment of theauthor as of the date of the report and are subject to change without notice.Prices also are subject to change without notice. Gluskin Sheff is under noobligation to update this report and readers should therefore assume thatGluskin Sheff will not update any fact, circumstance or opinion contained in

this report.

Neither Gluskin Sheff nor any director, officer or employee of Gluskin Sheffaccepts any liability whatsoever for any direct, indirect or consequentialdamages or losses arising from any use of this report or its contents.

Page 4 of 4

Documents

Blintzes With Dave 051810