CFA Victoria Society Annual Forecast Dinner Presenter: Paul Balfour January 26, 2010

CFA Victoria SocietyAnnual Forecast Dinner

Presenter: Paul Balfour

January 26, 2010

Annual Forecast Dinner (Victoria, B.C.) - 3 -

Tonight’s Guesses, er … Forecasts

1. Oil

2. Gold

3. $CAD / $USD

4. Canadian 10 year bond yield

5. S&P/TSX Composite

6. S&P 500


Crude Oil – WTI Spot

20.00

40.00

60.00

80.00

100.00

120.0019

85

198

6

198

7

198

8

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9

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0

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9


Speculation is not an Issue??

0

100,000

200,000

300,000

400,000

500,000

600,000

700,00019

83

198

419

85

198

619

87

198

819

89

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019

91

199

219

93

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419

95

199

619

97

199

819

99

200

020

01

200

220

03

200

420

05

200

620

07

200

820

09

Tho

usan

ds o

f B

arre

ls p

er D

ay

Nymex Average Daily Volume

World Oil Demand

Average daily oil demand worldwide has risen from 76 million barrels in 1999 to about 85 million today. Average daily traded volumes of just NYMEX light sweet crude futures were 609 million barrels per day in 2009 up from 150 million ten years earlier

Source: IEA, NYMEX/CME

Average daily oil demand worldwide has risen from 76 million barrels in 1999 to about 85 million today. Average daily traded volumes of just NYMEX light sweet crude futures were 609 million barrels per day in 2009 up from 150 million ten years earlier

Source: IEA, NYMEX/CME


Gold (London PM Fix)

400

600

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100019

85

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5

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6

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720

08

200

9


Gold – A Metallurgist’s View!

Atomic Weight 207.20 196.97 26.98 63.50

Density 11.3 19.3 2.7 8.9

Hardness 1.5 2.5 2.8 3.0

Melting Point 327°C 1064°C 660°C 2562°C

Electrical Resistance 208 22.1 28.2 16.8

Price per pound 99¢ $17,600 $1.00 $3.35

Lead Gold Aluminum Copper


U.S. Trade Weight Dollar (DXY)

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100.00

120.00

140.00

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US Dollar - Getting Undervalued?

PPP Valuation% Over/Undervaluation, Oct. 2009

27.8

26.5

22.9

20.7

19.7

16.4

7.8

6.0

-2.7

-16.1

-20 -15 -10 -5 0 5 10 15 20 25 30

NZD

AUD

EUR

CHF

NOK

CAD

GBP

JPY

SEK

USD

Source: Deutsche Bank

USD vs Purchasing Power Parity

70

80

90

100

110

120

130

140

150

160

1975 1980 1985 1990 1995 2000 2005 2010

DX

Y I

nde

x L

eve

l

PPP

Average DXY

20% bands

Source: Deutsche Bank, Bloomberg


Canadian Dollar & Commodity Prices

0.60

0.65

0.70

0.75

0.80

0.85

0.90

0.95

1.00

1.05

1.10

1995 1997 1999 2001 2003 2005 2007 2009

US

$ pe

r C

$

75

125

175

225

275

325

Inde

x

USD per CAD (left)

BoC Commodity Price Index (right)

Correlation = 0.92

Source: Bank of Canada


Canada 10-Year Bond Yield

4.00

6.00

8.00

10.00

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Canadian Yield CurveHistorically Steep Levels Driven By Low Short Yields

Canadian Yield Curves

Source: yc/can 3mth… 12/31/09

Source: yc…\can & US yield curves0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

3 M

ths

1 Y

ea

r

2 Y

ea

rs

3 Y

ea

rs

5 Y

ea

rs

7 Y

ea

rs

10

Ye

ars

20

Ye

ars

30

Ye

ars

Yie

ld (

%)

December 31, 2007

December 31, 2009


S&P/TSX Composite Index

4000

6000

8000

10000

12000

14000

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Canadian Equity Market 2009Low Quality Outperformed

Source: RBCAM, Bloomberg* Credit ratings as of July 7 2009

# of Companies 5 22 131 187 68 9 3 75

S&P 500 Returns by Credit Rating - 2009

9% 12%

36% 33%

55%

105%

216%

43%

0%

50%

100%

150%

200%

250%

AA

A+

to

AA

A-

AA

+ t

o A

A-

A+

to

A-

BB

B+

to

BB

B-

BB

+ t

o b

b-

B+

to

B-

CC

C+

to

C-

No

t R

ate

d(A

LL

)

27.9%35.1%

56.2%

90.8%

0%

20%

40%

60%

80%

100%

TSX 60 S&P/TSXComposite

TSX SmallCap

TSXVenture

One Year TSX Performance Breakdown (TR)


Canadian Equity – OutlookTSX Bottom Up Earnings Expectations - 2011

Source: TD Securities – TSX Bottom Up Earnings

25%

22%

18%17%

15%14%

13%

11%

7% 6%

4%

0%

5%

10%

15%

20%

25%

30%

En

erg

y

Ma

teria

ls

S&

P/T

SX

Co

mp

osi

te

Fin

an

cia

l

Ind

ust

rials

Co

nsu

me

rD

iscr

etio

na

ry

Co

nsu

me

rS

tap

les

Te

chn

olo

gy

He

alth

Util

itie

s

Te

leco

m

2011

TSX Bottom Up Earnings Expectations

304%

242%217%

154%

0%

50%

100%

150%

200%

250%

300%

350%

1992-1995 1983-1986 2002-2005 2010-2013E

Conservative Earnings Recovery Expectations? Cumulative TSX Earnings Recoveries Troughs – First 3 Years


Canadian Equities – Lots of Cash Around

Source: RBC Capital Markets, Bank of Canada, Haver Analytics

Canadian Cash (Savings and Money Market Funds) as a % of TSX Market Cap

20

25

30

35

40

45

50

55

60

Jan-95 Jan-97 Jan-99 Jan-01 Jan-03 Jan-05 Jan-07 Jan-09

45.5%

57.0%

45.8%


S&P 500 Composite Index

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1400

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Major U.S. Market Indices2009 Returns

Three key performance themes played out in 2009.

1. Mid and small-caps outperformed large-caps

2. Growth strongly outperformed Value (third year in a row)

3. Technology beat everything

Three key performance themes played out in 2009.

1. Mid and small-caps outperformed large-caps

2. Growth strongly outperformed Value (third year in a row)

3. Technology beat everything

26.5%

43.9%

24.2%

40.5%

27.2%

19.7%

37.2%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

S&P 500 NASDAQComp.

Russell Top200 (Lg-cap)

RussellMid-Cap

Russell 2000(Sm-cap)

Russell 1000Value

Russell 1000Growth

Source: Morgan Stanley


A Big Thanks to my Personal Research Team!

“The views presented by Paul tonight do not necessarily reflect those of RBC, RBC Global Investment Management, Phillips Hager & North Investment Management etc., etc … In fact, the opposite is probably the case.”

- J. Montalbano

THE END

CHEERS!

Documents

CFA Victoria Society Annual Forecast Dinner Presenter: Paul Balfour January 26, 2010