Peter Long BA, R.F.P., CFP, CSA 2010 The year of the “Comeback” Prepared by: Peter S. Long BA, CFP, R.F.P., CSA Date: February 20 th 2010

Peter Long BA, R.F.P., CFP, CSA

2010The year of the “Comeback”

Prepared by: Peter S. Long BA, CFP, R.F.P., CSADate: February 20th 2010




First the good news

We made it!

Congratulations…IF

You stayed the course

You reduced your payments

You added back to your RRIF

You cut back on your spending

Reworked your plans

And…you even bought!!!

Good for you – give yourself a pat on the back


Agenda

Quick Review of 2008-9

What to anticipate for 2010 The economy The markets Opportunities

Lessons Leaned

Three things to put on your “TO DO” list

Product/Asset Allocation

Q and A


When planning your retirement…safety pays.

• Simplify• Allocate• Focus• Execute• Transparency• Ywhy?


S - Simplify

_____________________________________________________________________________________________________________________________

BEGINNING END


S - Simplify

Retirement age How Long How Much Rate of return Inflation and taxation

BEGINNING


2010 “to-do” list

• Budget

• Time is on our side – patience

• Diversification really does work

• Focus on income/dividends

• Evaluate risk/reward profile and stay the course


Economic Topics

• Economy-Earnings

• Housing

• Interest Rates

• Jobs

• USA

• BRIC


The “Real” Agenda


Money CAN buy happiness

Lessons Learned - # 1


Money CAN buy Love… Cost of love…$27,000 per inch

Lessons Learned - # 2

6 ft.

5 ft. 2 in.

$270,000


Back to Lessons One and Lessons Learned

• Money can buy happiness…however, it isn’t the amount of money earned

• It is the amount of money left over after actual expenses

• Studies show the person with $4,500 of monthly income and $3,800 of expenses is actually happier than than a person with $10,000 of monthly income and $10,000 of expenses


Recession lesson• Wealthier investors (investment assets of

$250,000 or more) were asked questions about their retirement and budgets.

• 56% felt their concept of retirement changed – more emphasis on core values (families and friends)

• 33% felt they may have to scale back• 43% spent less on personal luxuries• 21% gave less to charity• 51% when asked if they could re-plan their

retirement mentioned they would focus more on life goals than income


• Bank of Canada signals intention to keep interest rates at record lows until June 2010

• But warns Canadians that household debt levels are too high

• Real estate markets red hot all across the country – bubble talk abounds

• C$ set to rise above parity once again

Canada: 2010 will be an interesting year


Be vigilant on household debt, Carney warns

Household Debt, % of Personal Disp. Income

Source: Federal Reserve, Statistics Canada, PH&N

50

60

70

80

90

100

110

120

130

140

150

61 65 69 73 77 81 85 89 93 97 01 05 09

%

*Canadian data includes unincorporated business

Growth in Household Net Worth

-20

-15

-10

-5

0

5

10

15

20

90 92 94 96 98 00 02 04 06 08

Year-

over-

year

% c

hang

e




8,988(Dec 31)

13,833(Dec 31)

Jan-08 Feb-08 Mar-08 Apr-08 May-08 Jun-08 Jul-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec-08

2008 at-a-Glance: Key Events

Sources: Datastream, as at Dec. 31, 2008; total returns, local currency, Financial crisis visual: BBC News

Global CreditCrunch Heightens

Triple Trouble(Dec bailout)

Global Financial Crisis Heightened

Emergency Economic Stabilization Act (Oct 3)

Europe Follows (Oct 12)

S&P/TSX Composite Index (as at December 31, 2008)

U.S. Sales Plummet/Prices Down

TSX at “New Highs” 15,073

(June 18 driven by resources)

Gold Hits$1,011/oz

(Mar 17)

$713/oz(‘08 low, Oct 24)

Crude Hits$147/bbl

(July 11)

$31/bbl(‘08 low, Dec 22)

USElection

Economic Update

Fed rate as low as

(Dec 16)

0%0%

Fed & BOC Slash Rates

Developed Countriesconfirm Recession

(Q4-08)

Rescuescome with

. . . future costs


8,988

11,746

Source for stimulus, green-shoots and ‘too much too fast’ visuals: The Economist, 2009

New low for this TSX Bear

7,567

(Mar 9)

Green-shoots appearing

Federal Reserve sees economy

stabilizing

(Apr 29)

Fed rate as lowas 0% – 0.25%

(Dec-08 to YTD-09)

Crude hits$73/bbl(Jun 11)

$35/bbl(Feb 18)

Gold surpasses $1,000/oz.

Quantitative easing

concerns

(Sep 14)

New descriptivefor the times

"Surgical Bankruptcy"

BOC ratecut to 0.25%

(Apr 21)More stimulus at home & abroad

+35.0%YTD total return

Too much . . . too fast?

Sustainable earnings & revenue growth evidence needed

Jan-09 Feb-09 Mar-09 Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09

Financial crisisone year later

(Sep 15)

2009 at-a-Glance: Key EventsS&P/TSX Composite Index

8,694

7,479

(-12%)

(+35%)


Negative Positive



2009


TechWreck


Predicting the winner is difficult

Canadian Bonds: DEX Universe Bond Total Return Index Global Equities: MSCI World Index ($Cdn) Canadian Large Cap: S&P/TSX Total Return Index Foreign Equities: MSCI EAFE Index ($Cdn) Canadian Small Cap: BMO Nesbitt Burns Cdn Small Cap Index US Large Cap: S&P 500 Total Return Index ($Cdn) Emerging Markets: MSCI Emerging Markets Free Index ($Cdn) US Small Cap: Russell 2000 Index ($Cdn)

Source: Globe HySales, as at December 2008


Predicting the winner is difficult

Canadian Bonds: DEX Universe Bond Total Return Index Global Equities: MSCI World Index ($Cdn) Canadian Large Cap: S&P/TSX Total Return Index Foreign Equities: MSCI EAFE Index ($Cdn) Canadian Small Cap: BMO Nesbitt Burns Cdn Small Cap Index US Large Cap: S&P 500 Total Return Index ($Cdn) Emerging Markets: MSCI Emerging Markets Free Index ($Cdn) US Small Cap: Russell 2000 Index ($Cdn)

Source: Globe HySales, as at December 2008


4th

To Do

• Focus on income

• Interest

• Dividends

• Capital gains

• Return of capital


5th

To Do

• Evaluate your risk/reward and stay focused and on course


What research indicates about how we perceive loss/gain

The pain of a loss significantly exceeds the pleasure of an “equivalent” gain

Source: AIMR, 1995; Sanford C. Bernstein and Co., based on Amos Tversky and Daniel Kahneman, “Rational Choice and the Framing of Decisions,”The Journal of Business, No. 4 (1986)

Loss Aversion

Loss

Pleasure

Gain

Pain

Small Pleasure

Big Pain}

{


Economics

•Economy-Earnings

•Housing

•Interest Rates

•Jobs

•USA

•BRIC

Peter Long BA, R.F.P., CFP, CSA32

RESTORING CONFIDENCE

“The economy

and earnings”


P/E ratio – Earns $1 Stock sells for $14 = P/E ratio of 14X earnings


2 scenario’s a) stock comes down b) earnings go up


Profit MarginsThe recovery begins, drawing strength from prior cost-cutting.


EarningsThe recovery begins, drawing strength from prior cost-cutting.


Better earnings ahead

• Credit is available

• Jobs are being created

• Inventories are being replenished

• Strong demand for resources



“Housing”


Canadian consumer asks: what recession?

Existing Home Sales

-40

-30

-20

-10

0

10

20

30

Jan 05 Jan 06 Jan 07 Jan 08 Jan 09 Jan 10

Year-

over-

year

% c

hange

Source: Can. Real Estate Assoc., National Assoc. of Realtors

Retail Sales ChangeOct. 2008 - Oct. 2009

-10

-8

-6

-4

-2

0

2

4

AL

SK

CanadaBC ON MB

PEI QC NB NS NL

Year-

over-

year

% c

hange

Source: Statistics Canada


U.S. Housing Rebound Ahead?

Housing affordability at historically high levels (top left).

Existing home sales show signs of recovery as bargain hunters search through the housing market rubble.

Sales volumes are increasing in almost every state, but prices remain weak.

Mortgage rates need to stay low for a sustainable recovery to take hold.

Source: Thomson Datastream


Canadian housing market has held up remarkably well through this recession. Although sales volumes are still trailing peak levels.

High Canadian dollar precludes BofC from raising rates too soon.

Canadian Housing Strength

Source: Bloomberg, August 25, 2009

Source: NBFG Economy & Strategy, CREA



“Interest rates”


Interest Rates

• Bank of Canada is leaving rates low ¼%

• While economy recovery is underway-it still has much to do with stimulus which they do not want to take away too early

• While stronger, the economy is still operating below capacity

• Confident of low inflation - 2011



“Jobs”


Employment is the Key

The rate of growth for the unemployed (bottom left) is slowing.

Unfortunately the people who are unemployed are finding it increasingly difficult to find new employment (top left).

In order for the U.S. economy to remain stable, it must create 150k positive new jobs per month.

Source: Thomson Datastream


Labour market improving but still fragile

250

300

350

400

450

500

550

600

650

700

2006 2007 2008 2009

Thousa

nds,

4 w

eek a

vera

ge

Initial claims for unemployment insurance

4-week average

Source: U.S. Dept. of Labor

U.S. Labour Market

-800

-600

-400

-200

0

200

400

2007 2008 2009 2010

Thousa

nds

3

4

5

6

7

8

9

10

11Monthly net new jobs (left)Unemployment rate (right)

Source: Bureau of Labor Statistics

Unemployment Insurance Claims



“USA”


The U.S. faces an enormous fiscal challengeUS Federal Government Revenue & Spending

1600

1800

2000

2200

2400

2600

2800

3000

3200

3400

3600

98 99 00 01 02 03 04 05 06 07 08 09 10

US

$ b

illio

ns

Receipts

Outlays

-1.5% of GDP

-4.1%+1.9% of GDP

Source: US Bureau of Economic Analysis

-9.3% of GDP

of GDP

U.S. Federal Revenues & Spending, % of GDP

10

15

20

25

30

35

40

45

50

199820082018202820382048205820682078

%

Total revenues

Total spending

Source: CBO June 2009 Projection, Extended Baseline Scenario



“BRIC”


Tale of two countriesRemember our test?

• USA• Population (mm) 307• Life expect (yr) 78• GDP/Person $46,000• Savings rate 4.6%• Internet users 74%

• Car ownership 87%

• China• 1,338• 73• $3,155• 49.9%• 13%• 6%


Tale of two countries

• USA• Population (mm) 307• Life expect (yr) 78• GDP/Person $46,000• Savings rate 4.6%• Internet users 74%

• Car ownership 87%

• China• 1,338• 73• $3,155• 49.9% -goes down• 13% -goes up to 25%

• 6% -goes up to 15%Result: Internet usage hits 110% of USA population Car ownership hits 40,000,000

Money for investment floods equities


Why “Every Person You Meet With A 5 Year Horizon” Should Have A Proper Allocation To Commodities/Natural Resource Funds

Source: Ned Davis Research, Based On Returns Since 1975


What companies might benefit?

• Record of consistent earnings

• Good return on equity with little debt

• Honest capable management

• Simple business with barrier to entry


Three companies

• Procter and Gamble

• Johnson and Johnson

• Coke


• Tide• Old Spice• Secret• Cover Girl• Always• Head and Shoulders• Herbal Essences• Pantene Pro-V• Miss Clairol• Camay• Gain• Ivory Snow• Bounty• Charmin• Puffs• Scope• Pampers• Iams• Eukanuba

• Ivory• Olay• Zest• Noxzema• Febreze• Cascade• Dawn• Bounce• Downy• Mr. Clean• Swiffer• Cheer• Pringles• Vicks• Crest• Pepto-Bismol• Metamucil• Fixodent


• Listerine

• Rembrandt

• Plax

• Reach

• Aveeno Baby

• Penaten

• Tylenol

• Ractine

• Motrin

• Splenda

• Carefree

• Shower to Shower

• Tucks

• Band-Aid

• Bengay

• Polysporin

• Caladryl

• Nicoderm

• Nicorette

• Benylin

• Visine

• Lactaide

• Sinutab

• Rogaine

• Monistat

• Purell


Coke – 3,000 different Products

• Crush• Bicardi Mixers• Barq’s• Diet Coke• Cherry Coke• Vanilla Coke• Canada Dry• A & W root beer• Dasani• Dannon

• Eight O’Clock• Fanta• Five Alive• Mello Yello• Minute Maid• Nestea• Powerade• Sprite• Schweppes


Conclusions

• Good growth in 2010 – 3-4%

• A double dip recession is unlikely

• Labour market turn-around

• Interest rates to remain low

• Cyclical recovery is underway

• Asia will be main driver in recovery

• Oil demand to go back to 86 (mm) per day

• Housing to stabilize


How to get ready for 2010

Documents

Peter Long BA, R.F.P., CFP, CSA 2010 The year of the “Comeback” Prepared by: Peter S. Long BA, CFP, R.F.P., CSA Date: February 20 th 2010