David Rosenberg's Presentation at the Strategic Investment Conference April 29, 2011

1. There is no guarantee that any investment product will achieve its objectives, generate profits or avoid losses. PAST PERFORMANCE IS NOT NECESSARILYby Altegris Investments, Inc., accessed on 7/21/2011
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2. There is no guarantee that any investment product will achieve its objectives, generate profits or avoid losses. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
BOB FARRELL’S 10 MARKET RULES TO REMEMBER
1 Markets tend to return to the mean over time
2 Excesses in one direction will lead to an opposite excess in the other direction
3 There are no new eras – excesses are never permanent
Exponential rapidly rising or falling markets usually go further than you think, but
4
they do not correct by going sideways
5 The public buys the most at the top and the least at the bottom
6 Fear and greed are stronger than long-term resolve
Markets are strongest when they are broad and weakest when they narrow to a
7
handful of blue chip names
Bear markets have three stages – i) sharp down, ii) reflexive rebound, and
8
iii) a drawn-out fundamental downtrend
9 When all the experts and forecasts agree, something else is going to happen
10 Bull markets are more fun than bear markets
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3. There is no guarantee that any investment product will achieve its objectives, generate profits or avoid losses. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
WHAT’S COMING DOWN? SURVEY SAYS ….
United States
American household opinions on what will be declining in the next 6 to 12 months:
Lower stock market 34%
Lower jobs growth 27%
Lower economic growth 23%
Lower financial wealth 19%
Lower income growth 15%
Lower yields 14%
Lower inflation 7%
Note:
Source: Conference Board, University of Michigan
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4. There is no guarantee that any investment product will achieve its objectives, generate profits or avoid losses. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
ALWAYS BEWARE OF THE “FRONT COVER” EFFECT
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5. There is no guarantee that any investment product will achieve its objectives, generate profits or avoid losses. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
GAS PAINS AND INFLATION EXPECTATIONS GO HAND-IN-HAND
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6. There is no guarantee that any investment product will achieve its objectives, generate profits or avoid losses. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
WHEN JOE THE PLUMBER TELLS YOU INFLATION IS ON ITS WAY,
MOVE IN THE OTHER DIRECTION!
United States: Expectations 12 Months Hence: Inflation Rate
(percent)
8 -1.3%
3.6%
7 ?
2.8%
inflation rate
6 a year later
1.2% 1.7%
5 2.4%
2.2%
4
3
'89 '91 '93 '95 '97 '99 '01 '03 '05 '07 '09 '11
Note:
Source: The Conference Board 5
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7. There is no guarantee that any investment product will achieve its objectives, generate profits or avoid losses. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
DEFLATION IS STILL THE UNDERLYING TREND
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8. There is no guarantee that any investment product will achieve its objectives, generate profits or avoid losses. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
BIG PICTURE CHART OF INFLATION
United States: Consumer Price Index
(year-over-year percent change)
All Items All Items less Food and Energy
16 14
14
12
12
10
10
8
8
6
6
4
2 4
0
2
-2
-4 0
'48 '53 '58 '63 '68 '73 '78 '83 '88 '93 '98 '03 '08 '58 '63 '68 '73 '78 '83 '88 '93 '98 '03 '08
Note:
Source: Bureau of Labor Statistics 7
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9. There is no guarantee that any investment product will achieve its objectives, generate profits or avoid losses. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
THE NEAR-TERM PICTURE … INFLATION TICKING UP... FOR NOW
United States: Consumer Price Index
(year-over-year percent change)
All Items All Items Less Food and Energy
6.0 3.0
5.0
2.5
4.0
3.0
2.0
2.0
1.0 1.5
0.0
1.0
-1.0
-2.0 0.5
'06 '07 '08 '09 '10 '11 '06 '07 '08 '09 '10 '11
Note:
Source: Bureau of Labor Statistics 8
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10. There is no guarantee that any investment product will achieve its objectives, generate profits or avoid losses. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
TAKE OUT THE NOISE, AND INFLATION IS STILL COMATOSE
United States: Federal Reserve Bank of Cleveland
(year-over-year percent change)
Median CPI 16% Trimmed-Mean CPI
5.0 5.5
4.5 5.0
4.5
4.0
4.0
3.5
3.5
3.0
3.0
2.5
2.5
2.0
2.0
1.5 1.5
1.0 1.0
0.5 0.5
0.0 0.0
'84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10
Note:
Source: Federal Reserve Bank of Cleveland 9
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11. There is no guarantee that any investment product will achieve its objectives, generate profits or avoid losses. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
THE DALLAS FED SAYS MUCH THE SAME
United States: Federal Reserve Board Dallas: Trimmed-Mean 12-month PCE Inflation Rate
(percent)
10
9
8
7
6
5
4
3
2
1
0
'78 '80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10
Note:
Source: Federal Reserve Bank of Dallas
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12. There is no guarantee that any investment product will achieve its objectives, generate profits or avoid losses. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
OIL PRICES CLEARLY SURGING
Spot Oil Price: West Texas Intermediate
($/barrel)
140
2.2%
120
2.8%
4.1%
100
4.7%
80
3.8%
inflation rate 3.0%
60
40
20
0
97 00 03 06 09
Note:
Source: Wall Street Journal, Haver Analytics
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13. There is no guarantee that any investment product will achieve its objectives, generate profits or avoid losses. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
FOOD PRICES ARE AS WELL
United States: Prices Received by Farmers: All Farm Products
(1990-92 = 100)
200 2.7%
180
2.8%
160
4.7% 4.1%
140
3.8% 3.0%
inflation rate
120
100
80
'97 '99 '01 '03 '05 '07 '09 '11
Note:
Source: U.S. Department of Agriculture, Haver Analytics
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14. There is no guarantee that any investment product will achieve its objectives, generate profits or avoid losses. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
BUT IN TERMS OF OIL INFLATION, WE HAVE BEEN HERE BEFORE
Spot Oil Price: West Texas Intermediate [Prior ’82 = Posted Price]
(year-over-year percent change)
160
120
80
40
0
-40
-80
'78 '81 '84 '87 '90 '93 '96 '99 '02 '05 '08 '11
Note:
Source: Wall Street Journal, Haver Analytics
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15. There is no guarantee that any investment product will achieve its objectives, generate profits or avoid losses. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
DITTO FOR FOOD
United States: Prices Received by Farmers: All Farm Products
(year-over-year percent change)
30
25
20
15
10
5
0
-5
-10
-15
-20
'76 '78 '80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10
Note:
Source: U.S. Department of Agriculture, Haver Analytics
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16. There is no guarantee that any investment product will achieve its objectives, generate profits or avoid losses. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
OIL IS BEING DRIVEN IN PART BY SPECULATIVE FERVOUR
Net Long Speculative Position on Oil
(thousands of contracts)
375
Record
325 High!
275
225
175
125
75
25
-25
-75
'95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10
Note:
Source: Haver Analytics 15
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17. There is no guarantee that any investment product will achieve its objectives, generate profits or avoid losses. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
SIMILAR STORY FOR THE GRAINS
Net Speculative Long Position in Grains
(thousands of contracts)
25000
Record!
20000
15000
10000
5000
0
-5000
'07 '08 '09 '10
Note:
Source: Commodity Futures Trading Commission
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18. There is no guarantee that any investment product will achieve its objectives, generate profits or avoid losses. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
GOODS INFLATION RUNNING NEAR ABOVE 3% AND HEADING HIGHER … FOR NOW
United States: Consumer Price Index: Commodities
(year-over-year percent change)
10
8
6
4
2
0
-2
-4
-6
-8
'89 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11
Note:
Source: Bureau of Labour Statistics
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19. There is no guarantee that any investment product will achieve its objectives, generate profits or avoid losses. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
SERVICES ARE 66% OF THE CONSUMPTION BASKET
United States: Personal Consumption Expenditures in Services over Total Personal
Consumption Expenditures
(percent)
70%
65%
60%
55%
50%
45%
'59 '62 '65 '68 '71 '74 '77 '80 '83 '86 '89 '92 '95 '98 '01 '04 '07 '10
Note:
Source: Bureau of Economic Analysis
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20. There is no guarantee that any investment product will achieve its objectives, generate profits or avoid losses. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
SERVICE SECTOR INFLATION RUNNING NEAR 1%
United States: Consumer Price Index: Services
(year-over-year percent change)
20
18
16
14
12
10
8
6
4
2
0
'57 '60 '63 '66 '69 '72 '75 '78 '81 '84 '87 '90 '93 '96 '99 '02 '05 '08 '11
Note:
Source: Bureau of Labour Statistics
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21. There is no guarantee that any investment product will achieve its objectives, generate profits or avoid losses. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
SERVICE SECTOR INFLATION STILL TAME EVEN WITH RENTS HOOKING UP
United States: Consumer Price Index
(year-over-year percent change)
Rent of Primary Residence Owners’ Equivalent Rent of Residence
5 7
6
4
5
3
4
2 3
2
1
1
0
0
-1 -1
'89 '91 '93 '95 '97 '99 '01 '03 '05 '07 '09 '11 '89 '91 '93 '95 '97 '99 '01 '03 '05 '07 '09 '11
Note:
Source: Bureau of Labour Statistics 20
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22. There is no guarantee that any investment product will achieve its objectives, generate profits or avoid losses. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
TOO MUCH INFORMATION, NOT ENOUGH INFLATION
United States: Consumer Price Index: Information & Information Processing
(year-over-year percent change)
4
3
2
1
0
-1
-2
-3
-4
-5
-6
'94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11
Note:
Source: Bureau of Labour Statistics
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23. There is no guarantee that any investment product will achieve its objectives, generate profits or avoid losses. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
SORRY, NOBODY HOME
United States: Consumer Price Index: Telephone Services
(year-over-year percent change)
4
3
2
1
0
-1
-2
-3
-4
'98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10
Note:
Source: Bureau of Labour Statistics
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24. There is no guarantee that any investment product will achieve its objectives, generate profits or avoid losses. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
IMAGINE WHAT THIS CHART LOOKS LIKE EXCLUDING NEW YORK YANKEE TICKETS
United States: Consumer Price Index: Recreation
(year-over-year percent change)
4
3
2
1
0
-1
-2
'94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11
Note:
Source: Bureau of Labour Statistics
23
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25. There is no guarantee that any investment product will achieve its objectives, generate profits or avoid losses. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
INFLATION CHECKING OUT
United States: Consumer Price Index: Other Lodging From Home Including Hotels/Motels
(year-over-year percent change)
25
20
15
10
5
0
-5
-10
-15
'89 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11
Note:
Source: Bureau of Labour Statistics
24
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26. There is no guarantee that any investment product will achieve its objectives, generate profits or avoid losses. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
HEALTH CARE INFLATION GOING THROUGH SOME SURGERY
United States: Consumer Price Index: Medical Care Services
(year-over-year percent change)
10
9
8
7
6
5
4
3
2
'89 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11
Note:
Source: Bureau of Labour Statistics
25
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27. There is no guarantee that any investment product will achieve its objectives, generate profits or avoid losses. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
INFLATION SKIPPING SCHOOL
United States: Consumer Price Index: Tuition, Other School Fees & Child Care
(year-over-year percent change)
15
13
11
9
7
5
3
'79 '80 '81 '82 '83 '84 '85 '86 '87 '88 '89 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11
Note:
Source: Bureau of Labour Statistics
26
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28. There is no guarantee that any investment product will achieve its objectives, generate profits or avoid losses. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
WHAT EVER THIS IS, IT’S DISINFLATING TOO
United States: Consumer Price Index: Misc Personal Services
(year-over-year percent change)
8
7
6
5
4
3
2
1
0
'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11
Note:
Source: Bureau of Labour Statistics
27
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29. There is no guarantee that any investment product will achieve its objectives, generate profits or avoid losses. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
NO TIPPING AT THE TAVERN?
United States: Consumer Price Index: Alcoholic Beverages Away From Home
(year-over-year percent change)
10
9
8
7
6
5
4
3
2
1
0
'89 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11
Note:
Source: Bureau of Labour Statistics
28
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30. There is no guarantee that any investment product will achieve its objectives, generate profits or avoid losses. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
29
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31. There is no guarantee that any investment product will achieve its objectives, generate profits or avoid losses. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
UNIT LABOUR COSTS THE PRINCIPLE DRIVER OF LONG-TERM INFLATION TREND
United States
( year-over-year percent change)
16%
r = 0.88 Consumer Price Index
14%
12%
10%
8%
6%
4%
2%
0%
Unit Labour Costs
-2%
-4%
-6%
'63 '68 '73 '78 '83 '88 '93 '98 '03 '08
Note:
Source: Bureau of Labour Statistics
30
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32. There is no guarantee that any investment product will achieve its objectives, generate profits or avoid losses. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
UNEMPLOYMENT STILL A MAJOR PROBLEM…
United States (percent)
Official Unemployment Rate U6 Unemployment Rate*
11 Still high: 18 Record High
currently at 8.8%! Levels!
10
16
9
14
8
7 12
6
10
5
8
4
3 6
94 96 98 00 02 04 06 08 10 94 96 98 00 02 04 06 08 10
Notes:
*Includes all marginally attached workers and those employed part-time for economic reasons.
Source: Bureau of Labor Statistics, Federal Reserve 31
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33. There is no guarantee that any investment product will achieve its objectives, generate profits or avoid losses. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
… NOT ONLY ECONOMIC, BUT SOCIAL TOO
United States: Civilians Unemployed for 27 Weeks or Over
Total As a percentage of total unemployed
(millions) (percent)
7 50
Record Record
High! 45 High!
6
40
5 35
30
4
25
3
20
2 15
10
1
5
0 0
'48 '53 '58 '63 '68 '73 '78 '83 '88 '93 '98 '03 '08 '48 '53 '58 '63 '68 '73 '78 '83 '88 '93 '98 '03 '08
Notes:
Shaded area represent periods of U.S. recession
32
Source: Bureau of Labor Statistics
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34. There is no guarantee that any investment product will achieve its objectives, generate profits or avoid losses. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
EMPLOYMENT RATE UNDERSCORES SOFT LABOUR MARKET
United States: Employment-to-Population Ratio
(percent)
66
65
64
63
62
61
60
59
Lowest since 1983
58
85 88 91 94 97 00 03 06 09
Note:
Source: Bureau of Labour Statistics
33
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35. There is no guarantee that any investment product will achieve its objectives, generate profits or avoid losses. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
U.S. INCOME FUNDAMENTALS ARE SOFTENING
United States: Average Weekly Earnings
(year-over-year percent change)
Nominal Real
4.5 3
4.0
2
3.5
3.0
1
2.5
2.0 0
1.5
-1
1.0
0.5
-2
0.0
-0.5 -3
'07 '08 '09 '10 '11 '07 '08 '09 '10 '11
Note:
Source: Bureau of Labor Statistics 34
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36. There is no guarantee that any investment product will achieve its objectives, generate profits or avoid losses. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
35
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37. There is no guarantee that any investment product will achieve its objectives, generate profits or avoid losses. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
FOOD AND ENERGY BILL SOAKING UP OVER 22% OF WAGES AND SALARIES
United States: Personal Consumption of Food & Energy Over Wage & Salary Disbursements
(percent)
24%
23%
22%
21%
20%
19%
18%
17%
16%
15%
'90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11
Notes:
Shaded regions represent periods of U.S. recession 36
Source: Bureau of Economic Analysis
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38. There is no guarantee that any investment product will achieve its objectives, generate profits or avoid losses. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
37
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39. There is no guarantee that any investment product will achieve its objectives, generate profits or avoid losses. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
ONLY A FEW ITEMS ARE REALLY INFLATING
United States: CPI Special Details (year-over-year percent change)
Gasoline, 19.2
Airline Fare, 12.3
Delivery Services, 9.4
Tobacco, 5.6
Tuition, 4.1
Medical Care, 2.9
Groceries, 2.8
Bars, 2.4
Movies/ Theaters/Concerts, 2.1
Hotels, 2.0
Restaurant, 1.6
Household Energy, 1.5
Rent , 1.1
Personal Care, 0.8
Autos, 0.6
Books, 0.6
Sporting Goods, 0.1
Apparel, -0.4
Newspapers/Magazines , -0.4
Video and Audio, -1.3
Tools/Outdoor Eqpt, -1.3
Stationery, -1.3
Information and processing, -1.6
Household Appliances, -4.0
Window/Floor Coverings, -4.3
Household Furniture, -4.3
Toys, -4.9
Computers/Eqpt, -6.7
Note:
Source: Bureau of Labor Statistics 38
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40. There is no guarantee that any investment product will achieve its objectives, generate profits or avoid losses. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
39
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41. There is no guarantee that any investment product will achieve its objectives, generate profits or avoid losses. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
STATE & LOCAL GOVERNMENT CUTBACKS REMAIN A KEY MACRO RISK
United States (year-over-year percent change)
Real State & Local Government Gross Investment Employment: State & Local Government
7% 4%
6%
3%
5%
4% 2%
3%
1%
2%
1% 0%
0%
-1%
-1%
-2% -2%
'90 '93 '96 '99 '03 '06 '09 '90 '93 '96 '99 '02 '05 '08 '11
Notes:
Shaded region represent periods of U.S. recession 40
Source: Bureau of Economic Analysis, Bureau of Labor Statistics
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42. There is no guarantee that any investment product will achieve its objectives, generate profits or avoid losses. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
A CHALLENGING ENVIRONMENT FOR THE FEDERAL GOVERNMENT
United States: Government Finances (percent)
Interest Payments as a Share of Total Revenue Debt as a share of GDP
115
19
105
17
95
15 85
13 75
65
11
55
9
45
7
35
5 25
'70 '75 '80 '85 '90 '95 '00 '05 '10 '15 '20 '70 '75 '80 '85 '90 '95 '00 '05 '10 '15 '20
Notes:
Shaded bars and dotted lines represent estimates (interest payments/total revenue estimates by Gluskin Sheff and debt/GDP estimates by the OMB) 41
Source: OECD, U.S. Office of Management and Budget (OMB)
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43. There is no guarantee that any investment product will achieve its objectives, generate profits or avoid losses. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
42
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44. There is no guarantee that any investment product will achieve its objectives, generate profits or avoid losses. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
RECORD LEVEL OF VACANT RESIDENTIAL REAL ESTATE
United States
Total Vacant Housing Units Total Housing Vacancy Rate
(million units) (percent)
20 14
Record High!
19
18 13
17
12
16
15 11
14
10
13
12
9
11
10 8
89 91 93 95 97 99 01 03 05 07 09 11 89 91 93 95 97 99 01 03 05 07 09
Note:
Source: Census Bureau 43
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45. There is no guarantee that any investment product will achieve its objectives, generate profits or avoid losses. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
HOUSE PRICES DEFLATING AGAIN
United States: S&P/Case-Shiller Home Price Index: Composite 20 Index
(year-over-year percent change)
20
15
10
5
0
-5
-10
-15
-20
'04 '05 '06 '07 '08 '09 '10 '11
Note:
Source: S&P, Fiserv, and MacroMarkets LLC 44
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46. There is no guarantee that any investment product will achieve its objectives, generate profits or avoid losses. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
HOUSE PRICE DEFLATION NOT OVER
United States: Case-Shiller Home Price Index Composite 10
(not seasonally adjusted, January 2000 = 100)
240
220
200
180
160
140
120
100
80
'98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11
Note:
Source: Robert Shiller (“Irrational Exuberance”), Haver Analytics 45
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47. There is no guarantee that any investment product will achieve its objectives, generate profits or avoid losses. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
COMMERCIAL REAL ESTATE ROLLING OVER AGAIN
United States: Commercial Real Estate: RCA-Based National Aggregate Index
(year-over-year percent change)
30
20
10
0
-10
-20
-30
-40
'04 '05 '06 '07 '08 '09 '10 '11
Note:
Source: Moody’s, MIT Center for Real Estate 46
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48. There is no guarantee that any investment product will achieve its objectives, generate profits or avoid losses. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
HELICOPTER BEN BERNANKE ….
47
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49. There is no guarantee that any investment product will achieve its objectives, generate profits or avoid losses. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
FED’S QE IS SITTING ON BANKING SECTOR BALANCE SHEETS
United States
(US$ billion)
Reserve Bank Credit Outstanding All Commercial Banks Cash Assets
2800 1500
1250
2300
1000
1800
750
1300
500
800 250
'07 '08 '09 '10 '11 '07 '08 '09 '10 '11
Note:
Source: Federal Reserve Board 48
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50. There is no guarantee that any investment product will achieve its objectives, generate profits or avoid losses. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
CREDIT CONTRACTION CONTINUE UNABATED
United States: Households Credit Market Debt
(4-quarter change, US$ billion)
1400
1200
1000
800
600
400
200
0
-200
-400
1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008 2011
Notes:
Shaded region represent periods of U.S. recession
49
Source: Federal Reserve Board
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51. There is no guarantee that any investment product will achieve its objectives, generate profits or avoid losses. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
HOUSEHOLD DEMAND FOR CREDIT IS DECLINING
United States: Senior Loan Officer Survey (4-quarter moving average, percent)
Banks Reporting Stronger Banks Reporting More
Demand for Consumer Loans Demand for Residential Mortgages
30 60
Expanding Expanding
20
40
10
20
0
0
-10
-20
-20
-30 -40
Contracting Contracting
-40 -60
93 95 97 99 01 03 05 07 09 11 93 95 97 99 01 03 05 07 09 11
Note:
Source: Federal Reserve Board 50
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52. There is no guarantee that any investment product will achieve its objectives, generate profits or avoid losses. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
1 IN 7 U.S. HOUSEHOLDS IN FORECLOSURE OR ARREARS
United States
Mortgage Past Due and in Foreclosure
(percent)
16
Near Record
High!
14
12
10
8
6
4
Q1 1979 Q2 1982 Q3 1985 Q4 1988 Q1 1992 Q2 1995 Q3 1998 Q4 2001 Q1 2005 Q2 2008
Note:
Source: Mortgage Bankers Association
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53. There is no guarantee that any investment product will achieve its objectives, generate profits or avoid losses. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
STILL NO SIGN OF A MEANINGFUL INCREASE IN
MONEY MULTIPLIER OR VELOCITY
United States
(ratio)
St Louis M1 Money Multiplier Velocity of Money: Nominal GDP to M2
2.10
2.0
2.05
1.8
2.00
1.95
1.6
1.90
1.4
1.85
1.2 1.80
1.75
1.0
1.70
0.8 1.65
'98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10
Note:
Source: Federal Reserve Bank of St. Louis, Macroeconomic Advisers, Federal Reserve Board 52
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54. There is no guarantee that any investment product will achieve its objectives, generate profits or avoid losses. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
DÉJÀ VU FROM RICHARD KOO
“The Holy Grail of Macro Economics: Lessons
From Japan’s Great Recession”
by Richard C. Koo
“The U.S. economic downturn brought about by
the subprime fiasco is a version of a balance
sheet recession, with many of its unpleasant
characteristics ... Although no quick recovery is
possible. With so much damage to household
and bank balance sheets, the lessons we
learned from Japan during the past fifteen years
can be put to good use to minimize the recovery
time for the U.S. economy.”
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55. There is no guarantee that any investment product will achieve its objectives, generate profits or avoid losses. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
BULLARD NOT BULLISH
“The U.S. is closer to a Japanese-style outcome today than at any time in recent history … a
better policy response to a negative shock is to expand the quantitative easing program through
the purchase of Treasury securities.”
(Seven Faces of “The Peril” St. Louis Fed Reserve Bank President Bullard, July 29, 2010)
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56. There is no guarantee that any investment product will achieve its objectives, generate profits or avoid losses. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
BOTH COUNTRIES EXPERIENCED THE BURSTING OF A HOUSING BUBBLE
Real Private Residential Spending
Japan United States
(¥ billions, 2000) (US$ billions, 2005)
28000 800
750
700
24000
650
600
20000 550
500
450
16000
400
350
12000 300
'89 '92 '95 '98 '01 '04 '07 '10 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10
Note:
Source: Haver Analytics 55
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57. There is no guarantee that any investment product will achieve its objectives, generate profits or avoid losses. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
BOTH COUNTRIES EXPERIENCED A BUBBLE BURST IN HOUSING CREDIT
(year-over-year percent change)
Japan: Domestic Bank Lending: Housing Credit United States: Household Liabilities: Home
Mortgages
25% 16%
14%
20% 12%
10%
15% 8%
6%
10% 4%
2%
5% 0%
-2%
0% -4%
'84 '85 '86 '87 '88 '89 '90 '91 '92 '93 '94 '95 '97 '99 '01 '03 '05 '07 '09
Note:
Source: Bank of Japan, Federal Reserve Board Flow of Fund 56
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58. There is no guarantee that any investment product will achieve its objectives, generate profits or avoid losses. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
WHEN T-BILL YIELDS ARE 0%, YOU KNOW IT’S JAPAN ALL OVER AGAIN
Three-Month Bill Yield
(percent)
Japan United States
9.0 5.5
8.0 5.0
4.5
7.0
4.0
6.0
3.5
5.0 3.0
4.0 2.5
2.0
3.0
1.5
2.0
1.0
1.0 0.5
0.0 0.0
90 91 92 93 94 95 96 97 2007 2008 2009 2010 2011
Note:
Source: Haver Analytics 57
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59. There is no guarantee that any investment product will achieve its objectives, generate profits or avoid losses. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
UNPRECEDENTED EXPANSION OF THE CENTRAL BANK’S BALANCE SHEET
Reserve Bank Credit Outstanding
Japan United States
(billion ¥) (billion US$)
350 2,500
300 2,300
2,100
250
1,900
200
1,700
150 1,500
1,300
100
1,100
50
900
0 700
92 93 94 95 96 97 98 99 00 01 02 03 04 05 2005 2006 2007 2008 2009 2010 2011
Notes:
Source: Bank of Japan, Federal Reserve Board 58
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60. There is no guarantee that any investment product will achieve its objectives, generate profits or avoid losses. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
EVEN JAPANESE AND U.S. FISCAL POLICY LOOKS THE SAME
Government Deficit as a Share of GDP
(percent, inverted scale)
Japan United States
-11 -11
-10 Deficit -10 Deficit
-9
-9
-8
-8
-7
-7 -6
-6 -5
-5 -4
-4 -3
-2
-3
-1
-2
0
-1 1
Surplus
0 2
89 90 91 92 93 94 95 96 97 98 01 02 03 04 05 06 07 08 09 10
Note:
Source: Japanese Cabinet Office, U.S. Office of Management and Budget (OMB), Gluskin Sheff 59
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61. There is no guarantee that any investment product will achieve its objectives, generate profits or avoid losses. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
JAPAN’S POST-BUBBLE EXPERIENCE: ROLLING RECESSIONS AND RECOVERIES
Japan: Gross Domestic Product
(year-over-year percentage change)
12%
8%
4%
0%
-4%
-8%
-12%
'89 '92 '95 '98 '01 '04 '07 '10
Note:
Source: Haver Analytics 60
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62. There is no guarantee that any investment product will achieve its objectives, generate profits or avoid losses. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
INFLATION RECEDES A LONG, LONG, TIME AFTER A BUBBLE BURSTS
Consumer Inflation excluding Food & Energy (year-over-year percent change)
Japan United States
4% 6%
3% 5%
2% 4%
1% 3%
0% 2%
-1% 1%
-2% 0%
90 93 96 99 02 05 08 90 93 96 99 02 05 08
Note:
Source: Bureau of Labor Statistics, Japan Ministry of Internal Affairs and Communications 61
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63. There is no guarantee that any investment product will achieve its objectives, generate profits or avoid losses. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
JAPAN: A MODERN DAY EXAMPLE OF A PROLONGED DELEVERAGING CYCLE
Japan
10-year Government Note Yield Nikkei Index
(percent) (index level)
9 40,000
8
35,000
7
30,000
6
5 25,000
4 20,000
3
15,000
2
10,000
1
0 5,000
89 91 93 95 97 99 01 03 05 07 09 11 89 91 93 95 97 99 01 03 05 07 09 11
Note:
Source: Haver Analytics 62
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64. There is no guarantee that any investment product will achieve its objectives, generate profits or avoid losses. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
DISCLAIMER
The information, opinions, and other materials contained in this presentation is the
property of Gluskin Sheff + Associates Inc. and may not be reproduced in any way, in
whole or in part, without express authorization of the copyright holder in writing. The
statements and statistics contained herein have been prepared by Gluskin Sheff +
Associates Inc. based on information from sources considered to be reliable. We make
no representation or warranty, express or implied, as to its accuracy or completeness.
This publication is for the information of investors and business persons and does not
constitute an offer to sell or a solicitation to buy securities.
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