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Que Sera, Sera
Whatever Will Be, Will Be
St. Albert 2010 Business Breakfast
February 23, 2010
Disclaimer
National Bank Financial is an indirect wholly-owned subsidiary of National Bank of Canada. The
National Bank of Canada is a public company listed on the Toronto Stock Exchange (NA: TSX).
** The securities or sectors mentioned herein are not suitable for all types of investors. Please
consult your investment advisor to verify whether the securities or sectors suit your investor’s
profile as well as to obtain complete information, including the main risk factors, regarding those
securities or sectors.
*** The information contained herein has been prepared by Angus Watt, an Investment Advisor
with National Bank Financial; the opinions expressed do not necessarily reflect those of National
Bank Financial.
**** While opinions expressed are based on analysis and interpretation of historical data believed
to be accurate the underlying data is not necessarily guaranteed as to accuracy.
Messages over the Years
 Dr. Allard:
• Top 3 Principles when Investing in Real Estate.
• True in business as well.
 We are ‘addicted’ to oil.
 ‘We are addicted to growth’. Rex Tillerson, Chairman and CEO, Exxon
Mobile (Sept/07)
 Can’t have economic growth …
without credit growth.
Spruce Meadows Round Table,
Sept/08
Paul Volcker, Former Chairman, US Federal Reserve System:
 This has been the most complicated financial crisis we have ever had.
 It has moved from a banking problem to a global market problem.
 Bankers have structured ‘financially engineered’ loan portfolios
without truly understanding the risks inherent in the products.
 Excess compensation, lack of regulations, and lack of transparency
contributed to this fiasco.
 Canadian banks and the Canadian banking system are one of the
very best in the world.
US Fiscal Rescue
(Past 18 months)






Bailout(s) – financial and auto industries
Cash for clunkers
Home buyers credit
Foreclosure – postponement
Fannie Mae & Freddie Mac
Quantitative easing (low mortgage rates)
To help understand
the numbers . . .
$1 million in
$100 bills . . .
. . . $1 billion in $100 bills . . .
10 pallets
. . . $1 trillion in $100 bills . . .
I’m still here
by the way
6 Steps to Economic Recovery
1.
Financial Rescue Plan Approval
DONE
($700 billion)
2.
Coordinated universal drop in interest rates
DONE
(0.5%)
3.
Lower gasoline prices:
 Mid September oil was
$101US/$107CDN
 Target on Oil: $75US/$88CDN
Federal Reserve begins buying assets midNovember, providing clarity to the markets:
 (Commercial paper, sub-prime repurchase, refinancing financial
institutions)
 LIBOR 5.00% to 2.15% (Bloomberg,
2008)
DONE
Down 20%
4.
5.
Sustainability of US housing prices
6.
President Obama’s 100 Day Plan:
 Household incentive plan for Main
Street
 Mortgage Plan
 Auto Rescue Package
 Jobs, jobs, jobs
Inflation

DONE
DONE
Lower LIBOR rates; lower US
short-term & long-term rates
 Global banks increasing
mortgage and small business
commitment
 Focus shifting to Obama’s 100
day plan
Sustainability = Affordability

Housing affordability has never
been higher in this generation
2nd half of 2009
(wages, credits and rents are all deflating)
Corporate Profits as a Share of GDP and
Unemployment Rate
14
% of GDP
Profits
(left)
13
12
%
30
28
26
11
24
10
22
9
20
8
18
7
16
6
14
5
12
4
U.R.
(right)
3
2
10
8
6
1
4
0
2
-1
1930
1940
1950
1960
1970
1980
1990
2000
0
2010
NBF Economy & Strategy (data via BEA)
Global Urbanization Accelerating
6
Population Expressed as Billions of People
5
Rural
Urban
4
Billion people
4.9
3.2
3.2
3
2.9
2
1
0
1950
1960
1970
1980
1990
2000
+
+
2010
2020
2030
2040
2050
Fidelity Investments, Source: Livestock’s
Long Shadow: FAQ 2006
World’s population is growing by
@70 million people/year,
becoming richer and more
urbanized
70% of the world’s population will
be in urban centres by 2050
World: Asia Already Producing Above its Previous Peak
Level of Factory Output: Emerging Asia vs Industrialized Economies
Emerging
Asia
130 2007 = 100
125
120
115
110
105
World
100
95
90
Industrialized
economies
85
80
2007M01
2007M07
2008M01
2008M07
2009M01
2009M07
NBF Economy & Strategy (data via CBP)
Demand for Oil Rebounds
87
mbbd
86
85
Back to near
peak demand
in 2010
84
83
82
81
80
79
78
77
76
75
99
00
01
02
03
04
05
06
07
08
09
10
IEA
Canada vs US: Existing Home Prices
Repeat Sales Methodology
220
200
Index January 2000 = 100
Teranet-National
Bank
Composite Index TM
180
160
140
120
S&P/Case-Shiller Composite 20 cities
100
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
US Housing Starts (Annual Rate)
3,000
(Thousands)
2,500
2,000
1,500
1,000
500
Jan-07
Jan-04
Jan-01
Jan-98
Jan-95
Jan-92
Jan-89
Jan-86
Jan-83
Jan-80
Jan-77
Jan-74
Jan-71
Jan-68
Jan-65
Jan-62
Jan-59
0
Source: Bureau of Census, US
Commerce Department
9 Steps to Economic Recovery
7) “Sugar high”





2nd Half of 2009
Markets appear irrational and logic doesn’t seem to matter
Our ”sugar” is low interest rates
The US dollar continues to be under pressure
US inventories will rebuild after 6 months of declining
Investors will have no motivation to sell (governments
committed to recovery)
9 Steps to Economic Recovery
8) “Hand-Off” to the US Consumer
End of 2009 - Summer 2010
(US Consumers drive the ball down the field)
 US Banks finally provide liquidity to both businesses and
consumers
 US Government stimulus packages have an impact on the
economy
 More mergers and acquisitions; the big get bigger
 China is still growing at over 7% per year
 Demand and high unemployment result in increased productivity
 The Bank of Canada begins “Quantitative Easing” in an effort to
lower the value of the Canadian dollar
9 Steps to Economic Recovery
9) “In the Red Zone” Government Forces
Turnover
2nd Half of 2010
 All levels of Government need cash, there will be tax and fee
increases as well as reductions to tax credits and deductions
 The US consumer will be deleveraging and increasing their
savings
 Unemployment will be higher than expected
 Real Estate prices will be softer, rents will decline
 US Federal Debt levels will be a major concern
 Re-regulation of central banks and financial institutions, as to
who has the authority, power, and responsibility, both
domestically and internationally
 China will be investing in
real assets, not paper.
Canadian Mortgage Changes
Mortgage Restructuring – effective April 19, 2010
 Must qualify for a 5 year, fixed rate mortgage,
regardless of term or rate you prefer.
 When purchasing an investment property, must
have 20% down to qualify for CMHC insurance.
 When re-financing home, may only take 90% of
home value, lowered from 95%.
Phone
780.412.6644
Email [email protected]
Web
www.anguswatt.com