The New Mix

Benjamin Tal

March 2011
 Oil Prices & Recessions

$/Barrel
160
140
120
100 ?
80
60
40
20
0
70 75 80 85 90 95 00 05 10

Source: Wall Street Journal, CIBC

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 Money Is Not Exchanging Hands

Velocity of Money:
2.2
Ratio of Nominal GDP to Money Supply M2 (Ratio)
2.1
2.0

1.9

1.8

1.7
1.6

1.5

1.4
92 94 96 98 00 02 04 06 08 10

Source: Statistics Canada, CIBC

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 Record High Negative Equity Position
No. of Mortgages in Distribution of
Negative Equity Negative Equity
12.0 mn

10.0

8.0
0% to -10%
6.0 -20% and
over
4.0

2.0

0.0 -10% to -20%

2006 2007 2008 2009 2010

Source: LoanPerformance, CIBC

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 Employees Now Working Longer
Weekly Hours Than Before Recession
41.0 Hours worked in manufacturing

40.5

40.0

39.5

39.0

38.5
Mar-06 Nov-06 Jul-07 Mar-08 Nov-08 Jul-09 Mar-10

Source: Statistics Canada, CIBC

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 US Manufacturing Still Expanding

ISM Diffusion Inde x (PMI) - Ma nufa cturing

65
60
60 Expansion
55

50

45

40 C ontraction

35

30
05 06 07 08 09 10

Source: US Federal Reserve, CIBC

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 Strong Export Recovery
Re a l Ex ports Contribution of US
125 Exports & Inv e stme nt
Index: End of to Re a l GDP Growth
recession = 100
120 90
First 5 quarters
115 80 of recovery
70 (%)
110
60
105
50
100 40

95 30
82Q4 91Q1 20
90 01Q4 09Q2 10
85 0
1 2 3 4 5 Avg. Post- C urrent
Quarters since recession ends war

Source: Bureau of Economic Analysis, CIBC

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 Emerging Markets Sizeable Enough to
Carry Global Recovery
Share of Global GDP
1992 2009

US
Other

Emerging 24%
13%
Markets

Other
US

Source: IMF, CIBC

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 Surging Exports to Emerging Markets
Div e rging US Exports US$ Tra de -We ighte d
Indice s (Exports)
160 105
Index Jan 2009=100 Index Level
150
100
140
95
130
120 90
110
85
100
rest of the world 80
90
emerging markets Mar-09 Nov-09 Jul-10
80
US$ TWI (Developed
Jan-09

Jan-10
Jul-09

Oct-09
Apr-09

Apr-10

World)
US$ TWI (Emerging
Markets)
Source: US Census Bureau, CIBC
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 The New Consumer

Retail Sales
160
Index 2007Q1=100
150
140
130
120
110
100
90
80
2007 2008 2009 2010

Emerging market Advanced economies

Source: IMF, CIBC

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 US Manufacturing Is Restructuring
R&D Spending as a O utput Per Hour
share of Mfg (Manufacturing)
Shipments
6.0
% 10 y/y % chg
5.5 8

5.0 6

4
4.5
2
4.0
0
3.5
-2

3.0 -4
85 88 91 94 97 00 03 06 09 05 06 07 08 09 10
recession
Source: US Federal Reserve, CIBC
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 Fastest Growing US Export Sectors
to China
Cumulative Year-to-September
(2010 vs. 2009)
$Mn %
Motor cars and other motor vehicles 1399.7 204.5
Cotton textile fibers 630.2 130.3
Nonferrous base metal waste and scrap 581.2 62.3
Machinery and equipment specialized for
particular industries 554.2 108.0
Food processing equipment 322.5 32.0
Wood in the rough or roughly squared 206.4 146.2
Pigments, paints, varnishes & related materials 188.7 117.8
Toys, games and sporting goods 151.5 177.0
Inorganic chemical elements, oxides and halogen
salts 151.1 63.3
Nitrogen-function compounds 113.8 71.7

Source: US Federal Reserve, CIBC

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 Chinese Stocks
Don’t Always Reflect the Economy

2,400 11
2,200 10
2,000 9
1,800 8
1,600 7
1,400 6
1,200 5
1,000 4
00:Q1 01:Q3 03:Q1 04:Q3

Shanghai C omposite (LHS)

Real GDP, y/y % chng (RHS)

Source: Bloomberg, CIBC | 13

Eurozone’s Debt Challenges: Fiscal Austerity
Slows Growth, Weakens Euro

25 % of GDP % of GDP 8

20
6
15

10
4
5

0 2
Ireland Greece Spain Portugal

Refinancing needs for 2011 (L)

Structural budget deficit in 2011 (R)

Source: Bloomberg, IMF, CIBC | 14

Canada Has Limited Eurozone Exposure

UK

Russia

Brazil

C hina
US
India

Japan

Korea % of total exports going to

C anada Eurozone in 2009

0 10 20 30 40 50 60
Source: EuroStat, CIBC | 15
 Bond Market Inflow Unprecedented

Net Foreign Purchases of C dn Securities, % of

8 GDP

6 * Annualized rate

-2
88 90 92 94 96 98 00 02 04 06 08 10*
Bonds Only All Securities
Source: Statistics Canada, CIBC | 16
 CDN Household Leverage
Reaching US Levels

200 % of Personal Disposable

Income

150

100

50

0
Q1-90 Q1-94 Q1-98 Q1-02 Q1-06 Q1-10
United States C anada

Source: Statistics Canada, Federal Reserve Board, CIBC | 17

 Record High Gap Between
US and Canadian Savings Rates
Pe rsona l Sa v ings Ra te Pe rsona l Sa v ing Ra te
Ga p - US v s. Cda
7
3 qtrs moving avg
% 4
6 3 qtrs moving avg
%
2
5

4 0

3 -2

2 -4

1 -6

0 -8
04 05 06 07 08 09 10
-10
C anada US 80 86 92 98 04 10

Source: Statistics Canada, CIBC

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 Real Household Credit

3.5
q/q % chg
3.0
2.5
2.0
1.5
1.0
0.5 9-yr low
0.0
-0.5
96 97 98 99 00 01 02 03 04 05 06 07 08 09 10

Source: Statistics Canada, CIBC | 19

 Wealth Effect Reduced Saving Rate
Over the Past Decade
Cumulative Spending Saving Rate
Due to Real Estate
W ealth Effect
4.6 Avg 1997-2010
80 %
$ Bn 4.4
70
4.2
60 4.0
50 3.8

40 3.6
3.4
30
3.2
20
3.0
10 Actual Excluding
the impact
0
of wealth
97 99 01 03 05 07 09
effect
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Debt Service Ratios: Canada (L), US (R )
% of Personal Disposable % of Personal Disposable
15 Income 15
Income

13 13

11 11

9 9

7 7

5 5
Q1- Q1- Q1- Q1- Q1- Q1- Q1- Q1- Q1- Q1- Q1- Q1-
90 94 98 02 06 10 90 94 98 02 06 10

Source: Federal Reserve Board, Statistics Canada, CIBC | 21

 Relative Performance of the
Main Components of Personal Income

Real Labour Income per Capita

115
2004Q4=100
110

105

100

95
04Q4

05Q2

05Q4

06Q2

06Q4

07Q2

07Q4

08Q2

08Q4

09Q2

09Q4

10Q2
C anada US
Source: BEA, Statistics Canada, CIBC | 22
 American Credit Cards Were Issued to
Lower-Rated Borrowers Than in Canada
% of total bankcard origination with
sub-660 credit score

40

20

C anada: September 2010 US: August 2007

Source: Equifax Canada, CIBC | 23

 A Closer Look at the
Canadian Mortgage Market
Number of Households

13.1 million

Mortgage No-Mortgage Rent

39.9% 28.9% 31.2%

LVR* LVR*
<80% >80%
DSR** DSR**
27.8% 12.1% <40% >40%

DSR** DSR**
<40% >40%

* Loan-to-value ratio
** Debt-service ratio 9.3% 2.8% 30.1% 1.1%

Source: CMHC, Ipsos Reid’s CFM, Statistics Canada, CIBC | 24

 Personal Bankruptcies

De c 08-Nov 09 v s.
45 y/y % chg De c 09-Nov 10
40 3-mo moving avg
35 Atlantic -6.2
30
25 BC -9.2
20
15 Man/Sask -15.6
10
5 Alberta -17.0
0
-5 Quebec -17.0
-10
-15 C anada -19.5
-20
-25 Ontario-27.6
-30
00 02 04 06 08 10 % -35 -25 -15 -5

Source: Industry Canada, CIBC | 25

 Plan to Buy a Residential Property
in the Next Year

% of All House holds Sa y ing "Ye s"

10
actual %
9
base in each year @ 3,000
8

4
2001 02 03 04 05 06 07 08 09 10
Winter

Source: Altus Group/Ipsos-Reid, the FIRM Residential Mortgage Survey | 26