5533 5118 Tails in RORO World Presentation

Peter Gibson Managing Director
Jeff Evans Executive Director
Portfolio Strategy & Quantitative Research
Understanding How the World Changed in 1998 Long Depression vs

Productivity Innovation
Click to edit Master title style
20 Years of Challenges
Page 2
Evidence
Page 3
Selected Asset Classes 12-month Returns (Oct 21, 2011 Oct 19, 2012)
0.0% 6.0% 7.04%

12.0% 18.0% 24.0% 7.17%
TSX Composite CDN C10y Bonds 3.72% 1.35%
CDN 5-7y Bonds CDN Cash CDN High Yield Bonds S&P 500
14.42% 18.33%
NASDAQ 100 US C10y Bonds US 5-7y Bonds US Cash 0.48% 5.07% 4.53%
16.03%
US High Yield Bonds Gold
16.18%
4.83%
Source: CIBC World Markets Inc., Bloomberg Page 4
Canada and US Equities, Bonds and T-bills Historical Return

CDN C10y Bonds
14% 12% 10% 8% 6% 4% 2% 0% 5 Year 10 Year 20 Year
CDN Corp AA
CDN Equities
14% 12% 10% 8% 6%
2% 0%
5 Year
US Cash
4%
US Equities
US C10y Bonds
US Corp AAA
CDN Cash
10 Year
20 Year
Source: Bloomberg and CIBC World Markets Inc.
Page 5
US Asset Classes Real Return

True Secular bear markets only occur 6 times in 160 years usually lasting 13-14 years. Lower stock returns & much higher volatility recently 60% of individual stock returns resulted from market & sector NOT individual Click to edit Master style companytitle fundamentals
Painted Rates very low & stable with modest sustainable growth This one started in 1998 Secular inflation & rising rates
1000
100
Great Depression
10
&
Deflation
Bond Market losses
0.1
Jan-13 Jan-20 Jan-27
Jan-34 Jan-41 Jan-48 Jan-55 Jan-62 Jan-69 Jan-76 Jan-83 Jan-90 Jan-97 Jan-04
S tock Real
Source: CIBC World Markets Inc.
Bond Real
Bill Real
S eries4
Page 6
Why?
Page 7
Too Much Debt

The Reason Growth is Weaker, Returns are Lower and Volatility is Higher
Page 8
US Debt to GDP Both Momentarily CLOSE to 100%

Source: CIBC World Markets Inc., Bloomberg
Page 9
Canadian Debt to GDP

Page 10
How?
Page 11
1.
Click to edit Master title style Record U.S. Government Debt GDP +
2. Record Consumer Debt 2/3 of Economic Growth Due Consumer Self-restraint from spending, but , not yet! + 3. Record Current Account Deficit
CONCLUSION: CANNOT INFLATE AWAY DEBT AND DEFLATION IS NOT AN OPTION

Page 12
Keeping Bond Investors Happy Might Demand a Dangerously Weak economy

Click to edit Master title The style Bond Yield Floors Also Exist Which Coincide With Outright Risk of Deflation
Rates
(The Relationship Between Stock Prices And Bond Yields Changed In 1998)
Interest Rates
Stock Prices (
P/Es )
Bond Yields (i.e. 4.5 5%)
Economy Dangerously Weak

Man is the only kind of varmint that sets his own trap, baits it, then steps in it - Steinbeck
Interest Rates
Stock Prices
( P/Es )
Page 13
The Positive Correlation Warned Loudly of the Risks of Deflation and a Potential Debt Crisis Starting in 1998
S&P 500 Price and Bond Yields

7 6.5 6 1350 5.5 5 4.5 950 4 3.5 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 850 750 Jan-03 1250 1150 1050
U.S. 10-Year Bond Yield (left)
Click to edit Master title style 1650

S&P 500 Price (right) 1550 1450
Rates fall, stock prices fall anyway

Fed cuts rates, stock market falls (first time in 50 years)

Page 14
Only Times in History Previously: The Long Depression & The Great Depression Thus: Lower P/Es, Average Returns & Higher Vol
History States: That Falling Bond Yields and Falling Stock Prices

Monthly S&P 500 P/E levels from 2006present
Coincide with Deflation and Economic Depression
The Long Depression
The Great Depression
Two of the Worst Stock Market Collapses in 160 Years
We are not retreating we are advancing in another direction -General MacArthur

Page 15
US Real Rates & Positive Bond Yield/Stock Price Correlation Click to edit Master title style 14
Long Depression Great Depression 12 10
-2
-4
-6
Oct1977 Jul1918 May1905 May1984 Dec1911 Sep1931 Nov1944 Aug1964 Dec1990 Jul1997 DEC1832 JAN1800 AUG1806 APR1859 JAN1879 MAR1813 AUG1885 MAR1892 NOV1865 OCT1819 SEP1852 JUN1872 JUL1839 MAY1826 OCT1898 FEB1846 Sep2010 Apr1938 Jun1951 Feb1925 Jan1958 Mar1971 Feb2004
positive bond yield/stock px correlation and falling bond yield on annual basis
M1 Mutiplier
US Real Rates (RHS)
Source: Bloomberg, U.S. Federal Reserve and CIBC World Markets Inc.
Page 16
Investment Implications
Page 17
Page 18
P/E Differences Between 80s/90s and Today Click to edit Master title style 1980s / 1990s After 2003
P
E
x 14%
e.g.: +5% p.a. due to falling interest rates
P
E
x 8% 10%
Constant or falling at 1% p.a.
P = 18% p.a.
P = 8% p.a.
Page 19
P/E COMPRESSION on Average S&P 500 Prices Up BUT S&P 500 P/Es Down
Expand, Compress, Panic; (9 Times Earnings by 2015?) Also Since 1998: Risk Premia and Credit Spreads Increased
1800

35
Price UP
1600 1400 1200 20 1000 15 800 600 400 200 30 25
BUT P/E Compression
10 5
Jan-93
Jan-94
Jan-95
Jan-96
Jan-97
Jan-98
Jan-99
Jan-00
Jan-01
Jan-02
Jan-03
Jan-04
Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
Index
Jan-11
P/E
S&P 500 index

S&P 500 Adjusted P/E (RHS)

Page 20
TSX & S&P 500 Price Earning Ratio

40 35 30 25 20 15 10 5 0 S&P 500 P/E TSX P/E
Dec-70
Dec-72
Dec-74
Dec-76
Dec-78
Dec-80
Dec-82
Dec-84
Dec-86
Dec-88
Dec-90
Dec-92
Dec-94
Dec-96
Dec-98
Dec-00
Dec-02
Dec-04
Dec-06
Dec-08
Dec-10
Volatility and Opportunity In The Great Depression

70,000,000 60,000,000 50,000,000 40,000,000 30,000,000 20,000,000 10,000,000 0 Jan-30
Bonds TBills Equities
1930 1932 1934 1936 1938
Perfectly Correct
$1MM $60,470,000 +50.7%+/-4.38
Jan-32
Jan-34
Jan-36
Jan-38
Jan-40
Required 88 perfectly correct switches in 10 years

Page 22
AVOID TORPEDOS
1980s/1990s
20 stock portfolio +30% but one torpedo VERSUS +6% ave and
Page 23
Why RORO? Low Returns,
Higher Volatility and

Partially Cancel Out Forces TAA !
Page 24
The Long Term Problem Facing Pensions SAS, Cash on Balance Sheets, +Correlation Economy or Pensions
Higher Rates? NO
Page 25
Pension Implications of Low Returns & Positive Correlation (Need for Twist) Click to edit Master title style IF TSX & S&P 500 return of 8.1% coincides with: 3% bond yield & $ Parity
TSX 13,150 S&P 500 1,480 Bond Yield 3%
i.e.
Income & Growth = 3.76% (Asset Mix: 55/40/5) Growth = 4.79% (Asset Mix: 65/30/5)
HALF of S&P 500 companies have pension net funding ratios of LESS than 70%
Page 26
Previous Crisis Risks Interest Rate Spikes
Page 27
1833
Second Bank of United States Wall Street NOW Unregulated !!! Economic Swings amplified
Click to Bank edit no Master style Central longertitle exists

Until 1912/1913 Federal Reserve Act Market Frequently appears irrational Bank Failures, Crisis in confidence Payment in Specie stopped Financing of Mexican War Southern Bond Default Failure of Ohio Life & Trust caused repatriation of European investments in US Rails massive business failures US Civil war 1861-65 Railways and Robbers Barons--------End of Post Civil war expansion
Page 28
1837 1846
SPIKE Panic Depression SPIKE
1857
SPIKE Panic of 1857 1860(3) Depression
1861
SPIKE -------1861-1929 Industrial Trusts
186971
SPIKE Black Friday Debt Crisis/ Market Crash
1873-79
SPIKE 100bps Panic Depression (from 5% bond yield)
Click to Master title style Failure ofedit Largest US Bank

Jay Cooke & Co. / Financial chaos in Europe/ Coinage Act of 1873/ Adoption of Gold Standard
The long Depression 1873 1896 (23 years) EDISON GENERAL ELECTRIC & 50 yrs Finance Power Deflation 1869 1896 Yet rising Global Industrial Production
Collapse Vienna Stock Market / 1890 Baring Brothers Bailed Out

1893-96 SPIKE 100bps Depression (from 3% bond yield) Failure of US, Reading Railroad Stock market collapse Banking Collapse Govt Deficit & Gold Std Run on Gold Repatriation of European investments
1900 1901 1903
Return to GOLD STANDARD Crisis Rising Yields Richmans Panic
1906
San Francisco Earthquake & Fire
Page 29
Necessarily Lower Rates Event Driven
Page 30
Third Time Lucky? Secularly Lower Rates, Safe Haven Status QEs, Operation Twists and Major Events

2000 August 2011 1800 Dot-com Bubble 1998 Russian Financial Crisis September 11 Attacks 2008 Financial Crisis European Sovereign Debt Crisis Stock Markets Fall QE3
1600
1400 1997 Asian Financial Crisis
1200
1000
QE2 Operation Twist 2009 Dubai Debt Crisis
800
600
QE1
400
19 95
19 96
19 97
19 98
19 99
20 00
20 01
20 02
20 03
20 04
20 05
20 06
20 07
20 08
20 09
20 10
20 11
Source: CIBC World Markets Inc., Wikipedia Page 31
20 12
Dont Confuse Risk ON and Secular Growth TSX Versus S&P 500 (1982 - Present)

1982 - Present
1.2 1 0.8 0.6 0.4 0.2 0 TSX / S&P 500 TSX Annual Return: 9.7% S&P 500 Annual Return: 11.2%
Aug-82
Aug-84
Aug-86
Aug-88
Aug-90
Aug-92
Aug-94
Aug-96
Aug-98
Aug-00
Aug-02
Aug-04
Aug-06
Aug-08
Aug-10
Interest Rates and Individual Stocks Vs Fundamentals
Page 33
In Direct Contrast to 1950s Buy and Hold
Even Recently 50-60% of Stock Returns Correlated with Market Thus with Rates
Page 34
60% of the Return, on Average, from Individual US Stocks is the Direct Result of Rallies and Declines in the S&P500 INDEX!!!
0.7
0.6
0.5
0.4
0.3
0.2
0.1
May-00
May-01
May-02
May-03
May-04
May-05
May-06
May-07
May-08
May-09
May-10
May-11
Sep-00
Sep-01
Sep-02
Sep-03
Sep-04
Sep-05
Sep-06
Sep-07
Sep-08
Sep-09
Sep-10
Market
Market + Sector
Source: CIBC World Markets Inc., Reuters Page 35
Sep-11
Jan-00
Jan-01
Jan-02
Jan-03
Jan-04
Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
Jan-11
Linking Rates and
the Stock Market
Page 36
Floor/Ceiling
The Most Important Source of Returns and the Related

Risk On and Risk Off Environment
Page 37
US Bond Yield Peaks (Ceilings) and Troughs (Floors) Have Defined the Stock Market Rebounds and Collapses Never forecast anything you can calculate
S&P 500 Buy & Hold since 1998 low Bond Buy & Hold TSX Buy & Hold Bond B&H Canada
1800 1600 1400 1995 ceiling 1997 ceiling 2003 ceiling (5.9%) SELL 5.2% ceiling 4.8% ceiling 2002 ceiling 800 600 400 200 0 4% 1997 floor BUY 4.1% 4 3.5% Excess debt floor BUY 3.0% Desired long term average 3 2 1 0 SELL 2000 ceiling
4.67% pa 6.51% pa 8.34% 6.64%
+57%
-50% 37% (50% TPP*)

+168% 20.17% (32.26% TPP*) -43% TSX +85% (Mar 11) 17.33% (24.28% TPP*) -10.3% since Mar 11, 2011
+94%
-57%
+ 101% (to Mar11)
+109%
-43% 24.81% (38.81% TPP*)
9 8 7 6
1200 1000
S&P 500 Index
100% SWITCHING PERFECT 70/30 REBALANCING

S&P 500 (LHS)
US: 15.95% US: 36.26% US: 10.47%
Canada 18.14% Canada 35.87% Canada 12.42%
2.0% Ultimate floor Term Structure 0% BUY
10-yr U.S. bond yield
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
* TPP - Equity returns are peak to trough, bond returns match equity peak to trough dates but Bond TPP are in brackets
Source: CIBC World Markets Inc., Bloomberg (Updated Jan 5, 2012. Data as of Jan04)
2012
Page 38
Bond Yield (%)
3.65%
Bond Yield Floors The Main Concern at Present is the Expected Inflation Component vs Default Premium Last Exit before Drug Inspection Station
1997 Can Bond Yields Fall Without Lower Inflation or Deflation? Example Secular to edit Master title style Inflation 2010 Bond Yield Floors: It Doesnt Add Click Up
7% 50 bps CDS Premia 100 bps IRP Growing Debt Crisis 5% Floor
7 6.5 6 5.5 5 4.5 4 3.5 3 2.5 2 1.5 1 0.5 0

Current Floor in this Range Without Safe Haven Reserve Currency Status If Default Premia Expanded causing higher rates and much weaker economic growth, higher rates for the wrong reason 4% to 4.25%
50 bps CDS Default Premia 3% to 3.25% 50bps 50 bps CDS Default Premia 200bps 10-year TIPS Expected Inflation Rate 50 bps IRP If Expected Inflation Becomes 1% 100bps Term Premium
If U.S. was perceived as bankrupt & CDS Premia expand 200bps
Deflation Still Bond Yield stuck at 2% to 3% 2.5% 100bps to 200bps CDS Premia Depending on TRP, TS 50 bps IRP??
i.e. 450bps Expected Inflation
50 bps IRP
If Expected Inflation 1.5%
100bps Term Premium?
Expected -200bps Deflation boosts real rate but usually a disaster for growth, therefore, REAL rate 4.00% to 4.5% with 2% Deflation & 200bps other components
Page 39
- FACTOR 4 U.S. Bond Yield Term Structure

4.5 4 3.5 3 2.5 2 1.5 1 0.5 Term Premium=0.50 0 -0.5 Safe Haven Expected Inflation=2.15 CDS Premium=0.70
Inflation Risk Premium=0.50 Bond Yield
1/24/2010
3/24/2010
5/24/2010
7/24/2010
9/24/2010
1/24/2011
3/24/2011
5/24/2011
7/24/2011
9/24/2011
1/24/2012
3/24/2012
11/24/2009
11/24/2010
Term Premium
Ex pected Inflation
Inflation Risk Premium
CDS Premium
Nominal Bond Yield
11/24/2011
Safe Hav en Premium
5/24/2012
Cleveland Fed 10-year Inflation Expectations Estimate

7.0% 6.0%
5.0%
4.0%
3.0%
2.0%
1.0% Jan-82 Jan-85 Jan-88 Jan-91 Jan-94 Jan-97 Jan-00 Jan-03 Jan-06 Jan-09
Source: Cleveland Fed and CIBC World Markets Inc.
Page 41
Important US Bond Yield Reference Levels (Jan 2012) The US Safe Haven Advantage--The Key to Timing Stocks: Combination of Yield Levels & ROE Trends
Ceiling 4.1%
Click toBonds edit Master style Buy if US$ Stable & title ROE Falling
TSX 14000 but getting close to ceiling 3% - 3.2% Better Range

RECOVERY
Excessive Debt Floor
Probable 20-30 year target level 2.5%
SAFE
Buy US Stocks if ROE Rising
HAVEN
Probable FED two year target if globally coord action 2.0% US Safe Haven Levels
Extreme Risk IF S&P500 ROE Falling
1.67% Lowest level in 91,300 days (250 Years)
Page 42
Confidence A
Delicate Balancing Act

QE Crucial but Diminishing Returns,
Housing Needs Time

Page 43
US M1 Money Multiplier Diminishing Returns to QE ? Need Time
Page 44
US Housing Inventories
Page 45
U.S. Bank Security Holdings As % Of Bank Assets And U.S. 10y1y Yield Spread Click to edit Master title style
30 29 28 27 1 26 0 25 -1 24 23 22 Securities as a % of Bank Lending 21 Jan-73 Jan-76 Jan-79 Jan-82 Jan-85 Jan-88 Jan-91 Jan-94 Jan-97 Jan-00 Jan-03 Jan-06 Jan-09 US 1s10s -4 -2 -3 4 3
Source: Federal Reserve Board and CIBC World Markets Inc.
Page 46
How the Yield Curve Flattens is Crucial

Tilt Flattens May Work If 35/65 Playing With Fire Safe Haven Strategy
Click to edit Master title style Probably NOT Good Today
If 35% Economic Growth & If 65%

Flattens YES But NOT Likely Favourable +
Flatten Yes BUT Not The Same As Tilt & Long End Down May Contribute to Economic Growth
++
~ 0% Flatten From Long End
Page 47
Canada Housing Starts & Price Index

350 300 250 120 CA Housing Starts (LHS) CA Housing Price (RHS) 180 160 140
(in thousands)
200 150 100
100 80 60 40
50 0
20 0
Sep-90
Sep-92
Sep-94
Sep-96
Sep-98
Sep-00
Sep-02
Sep-04
Sep-06
Sep-08
Sep-10
Source: CMHC, Teranet & National Bank Page 48
Sep-12
U.S. Housing Starts & Price Index

2500 US Housing Starts (LHS) 2000 US Housing Price (RHS) 200 250
(in thousands)
1500
150
1000
100
500
50
Sep-90
Sep-91
Sep-92
Sep-93
Sep-94
Sep-95
Sep-96
Sep-97
Sep-98
Sep-99
Sep-00
Sep-01
Sep-02
Sep-03
Sep-04
Sep-05
Sep-06
Sep-07
Sep-08
Sep-09
Sep-10
Sep-11
Source: U.S. Census Bureau & Case-Shiller Page 49
Sep-12
Canada Employment Level

(in thousands)
1,500 24,000 22,000 20,000 18,000 16,000 14,000 12,000 10,000 CA Total CA Construction 1,400 1,300 1,200 1,100 1,000 900 800 700 600
Sep-90
Sep-91
Sep-92
Sep-93
Sep-94
Sep-95
Sep-96
Sep-97
Sep-98
Sep-99
Sep-00
Sep-01
Sep-02
Sep-03
Sep-04
Sep-05
Sep-06
Sep-07
Sep-08
Sep-09
Sep-10
Sep-11
Source: STCA Page 50
Sep-12
U.S. Employment Level

(in thousands)
200,000 180,000 160,000 140,000 120,000 100,000 80,000 US Total US Construction 10,000 9,000 8,000 7,000 6,000 5,000 4,000
Sep-90
Sep-91
Sep-92
Sep-93
Sep-94
Sep-95
Sep-96
Sep-97
Sep-98
Sep-99
Sep-00
Sep-01
Sep-02
Sep-03
Sep-04
Sep-05
Sep-06
Sep-07
Sep-08
Sep-09
Sep-10
Sep-11
Source: Bureau of Labor Statistics Page 51
Sep-12
Ultimate Financial Risk
Page 52
Five Factor Analysis

Factor
Bond Yield
Current Ceiling: 3.65% Current Bond Yield: 1.5% - Well below the ceiling Bond Yield Momentum: Negative Weekly Momentum: Positive Monthly Momentum: Positive
Rank*
1
Currency
ROE/GDP
S&P 500 ROE: Still up but losing momentum - Neutral GDP: Remain positive low level Neutral or Negative
Default Premium
Weekly Momentum: Positive Monthly Momentum: Positive Weekly Momentum: Positive Monthly Momentum: Positive Though the momentums remain positive, they are diminishing
Bid to Cover Ratio
Overall
* Positive:1, Negative:5
RORO
& Rotations (RORORO)

Page 54
Sustainable Yield U.S. Dividend Yield v.s. 10 year Govt Bond Yield

18 16 14 12 10 8 6 4 2 0 S&P 500 Yield US 10y Bond Yield
Dec-70
Dec-72
Dec-74
Dec-76
Dec-78
Dec-80
Dec-82
Dec-84
Dec-86
Dec-88
Dec-90
Dec-92
Dec-94
Dec-96
Dec-98
Dec-00
Dec-02
Dec-04
Dec-06
Dec-08
Dec-10
Canada Dividend Yield v.s. 10 year Govt Bond Yield
20 18 16 14 12 10 8 6 4 2 0
TSX Yield CA 10y Bond Yield*
Dec-70
Dec-72
Dec-74
Dec-76
Dec-78
Dec-80
Dec-82
Dec-84
Dec-86
Dec-88
Dec-90
Dec-92
Dec-94
Dec-96
Dec-98
Dec-00
Dec-02
Dec-04
Dec-06
Dec-08
* CA Long-Term Bond Yield is used during 1976 - 1982
Dec-10
- FACTOR 3 Income Statement Click to edit Master title style
Dividends Paid To Common Shareholders (Standardized)

1.1 1.05 1 0.95 0.9 0.85 0.8 0.75 Aug-08 Apr-09 Dec-09 Aug-10 Apr-11 Dec-11 World S&P 500
Source: Reuters and CIBC World Markets Inc.
Page 57
- FACTOR 3 Income Statement Click to edit Master title style
Dividends Paid To Common Shareholders (Standardized)

1.1 1.05 1 0.95 0.9 0.85 World 0.8 0.75 Aug-08 S&P TSX
Apr-09
Dec-09
Aug-10
Apr-11
Dec-11
Source: Reuters and CIBC World Markets Inc.
Page 58
S&P 500 and S&P 500 VAE (Value-Added Exporters)
Page 59
TSX Financials, Info Tech and Telecom

Sector FIN IT TEL Weights 29.7% 1.5% 4.2% Trailing ROE 0.26 -0.78 0.37 Ex. EPS growth -1.7% 19.8% 7.0%
Click to edit Master title style 3.1%

-4.9% 5.3%
Earning Surprise
Page 60
TSX Equity Only NO Asset Allocation Here

Annual Return Accumulated Return Annual Volatility New 15.2% 863.9% 17.1%
12 10 8 6 4 2 0
TSX 5.0% 118.0% 15.7%
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
New
Source: CIBC World Markets Inc., Reuters
TSX
Page 61
2011
S&P 500 Version 1 Equity Only NO Asset Allocation Here
Annual Return Accumulated Return Annual Volatility
Ver. 1 10.5% 232.6% 18.0%
SPX 5.6% 93.2% 17.5%
4 3.5 3 2.5 2 1.5 1 0.5 0
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
SPX Ver. 1
Source: CIBC World Markets Inc., Reuters
SPX
Page 62
2011
S&P TSX ROE Volatility Indices

3 ROE Vol 2.5 ROE Stable ROE Vol/Stable 2 1.5 1.5 1 1 0.5 2 2.5
0.5
99 8
99 9
00 0
00 1
00 2
00 3
00 4
00 5
00 6
00 7
00 8
00 9
01 0
01 1 0/2 9/3
0/1
0/1
0/2
0/2
0/2
0/2
0/2
0/2
0/2
0/2
0/2
0/2
0/2
9/3
9/3
9/3
9/3
9/3
9/3
9/3
9/3
9/3
9/3
9/3
9/3
9/3
9/3
0/2
01 2
S&P TSX Value & Growth Indices

6 CA Growth 5 CA Value Growth/Value 4 1.8 1.6 1.4 1.2 1 3 0.8 2 0.6 0.4 1 0.2 0 0
99 8
99 9
00 0
00 1
00 2
00 3
00 4
00 5
00 6
00 7
00 8
00 9
01 0
01 1 0/2 9/3
0/1
0/1
0/2
0/2
0/2
0/2
0/2
0/2
0/2
0/2
0/2
0/2
0/2
9/3
9/3
9/3
9/3
9/3
9/3
9/3
9/3
9/3
9/3
9/3
9/3
9/3
9/3
0/2
01 2

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5533 5118 Tails in RORO World Presentation

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Peter Gibson Managing Director

Jeff Evans Executive Director

Portfolio Strategy & Quantitative Research

Understanding How the World Changed in 1998 Long Depression vs

Click to edit Master title style

Click to edit Master title style

Click to edit Master title style

TSX Composite CDN C10y Bonds 3.72% 1.35%

US High Yield Bonds Gold

Source: CIBC World Markets Inc., Bloomberg Page 4

Canada and US Equities, Bonds and T-bills Historical Return

Click to edit Master title style

14% 12% 10% 8% 6%

Source: Bloomberg and CIBC World Markets Inc.

US Asset Classes Real Return

Click to edit Master title style

Click to edit Master title style

Too Much Debt

US Debt to GDP Both Momentarily CLOSE to 100%

Source: CIBC World Markets Inc., Bloomberg

Canadian Debt to GDP

Source: CIBC World Markets Inc., Bloomberg

Click to edit Master title style

CONCLUSION: CANNOT INFLATE AWAY DEBT AND DEFLATION IS NOT AN OPTION

Keeping Bond Investors Happy Might Demand a Dangerously Weak economy

Bond Yields (i.e. 4.5 5%)

Economy Dangerously Weak

S&P 500 Price and Bond Yields

U.S. 10-Year Bond Yield (left)

Click to edit Master title style 1650

Rates fall, stock prices fall anyway

Fed cuts rates, stock market falls (first time in 50 years)

Click to edit Master title style

Coincide with Deflation and Economic Depression

The Long Depression

The Great Depression

Two of the Worst Stock Market Collapses in 160 Years

We are not retreating we are advancing in another direction -General MacArthur

US Real Rates (RHS)

Click to edit Master title style

Click to edit Master title style

e.g.: +5% p.a. due to falling interest rates

Constant or falling at 1% p.a.

Click to edit Master title style

BUT P/E Compression

S&P 500 index

S&P 500 Adjusted P/E (RHS)

TSX & S&P 500 Price Earning Ratio

Click to edit Master title style

Source: CIBC World Markets Inc., Bloomberg Page 21

Volatility and Opportunity In The Great Depression

Click to edit Master title style

$1MM $60,470,000 +50.7%+/-4.38

Required 88 perfectly correct switches in 10 years

Click to edit Master title style

Click to edit Master title style

Why RORO? Low Returns,

Higher Volatility and

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Previous Crisis Risks Interest Rate Spikes

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SPIKE Panic Depression SPIKE