lunch with dave 120710
TRANSCRIPT
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David A. Rosenberg December 7, 2010Chief Economist & Strategist Economic [email protected]+ 1 416 681 8919
MARKET MUSINGS & DATA DECIPHERING
Lunch with DaveWHILE YOU WERE SLEEPING
Mr. A. B. Normal: sorry,but there is really nothingnormal about this cycle
Deflation remains the
primary risk in the U.S.
IN THIS ISSUE
While you were sleeping:risk-on trade is back; wegot anotherannouncement effectlast night out ofWashington
Canadas investment-ledexpansion bodes well for
future growth: Canada hasmanaged to achieve theholy grail of sustainablegrowth and price stabilitywithout a massive dose ofpolicy steroids
Twelve years of nothing!
Bernanke on Sunday night, followed by Obama on Monday night.
I said just last week that this was an announcement-driven market. Even
announcements on items that should have already been discounted long ago
seem to have a very sizeable market impact. As we are seeing today.
We got another announcement effect last night out of Washington, and guess
what, it was President Obama who blinked first.
With the GOP leadership on side, President Obama now proposes:
To extend the Bush era tax cuts for EVERYONE for two years (where they willlikely get extended again is there ever a good time to take someones
parking pass from them?)
An extension of the 99 weeks of emergency jobless benefits for another 13months (now we see why the bulls loved Fridays dismal payroll report)
Even some relief on the payroll tax front (by 2 percentage points to 4.2percent or $120 billion of stimulus, roughly $1,000 of savings per
household for 2011, with over $2,000 of savings for high-end earners). Keep
in mind that the payroll tax deduction merely replaces Obamas Making Work
Pay (MWP) tax break in the 2009 stimulus bill. The current move to cut
payroll taxes for all workers, regardless of income, will pack a more powerful
punch to be sure (the stimulus here of $120 billion is double the size of
MWP).
The 15% tax rate on capital gains and dividends remains intact for two yearsas well.
The estate tax establishes a 35% top rate (lowest in 80 years without thechange, it would have jumped to 55%) after a $5 million tax-free allowance
per individual. Most Democrats will be holding their nose on that one.
The Alternative Minimum Tax (AMT) will be temporarily indexed for inflation.This will prevent 21 million Americans from unfairly entering into a higher tax
bracket.
All in, this should be considered a second stimulus bill (deficit commission
R.I.P.). While the big part was the Bush tax cut extension, which basically just
saves the economy from $400 billion of restraint over the next two years, all the
other measures (depreciation allowances for businesses, continuation of a
college-tuition tax credit, expansion of the earned tax credit, and among others)
actually nets the economy $300 billion of fresh stimulus over the next two years
(about 40% of the size of the first stimulus bill that was passed in 2009).
Please see important disclosures at the end of this document.
Gluskin Sheff + Associates Inc. is one of Canadas pre-eminent wealth management firms. Founded in 1984 and focused primarily on high networth private clients, we are dedicated to meeting the needs of our clients by delivering strong, risk-adjusted returns together with the highest
level of personalized client service. For more information or to subscribe to Gluskin Sheff economic reports,
visitwww.gluskinsheff.com
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A Fed that is determined to boost asset prices, especially the equity market,and what this in turn implies for the cost of capital. One would ordinarily think that
all this pro-growth news wouldinvigorate the dollar
but in this new world of
investing, when the risk-on
trade is on, then rest assured
that the greenback falls back
A White House that begrudgingly will work with Congress to propose near-termfiscal measures to help improve the spending outlook.
One would ordinarily think that all this pro-growth news would invigorate the
dollar, but in this new world of investing, when the risk-on trade is on, then rest
assured that the greenback falls back slipping below the 100-day moving
average this morning. These Fed/Fiscal measures ensure that the beta and
speculative trade remains intact hence the big equity gainers are in Emerging
Markets, which is riding a five-day winning streak.
Commodities are also firming with oil prices powering ahead by 1% so far today
to over $90 a barrel. A headache, perhaps, for consumers, and a margin
squeeze for producers, but seemingly a small price to pay for all the renewed
government stimulus. Copper just hit a record high and the gold price has done
likewise this morning. Wheat is rallying again. Core inflation may stay contained
but headline inflation is likely to drift up into 2011. TIPS may not be that bad a
hedge, though we also believe that long-dated zeroes are very attractive right
now after this latest melt-up in yields.
Obviously, if the U.S. government opts for a series of fiscal measures that could
end up adding as much as $750 billion to the existing large public debt burden,
the fixed-income market is not exactly going to like it. The pay-go rules, which
supposedly would require savings of $350 billion to help defray the cost of these
new fiscal measures, are being swept under the carpet. While the lame-duck
Congress will undoubtedly vote "yea", what is the new Congress going to do
about the looming debt ceiling issue, which now will come earlier than previously
thought (especially the conservative segment of the GOP and the few Blue Dog
Democrats that are left)?
Theres really no sense in passing any moral judgment. The rest of the world is
moving towards austerity after already probing the outer limits of their deficit
finance capabilities. With the Fed stepping up to the plate and Bernanke hinting at
more QE later on, the Treasury has a captive market for its debt. Someone smart
must have known that QE2 was going to be a prelude for more fiscal easing and
hence more Treasury issuance. And the Fed probably does not mind at all that
fiscal fears in the bond market are now pushing retail investors into equities. As
Alan Greenspan told CNBC on Friday, this is where the central bank and the
government like to see the wealth effect on confidence and spending take hold.
Perhaps the announcement of the new fiscal agreement was timed in a week
that sees $66 billion of coupon issuance beginning with $32 billion of 3-year
notes today (to push more people out of the bond market and into riskier
assets). All that said, these reflationary initiatives are being put into place
because policymakers recognize that the primary trend is still one of deflation as
it pertains to core consumer prices, which ultimately has a 75% correlation to
the direction of long-term interest rates.
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Think about that for a second. The Bank of Canada did not triple the size of its
balance sheet. In contrast to most of the major central banks around the world,
from the Federal Reserve, to the Bank of Japan, to the ECB, to the Bank of
England, the Bank of Canada never did embark on a course of jeopardizing the
sanctity of its balance sheet through quantitative easing measures. And here
we have Ben Bernanke on 60 Minutes already contemplating QE3.
Even without all the massive
doses of policy steroids thatseem to keep the U.S.
economy afloat, it has been
the Canadian economy that
has been the one to not just
reclaim but actually pierce the
pre-recession peaks in both
employment and real output
The Bank did not allow policy rates to stay near-zero indefinitely, having boosted
them three times since early summer. The Bank has not ratified a depreciating
currency to stimulate the economy either. The Canadian dollar has actually
been remarkably stable in recent months despite all the global financial and
policy crosscurrents. In addition, the Federal government did not make
repeated attempts to sustain growth as has been the case south of the border.
We see just how fragile the U.S. recovery really is now that the entire outlook
comes down to whether a tax cut that always had a 10-year shelf life should be
extended. So, even without all the massive doses of policy steroids that seem to
keep the U.S. economy afloat, it has been the Canadian economy that has been
the one to not just reclaim but actually pierce the pre-recession peaks in both
employment and real output.
CHART 1: TWIN PEAKS LEVEL OF BOTH REAL GDP AND EMPLOYMENT
BACK TO ALL TIME HIGHS
Canada
Source: Haver Analytics, Gluskin Sheff
Real Gross Domestic Product
(tril lion chained 2002 C$, seasonally adjusted at an annual rate)
10987654321
1.35
1.30
1.25
1.20
1.15
1.10
Employment
(millions, seasonally adjusted)
10987654321
17.5
17.0
16.5
16.0
15.5
15.0
14.5
Not only that, but we are starting to finally see some signs that Canada is
catching on to classic supply side economics, which will lead to a moresustainable growth path than the government and consumption-led model the
United States is attempting to nurture through its ongoing array of Keynesian-
style demand policies. In fact, it was the lingering weakness in the U.S. economy
that was the principal cause of Canadas low 1% annualized GDP growth rate in
the third quarter. If not for a sharp deterioration in our net exports, real GDP
would have actually posted an impressive 4.5% expansion.
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The key factor behind this performance is business investment in machinery and
equipment, which surged at a 28.7% annual rate and on the heels of a 32.7%
run-up in the second quarter and a 17.8% boost in the first quarter. You have to
go back at least 13 years to see the last time Canadian companies made this
sort of spending commitment to the economy. Capital spending, of all the major
components of the economy, is the one that exerts the most durable and
perpetual impact on the economy, via job creation and productivity.
CHART 2: STRONGEST BACK-TO-BACK-TO-BACK INCREASE IN 13 YEARS
Canada: Real Business Investment in Machinery & Equipment (quarter-over-quarter percent change at an annual rate)
1098765432109876
50
25
0
-25
-50
Source: Haver Analytics, Gluskin Sheff
While Canada has lagged the United States for much of the past decade in
terms of productivity performance, it is looking increasingly as though we are onthe precipice of an important reversal. Productivity growth, while still low, is
showing signs of accelerating, as one would expect with business capital
spending rising as a share of GDP for three quarters in a row, and at nearly 9%,
heading close to a record high. Our research shows that there is about a 4 to 5
quarter lag before stronger productivity growth begins to kick in and this will be
crucial in future Bank of Canada decisions if it means that Canadas non-
inflationary growth potential has improved. Based on some preliminary in-house
research of our own, it looks as though the positive supply-side investment
shock that Canada is now experiencing could soon result in Canadas potential
GDP growth rate rising into a 3-4% range which would be very constructive for
return on equity, the long end of the Government of Canada bond curve as well
as the Canadian dollar.
Indeed, some early and positive signs are coming to the surface. Think about it.
Over the past year, the Canadian economy expanded 3.4% and yet this growth
performance still managed to coincide with a decline in the core (excluding
food, energy and indirect taxes) inflation rate to 1.1% from 1.3% a year ago.
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CHART 3: CORE INFLATION VERY TAME
Canada: Consumer Price Index: All Items less Food, Energy & Indirect Taxes(year-over-year percent change)
1050505
6
5
4
3
2
1
0
Source: Haver Analytics, Gluskin Sheff
This inflation performance has occurred even though the Canadian
unemployment rate has come down to 7.6% from 8.4% a year ago and on a
comparable U.S. basis, is actually now at 6.7% (on a seasonally adjusted basis).
Again, contemplate that. The last time our apples-to-apples unemployment rate
was at 6.7% was back in January 2009, when the U.S. was at 7.7%. Today, the
U.S. jobless rate is at 9.8%. To think that Canada managed to achieve a lower
jobless rate with declining core inflation and without the need for radical fiscal,
monetary, and bailout largesse is quite remarkable.
CHART 4: CANADA-U.S. UNEMPLOYMENT COMPARISON
(percent, seasonally adjusted)
Canada: R3 Unemployment Rate Comparable to the U.S. Rate(thick line: left hand scale)
United States: Official Unemployment Rate(thin line: right hand scale)
10505050
14
12
10
8
6
4
12
10
8
6
4
2
Source: Haver Analytics, Gluskin Sheff
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Maybe this is why the Canadian dollar has improved towards par and has stayed
there despite all the angst surrounding Europe, which has triggered a so-called
flight to safety (though perhaps the loonie fits that safety bill today). While
Canada is certainly not without its blemishes, especially with respect to
consumer and provincial government balance sheets, total financial and
nonfinancial debt, at 180% of GDP, is fully 80 percentage points lower than it is
in the United States. Taking into account all debts, private and public, on- and
off-balance sheet, there is no comparison between the two countries when it
comes to debt ratio comparisons.
It wasnt Hank Paulson who
the Cameron government hiredas a fiscal consultant, but
former Canadian finance
minister Paul Martin
According to the June 6th edition of the U.K. daily The Telegraph (Britain to
emulate Canadas radical solution to tackle debt), it wasnt Hank Paulson who
the Cameron government hired as a fiscal consultant, but former Canadian
finance minister Paul Martin. Mr. Martin took Canada from the brink of financial
collapse in 1993 and five years later posted surpluses which lasted for more
than a decade: program spending relative to GDP was sliced from 17.5% to 12%
and revenues from 17% of GDP to 28%.. Anyone who tells you that a structural
deficit can be solved without help from the revenue side is purely delusional.
Canada has managed to achieve the holy grail of sustainable growth and price
stability but with not only far lower leverage than is the case state-side but with a
far lower unemployment rate and a higher industry capacity utilization rate to
boot (76.0% here versus 74.8% in the U.S.A. and without the export-led
benefit of a weaker currency). There would have been a time when a GDP
growth rate, like the one Canada has managed to post in the past year, coupled
with such tightness in the labour market, would result in increasing inflation
pressures. But that is hardly the case today. In fact, not only is core consumer
inflation tame, but finished goods producer prices are deflating and unit labourcosts in the business sector are running as flat as a beaver tail. One can only
imagine if the folks at the Bank of Canada shouldnt be doing high fives, but
that is definitely not Mark Carneys style.
If there is one financial variable that is responsible for all this success
especially when you look around the industrialized world and see all the basket
cases it is probably the Canadian dollar. While it is clearly a competitive
hurdle for domestic manufacturers, the loonies strength is not without its
benefits. We are a very big exporting nation, but guess what, we are also a huge
importer. The reality is that we import twice as much machinery and equipment
about $150 billion annually as we export. The stronger Canadian dollar has
dramatically reduced the prices that local producers pay for these imported
capital equipment, which is being deployed to raise productivity and hence ourfuture living standards. In fact, the cost of imported capital goods, on average,
is about 20% less expensive today for our companies with the Canadian dollar
near par than it was a decade ago when the loonie was sinking towards the 60
cent threshold.
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CHART 5: PRICES FOR MACHINERY & EQUIPMENT STILL DEFLATING
Canada: Implicit Price Deflator: Machinery & Equipment(year-over-year percent change)
10505050505
20
15
10
5
0
-5
-1 0
Source: Haver Analytics, Gluskin Sheff
The Bank of Canada will likely serve up some cautionary words over the
economic outlook in todays press release. But there are some very important
domestic structural shifts taking place beneath the surface that are too complex
for a press release like the fact that Canadas capital stock, after seven years
of stagnation, is now starting to expand. These shifts already seem to be laying
the groundwork for future productivity gains, and the fact that the Federal
government did not blow a hole in our fiscal situation means that declining
corporate tax rates can help nurture this investment-led revival in the economy.
All of this is actually very constructive for the longer-run outlook for the Canadian
economy and our capital markets, and may help extend the TSX outperformance
relative to the S&P 500. An outperformance in Canadian dollar terms that has
been a feature of the landscape in seven of the past eight years and very likely
to persist considering the weakened state of Americas fiscal backdrop, Fed
balance sheet and the U.S. dollar.
CHART 6: HALFWAY THROUGH THE CANADIAN
STOCK MARKET OUTPERFORMANCE
(percent change)
*Dates reflect the trough (August 12, 1982) and the peak (March 24, 2000) in the S&P 500 Composite Index
Source: Bloomberg, Haver Analytics, Gluskin Sheff
-22.7
28.9
83.9
S&P 500
Composite
TSX Composite TSX (USD terms)
1391.4
621.3
522.3
S&P 500
Composite
TSX Composite TSX (USD terms)
March 24, 2000 to November 30, 2010August 12, 1982 March 24, 2000*
Then And Now
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It is not just about commodities, though the secular bull market and Canadas
exposure, which is triple the market cap representation in the S&P 500, doesnt
hurt either.
CHART 7: CANADIAN MARKET GEARED MORE TOWARDS COMMODITIES
Source: Bloomberg, Gluskin Sheff
3.1%
3.4%
3.6%
10.8%
10.9%
11.0%
11.1%
11.7%
15.3%
19.0%
Telecom
Utilities
Materials
Cons. Discret
Industrials
Cons. Staples
Health Care
Energy
Financials
Info Tech
0.7%
1.5%
2.7%
2.9%
4.4%
4.7%
5.8%
23.0%
25.2%
29.1%
Health Care
Utilities
Cons. Staples
Info Tech
Telecom
Cons. Discret
Industrials
Energy
Materials
Financials
S&P 500 Composite Index(percent, as of November 30, 2010)
TSX Composite Index(percent, as of November 30, 2010)
Its about
i. Yield, and at 2.7%, investors pick up a 70 basis point premium over theS&P 500 dividend yield.
ii. Banking sector stability, and in Canada the financials have a 30% marketcap share versus 15% state-side and the Canadian banks are more stableinstitutions with stronger balance sheets and much higher dividend yields
(3.9% compared to 1.2%) and none of them have cut their dividend in 18years.
CHART 8: CANADIAN BANKS ARE NUMBER 1
Source: World Economic Forum, Global Competitiveness Report 2010-11, National Post (Moodys Rates Canadas
Banks Tops, October 9, 2009)
Banks ranked on a scale from 1 (may need
government bailout) to 7 (sound)
4.4United States111
6.5South Africa6
6.5Chile5
6.5Lebanon4
6.5Australia3
6.4Hong Kong8
6.4Panama7
6.3Singapore9
6.3Malta10
6.6New Zealand2
6.7Canada1
ScoreCountryRank
4.4United States111
6.5South Africa6
6.5Chile5
6.5Lebanon4
6.5Australia3
6.4Hong Kong8
6.4Panama7
6.3Singapore9
6.3Malta10
6.6New Zealand2
6.7Canada1
ScoreCountryRank
Average Bank Financial Strength
(rating by country)
World Economic Forum, Global
Competitiveness Report 2010-11
Moodys Report,
September 2009
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CHART 9: CANADA OFFERS A YIELD PREMIUM
(percent)
2.7
3.9
1.5
2.0
1.2
0.6
Stock Market Di vi dend Yi el d Bank Sector Dividend Yi eld 2-year Government N ote Yiel d
Can ad a U .S.
Source: Bloomberg, Gluskin Sheff
iii. Resources, or in other words, what China is buying.iv. A pro-business federal government, one of the few in the industrialized
world, with a focus on lower corporate tax rates.
v. Fiscal probity also the only central government with a credible 5-yearplan to balance its books.
What global investors need most is a reliable currency that is unlikely to hurt
them. The only time in the past decade when investors got hurt being long the
Canadian dollar was during that awful post-Lehman collapse days of 2008 and
early 2009 when a U.S. recession morphed into a near-global depression. So
lets just say that beyond Black Swan events, it remains unclear as to whatwould otherwise derail a loonie supported by a supply-side pro-growth current.
Some may claim that the Canadian dollars ascent is a prime reason as to why
the trade picture has swung from surplus into deficit in recent years. But this
may just be a case of the capital account (surplus) driving the current account
(deficit). Canada is now on the global radar screen as a great destination for
foreign capital
i. On track for a record net foreign inflow over $90 billion into the Canadianbond market this year,
ii. More than $12 billion into the local equity market, andiii. More than $40 billion of foreign direct investment flows,It could well be that the large-scale inflows into Canada from abroad are helping
boost Canadian assets, wealth and spending which in turn is showing through in
higher imports. As mentioned above, not imports of spurious consumption
goods, but of productivity-enhancing and ultimately job-promoting capital
equipment.
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After all, the balance of payments has to balance but this is a time when it may
not be appropriate to blame the current account deficit on the Canadian dollars
strength. This strength symbolizes Canadas status in the world as being a
stable place to invest and at the same time help drive down the costs for the
$400 billion of imported merchandise that businesses and households annually
purchase from our foreign suppliers.
TWELVE YEARS OF NOTHING!
The bulls are out and armed with the Stock Traders Almanac and are going with
the mantra that December is the month to load up on stocks since this
particular month enjoys a Santa rally 77% of the time (versus 59% for the other
months) and the average gain is a top-ranking 1.65%.
Well, the next question is when to sell because we have had 12 Decembers
already and this market hasnt gained an inch of ground. Listed below are S&P
500 closing levels (what goes around comes around) the index is at the exact
same level where it closed out 1998:
December 28, 1998: 1,225
March 9, 2001: 1,233
January 6, 2004: 1,224
March 7, 2005: 1,225
June 13, 2006: 1,223
July 14, 2008: 1,228
April 23, 2010: 1,217
December 6, 2010: 1,223
MR. A. B. NORMAL
Sorry, but there is really nothing normal at all about this cycle. At this stage of
the recovery real GDP growth is typically humming along at a 5% pace and
accelerating, not 2%-and-change and in chronic need of Uncle Sams cheque
book. In that 17th month of expansion, payrolls are generally rising 200,000,
not 39,000. If you dont believe that consumers are forever changed in the
aftermath of the shock to their balance sheet in the past three years then think
again. The high-end may be holding in as they spend against their equity market
gains, but the rest are getting by solely on the virtue of Uncle Sams generosity,
which now comprises about one-fifth of personal income.
Be that as it may, you can see how attitudes have shifted because a mere 16%
of shoppers used a credit card on Black Friday which was below the 31% share
who did so a year ago (data from Americas Research Group). And the problemabout cash for a retailer is the reduced odds of seeing impulsive buying.
DEFLATION REMAINS THE PRIMARY RISK
The San Francisco Fed just published another great report titled The Breadth of
Disinflation.
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The fact that one of the most reliable research departments within the Fed
system could publish such a report two years into the greatest experiment with
fiscal, monetary and bailout stimulus and reflationary policies speaks volumes.
Frankly, what it tells us is that the 4.3% yield on the long bond is extremely
attractive in real terms.
The report found that prices are deflating now for 17% of the goods and services
that people consume evidence that price declines are widespread. At the
start of the recession, only 34% of the consumption basket was posting
disinflation or slowing price momentum. That number is now at 72% nearly
three of four items in the basket is disinflating. This is the same ratio we saw in
1981 but back then we had Volcker doing everything he could to kill inflation.
Today we have Bernanke doing everything within his powers from a 0% funds
rate to radical expansion of the central balance sheet to reignite inflation and all
he can do is throw matches on a wet towel.
Dont fight the Fed, indeed.
Since the first cut in the Fed funds rate on September 18, 2007
The S&P 500 has gone from 1,520 to 1,223. The unemployment rate has gone from 4.7% to 9.8%. Industry capacity utilization rates have gone from 81.5% to below 75%. The 10-year note yield has gone from 4.5% to below 3%. Housing starts have gone from 1.183 million units to 0.519 million. Median real estate values have gone from $210,500 to $170,500. Core inflation has gone from 2.1% to 0.6%.Well done!
Below we again highlight the appropriate SIRP strategy for such an environment:
1.Focus on safe yield: High-quality corporates (non-cyclical, high cash reserves,minimal refinancing needs). Corporate balance sheets are in very goodshape.
2.Equities: focus on reliable dividend growth/yield; preferred shares(income orientation).
3.Whether it be credit or equities, focus on companies with low debt/equityratios and high liquid asset ratios balance sheet quality is even more
important than usual. Avoid highly leveraged companies.
4.Even hard assets that provide an income stream work well in a deflationaryenvironment (ie, oil and gas royalties, REITs, etc).
5.Focus on sectors or companies with these micro characteristics: low fixedcosts, high variable cost, high barriers to entry/some sort of oligopolisticfeatures, a relatively high level of demand inelasticity (utilities, staples,health care these sectors are also unloved and under owned byinstitutional portfolio managers).
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6.Alternative assets: allocate significant portion of asset mix to strategies thatare not reliant on rising equity markets and where volatility can be used to
advantage.7.Precious metals: A hedge against the reflationary policies aimed at defusing
deflationary risks money printing, rolling currency depreciations,heightened trade frictions, and government procurement policies
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Gluskin Sheffat a Glance
Gluskin Sheff+ Associates Inc. is one of Canadas pre-eminent wealth management firms.Founded in 1984 and focused primarily on high net worth private clients, we are dedicated to theprudent stewardship of our clients wealth through the delivery of strong, risk-adjustedinvestment returns together with the highest level of personalized client service.OVERVIEW
As of September30, 2010, the Firmmanaged assets of$5.8 billion.
Gluskin Sheff became a publicly tradedcorporation on the Toronto StockExchange (symbol: GS) in May2006 andremains 49% owned by its senior
management and employees. We havepublic company accountability andgovernance with a private companycommitment to innovation and service.
Our investment interests are directlyaligned with those of our clients, asGluskin Sheffs management andemployees are collectively the largestclient of the Firms investment portfolios.
We offer a diverse platform of investmentstrategies (Canadian and U.S. equities,Alternative and Fixed Income) andinvestment styles (Value, Growth and
Income).1
The minimum investment required toestablish a client relationship with theFirm is $3 million.
PERFORMANCE
$1 million invested in our CanadianEquity Portfolio in 1991 (its inceptiondate) would have grown to $9.1 million
2
on September30, 2010 versus $5.9 millionfor the S&P/TSX Total Return Indexover the same period.
$1 million usd invested in our U.S.Equity Portfolio in 1986 (its inceptiondate) would have grown to $11.8 millionusd
2on September30, 2010 versus $9.6
million usd for the S&P500TotalReturn Index over the same period.
INVESTMENT STRATEGY & TEAM
We have strong and stable portfoliomanagement, research and client serviceteams. Aside from recent additions, ourPortfolio Managers have been with theFirm for a minimum of ten years and wehave attracted best in class talent at all
levels. Our performance results are thoseof the team in place.
Our investmentinterests are directlyaligned with those ofour clients, as Gluskin
Sheffs management andemployees arecollectively the largestclient of the Firmsinvestment portfolios.
We have a strong history of insightfulbottom-up security selection based onfundamental analysis.
For long equities, we look for companieswith a history of long-term growth andstability, a proven track record,shareholder-minded management and ashare price below our estimate of intrinsic
value. We look for the opposite inequities that we sell short.
$1 million invested in our
Canadian Equity Portfolio
in 1991 (its inception
date) would have grown to
$9.1 million2 on
September 30, 2010
versus $5.9 million for the
S&P/TSX Total Return
Index over the same
period.
For corporate bonds, we look for issuers
with a margin of safety for the paymentof interest and principal, and yields whichare attractive relative to the assessedcredit risks involved.
We assemble concentrated portfolios -our top ten holdings typically representbetween 25% to 45% of a portfolio. In this
way, clients benefit from the ideas inwhich we have the highest conviction.
Our success has often been linked to ourlong history of investing in under-followed and under-appreciated smalland mid cap companies both in Canada
and the U.S.
PORTFOLIO CONSTRUCTION
In terms of asset mix and portfolioconstruction, we offer a unique marriagebetween our bottom-up security-specificfundamental analysis and our top-downmacroeconomic view.
For further information,
please contact
Notes:Unless otherwise noted, all values are in Canadian dollars.
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1. Not all investment strategies are available to non-Canadian investors. Please contact Gluskin Sheff for information specific to your situation.2. Returns are based on the composite of segregated Value and U.S. Equity portfolios, as applicable, and are presented net of fees and expenses.
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December 7, 2010 LUNCH WITH DAVE
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