pop and fizzle
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Pop and Fizzle. Benjamin Tal, Senior Economist. A Lost Decade. US Housing – Far From Normal. Negative Equity in US Housing Market. Credit Availability Still Looks Tight. Number of Failed Financial Institutions (US). US Labour Market: Still Long Way to Full Employment. - PowerPoint PPT PresentationTRANSCRIPT
January 2010
Pop and Fizzle
Benjamin Tal, Senior Economist
| 2
A Lost Decade
% Change in Real GDP(US)
15
25
35
45
55
65
75
40s 50s 60s 70s 80s 90s 00s
% Change in RealNet Worth (US)
-10
0
10
20
30
40
50
60
70
60s 70s 80s 90s 00s
| 3
US Housing – Far From Normal
15
35
55
75
95
115
135
155
175
99 01 03 05 07 09
Existing Home SalesNew Home Sales
I ndex1999=100
First timehome buyer
tax credit
0
2
4
6
8
10
12
14
16
18
20
99 01 03 05 07 09
Ratio - Existing home sales to new home sales
A recordhigh
| 4
Negative Equity in US Housing Market
0
2
4
6
8
10
12
14
16
18
2006 2007 2008 2009
Mn households 10 million with negative equity of more than 20%
| 5
Credit Availability Still Looks Tight
- 100
- 50
0
50
100
150
200
250
300
350
1990Q1 1996Q1 2002Q1 2008Q1
Household borrowing, bn$ (4qrtr avg)
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
1990FQ1
1993FQ1
1996FQ1
1999FQ1
2002FQ1
2005FQ1
2008FQ1
Ratio, nonperforming loans to total loans
Money centre banks and major regionals
| 6
Number of Failed Financial Institutions (US)
0
100
200
300
400
500
600
79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09
Total (Units)
| 7
US Labour Market: Still Long Way to Full Employment
15
20
25
30
35
40
45
61 70 75 82 91 01 09
% (eve of recovery)
Probability of ExitingUnemployment in Given Month
Post-warlow
Average Weekly Hours
32.4
32.6
32.8
33.0
33.2
33.4
33.6
33.8
34.0
34.2
05 06 07 08 09
| 8
Mega Bust in US Business Spending
Business I nvestment
-25
-20
-15
-10
-5
0
5
10
15
20
25
71 77 83 89 95 01 07
y/y % chg
2009
Business I nvestment Cumulative Drop
-25
-20
-15
-10
-5
0
Q4-00 toQ2-03
Q2-08 toQ2-09
ITMeltdown
:Peak
toTrough
So farcurrent
recession
%
Source: BEA, CIBC
| 9
Impact of Fiscal Stimulus in 2009-Q3
Without Stimulus Actual
Source: CBO, CIBC
0.4
2.6
GDP Growth (% , ar)
-2.3
-1.2
Employment Growth (mn.)
9.0
9.6
Unemployment Rate (% )
| 10
Contribution of US Stimulus Package to US GDP Growth (%-pts)
Fiscal Stimulus
-2
-1
0
1
2
3
4
09
Q:2
09
Q:3
09
Q:4
10
Q:1
10
Q:2
10
Q:3
10
Q:4
11
Q:1
11
Q:2
11
Q:3
11
Q:4
Forecast
0
| 11
FED Financing US Budget Deficit
US Budget Deficit
-1600
-1400
-1200
-1000
-800
-600
-400
-200
0Ja
n-0
9Feb
-09
Mar-
09
Ap
r-0
9M
ay-0
9Ju
n-0
9Ju
l-0
9A
ug
-09
Sep
-09
Oct
-09
Nov-0
9D
ec-
09
$Bn
0
200
400
600
800
1000
1200
1400
1600
1800
2000
Jan
-09
Feb
-09
Ma
r-0
9A
pr-
09
Ma
y-0
9Ju
n-0
9Ju
l-0
9A
ug
-09
Se
p-0
9O
ct-0
9N
ov
-09
De
c-0
9
Fed's holdings of US Gov't & Agcy Securities($Bn)
| 12
Massive Fiscal Stimulus Worldwide in 2009/10
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
C AN US C HN J PN AUS UK GER FRA
2009 2010
Discretionary Fiscal S timulus, % of GDP
Source: IMF
| 13
Monthly New Yuan Loans by Chinese Banks
Source: The People’s Bank of China
0200400600800
1000
12001400160018002000
08 09
bn yuan
| 14
Commodities Rally May Overshoot
0
100
200
300
400
500
600
-6 -5 -4 -3 -2 -1 0 1 2 3 4 5 6 7
This Recession 2001 Recession 90 -91 Recession 81-82 Recession
Months before trough in US GDP Months after trough in US GDP
S&P GSCI I ndex ( J an-70=100)
| 15
C$ Overvalued Relative to Commodities
50
60
70
80
90
100
110
08Q3 08Q4 09Q1 09Q2 09Q3 09Q4
1.00
1.05
1.10
1.15
1.20
1.25
Index (08Q3=100) reverse axis
Source: Statistics Canada, CIBC
C$/US$ (R)
BoC Commodity price index (L)
| 16
Strong Rebound in Domestic Demand
Average first 2 Qtrs of Recovery
0.0
0.5
1.0
1.5
2.0
2.5
3.0
1982 1991 2009
% (ar)
| 17
The Job Market is Improving
Employment Growth
-100
-80
-60
-40
-20
0
20
40
60
80
07 08 09
'000, m/m3-mo moving avg
J ob Creation by Industry ( J ul-Dec 09)
-90 -60 -30 0 30 60
HealthC onstruction
EducationFinance
Accom.FoodTrade
Manufacturing
UtilitiesAgriculture
Mining/Oil&GasTransport
Public AdminBus. Support
'000
Source: Statistics Canada, CIBC
| 18
Canadian House Prices Starting to Overshoot
Source: CREA, IMF, CIBC
Real House Prices
100
150
200
250
300
350
400
88 91 94 97 00 03 06 09
$000s (2009 prices)
Fair value
House Price Overvaluation, as of Nov 2009
0 4 8 12 16
ALTA
BC
MAN/SASK
ONT
QUE
ATL %
| 19
Housing: An Important Economic Driver
Source: CREA, Statistics Canada, Bank of Canada, CIBC
House Prices lead Construction J obs
1000
1050
1100
1150
1200
1250
1300
06 07 08 09220
240
260
280
300
320
340
360
C onstruction employment (L)Avg house price (R)
$'000, 3-mo moving avg$mn
Wealth Effect on Consumption
-2
-1
0
1
2
3
4
5
06 07 08 09 10200
220
240
260
280
300
320
340
360
Housing wealth effect (L)Avg Home Price (R)
$000s
Fcst
$bn
| 20
Replacement Investment Provides Only Temporary Boost
Source: Statistics Canada, CIBC
Capacity Utilization
60
65
70
75
80
85
90
88 91 94 97 00 03 06 09
%
recordlow
0
2
4
6
8
10
12
82-83 92-93 02-09
First 3Qtrs of recovery inbusiness investmentFollowing 3Qtrs of recovery inbusiness investment
| 21
Canadian Economy:In Like a Lion, Out Like a Lamb
-8
-6
-4
-2
0
2
4
6
07 08 09 10F
q/q % chg in Real GDP, s.a.a.r. Forecast
| 22
Bank of Canada Has Hiked Prematurely in Past
0
1
2
3
4
5
6
7
8
9
Nov-91 Nov-95 Nov-99 Nov-03 Nov-07
Bank Rate Fed Funds
premature tightening
premature tightening
%
| 23
Credit Continued To Expand During the Recession
Source: Statistics Canada, CIBC
Real Household Credit
-15-12
-9-6-30369
1215
75 79 83 87 91 95 99 03 07
y/y % chg
09
indicatesrecession
| 24
Average Annual Change in Consumer Bankruptcies
Source: Statistics Canada, CIBC
Since 1980
0
2
4
6
8
10
12
14
During periods of fallinginterest rates
During periods of risinginterest rates
%
| 25
Mortgage Arrears Influenced Mostly by Unemployment, Not by Interest Rates
Source: Statistics Canada, CIBC
High Correlation
0.0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
90 93 96 99 02 05 080
2
4
6
8
10
12
14
Mortgage Arrears (L)Unemployment Rate (R)
Low Correlation
0.0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
90 93 96 99 02 05 080
2
4
6
8
10
12
14
16
Mortgage Arrears (L)5-Yr Mortgage Rate (R)
| 26
Few Canadians at Risk on Mortgage Burden...
So Far
Source: CMHC, Ipsos Reid’s CFM, Statistics Canada, CIBC
Number of Households
Mortgage
12.5 million
27.8%
31.2%
Rent
DSR**<40%
28.9%39.9%
No-Mortgage
12.1%
* Loan-to-value ratio** Debt-service ratio
LVR*<80%
LVR*>80%
9.3% 2.8%
DSR**>40%
DSR**<40%
DSR**>40%
30.1% 1.1%
| 27
Low Income Canadians Rely Less on VRM
Source: Ipsos Reid’s CFM, CIBC
Share of Variable Rate Mortgage by Income Group
10
15
20
25
30
35
40
< $55k $55k - $70k $70k -$100k
$100k+
%
| 28
Money Market Fund
Out of Cash...
45
50
55
60
65
70
75
80Ja
n-0
8
Ap
r-0
8
Jul-
08
Oct
-08
Jan
-09
Ap
r-0
9
Jul-
09
Oct
-09
$bn
Money Market
Source: IFIC, CIBC
… Into Bond & Equities
40
50
60
70
80
Jan
-08
Ap
r-0
8
Jul-
08
Oct
-08
Jan
-09
Ap
r-0
9
Jul-
09
Oct
-09
60
80
100
120
140
160
180
200$bn
Bond & I ncome (L)
Equities(R)
$bn
| 29
10-Year Lagged Cyclically Adjusted TSX PE Ratio
0
10
20
30
40
50
60
70
Long-TermAvg
(23.7)
| 30
Dividend Stocks Have Done Well, Long Term (right) and Recently (left)
45.8
32.2
0
5
10
15
20
25
30
35
40
45
50
TSXC omposite
DividendAristocrats
% Total Return in 2009
800
1100
1400
1700
2000
J un-04 Dec-05 J un-07 Dec-08
TSX C omposite TRDividend Aristocrats TR
Total Return, J un-04 = 1000
Source: S&P, CIBC
| 31
Value of $100 Invested in TSX Comp. in 1975
0500
100015002000
25003000350040004500
J an-75 J an-81 J an-87 J an-93 J an-99 J an-05
C apital Gain = 7.4% per year
Total Return = 10.7% per year
| 32
Eight Highest Yielding TSX Industry Groups
Source: Bloomberg, CIBC
Indicated Dividend Yield (%)
Telecommunication Services 5.5
Utilities 5.1
Real Estate 5.0
Media 4.7
Diversified Financials 4.2
Health Care Equipment & Services 4.0
Banks 4.0
Insurance 3.8
| 33
Question
&
Answer
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