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Attention has to be paid on what is happening in Canada. The loonie has been a
constant surprise, not only fairing very well through all the global turbulence but
also the aftermath of the federal election announcement. The Canadian dollar
has remained above “par” each and every day since February 1st and the long
GOC bond yield at 3.7% is not only 80bps below U.S. levels but is now 7bps
lower than Germany, which is another country that retains very decent macro
fundamentals.
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March 29, 2011 – BREAKFAST WITH DAVE
Consumer spending did manage to exceed expectations with a 0.7% MoM gain
in nominal terms, but again, inflation ate into more than half that; therefore, in
real or volume terms, the increase was +0.25% after a flat January. And this
includes the sudden revival in auto sales ― we shall see if this lasts. But what is
apparent is that consumer spending is coming in around a 1% annual rate in
real terms so far in Q1 and we see from last week’s numbers on durables that
capital spending is suddenly running pretty close to zero growth.
One thing is for sure: between the horse trading being done at the federal level
to avoid a shutdown in Washington and the accelerated cutbacks at the state
and local government levels, we are not holding our breath on any fiscal help
from the government sector. Many forecasters have gone from a 4% growth
forecast for Q1 down to just over 2% and now even that latest estimate may be
overly optimistic.
QE3 WILL COME BUT NOT AS EARLY AS MR. MARKET WOULD LIKE
Portfolio managers as a group are running their funds overweight equities by an
average of 67% relative to their typical benchmarks. And polls show that one-
third of them believe QE3 is coming this summer. We already know that this
Bernanke-led Fed is willing to be extremely aggressive, but as we saw in 2010,
the hurdle is high for quantitative easing. We need (i) signs of a double-dip, (ii) a
stock market correction of at least 15%, and (iii) deflation, not inflation. How on
earth will the Fed be able to do anything at all by then if headline inflation is
running north of 4% and the other central banks of the world are either
snuggling policy or moving in that direction ― unless the central bank really
wants to trash the dollar. We are certainly not inflationists and still see deflation
in credit, real wages and housing prices.
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March 29, 2011 – BREAKFAST WITH DAVE
Founded in 1984 and focused primarily on high net worth private clients, we are dedicated to the
prudent stewardship of our clients’ wealth through the delivery of strong, risk-adjusted
investment returns together with the highest level of personalized client service.
million usd for the S&P 500 Total construction, we offer a unique marriage please contact
Return Index over the same period. between our bottom-up security-specific research@gluskinsheff.com
fundamental analysis and our top-down
Notes: macroeconomic view.
Unless otherwise noted, all values are in Canadian dollars.
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 Canadian Equity and U.S. Equity portfolios, as applicable, and are presented net of fees and expenses.
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March 29, 2011 – BREAKFAST WITH DAVE
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