cfa victoria society annual forecast dinner presenter: paul balfour january 26, 2010
TRANSCRIPT
CFA Victoria SocietyAnnual Forecast Dinner
Presenter: Paul Balfour
January 26, 2010
Annual Forecast Dinner (Victoria, B.C.) - 3 -
Tonight’s Guesses, er … Forecasts
1. Oil
2. Gold
3. $CAD / $USD
4. Canadian 10 year bond yield
5. S&P/TSX Composite
6. S&P 500
Annual Forecast Dinner (Victoria, B.C.) - 4 -
Crude Oil – WTI Spot
20.00
40.00
60.00
80.00
100.00
120.0019
85
198
6
198
7
198
8
198
9
199
0
199
1
199
2
199
3
199
4
199
5
199
6
199
7
199
8
199
9
200
0
200
1
200
2
200
3
200
4
200
5
200
6
200
7
200
8
200
9
Annual Forecast Dinner (Victoria, B.C.) - 5 -
Speculation is not an Issue??
0
100,000
200,000
300,000
400,000
500,000
600,000
700,00019
83
198
419
85
198
619
87
198
819
89
199
019
91
199
219
93
199
419
95
199
619
97
199
819
99
200
020
01
200
220
03
200
420
05
200
620
07
200
820
09
Tho
usan
ds o
f B
arre
ls p
er D
ay
Nymex Average Daily Volume
World Oil Demand
Average daily oil demand worldwide has risen from 76 million barrels in 1999 to about 85 million today. Average daily traded volumes of just NYMEX light sweet crude futures were 609 million barrels per day in 2009 up from 150 million ten years earlier
Source: IEA, NYMEX/CME
Average daily oil demand worldwide has risen from 76 million barrels in 1999 to about 85 million today. Average daily traded volumes of just NYMEX light sweet crude futures were 609 million barrels per day in 2009 up from 150 million ten years earlier
Source: IEA, NYMEX/CME
Annual Forecast Dinner (Victoria, B.C.) - 6 -
Gold (London PM Fix)
400
600
800
100019
85
198
6
198
7
198
8
198
9
199
0
199
1
199
2
199
3
199
4
199
5
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6
199
7
199
8
199
9
200
0
200
1
200
2
200
3
200
4
200
5
200
6
200
720
08
200
9
Annual Forecast Dinner (Victoria, B.C.) - 7 -
Gold – A Metallurgist’s View!
Atomic Weight 207.20 196.97 26.98 63.50
Density 11.3 19.3 2.7 8.9
Hardness 1.5 2.5 2.8 3.0
Melting Point 327°C 1064°C 660°C 2562°C
Electrical Resistance 208 22.1 28.2 16.8
Price per pound 99¢ $17,600 $1.00 $3.35
Lead Gold Aluminum Copper
Annual Forecast Dinner (Victoria, B.C.) - 8 -
U.S. Trade Weight Dollar (DXY)
80.00
100.00
120.00
140.00
198
5
198
6
198
7
198
8
198
9
199
0
199
1
199
2
199
3
199
4
199
5
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6
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7
199
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199
9
200
0
200
1
200
2
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3
200
4
200
5
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6
200
7
200
8
200
9
Annual Forecast Dinner (Victoria, B.C.) - 9 -
US Dollar - Getting Undervalued?
PPP Valuation% Over/Undervaluation, Oct. 2009
27.8
26.5
22.9
20.7
19.7
16.4
7.8
6.0
-2.7
-16.1
-20 -15 -10 -5 0 5 10 15 20 25 30
NZD
AUD
EUR
CHF
NOK
CAD
GBP
JPY
SEK
USD
Source: Deutsche Bank
USD vs Purchasing Power Parity
70
80
90
100
110
120
130
140
150
160
1975 1980 1985 1990 1995 2000 2005 2010
DX
Y I
nde
x L
eve
l
PPP
Average DXY
20% bands
Source: Deutsche Bank, Bloomberg
Annual Forecast Dinner (Victoria, B.C.) - 10 -
Canadian Dollar & Commodity Prices
0.60
0.65
0.70
0.75
0.80
0.85
0.90
0.95
1.00
1.05
1.10
1995 1997 1999 2001 2003 2005 2007 2009
US
$ pe
r C
$
75
125
175
225
275
325
Inde
x
USD per CAD (left)
BoC Commodity Price Index (right)
Correlation = 0.92
Source: Bank of Canada
Annual Forecast Dinner (Victoria, B.C.) - 11 -
Canada 10-Year Bond Yield
4.00
6.00
8.00
10.00
198
5
198
6
198
7
198
8
198
9
199
0
199
1
199
2
199
3
199
4
199
5
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6
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7
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8
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9
200
0
200
1
200
2
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3
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4
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5
200
6
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7
200
8
200
9
Annual Forecast Dinner (Victoria, B.C.) - 12 -
Canadian Yield CurveHistorically Steep Levels Driven By Low Short Yields
Canadian Yield Curves
Source: yc/can 3mth… 12/31/09
Source: yc…\can & US yield curves0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
3 M
ths
1 Y
ea
r
2 Y
ea
rs
3 Y
ea
rs
5 Y
ea
rs
7 Y
ea
rs
10
Ye
ars
20
Ye
ars
30
Ye
ars
Yie
ld (
%)
December 31, 2007
December 31, 2009
Annual Forecast Dinner (Victoria, B.C.) - 13 -
S&P/TSX Composite Index
4000
6000
8000
10000
12000
14000
198
5
198
6
198
7
198
8
198
9
199
0
199
1
199
2
199
3
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199
9
200
0
200
1
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2
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3
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4
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5
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6
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9
Annual Forecast Dinner (Victoria, B.C.) - 14 -
Canadian Equity Market 2009Low Quality Outperformed
Source: RBCAM, Bloomberg* Credit ratings as of July 7 2009
# of Companies 5 22 131 187 68 9 3 75
S&P 500 Returns by Credit Rating - 2009
9% 12%
36% 33%
55%
105%
216%
43%
0%
50%
100%
150%
200%
250%
AA
A+
to
AA
A-
AA
+ t
o A
A-
A+
to
A-
BB
B+
to
BB
B-
BB
+ t
o b
b-
B+
to
B-
CC
C+
to
C-
No
t R
ate
d(A
LL
)
27.9%35.1%
56.2%
90.8%
0%
20%
40%
60%
80%
100%
TSX 60 S&P/TSXComposite
TSX SmallCap
TSXVenture
One Year TSX Performance Breakdown (TR)
Annual Forecast Dinner (Victoria, B.C.) - 15 -
Canadian Equity – OutlookTSX Bottom Up Earnings Expectations - 2011
Source: TD Securities – TSX Bottom Up Earnings
25%
22%
18%17%
15%14%
13%
11%
7% 6%
4%
0%
5%
10%
15%
20%
25%
30%
En
erg
y
Ma
teria
ls
S&
P/T
SX
Co
mp
osi
te
Fin
an
cia
l
Ind
ust
rials
Co
nsu
me
rD
iscr
etio
na
ry
Co
nsu
me
rS
tap
les
Te
chn
olo
gy
He
alth
Util
itie
s
Te
leco
m
2011
TSX Bottom Up Earnings Expectations
304%
242%217%
154%
0%
50%
100%
150%
200%
250%
300%
350%
1992-1995 1983-1986 2002-2005 2010-2013E
Conservative Earnings Recovery Expectations? Cumulative TSX Earnings Recoveries Troughs – First 3 Years
Annual Forecast Dinner (Victoria, B.C.) - 16 -
Canadian Equities – Lots of Cash Around
Source: RBC Capital Markets, Bank of Canada, Haver Analytics
Canadian Cash (Savings and Money Market Funds) as a % of TSX Market Cap
20
25
30
35
40
45
50
55
60
Jan-95 Jan-97 Jan-99 Jan-01 Jan-03 Jan-05 Jan-07 Jan-09
45.5%
57.0%
45.8%
Annual Forecast Dinner (Victoria, B.C.) - 17 -
S&P 500 Composite Index
200
400
600
800
1000
1200
1400
198
5
198
6
198
7
198
8
198
9
199
0
199
1
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2
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3
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9
200
0
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1
200
2
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3
200
4
200
5
200
6
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7
200
8
200
9
Annual Forecast Dinner (Victoria, B.C.) - 18 -
Major U.S. Market Indices2009 Returns
Three key performance themes played out in 2009.
1. Mid and small-caps outperformed large-caps
2. Growth strongly outperformed Value (third year in a row)
3. Technology beat everything
Three key performance themes played out in 2009.
1. Mid and small-caps outperformed large-caps
2. Growth strongly outperformed Value (third year in a row)
3. Technology beat everything
26.5%
43.9%
24.2%
40.5%
27.2%
19.7%
37.2%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
S&P 500 NASDAQComp.
Russell Top200 (Lg-cap)
RussellMid-Cap
Russell 2000(Sm-cap)
Russell 1000Value
Russell 1000Growth
Source: Morgan Stanley
Annual Forecast Dinner (Victoria, B.C.) - 19 -
A Big Thanks to my Personal Research Team!
“The views presented by Paul tonight do not necessarily reflect those of RBC, RBC Global Investment Management, Phillips Hager & North Investment Management etc., etc … In fact, the opposite is probably the case.”
- J. Montalbano
THE END
CHEERS!