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How Scary Is It?By Avery Shenfeld, Chief Economist & Managing Director
November 2011
| 2
Canadian Growth ResumesAfter Disruptions in Autos and Energy
98
99
100
101
102
103
104
105
106
107
108
Jun-09 Oct-09 Feb-10 Jun-10 Oct-10 Feb-11 Jun-11
Canada US
Monthly GDP Index Nearly 3% Q3
| 3
Food Inflation Could Also Easein Lagged Response to Commodity Trend
50
7090
110
130
150170
190
210
05 06 07 08 09 10 11185
195
205
215
225
235
World Commodity Price Index: Food (L)US CPI: Food (R)
1982-84=1002005=100
Source: Bureau of Labour Statistics, Statistics Canada, CIBC
| 4
Europe’s Economies Look Recession Bound
25
30
35
40
45
50
55
60
65Ja
n-0
7
Jul-
07
Jan-0
8
Jul-
08
Jan-0
9
Jul-
09
Jan-1
0
Jul-
10
Jan-1
1
Jul-
11
ItalyFranceGermany
Expansion/Contraction Threshold
| 5
Bond Indigestion: From Moussaka to Lasagna
0
50
100
150
200
250
300
350
400
450
500
France Germany Spain UnitedKingdom
Exposure to Greece Exposure to Italy
foreign claims/exposures of reporting banks (US$, bns)
0
100
200
300
400
50010-year Italian bond spreads, bps
| 6
EFSF: Who Will Guarantee the Guarantors? (L)French Ratings Risk in Further Expansion (R)
27%
20%
23%30%
Italy, Spain
GermanyFrance
Rest of Europe
Share of EFSF € 780bn guarantee commitments
0
2
4
6
8
10
Fr EFSFGuarantee
Commitment
French Deficit(2012)
% of French GDPExpanded EFSF
Original EFSF
| 7
Eurozone Banks Cutting Back on LendingDue to Capital Shortages
0%
5%
10%
15%
Q4 2010 Q1 2011 Q2 2011 Q3 2011
net % of banks reporting increases in capital or liquidity positions as a contributor to net tightening of credit standards
| 8
Obama Seeks to Delay Fiscal Tightening
0
100
200
300
400
500
600
Prev. Stimulus American JobsAct
Other
Infrastructure
State and LocalTransfers
Employer PayrollTax C ut
Expensing ofInvestments
UnemploymentInsurancePayroll Tax Holidayfor Employees
US$, bns
1.8% of GDP
Expiring in 2012
3.5% of GDP*
*Of which 3% is for 2012
| 9
US Consumers: Where’s the Deleveraging?
6
8
10
12
14
16
18
Jan-07 Jan-10
US light vehicle sales (SAAR-mn units)
8-mon. high"Cash for Clunkers"
Sep-110
1
2
3
4
5
6
7
8
9
Jan-06 Jan-09
US personal savings rate (%)
Sep-11
| 10
Gasoline and Food Inflation Should Easein Response to Commodity Trend
50
70
90
110
130
150
170
190
210
05 06 07 08 09 10 11185
195
205
215
225
235
World Commodity Price Index: Food (L) US CPI: Food (R)
1982-84=1002005=100
Source: Bureau of Labour Statistics, Statistics Canada, CIBC
| 11
Slack Keeps Fed On Hold Through 2013;Fed Extending Term to Anchor Long Rates
-8
-6
-4
-2
0
2
4
6
-24 -18 -12 -6 0 6 12
Months from Employment Trough
1948 1953 1958 2007-
% decline in non-farm payrolls from peak
2008-11 recession /recovery
| 12
A Twist Not Worth Shouting About
28%*
Negative or near-negative equity
Positive Equity
0
100
200
300
400
500
600
Au
g-1
1
Au
g-0
9
Au
g-0
7
Au
g-0
5
Au
g-0
3
0
20
40
60
80
100
120
140
Mortgage Applications for Home Purchase (R)US Pending Home Sales (L)
indexes
| 13
Global Growth DisappointmentsA Challenge to Pace of Equities Rally
3.0
3.5
4.0
4.5
5.0
5.5
2010A 2011F 2012F
Actual/CIBC Forecast IMF Forecast (June '11)
World GDP, % chg (at purchasing power parity)
US 1.7China 9.3EZ 1.6Jpn -0.2
US 1.9*China 8.3EZ 0.4Jpn 2.5
Source: IMF, CIBC*Assumes US extends payroll tax cut and extended jobless benefits
| 14
Emerging Markets Now the Drivers For Commodities Rallies
0%
20%
40%
60%
Petr
ole
um
Refined
Copper
Coal
Pri
mary
Nic
kel
1990's
Today
BIC (Brazil, India, C hina) Share of Total C onsumption
Note: latest coal data as of 2009; petroleum data as of 2010; nickel and copper data as
of 2011 Q2, copper data excludes Brazil
Source: EIA, CRU, WBMS
| 15
Higher Prices Restrained Oil Demand
US Vehicles Miles Driven
-3.0
-2.0
-1.0
0.0
1.0
2.0
3.0
Aug-10
Nov-10
Feb-11
May-11
Aug-11
y/y % chg
-20
0
20
40
60
80
100
120
140
Feb-2009
Oct-2009
Jun-2010
Feb-2011
China's Auto Sales
y/y % chg
| 16
The Continental Divide
Employment/Population Ratio
5556575859606162636465
01 03 05 07 09 11
Canada US
%
Output Gap
-10
-8
-6
-4
-2
0
2
4
01 03 05 07 09 11
Canada US
%
| 17
Canada Sees 2.1% Growth in 2012 But it Will Take Low Rates to Get There
-8.0%
-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
Q1-07 Q1-08 Q1-09 Q1-10 Q1-11 Q1-120.0
1.0
2.0
3.0
4.0
5.0
Real GDP Growth (L) Overnight Interest Rate (R)
GDP growth (s.a.a.r.) %Forecast
| 18
Consumers Reduced Debt AppetiteSlows Retail Sales: Low Rates Needed for Longer
-6%
-2%
2%
6%
10%
Jan-
03
Jan-
04
Jan-
05
Jan-
06
Jan-
07
Jan-
08
Jan-
09
Jan-
10
Jan-
11
-12%
-8%
-4%
0%
4%
8%
12%
16%
20%
Real Retail Consumption (L) Consumer Credit (R)
y/y chg y/y
| 19
Debt Service Costs Unthreatening If Overnight Rates Contained to 2% in 2013
5
6
7
8
9
10
11
Q4-89
Q4-91
Q4-93
Q4-95
Q4-97
Q4-99
Q4-01
Q4-03
Q4-05
Q4-07
Q4-09
Q4-11
Q4-13
% of personal disposable income
| 20
Outlook for Investment Spending Still Favourable
Source: Bank of Canada Business Outlook Survey
-40
-30
-20
-10
0
10
20
30
4098:Q
3
99:Q
2
00:Q
1
00:Q
4
01:Q
3
02:Q
2
03:Q
1
03:Q
4
04:Q
3
05:Q
2
06:Q
1
06:Q
4
07:Q
3
08:Q
2
09:Q
1
09:Q
4
10:Q
3
11:Q
2
Equipment Spending Plans, Balance of Opinion (%-pts)
| 21
Housing Easing But Not Crashing
190 191193
80
100
120
140
160
180
200
220
240
260
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
F20
12F
'000 units, SAAR
| 22
Commodities Drive C$; C$ Strengthens later in 2012, Also Helped by BoC Hikes
60
70
80
90
100
110
120
Apr-10 Aug-10 Dec-10 Apr-11 Aug-1192
96
100
104
108
Crude Oil (WTI) Canadian Dollar
US$/bbl US¢/C$
Arrows denote BoC rate hikes
| 23
Bond Yields Drift Higher; Remain Low By Historical Standards
1
2
3
4
5
6
Dec00 Dec04 Dec08 Dec12
Canada
US10-yr bond yields (%)
Forecast
| 24
Fiscal Credentials: Canada’s Earlier Hard Work Paid Dividends
128101
79 75 7255
35
0
50
100
150
200
250
JPN ITA FRA UK US GER CAN
Gross
Net
General Government Debt, % (2011)
0
25
50
75
100
125
150
175
1990 95 00 05 10 15
CAN US UK FRA GER JPN ITA
General Government Net Debt, % of GDPFcst
| 25
West is Best in 2012
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
BC Alta Sask Man Ont Qué NB NS PEI N&L
2011 2012
Real GDP Growth, Y/Y % Chg
| 26
Ontario’s Slower Path Back to Balance
-25
-20
-15
-10
-5
0
5
10
15
FY88 91 94 97 00 03 06 09 12 15
Ontario Sum of Remaining Provinces
$billionsForecasts
2013/14
Fiscal Year Years to Go
BC 2013/14 3Alta 2013/14 3Sask1 NA NAMan 2014/15 4Ont 2017/18 7Qué 2013/14 3NB 2014/15 4NS 2013/14 3PEI 2013/14 3N&L2 NA NAFederal 2014/15 4Based on 2010 Budgets1. General Revenue Fund in surplus2. Budget balanced in 2010/11
Return to Budget Balance
| 27
Demand for Liquidity Sees Non-Ontario Names Underperform on Relative Basis
-10
-5
0
5
10
15
20
25
30
35
Jul-07 Apr-08 Jan-09 Oct-09 Jul-10 Apr-11
British Columbia Québec Manitoba New Brunswick
30-Year N.I. Roll to Ontario, bps
| 28
TSX Forward PE Low by Historical Standards,Matching US
8
9
10
11
12
13
14
15
16
17
Jan-07 May-10
TSX Composite S&P 500
Valuation gap closed
| 29
Analysts However Cutting 2012 Earnings Expectations
0
1
2
3
4
5
6
7
8
9
Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11
last observation
Oct-11
2.1
Normal = 1.5:1
Ratio of Downgrades to Upgrades
| 30
Equity Markets to See Below-Consensus Earnings
Source: Thomson Reuters, CIBC
-40
-30
-20
-10
0
10
20
30
40
Dec-08
Apr-09
Aug-09
Dec-09
Apr-10
Aug-10
Dec-10
Apr-11
Aug-11
Predicted by CIBC Earnings Indicator Bottom up Consensus
TSX 12-mo fwd earnings, % chg from year ago
+13%
+17%
| 31
Quality Dividend Stocks Should Outperform
80
85
90
95
100
105
5-Apr 3-May 31-May 28-Jun 26-Jul 23-Aug 20-Sep 18-OctHigh Quality Dividend Stocks* TSX Composite
Total Return, April 5=100
*S&P/TSX Canadian Dividend Aristocrats
+
-11%
-1%