Benjamin Tal - Where in the world are we

WHERE IN THE WORLD ARE WE?
Benjamin Tal
Senior Economist

June 2007
Economics & Strategy


“The Committee remains concerned about the risk of a
continuing gap between the growth of demand and potential
supply at a time when the utilization of the pool of available
workers remains at an unusually high level…… the Committee
believes the risks continue to be weighted mainly toward
conditions that may generate heightened inflation pressures in
the foreseeable future”
Fed’s FOMC Meeting

October 13, 2000


Cutting Rates in the Face of
Rising Inflation
The 1989 Example
11

%

y/y % chg

The 2000-01 Example
6

8

y/y % chg 3.0

%

7

10
5

9

6

2.5

5
4

8

4

7

3

2.0

2
1

Fed funds rate (L)
C ore inflation (R)

01:12

01:9

01:6

01:3

00:12

00:9

00:6

1.5
00:3

0
99:12

90:10

90:7

90:4

90:1

89:10

89:7

89:4

3
89:1

6

Fed funds rate (L)
C ore inflation (R)


Subprime Shock Relatively Modest
Bn. $2007
.

6000
5000

5,000

*Estimate assumes eventual

30% default rate for subprime
loans; 50% recovery ratio

4000
3000
2000
1000
270

100

0
Dot-Com
Collapse

S&L Crisis

Subprime
Meltdown (?) *


Little Impact on US Corporate Spreads …
spread to US Treasuries (bps)

900
800

LTCM
Blowup

Recession
& 9/11

Telecom
Airline
Defaults

Auto
Downgrades

700
600
Subprime
Meltdown

500
400
300
200
100
0
Dec-97

Apr-00
10-yr A Corporate

Aug-02

Nov-04

Mar-07

10-yr BB/BB- Corporate


Falling Prices Shut the Door on
“Housing ATM”
1000
900

Home Equity Extraction
$Mn, SAAR

US Resale Housing Prices
14
12

800

10

700

8

600
500

6
4

2
0

300

-2

200

-4

100

-6
Ja
n00
Ja
n01
Ja
n02
Ja
n03
Ja
n04
Ja
n05
Ja
n06

400

0
00:Q1 01:Q3 03:Q1 04:Q3 06:Q1

y/y % chg


North America Is Slowing…
Real GDP Growth
4

%

3
2
1
0
2005A

2006F

2007F


…But Strongest Global Growth in
Decades
8

World Real GDP avg 3-yr growth rate (%)

7

2004-06
5.0%

1971-73
5.6%

6
5
4
3
2
1
0
71

74

77

80

83

86

89 92

95

98

01

04

07

Source: IMF historical data & forecast


Surging Domestic Demand
Will Shield China from US Slowdown
Exports
to US

Other

30

% chg vs 2005, YTD

25

8%

20

Fixed

Investment
Household
Spending

15
10
5
0

Breakdown of 2005 GDP

Fixed Asset Retail
Investment Sales


Commodity Currencies Have Led the Pack
Jpn Yen
Swiss Fr
Br Pound
Nrway Kr
Euro
A$
S Afr Rand
Sw Kr
C$
NZ $
-2

0

2
4
6
one-month % ch vs. US$


TSX Tracks Global Growth
Y/Y % chg
(Avg of Monthly Closes)Y/Y % chg

1986 - 2006
Correlation with TSX

40

6

0.6

30

5

0.5

4

0.4

3

0.3

20
10
0

2

-10

1

-30

0

19
8
19 6
8
19 9
9
19 2
9
19 5
9
20 8
0
20 1

2 0 04
07
F

-20

S&P TSX (L)

World Real GDP (R)

0.2
0.1
0

Cdn Real World Real
GDP
GDP


Two Different Demand Curves for Oil
8

% change

Forecast

6
4
2
0

-2
95

97
OEC D

99

01

03

05

Non-OEC D

07

09
World


Almost 60% of Investable Reserves in
Canada
"Investable" oil reserves=those
not off limits due to restrictive
foreign investment policies.
Also excludes Iraq.

Norway 3%

Kazakhstan 3%

Other Open
20%

US
7%
Nigeria
11%

Source: Oil & Gas Journal, CIBC WM

Canada
56%


GHG Emissions Growth by Country
Spain
Portugal
Greece
Ireland
Canada
Canada
* Australia*
Australia
Austria
* United
States
United States*
Japan

Italy
Norway
Belgium
Switzerland
EC
France
Sweden
Iceland
United Kingdom
Germany
Czech Republic
Hungary
Poland
Russian Federation
Romania
Bulgaria
Lithuania

Change, 1990-2004
(%)

-80 -60 -40 -20

0

0

20

40

60

* Have not ratified the Kyoto Protocol. Source: UNFCCC (2005)


Emission Intensity by Province
350
300
250

Index of Emission Intensity* (2004)
* Based on GHG emissions
per unit of real GDP

200
150
100

Canada=100

50
0
Qué Ont

BC

Man PEI N&L NS

NB

Alta Sask


Uranium Prices Have Outpaced Oil
1500
1300

reindexed,
Jan 2001=100

$100/lb

1100
900

Forecast

700
500

$69/bbl
(2007 avg.)

300
100
-100
Jan-01

Sep-02

Uranium price

May-04

Jan-06

Dec-07

West Texas crude oil price


Looming Supply Gap Down the Road
80

e ma n d
D
r
o
t
c
a
e
R
Projected

’000 tonnes /yr

Total Supply

60

40

20

0
2003 05
Other Secondary
Supply

07

09

11

13

14

Diluted Military
Stockpiles

17

19
Mine
Production

Source: Euratom, 2005. Assumes unchanged uranium and enrichment costs.


Falling Excess Water Supply
Annual Excess Global
Water Supply
9000
km

3

Water Utilization Rate*
40

%

35
8000

30
25

7000

20
15

6000

10

5

5000

0

60 65 70 75 80 85 90 95 00 05
Source: FAO, CIBCWM

1960

2005

* Actual Withdrawal as a % of
Total Renewable Water Supply


2006 International Water Cost Comparison
5-Year Trend
(2001/2006)
Denmark
Germany
UK
Belgium
France
Netherla
Italy
Finland
Australia
Spain

S. Africa
Sweden
C anada
US

C ost (US¢)/m
50

100

150

200

Source: NUS International Price Survey, CIBCWM

3

250

1.9%
-2.7%
32.3%
51.1%
11.8%
0.3%
23.2%
30.2%
45.4%
5.2%

50.2%
10.7%
58.0%
27.0%


US Water Index Easily Outperformed
S&P500
300

Dividend Yield
(Oct 06)

Index Jan 1999=100

250

4.5

200

4.0
3.5

150

3.0
2.5

100

2.0

50

1.5
1.0

0
99 00 01 02 03 04 05 06
S&P 500 C omposite
US Water Index
Source: Bloomberg US Water Index, CIBCWM

0.5
0.0
S&P500

Water
Index


The Rise of the Infrastructure Deficit
in Canada
Falling Share of
Infrastructure Spending in
Total Gov't Spending
12

%

Rising Funding Gap
for Infrastructure
Projects
70

10

$Bn

60

8

50

6

40
30

4

20

2

10
0

0
70

80

90

05

75
85
95
05
Sources: Statistics Canada, Infrastructure Canada, CCPPP, CIBCWM


Investing in Infrastructure
250

Index Jun 2000=100

30

200

25

150

20

%

Since Jan 2005

15

100

10

50

5
Jun-06

Jun-05

Jun-04

Jun-03

Jun-02

Jun-01

Jun-00

0

Global Infrastructure
Global Equities

0
Annual Dividends STDEV
Return
Global Infrastructure
Global Equities


Core Pressures in Services, Not Goods
3.5

%

3.0

C ore Services

2.5

C ore C PI

2.0
1.5
1.0

C ore Goods

0.5

0.0
Jan-05

May-05

Sep-05

Jan-06

May-06


Wal-Mart as a Country
350
300

GDP figures for 2002, in $ billions
$290

$269

250

$252

$245

$238

$233

$231

$228

200
150
100
50

Source: CIA World Factbook

Au
str
ia

Wa
lm
ar
t
Ba
ng
lad
es
h
Sw
itz
er
la n
d

Sw
ed
en

lom
b ia

Co

ra
bia

Sa
ud

iA

Eg
yp
t

0


Cdn Dollar Becoming a Petro-Currency
80

WTI, US$/bbl

US cents/C$

95

70

90

60

85
80

50
40

Fcst

30

75
70
65

20

60

10
55
Dec- Dec- Dec- Dec- Dec- Dec- Dec- Dec- Dec99 00

01
02
03 04
05
06 07
Crude Oil Price (L)

Cdn Dollar (R )