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David Rosenberg Summary

David Rosenberg Summary

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Published by: richardck61 on Mar 29, 2011
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David A. RosenbergMarch 29, 2011
 Chief Economist & Strategist Economic Commentaryresearch@gluskinsheff.com
 
Please see important disclosures at the end of this document.
Gluskin Sheff + Associates Inc.is one of Canada’s pre-eminent wealth management firms. Founded in 1984 and focused primarily on high networth private clients, we are dedicated to meeting the needs of our clients by delivering strong, risk-adjusted returns together with the highestlevel of personalized client service. For more information or to subscribe to Gluskin Sheff economic reports
,
visitwww.gluskinsheff.com
 
MARKET MUSINGS & DATA DECIPHERING
Breakfast with Dave
BREAKFAST WITH DAVE FREE TRIAL IS ENDING MARCH 30
Tomorrow,
Breakfast with Dave
becomes a paid, secure service. Today is thelast day my reports will arrive in unencrypted format, and as of tomorrow’s dailye-mail
Breakfast with Dave
WHILE YOU WERE SLEEPING
Don’t look now but we are all of a sudden starting to get some mixed news outof the once-hot manufacturing diffusion indices. No sooner did the RichmondFed index slide 5 points to 20 in March but the just-released Texasmanufacturing index published by the Dallas Fed dropped 6 points to 11.5. Withthe stock market able, in recent weeks, to shrug off the “financial shock” fromall the global turbulence we have been seeing, the next question is howinvestors will be coping with increasing signs of sharply slowing economic growthin coming months and quarters.Attention has to be paid on what is happening in Canada. The loonie has been aconstant surprise, not only fairing very well through all the global turbulence butalso the aftermath of the federal election announcement. The Canadian dollarhas remained above “par” each and every day since February 1
st
and the long GOC bond yield at 3.7% is not only 80bps below U.S. levels but is now 7bpslower than Germany, which is another country that retains very decent macrofundamentals.
AMERICAN CONSUMER SPUTTERING IN Q1
The U.S. consumer spending and income report for February was a bit of amixed bag. First, personal income in the U.S. did eke out a 0.3% MoM gain inFebruary, but it was below expected and failed to keep up with the rise ininflation, which are largely, but not exclusively, being driven by food and fuelprices (accounting for half the increase). The personal consumption expenditure(PCE) price deflator rose 0.4% MoM and as such real income
straight up, netof taxes and excluding personal transfers
fell 0.1% in the first contractionsince last September.
 
March 29, 2011
– BREAKFAST WITH DAVE
 
Page 2 of 4
Consumer spending did manage to exceed expectations with a 0.7% MoM gainin nominal terms, but again, inflation ate into more than half that; therefore, inreal or volume terms, the increase was +0.25% after a flat January. And thisincludes the sudden revival in auto sales
we shall see if this lasts. But what isapparent is that consumer spending is coming in around a 1% annual rate inreal terms so far in Q1 and we see from last week’s numbers on durables thatcapital spending is suddenly running pretty close to zero growth.One thing is for sure: between the horse trading being done at the federal levelto avoid a shutdown in Washington and the accelerated cutbacks at the stateand local government levels, we are not holding our breath on any fiscal helpfrom the government sector. Many forecasters have gone from a 4% growthforecast for Q1 down to just over 2% and now even that latest estimate may beoverly optimistic.
BETTER NEWS ON HOUSING FRONT … BUT STILL NOT GOOD
U.S. pending home sales rebounded 2.1% in February after two awful monthsbut are still down 9.3% from year-ago levels. This has become a notoriousvolatile indicator, and the trend is still extremely soft, though it does portend abit of rebound in coming months
but not enough to break the primary pathwhich is visibly down. There are up to four million homes in foreclosure or in thepipeline so to be talking about any housing recovery at this juncture ispremature, to say the least.
QE3 WILL COME BUT NOT AS EARLY AS MR. MARKET WOULD LIKE
Portfolio managers as a group are running their funds overweight equities by anaverage 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 thisBernanke-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) astock market correction of at least 15%, and (iii) deflation, not inflation. How onearth will the Fed be able to do anything at all by then if headline inflation isrunning north of 4% and the other central banks of the world are eithersnuggling policy or moving in that direction
unless the central bank reallywants to trash the dollar. We are certainly not inflationists and still see deflationin credit, real wages and housing prices.
 
March 29, 2011
– BREAKFAST WITH DAVE
 
Page 3 of 4
Gluskin She
ff 
at a Glance
0
Gluskin She
ff 
+ Associates Inc. is one of Canada’s pre-eminent wealth management firms.Founded in 1984 and focused primarily on high net worth private clients, we are dedicated to theprudent stewardship of our clients’ wealth through the delivery of strong, risk-adjustedinvestment returns together with the highest level of personalized client service.
 
OVERVIEW
As of December
31, 2010
, the Firmmanaged assets of 
$6.0
billion.Gluskin Sheff became a publicly tradedcorporation on the Toronto Stock Exchange (symbol: GS) in May 
2006
andremains
49
% owned by its seniormanagement and employees. We havepublic company accountability andgovernance with a private company commitment to innovation and service.Our investment interests are directly aligned with those of our clients, asGluskin Sheff’s management andemployees are collectively the largestclient of the Firm’s investment portfolios.We offer a diverse platform of investmentstrategies (Canadian and U.S. equities,Alternative and Fixed Income) andinvestment styles (Value, Growth andIncome).
1
 The minimum investment required toestablish a client relationship with theFirm is
$3
million.
PERFORMANCE
$1
million invested in our CanadianEquity Portfolio in
1991
(its inceptiondate) would have grown to
$10.2
million
2
 on December
31, 2010
versus
$6.5
millionfor the S&P/TSX Total Return Indexover the same period.
$1
million
usd
invested in our U.S.Equity Portfolio in
1986
(its inceptiondate) would have grown to
$12.9
million
usd
2
on December
31, 2010
versus
$10.6
million
usd
for the S&P
 
500
 
TotalReturn Index over the same period.
INVESTMENT STRATEGY & TEAM
We have strong and stable portfoliomanagement, research and client serviceteams. Aside from recent additions, ourPortfolio Managers have been with theFirm for a minimum of ten years and wehave attracted “best in class” talent at alllevels. Our performance results are thoseof the team in place.We have a strong history of insightfulbottom-up security selection based onfundamental analysis.For long equities, we look for companieswith a history of long-term growth andstability, a proven track record,shareholder-minded management and ashare price below our estimate of intrinsicvalue. We look for the opposite inequities that we sell short.For corporate bonds, we look for issuerswith a margin of safety for the paymentof interest and principal, and yields whichare attractive relative to the assessedcredit risks involved.We assemble concentrated portfolios -our top ten holdings typically representbetween
25
% to
45
% of a portfolio. In thisway, clients benefit from the ideas inwhich we have the highest conviction.Our success has often been linked to ourlong history of investing in under-followed and under-appreciated smalland mid cap companies both in Canadaand the U.S.
PORTFOLIO CONSTRUCTION
In terms of asset mix and portfolioconstruction, we offer a unique marriagebetween our bottom-up security-specificfundamental analysis and our top-downmacroeconomic view.
 
 
Our investment interests are directlyaligned with those of  our clients, as GluskinShe 
ff  
’s management and employees are collectively the largest client of the Firm’sinvestment portfolios.
$1 million invested in ourCanadian Equity Portfolioin 1991 (its inceptiondate) would have grown to$10.2 million
2
onDecember 31, 2010versus $6.5 million for theS&P/TSX Total ReturnIndex over the sameperiod.
HHHHHHH
For further information,please contact research@gluskinshe 
ff  
.com
Notes:
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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