David A. Rosenberg Chief Economist & Strategist drosenberg@gluskinsheff.

com + 1 416 681 8919

January 11, 2011 Economic Commentary


Sushi with Dave
WE ARE NOT SURE IF THIS IS A JAPANESE PROVERB OR NOT, BUT PICTURES ARE WORTH A THOUSAND WORDS. Consider the charts below the equivalent of 10,000 words explaining why the U.S. post-bubble economic and financial backdrop is looking more and more like the Japanese experience of the past two-decades. BULLARD NOT BULLISH “The U.S. is closer to a Japanese-style outcome today than at any time in recent history … a better policy response to a negative shock is to expand the quantitative easing program through the purchase of Treasury securities.” (Seven Faces of “The Peril” St. Louis Fed Reserve Bank President Bullard, July 29, 2010)

Real Private Residential Spending
(¥ billions, 2000)

United States
(US$ billions, 2005)
800 750 700

24000 650 600 20000 550 500 450 16000 400 350 12000 '89 '92 '95 '98 '01 '04 '07 '10 300 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10

Source: Haver Analytics, Gluskin Sheff

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 net worth private clients, we are dedicated to meeting the needs of our clients by delivering strong, risk-adjusted returns together with the highest level of personalized client service. For more information or to subscribe to Gluskin Sheff economic reports, visit www.gluskinsheff.com

Gluskin Sheff Page 2 of 6 .300 2.500 2.0 0.0 4. YOU KNOW IT’S JAPAN ALL OVER AGAIN Three Month Bill Yield (percent) Japan 9.500 1.0 3.0 1.0 8.0 5.5 1.0 1. Gluskin Sheff CHART 3: WHEN T-BILL YIELDS ARE 0%.0 United States 5.0 7.0 4.January 11.0 0.5 2. Gluskin Sheff 90 91 92 93 94 95 96 97 2007 2008 2009 2010 CHART 4: UNPRECEDENTED EXPANSION OF THE CENTRAL BANK’S BALANCE SHEET Reserve Bank Credit Outstanding Japan (billion ¥) 350 300 250 200 150 100 50 0 92 93 94 95 96 97 98 99 00 01 02 03 04 05 United States (billion US$) 2.100 900 700 2005 2006 2007 2008 2009 2010 Source: Haver Analytics.5 4.700 1.300 1.0 Source: Haver Analytics.0 3.0 2.0 6.5 5.100 1.5 3. 2011 – BREAKFAST WITH DAVE CHART 2: BOTH COUNTRIES EXPERIENCED A BUBBLE BURST IN HOUSING CREDIT (year-over-year percent change) Japan: Domestic Bank Lending: Housing Credit 25% 16% 14% 20% 12% 10% 15% 8% 6% 10% 4% 2% 5% 0% -2% 0% '84 '85 '86 '87 '88 '89 '90 '91 '92 '93 '94 -4% '95 '97 '99 '01 '03 '05 '07 '09 United States: Household Liabilities: Home Mortgages Source: Haver Analytics.5 0.900 1.0 2.

000 35. Gluskin Sheff CHART 7: JAPAN’S POST-BUBBLE EXPERIENCE: ROLLING RECESSIONS AND RECOVERIES Japan: Gross Domestic Product (year-over-year percent change) 12% 8% 4% 0% -4% -8% -12% '89 '92 '95 '98 '01 '04 '07 '10 Source: Haver Analytics. FISCAL POLICY LOOKS THE SAME Government Deficit as a share of GDP (percent.000 5.S. inverted scale) Japan -11 -10 -9 -8 -7 -6 -5 -4 -3 -2 -1 0 89 90 91 92 93 94 95 96 97 98 United States -11 Deficit -10 -9 -8 -7 -6 -5 -4 -3 -2 -1 0 1 2 Deficit Surplus 01 02 03 04 05 06 07 08 09 Source: Haver Analytics. Gluskin Sheff Page 3 of 6 .January 11. Gluskin Sheff CHART 6: JAPAN: A MODERN DAY EXAMPLE OF A PROLONGED DELEVERAGING CYCLE Japan 10-year Government Note Yield (percent) 9 8 7 6 5 4 3 15. 2011 – BREAKFAST WITH DAVE CHART 5: EVEN JAPANESE AND U.000 2 1 0 89 91 93 95 97 99 01 03 05 07 09 10.000 25.000 Nikkei Index (index level) 40.000 30.000 20.000 89 91 93 95 97 99 01 03 05 07 09 Source: Haver Analytics.

TIME AFTER A BUBBLE BURST Consumer Inflation excluding Food & Energy (year-over-year percent change) Japan 4.0 2.0 0.0 -2.S.0 3. 2011 – BREAKFAST WITH DAVE CHART 8: INFLATION RECEDES A LONG.0 3.0 1.0 90 93 96 99 02 05 08 Source: Haver Analytics.A.January 11. Gluskin Sheff CHART 9: THE BULLISH DEMOGRAPHIC ARGUMENT FOR THE U.0 0.0 4.0 90 93 96 99 02 05 08 United States 6.0 -1.0 2. IS LOSING SOME ALLURE Employment-Population Ratio (percent) 65 64 63 62 61 60 59 58 57 56 55 70 75 80 85 90 95 00 05 10 Japan United States Source: Haver Analytics.0 5. LONG.0 1. Gluskin Sheff Page 4 of 6 .

1. We look for the opposite in strategies (Canadian and U. of interest and principal.S.6 million usd for the S&P 500 Total Return Index over the same period. 2. Our investment interests are directly aligned with those of our clients. Please contact Gluskin Sheff for information specific to your situation. Growth and 1 with a margin of safety for the payment Income). Our performance results are those management and employees.8 million 2 usd on September 30. 2010 versus $9. we look for companies Gluskin Sheff’s management and with a history of long-term growth and employees are collectively the largest stability. $1 million usd invested in our U. all values are in Canadian dollars. We assemble concentrated portfolios our top ten holdings typically represent between 25% to 45% of a portfolio.1 million2 on September 30. and are presented net of fees and expenses.9 million for the S&P/TSX Total Return Index over the same period.com Unless otherwise noted. as applicable. In this PERFORMANCE way. For further information. $1 million invested in our Canadian Equity Portfolio in 1991 (its inception date) would have grown to $9. We have of the team in place. Aside from recent additions. risk-adjusted investment returns together with the highest level of personalized client service.S. a proven track record. 2010 versus $5. Alternative and Fixed Income) and For corporate bonds. is one of Canada’s pre-eminent wealth management firms. client of the Firm’s investment portfolios.9 million for the S&P/TSX Total Return Index over the same period. Notes: PORTFOLIO CONSTRUCTION In terms of asset mix and portfolio construction. 2 We have strong and stable portfolio management. Equity portfolios. Not all investment strategies are available to non-Canadian investors. equities. clients benefit from the ideas in $1 million invested in our Canadian which we have the highest conviction. Page 5 of 6 . we look for issuers investment styles (Value. INVESTMENT STRATEGY & TEAM date) would have grown to $9. OVERVIEW As of September 30. 2010. as Gluskin Sheff’s management and employees are collectively the largest client of the Firm’s investment portfolios. the Firm managed assets of $5.1 million on September 30.S. equities that we sell short. Returns are based on the composite of segregated Value and U. Our investment interests are directly aligned with those of our clients. as For long equities. public company accountability and We have a strong history of insightful governance with a private company bottom-up security selection based on commitment to innovation and service. 2011 – BREAKFAST WITH DAVE Gluskin Sheff at a Glance Gluskin Sheff + Associates Inc. we are dedicated to the prudent stewardship of our clients’ wealth through the delivery of strong. Equity Portfolio in 1986 (its inception date) would have grown to $11.8 billion. Equity Portfolio in 1991 (its inception Our success has often been linked to our long history of investing in underfollowed and under-appreciated small and mid cap companies both in Canada and the U.January 11. Founded in 1984 and focused primarily on high net worth private clients. and yields which The minimum investment required to are attractive relative to the assessed establish a client relationship with the credit risks involved. 2010 versus $5. fundamental analysis.S. our Gluskin Sheff became a publicly traded Portfolio Managers have been with the corporation on the Toronto Stock Firm for a minimum of ten years and we Exchange (symbol: GS) in May 2006 and have attracted “best in class” talent at all remains 49% owned by its senior levels. we offer a unique marriage between our bottom-up security-specific fundamental analysis and our top-down macroeconomic view. shareholder-minded management and a share price below our estimate of intrinsic We offer a diverse platform of investment value. research and client service teams. Firm is $3 million. please contact questions@gluskinsheff.

The inclusion of a link in this report does not imply any endorsement by or any affiliation with Gluskin Sheff. Any information relating to the tax status of financial instruments discussed herein is not intended to provide tax advice or to be used by anyone to provide tax advice. Facts and views presented in this material have not been reviewed by. are not insured by the Federal Deposit Insurance Corporation and are not deposits or other obligations of any insured depository institution. if any.January 11. Investors in such securities and instruments effectively assume currency risk. may fluctuate and that price or value of such securities and instruments may rise or fall and. retransmitted or disclosed. or sell. securities and other financial instruments may be difficult to value or sell and reliable information about the value or risks related to the security or financial instrument may be difficult to obtain. investors may lose their entire principal investment. financial instrument or derivative is suitable for all investors. and not on this report. without the express written consent of Gluskin Sheff. Content contained on such third—party websites is not part of this report and is not incorporated by reference into this report.S. Macroeconomic analysis is considered investment research for purposes of distribution in the U. counterparty default risk and liquidity risk. Investors should note that income from such securities and other financial instruments. As a result. opinion or advice. and may not reflect information known to. Individuals identified as economists do not function as research analysts under U. Neither Gluskin Sheff nor any director. and contracts for differences). Gluskin Sheff reports are distributed simultaneously to internal and client websites and other portals by Gluskin Sheff and are not publicly available materials. among others. third-party research on any companies covered in or impacted by this report. Past performance is not necessarily a guide to future performance. professionals in other business areas of Gluskin Sheff in connection with the legal proceedings or matters relevant to such proceedings. Gluskin Sheff is not responsible for the content of any third—party website or any linked content contained in a third—party website. indirect or consequential damages or losses arising from any use of this report or its contents. market risk. Materials prepared by Gluskin Sheff research personnel are based on public information. To the extent this report discusses any legal proceeding or issues. it has not been prepared as nor is it intended to express any legal conclusion. (“Gluskin Sheff”). options. officer or employee of Gluskin Sheff accepts any liability whatsoever for any direct. price or income of any security or financial instrument mentioned in this report. co—defendants or co—plaintiffs with or involving companies mentioned in this report is based on public information.. and may not reflect information known to. to buy or sell any securities or other financial instrument or any derivative related to such securities or instruments (e. Investors are urged to seek tax advice based on their particular circumstances from an independent tax professional. defendants. Any decision to purchase or subscribe for securities in any offering must be based solely on existing public information on such security or the information in the prospectus or other offering document issued in connection with such offering. Facts and views presented in this material that relate to any such proceedings have not been reviewed by.S. involve numerous risks.K. Levels and basis for taxation may change. Neither the information nor any opinion expressed constitutes an offer or an invitation to make an offer. All opinions. buy. financial situation and the particular needs of any specific person. in some cases. 2011 – BREAKFAST WITH DAVE IMPORTANT DISCLOSURES Copyright 2011 Gluskin Sheff + Associates Inc. projections and estimates constitute the judgment of the author as of the date of the report and are subject to change without notice. on behalf of its clients. rules and regulations. No security. Page 6 of 6 . Prices also are subject to change without notice. Investors should seek financial advice regarding the appropriateness of investing in financial instruments and implementing investment strategies discussed or recommended in this report and should understand that statements regarding future prospects may not be realized. securities of issuers that may be discussed in or impacted by this report. under the rules of the Financial Services Authority. Gluskin Sheff research personnel’s knowledge of legal proceedings in which any Gluskin Sheff entity and/or its directors. This report is not intended to provide personal investment advice and it does not take into account the specific investment objectives. Foreign currency rates of exchange may adversely affect the value. This report should not be regarded by recipients as a substitute for the exercise of their own judgment and readers are encouraged to seek independent. discussed with. The information herein (other than disclosure information relating to Gluskin Sheff and its affiliates) was obtained from various sources and Gluskin Sheff does not guarantee its accuracy. derivatives. All rights reserved. warrants.g. officers and employees may be plaintiffs. in particular. futures. Securities and other financial instruments discussed in this report. Investors should consult their own legal advisers as to issues of law relating to the subject matter of this report. in whole or in part. Gluskin Sheff is under no obligation to update this report and readers should therefore assume that Gluskin Sheff will not update any fact. This report is prepared for the use of Gluskin Sheff clients and subscribers to this report and may not be redistributed. law and reports prepared by them are not research reports under applicable U. or in any form or manner. or recommended by Gluskin Sheff. In some cases. Investments in general and. professionals in other business areas of Gluskin Sheff. readers should be aware that Gluskin Sheff may have a conflict of interest that could affect the objectivity of this report. This report may contain links to third—party websites. including. circumstance or opinion contained in this report. Any unauthorized use or disclosure is prohibited. Gluskin Sheff may own.