TMAC

1
Navigating Through Volatile Times
Aron Gampel VP Deputy Chief Economist
TMAC Education Forum Saint John, New
Brunswick November 6, 2007
2
No Shortage Of Challenges

• Slower Growth In The Developed World
• Competitive Pressures FX Realignment
• Asset Bubbles
• Credit Crunch
• High Oil Prices
• Geopolitical Risks G7 Leadership
• Environment

3
Changing Growth Dynamics
United States
Canada
2000-06, annual change
2000-2006, annual change
2007-08f, annual change
2007-08f, annual change
4
U.S. Housing -- Overbought, Overbuilt
Overleveraged
Home Sales
Inventories New Existing Homes
mn units
mn units
months supply
Existing Home Sales (RHS)
Balanced Market
Existing Home Sales
New Home Sales (LHS)
New Home Sales
5
With More Weakness Ahead As Subprime Crisis
Deepens
Housing Starts
Subprime Fallout
Index
mn units
of all loans
of all loans
Mortgage Delinquencies (LHS)
Housing Starts (RHS)
Foreclosures Initiated (RHS)
NAHB Sentiment Index (LHS)
6
And The Squeeze On U.S. Consumers Intensifies
U.S. Home Prices
Mortgage Resets
index, 2000100
USD, billions
Case-Shiller Index
7
As U.S. Banks Tighten Lending Standards
of Respondents Tightening Standards for
Mortgages to Individuals
of Respondents Tightening Standards for
Consumer Loans
x

• Nontraditional (60)
• Subprime (56)
• Prime (40)

x
x
Credit Cards
Other Loans
All Mortgages
8
(No Transcript)
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Differing Perspectives On The U.S. Outlook

• FED BNS

• ECONOMY
• DOLLAR
• INFLATION
• FINANCIAL SECTOR
• FED ACTIONS TO DATE

• C

• D

• D

• D

• D

• D

• C

• D

• C

• D

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Stress ? Distress ? Redress
Federal Funds Rate
per cent
First Penn/Latin America/Silver Bubble
Peso Crisis
Drysdale Securities/Mexican Default
Franklin National
Continental Illinois
LTCM/Russia Default
Penn Central
SL Crisis
Black Monday
Asian Currency Crisis
NASDAQ Bubble
Subprime Meltdown
11
Global Economic Sensitivity The Ties That Bind
annual change
annual change
Canada
U.S.
U.S.
Euro zone
annual change
annual change
Emerging Asia
Latin America
U.S.
Japan
U.S.
12
Globalization And The Changing Economic Landscape
Emerging Powerhouses Gear Up
U.S Gears Down
Real GDP, annual average change
Real GDP, annual average change
13
Emerging Nations Are Underpinning Commodities ...
Oil and Natural Gas
World Oil Reserves
US/mmbtu
US/bbl
billions of barrels,
estimated recoverable reserves, 2006
Natural Gas (Nymex) (RHS)
WTI Oil (LHS)
Nickel Uranium
US/pound
Uranium
Nickel
14
And Driving Industrial Growth
Motor Vehicle Production
Motor Vehicle Sales
Change, 2000-06
Change, 2000-06
millions of units
millions of units
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For Canada, These Trends Point To Strong
Commodity Exports...
Major Canadian Exports
U.S. Imports
Index 2000100
share of total
Crude Petroleum
Canada
Canadaex. Energy
Natural Gas
Euro zone
Mexico
Mining
China
Vehicles Parts
Japan
Forest Products
16
Ongoing Restructuring In Manufacturing
Manufacturing Lags
Services Construction Lead
GDP, Index 2000100
GDP, Index 2000100
Autos Parts
Wholesale Retail Trade
Manufacturing
Construction
Pulp Paper Products
Information Communication
Financial Services Real Estate
Textiles
Computers Electric Products
Health Education
17
Opportunities Abound

• Commodities Energy, Mining, Agriculture
• Infrastructure
• Heavy Machinery/Transportation Equipment
• Life Sciences Health Environmental
• Technology
• Defense Security
• Services Business, Personal, Entertainment

18
The Bottom Line -- The West Is Hot, Ontario Is
Not
Ontario Export Growth Stalls
Alberta Export Growth Soars
International Export Receipts
International Export Receipts
share, 2006
share, 2006
All Other 36
Commodities 22
All Other 17
Energy 71
Energy 21
Vehicles Parts 42
Other Commodities 12
Index 2000100
Index 2000100
Alberta
Atlantic
Alberta
Ontario
Rest of Canada
Quebec
19
Canadian Job Gains Spending Tilt West
Unemployment Rate
Retail Sales
Alberta
Saskatchewan
B.C.
Alberta
Saskatchewan
Manitoba
Manitoba
B.C.
Atlantic
CANADA
Ontario
CANADA
Quebec
Quebec
Atlantic
Ontario
, 2007 ytd
change, 2007 ytd
20
Western Provinces Give Canada A Performance Edge
Spending Stronger in Canada
Energy Boosts Non-Residential Construction
y/y change
Index 2000100
Real Consumption
Non-Residential Construction
Canada
U.S.
millions
millions
Index 2000100
Auto Sales
Alberta
B.C.
Quebec
Ontario
Atlantic
21
Non-Residential Building Construction By Market
Segment
Industrial
Commercial
Institutional
constant dollars, annual change
constant dollars, annual change
constant dollars, annual change
22
Housing Conditions Much Stronger In Canada
Housing Starts Index 2000100
Household Equity of home value
Canada
Canada
U.S.
U.S.
Debt Service of Personal Disposable Income
Housing StartsIndex 2000100
B.C.
U.S.
Quebec
Alberta
Atlantic
Canada
Ontario
23
Canadian Governments Provide Important Fiscal
Support
Underpin Program Spending
Substantial Budget Surpluses
Alberta
Alberta
British Columbia
British Columbia
Manitoba
Manitoba
Saskatchewan
Saskatchewan
Federal
Federal
Nova Scotia
Nova Scotia
Ontario
Ontario
Newfoundland Labrador
Newfoundland Labrador
Quebec
Quebec
New Brunswick
New Brunswick
P.E.I.
per capita, FY07
annual change in per capita, FY06-FY07
P.E.I.
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Inflation Is Going Nowhere Fast May Be Headed
Lower
Canadas Inflation Dichotomy
Canadian Inflation
y/y change
Index 2000100
New Housing Price Index
U.S. Core CPI
Gasoline
Total CPI
Canadian Core CPI
Motor Vehicle Prices
CPI, y/y change
Alberta
Rest of Canada
Computers Consumer Electronics
25
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Fed Leads, Bank Of Canada To Follow
Central Bank Rates
Canadian U.S. Bond Yields


U.S.
Canada 10-yr Govt. Bond
U.S. 10-yr T-Bond
Canada
Canada-U.S. Bond Spread
Canada-U.S. Central Bank Spread
27
Augmenting The Flight Of The Loonie...
Canada Tops G7 In Fiscal Trade Trends
Longer-term C Trend Still Firm
forecast
forecast
USD/CAD, inverted
C billions
Trade Balance
Energy Balance
20-year Average (1986-2006)
Motor Vehicles Parts
Canadian Dollar
28
... At A Time Of Heightened US Vulnerability
U.S. Twin Deficits Will Be Slow To Turn
Global Currency Realignment
(US/currency), Index 2002Q1100
US billions
Trade Balance
29
THE U.S. DOLLAR
(SHOWN ACTUAL SIZE)
30
Prospects Good, but Not Great, for 2007/08
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Navigating Through Volatile Times
Aron Gampel VP Deputy Chief Economist
TMAC Education Forum Saint John, New
Brunswick November 6, 2007