Alberta’s “New Math”96bda424cfcc34d9dd1a-0a7f10f87519dba22d2dbc6233a731e5.r41.cf2.rackcd… · 2016-01-13 · National Bank Financial is an indirect wholly-owned subsidiary

Alberta’s “New Math”

St. Albert Chamber

of Commerce

January 13, 2016

Presented by:

Angus Watt Advisory Group

National Bank Financial is an indirect wholly-owned subsidiary of National Bank of Canada. TheNational Bank of Canada is a public company listed on the Toronto Stock Exchange (NA: TSX).** The securities or sectors mentioned herein are not suitable for all types of investors. Pleaseconsult your investment advisor to verify whether the securities or sectors suit your investor’sprofile as well as to obtain complete information, including the main risk factors, regardingthose securities or sectors.*** The information contained herein has been prepared by Angus Watt, an InvestmentAdvisor with National Bank Financial; the opinions expressed do not necessarily reflect those ofNational Bank Financial.**** While opinions expressed are based on analysis and interpretation of historical databelieved to be accurate the underlying data is not necessarily guaranteed as to accuracy.

Disclaimer

Alberta's "New Math"Alberta's "New Math"

Challenges


New Provincial Government

New Federal Government

Lower commodity prices

Currency volatility

Low inflation

Instability of global growth

Opportunities


Global opportunities

We are “addicted to environment” (new for 2016)

We are “addicted to growth”

“Animal instinct”

Diversification

New industries

New technologies

Messages over the Years

Alberta’s “New Math”Alberta’s “New Math”

Dr. Allard

Top 3 Principles whenInvesting in Real Estate.

True in business as well.

We are “addicted”to oil

We are “afraidof volatility”

We are “addicted”to low interest

rates

We are “addicted”to growth

“Animal Instinct”

“Stability leads toinstability”

We are“addicted” to

theenvironment

United States



Source: NBF Economics and Strategy (data via Datastream and Federal Reserve)

US: Key condition for Fed rate hike nowfulfilled

Fed funds rate vs. full-time employment


Source: NBF Economics and Strategy (data via Datastream)

US: The Fed’s Dilemna

Core inflation vs unemployment rate

0

1

2

3

4

5

6

7

8

9

10

11

2

3

4

5

6

7

8

9

10

11

12

13

1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015

% (y/y)

Jobless rate(right)

%

Core PCE(left)


Source: NBF Economics and Strategy (data via Federal Reserve of Atlanta)

US: Weak wage growth for 55+

Median wage growth by age group



US: Service Economy is doing fine

ISM non-manufacturing



US: Manufacturing output hits new cyclicalhigh in July

Volume output


Source: NBF Economics and Strategy (data via New York Fed)

US: Household re-leveraging a boon toauto industry

Share of household debit increase: 2013Q3 to 2015Q3

The Dynamics of Oil


Source: NBF Economics and Strategy


US: Early Winter Weather Forecast

MDA EarthStat ActualizedMDA EarthStat Forecast

Blues and purples are cold and bullish, yellows and reds are warm and bearishProjecting a drop in YOY heating degree day count of 17% for NovemberIf correct, it will reduce US gas demand by about 200 Bcf November 2015 vs

November 2014


Brent oil vs current account breakeven price for Saudi Arabia

Source: NBF Economics and Strategy (data via IMF)

World: What should we aim for as a“fair” price?


Evolution of geopolitical risks since 2008

Geopolitical tensions: Does“Obamacare”?

The worldin 2015 Q2

The worldin 2008


US: Crude oil production continues to fall

US Crude oil production (4 week MA)


15 Week Change in US crude oilproduction*

*4 week moving average



World: Supply and Demand DynamicsGlobal oil demand and supply Global oil demand accounted by

OECD and non-OECD economies


Source: NBF Economics and Strategy (data via EIA)

US: Exports of Crude Oil to Canada


Source: The Canadian Press

Transcanada Energy East Pipeline

Canada: Recession or not?



Real monthly GDP

Source: NBF Economics and Strategy (data via Statistics Canada)

Canada’s GDP: Not bad, eh??

1,608

1,612

1,616

1,620

1,624

1,628

1,632

1,636

1,640

1,644

1,648

1,652

2014q1 2014q2 2014q3 2014q4 2015q1 2015q2 2015q3


YTD full-time employment by province


Perspective on labour markets

-1.6

-1.2

-0.8

-0.4

0.0

0.4

0.8

1.2

1.6

2.0

ON QC NB NS BC MB AB SK PE NF

BARFULLEMPPROVS

% change


Source: NBF Economics and Strategy, (data via Statistics Canada and Datastream)

Canada-US comparison: Full-time jobsCanada vs. US Full-time employment

90

92

94

96

98

100

102

104

106

108

110

2007 2008 2009 2010 2011 2012 2013 2014 2015

Index 2007=100

US

Canada


Source: NBF Economics and Strategy, (data via Desrosiers)

Canada: 2015 Record Year for Auto SalesNew motor vehicle sales inCanada (quarterly average)

1,350

1,400

1,450

1,500

1,550

1,600

1,650

1,700

1,750

1,800

1,850

1,900

1,950

2,000

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

-15.0

-10.0

-5.0

0.0

5.0

10.0

BC ON QC Canada AB

Thousands (saar)* % change (as of Sep)

New motor vehicle sales in thefour largest provinces


Real potential GDP growth: Canada vs the US

Source: NBF Economics and Strategy (data via OECD and Datastream)

Canada: BoC slashes potential GDP growth

1.0

1.2

1.4

1.6

1.8

2.0

2.2

2.4

2.6

2.8

3.0

3.2

3.4

3.6

3.8

4.0

1980 1985 1990 1995 2000 2005 2010 2015

%

U.S.

Canada


Actual exchange rate vs. purchasing power parity value established by OECD

Source: NBF Economics and Strategy (data via OECD and Datastream)

Canada: What is the PPP Suggesting?


Gross domestic product, 2007 constant prices


Perspective on the Canadian Economy

Housing


Source: US Bureau of Census, research.stlouisfed.org


US Housing Starts (Annual Rate)

Nov/15:1,173 units


US Housing Affordability

©2016 National Association of REALTORS®

*Effective rate on loans closed on existing homes - Federal Housing Finance Agency. Adjustable mortgage rates are not available since 2010.**Based on a 25% qualifying ratio for monthly housing expense to gross monthly income with a 20% down payment.

Year Month

Median PricedExisting SingleFamily Home

MortgageRate

MonthlyP & I

Payment

Paymentas % ofIncome

MedianFamilyIncome

QualifyingIncome**

AffordabilityIndex

Composite2012 177,200 3.83 663 12.7 62,527 31,824 196.52013 197,400 4.00 754 14.1 64,030 36,192 176.92014 208,900 4.31 828 15.1 65,910 39,744 165.82014 Oct 208,000 4.29 822 15.0 65,646 39,456 166.42014 Nov 207,900 4.16 809 14.8 65,803 38,832 169.52014 Dec 209,200 4.16 815 14.8 65,897 39,120 168.42015 Jan 198,600 4.04 762 13.8 66,145 36,576 180.82015 Feb 204,200 3.92 772 14.0 66,316 37,056 179.02015 Mar 212,100 3.95 805 14.4 66,993 38,640 173.42015 Apr 220,000 3.95 835 14.9 67,151 40,080 167.52015 May 230,500 3.90 870 15.5 67,322 41,760 161.22015 Jun 237,900 3.99 908 16.1 67,483 43,584 154.82015 Jul 233,400 4.19 912 16.2 67,614 43,776 154.52015 Aug 230,000 4.15 894 15.8 67,752 42,912 157.92015 Sep 223,300 4.10 863 15.3 67,802 41,424 163.72015 Oct 221,200 4.05 850 15.0 67,865 40,800 166.3

* Based on 2012 Statistics Canada data, Median total income (all census families).** National Bank of Canada 5 Year Fixed Mortgage Rate of 2.94%

*** Based on a 25% qualifying ratio for monthly housing expense to gross monthly income with a 20% down payment over 25 years.

Source: CREA, January 2016


Canadian Housing Affordability

Nov-2015

MedianFamily

Income*

MedianPricedFamilyHome

MonthlyP & I

Payment**

Paymentas % ofIncome

QualifyingIncome***

AffordabilityIndex

Median PricedFamily Home/

Affordability IndexNov-2014

Toronto $68,810 $632,685 $2,380 41.51% $114,240 60.23 $577,936 65.94

Vancouver $67,090 $930,652 $3,564 63.75% $171,072 39.22 $804,450 43.68

Calgary $89,490 $444,959 $1,674 22.45% $80,352 111.37 $462,032 105.39

Edmonton(CMA)

$87,930 $369,559 $1,390 18.97% $66,720 131.79 $381,569 130.48


Canada and US House Prices

Source: NBF Economics and Strategy (data via Teranet-National Bank and S&P)

House price composite index, Canada & US

80

100

120

140

160

180

200

220

240

260

280

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15

Canada : Teranet-National Bank

U.S.:S&P/Case-ShillerComposite 20

Shaded areas: U.S. recessions

Index January 2000 = 100


Source: NBF Economics and Strategy (data from Statistics Canada and BEA)

Canada-US: Household net savings rate

Household net savings as a % of household disposable income

Market Performance



TSX: Officially in a Bear Market

Source: Datastream

-40

-30

-20

-10

0

10

-40

-30

-20

-10

0

10

2014 2015 2016

IndexIndex Stock market

S&PTSX ($ C) S&P 500 ($ US) S&PTSX ($ US)

Source: NBF Economics and Strategy (data via Bloomberg) 2015-12-11


The BoA Merrill Lynch US High Yield (HY) and Investment grade (IF) Energy Index OASThe BoA Merrill Lynch US High Yield (HY) and Investment grade (IF) Energy Index OAS

US: Energy sector under significant stress

0

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

1998 2000 2002 2004 2006 2008 2010 2012 2014

HY

IG

%


Corporate Yields

Source: Bank of America ML, Bloomberg

Past the Point of no Return


Canadian Dollar Performance: 2015

Source: NBF Economics and Strategy (data via Statistics Canada, US Census, Eurostat)

Loonie Tuned

Alberta’s “New Math”



Alberta Statistics

Median age: 36

Median family income (2013) $97,390

Individual income (2013) $40,400

Population between 15-64 68%

Population between 0-14 20%

Population 65+ 12%

Source: The Globe and Mail (Conference Board of Canada*Information and communications technology

Data for the most recentyear available were used

Innovation Indicators CAD Nfld PEI NS NB Que ON MB SK AB BC

Public R&D B C A A+ C A A B D D C

Researchers D D- D- D- D- C C D- D- D- D

Connectivity C C B D C C B D C B B

Scientific articles B C C A D B B B B B B

Entrepreneurial ambition A B N/A B N/A B A A A+ A+ A+

Venture capital investment B C D- D D A B D- D D A

Business enterprise R&D E D- D- D- D- C D D- D- D- D-

ICT Investment* C D B C D C B C D C C

Patents D D- D- D- D- D D D- D- D D

Enterprise entry rate N/A A A D C D B B A A B

Labour productivity C B D- D D- D D D C B D

Innovation Report Card 6 Netherlands B 12 Australia C

1 Sweden A 7 Austria B 13 Belgium C

2 Denmark A 8 Norway B 14 Britain C

3 Finland A 9 Canada C 15 France C

4 United States B 10 Germany C 16 Ireland D

5 Switzerland B 11 Japan C

Canada Remains an Innovation Laggard

*Information and communications technology

Source: Conference Board of Canada, Sept 2015


Source: NBF Economics and Strategy (data via US Census Bureau)

Province

Nunavut 35%

Northwest Territories 55%

Yukon 64%

Alberta 69%

Quebec 74%

Newfoundland andLabrador

75%

Manitoba 78%

Saskatchewan 82%

New Brunswick 83%

British Columbia 85%

Ontario 86%

Prince Edward Island 87%

Nova Scotia 87%

High School Graduation Rates

International perspective on populationgrowth

Source: NBF Economics and Strategy (data via Statistics Canada, US Census, Eurostat)

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

Alberta (2014) Canada (2014) US (2014) EURO ZONE (2013)

Natural Population growth

71%

67%42%



Small Business is BIG Business

SME businesses contribute more than 50% of Canada’s GDP

98.2% SMEs employ less than 100 people

More than 1.1 million SMEs

826,000 entrepreneurs

6.4 in 10 Canadians work in a SME

Financing is key to growth

Source: BDC Small Business Week 2015


The University of Alberta The U of A has more than 260,000 alumni worldwide

Alumni have founded over 70,000 organizations globally

Organizations founded by alumni are responsible for $350 billion in

annual revenue

U of A’s direct economic impact on the province each year is $12.3

billion – the equivalent of 135 Edmonton Oilers teams

Consistently ranked in the top 100 in the world and top five nationally

The U of A leads the nation with 41 National 3M Teaching Fellows

Alberta’s Wage Hike


HRIA (Human Resources Institute of Alberta) Survey Results:

Nearly 2/3 of companies will “adjust the wage & pay scale

across the organization”

62% said they would “raise prices for products and services”

Government and regulated agencies drive up costs

Nearly 50% said they will “reduce training” (serious health

and safety issues)

44% said they will “reduce or limit the number of entry-level

positions”

Source: Todd Hirsch, The Globe and Mail (November 5, 2015)


Minimum Wage The Fraser Institute examined 12 Canadian studies on the relationship

between minimum wage and employment of young workers (15-24):

A 10% wage hike translates into 3-6% job loss

A 50% wage hike translates into 15-30% job loss and substantially reducesemployment opportunities for young and lower skilled Albertans

Other reductions include hours, benefits and training

Deprives gain of valuable on the job training

Evidence shows higher wages does not reduce poverty

87.5% of minimum wage workers in Canada do NOT live in lowincome households

In 2014, minimum wage workers in Alberta: 50% lived with parents

26% lived with spouse

2% were single parents


Basic Costs: Households and Province of AB

Basic Household Costs

Mortgage

Food

Vehicle

Utilities

Insurance

Basic Alberta Costs

Health Care

Education

72% of consolidated government

expenses ($32.267 billion)

Salary costs are about 64% of

this expense ($20.680 billion)


Wish List: Households and Prov of AB

Household

Pension/RRSP

Vacation

TFSA

Education Plan

Alberta

Campaign Promises

Increase corporate taxes

Increase personal taxes

Increase gasoline tax

Increase child care

Increase number of nurses and teachers

Increase social services

Carbon Tax (2017)


Province of Alberta’s Income Supplement

Year New Debt CumulativeDebt*

2015 $6,000 $6,000

2016 $8,000 $14,000

2017 $10,000 $24,000

2018 $6,000 $30,000

2019 $6,000 $36,000* Interest not included

Personal Credit Card Debt …

What financial advice would you provide after year two?

…Bridge building versus day care

Summary



Summary

Global growth just above 3.0% in 2016

China continues to grow at under 7% with a different mix (consumer

driven)

Eurozone to do better (fiscal stimulus a possibility after Paris

attacks)

Geopolitical risks to remain an issue / liquidity in corporate bonds

World & US


Summary

Growth below the U.S.: 1.6% vs 2.5% in 2016 and not much

acceleration in 2017

No rate hike before 2017 at earliest

Housing vulnerable to deterioration in labour markets and

affordability, but this is not a 2016 story

Canada

View Online Unsubscribe Subscription Settings Copyright © 2014 The Angus Watt Advisory Group

EXPECTED NORTH AMERICAN INFRASTRUCTURE SPENDING (NBF Research)

Canada 2016: expect approximately $20 billion of infrastructure spending including: Southwest Calgary Ring Road, Calgary Cancer Centre, Scarborough Subway extension and GordieHowe Bridge.

US: The $305 billion Fixing America’s Surface Transportation Act is increasing investment 17% to $12.6 billion by 2020.

ENERGY

Canadian National Energy Board approved the 1st

40 year LNG export license to a Shell facility in Kitimat, BC; past licenses have been 25 years.

Tensions between Saudi Arabia and Iran likely to put downward pressure on the price of oil due to a lower possibility of a coordinated production cut and competition market share.(source: Angelo Katsoras, National Bank Financial)

World’s biggest oil and gas producers are expected to cut investment again in 2016 and will focus on best producing wells.

December Russian oil output set another post-Soviet record up 0.4% M/M to 10.825 million boe/d.

CANADIAN ECONOMIC DATA

Canada added 23,000 jobs in December vs 10,000 expected; unemployment unchanged at 7.1%.

All jobs created were part-time and total hours worked were up 0.3%.

Ontario added 35,000 and Quebec 13,000 while BC lost 8,000, Alberta 4,000 and Sa skatchewan 5,000.

Alberta’s unemployment rate unchanged at 7%; average hours worked declined 4.3% 2015 Y/Y.

December average price of Vancouver single-family home increased 22.5% Y/Y.

RBC is increasing mortgage rates 0.10% on 2-5 year fixed term and 0.15% on 5 year variable rate.

US ECONOMIC DATA

US added 292,000 jobs in December vs 200,000 expected. November and October were both revised higher.

2015 US added an average of 221,000 jobs per month (284,000 /month Q4) vs 260,000 in 2014.

December unemployment rate was unchanged at 5% and labor participation rate is 62.6%.

December average hourly wages were unchanged M/M.

TIDBITS

Star Wars is now the highest grossing move in North American history, surpassing Avatar in just 20 days.

London failed EU limits on air pollution just 8 days into 2016. expanding restrictions on vehicle use to fight smog for the rest of winter ; drivers will be barred on alternate daysdepending on license plate numbers.

Beijing is expanding restrictions on vehicle use to fight smog for the rest of winter ; drivers will be barred on alternate days depending on license plate numbers.

China has created 3 new military units to modernize the army.

G7 will have to issue $7 trillion of debt in 2016 to refinance maturing issues.

Blackberry is building self-driving car software.

World Bank cut global growth forecast to 2.9% from 3.3% for 2016.

Opinions expressed in this document are those of The Angus Watt Advisory Group and are not necessarily those of National Bank Financial Group. National Bank Financial is an indirect wholly-owned subsidiary ofNational Bank of Canada. National Bank of Canada is a public company listed on the Toronto Stock Exchange (NA: TSX). National Bank Financial is a member of the Canadian Investor Protection Fund

Canadian Consumer spending


TD Economist Brian DePratto estimates:

For every dollar of increased housing wealth, Canadian

consumers have boosted spending by an extra 5 cents

Source: The Globe and Mail (November 5, 2015)

Documents

Alberta’s “New Math”96bda424cfcc34d9dd1a-0a7f10f87519dba22d2dbc6233a731e5.r41.cf2.rackcd… · 2016-01-13 · National Bank Financial is an indirect wholly-owned subsidiary