Breakfast With Dave 082010

8/9/2019 Breakfast With Dave 082010

1/15

David A. Rosenberg August 20, 2010Chief Economist & Strategist Economic [email protected]+ 1 416 681 8919

MARKET MUSINGS & DATA DECIPHERING

Breakfast with DaveWHILE YOU WERE SLEEPING

It literally is a sea of red this morning as far as global equity market performance

is concerned. Dells impressive results have been blunted by the dismal

incoming U.S. economic news (though the company did cite weakening demand

for PCs not what you want to hear heading into back-to-school season

because you already know that apparel sales are completely dormant with a lot

of inventory sitting on the shelves). In Europe, all 19 sub-sectors are down so

far today and there are five decliners for every advancer on the Stoxx 600 index.

Emerging markets closed 0.5% lower in the first decline in six days the

Shanghai index reversing 1.7%.

Government bond markets retain a solid bid 30-year yields in Germany are

down 5bps to a record-low of 2.91%. So, you are not going convince us that with

comparable core inflation rates and a much higher unemployment rate in the

U.S.A. (9.5% versus 7.0%) that the long Treasury is not going to follow suit that

is where the greatest total return potential lies across the curve. The Treasury

market, in the meantime, is enjoying its most intense rally in six months up in

price now for four weeks running.

Long bond yields are down to 1.57% in Japan, 2.87% in Denmark, 3.01% in the

Netherlands, and 3.22% in France. And, in a sign that market participants are

lowering their inflation expectations, the spread between 30-year and 10-year

yields has compressed this week, to just over 200bps (tightest in 18 months butstill double the historical norm). The 2-year note yield, hit a new all-time low at a

Japanese-like level of 0.46%. Why so many pro-growth bullish commentators

dont choose to find religion and accept the good work the bond market is doing

for the economy like taking mortgage rates down to new record lows of 4.42%

for the 30-year fixed-rate remains a mystery.

In the foreign exchange market, the DXY is firming as it tests both the 50- and

200-day moving averages to the upside and the yen has strengthened to a

seven-week high against the euro in another classic case of heightened risk

aversion (and taking the stock prices of many Japanese large-cap exporters

down sharply today. The Nikkei index closed down 2%, to 9,179, where it was

back on August 22, 1983). Gold, another safe haven, is sitting pretty as it

consolidates around seven-week highs as well.

Please see important disclosures at the end of this document.

Gluskin Sheff + Associates Inc. is one of Canadas 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 highest

level of personalized client service. For more information or to subscribe to Gluskin Sheff economic reports,

visitwww.gluskinsheff.com

Canada cooling off:Canadas index of leadingeconomic indicators camein weaker than expectedand wholesale salesoutright contracted

While you were sleeping: asea of red this morning asfar as global equity marketperformance is concerned;government bond marketsretain a solid bid; U.S.dollar is firming

500k and counting: U.S.initial jobless claimscontinue to rise and arenow at 500k

Dont bet on this Philly: ThePhilly Fed index swung from5.1 in July to -7.7 in August,and the components werehorrible too

U.S. leading indicatorsrolling over

U.S. recession neverended; GDP to contact inQ3

The bear market in U.S.housing starts is still farfrom over

IN THIS ISSUE


2/15

August 20, 2010 BREAKFAST WITH DAVE

Meanwhile, the commodity-based currencies are taking it on the chin and the

CAD endured a faltering session yesterday on the back of some dismal

wholesale trade realities renewed recession pressures stateside are finding

their way north of the border at a time when the domestic housing market is

clearly rolling over. Why Mark Carney would continue to raise rates in this

environment is anyones guess but the consensus seems to think theres at

least one more interest rate bullet in his chamber even with todays inflation

news that the year-over-year trend in core CPI dipped to 1.6% in July from 1.7%.

Corporate bond risks have staged a reversal and are now rising, as per the

modest deterioration in the CDX market. The resource complex is trading

completely on the defensive right now, with particular weakness in the base

metals group (nickel off 1.5%). And crude oil has traded down to six-week lows

on mounting global growth concerns. The front page news in todays NYT on the

success the White House is having in convincing Israel to forgo, or at least delay,

the pre-emptive actions strike as it relates to Iran could trim some of the

geopolitical premium off the resource complex, oil in particular (see Israel

Assuaged on Iran Threat, U.S. Officials Say).

Yesterdays action was impressive if you were short the market. The S&P was

clocked for a 1.7% loss and volume rose along with the selling pressure. St. Louis

Fed President Bullard reiterated his support for expanded QE if the economy

faltered, though he was quick to say that continued expansion is the most likely

course going forward. Someone forgot to tell him that real GDP, both real and

nominal, have contracted now for two months in a row (see more below).

If the backup in jobless claims to 500k wasnt bad enough, the negative reading

on the Philly Fed for the first time in a year shook the markets badly (only two of

58 forecasters believed the manufacturing index would deteriorate). And, just

how strong can the economy possibly be when California is back paying out

IOUs (see page 3 of the FT). The S&P 500 is now back to its lowest level in a

month and off 12% from the nearby April highs. In Europe, one has to really

wonder, bravado from the EU notwithstanding, how the periphery really is doing

when four-year bond yields in Greece are still in the stratosphere, at 11.9%, and

Portugal-German 10-year spreads back above 280 basis points.

As for politics, you know things are getting desperate when we see on

Bloomberg News stories that the Democrats are blaming the Bush

administration for todays economic woes (hey, it worked for FDR he blamed

Hoover over and over and it worked), and when you see headlines like this in

the New York Times (Once Banished from Campaign Trail, Clinton is Now a TopSalesman page 16). Who recalls back in the primaries in early 2008 when

Mr. Obama said This has become a habit and one of the things that were going

to have to do is to directly confront Bill Clinton when hes making statements

that are not factually accurate. Question does this also apply when the

former President starts to voice his support? One must read today, by the way,

is Why Pundit Predicts a GOP Romp in Novemberon page A2 of the WSJ.

Page 2 of 15

In todays action,

commodity-based currencies

are taking it on the chin

Yesterdays action in the

U.S. was impressive if you

were short the market

In politics, you know things

are getting desperate when

we start seeing stories that

the DEM are blaming the

Bush administration for

todays economic woes


3/15


In yesterdays Two Jeremies diatribe, I could have included other deflationistas

to the bridge club, notably Harry S. Dent and our friend Stephanie Pomboy at

MacroMavens. We may get three tables going yet. And of course, Paul Krugman

too, and whether you agree with him or not, he is generally a great read and so it is

the case today with hisAppeasing the Bond Gods on page A19 of the NYT. The

best shot was this one:

The latest fashion is to declare that theres a bubble in the bond market:

investors arent really concerned about economic weakness; theyre just getting

carried away. Its hard to convey the sheer audacity of this argument. Paul, we

tried our best yesterday. Mr. Krugman is spot on that in contrast to some

bubble euphoria in the Treasury market, bond investors are actually worried

about stagnation and deflation.

FIVE HUNDRED AND COUNTING

Initial jobless claims did it again rising above consensus views and again off

upwardly revised figures. There is little doubt that the trend in claims is firmly up

and that overall labour market conditions are deteriorating. Keep in mind that

the August 14th week represented the nonfarm payroll survey week, and an

outright decline in private payrolls cannot be ruled out (we shall await ADP which

comes out on September 1).

So what happened with the data? Well, claims rose to 500k from 488k (was

484k) and are up now for three weeks in a row and in four of the past five

weeks. The last time they were this high was during the week of November 14,

2009. The four-week moving average has also trended higher 482,500 from

474,500 the prior week and 454,750 a month ago. They were last at this level

on December 5th

of last year.

CHART 1: DOUBLE DIP OR SINGLE-SCOOP

United States: Initial Jobless Claims

(thousands)

10987654321

675

600

525

450

375

300

225

Shaded region represent periods of U.S. recession

Source: Haver Analytics, Gluskin Sheff

Page 3 of 15

There is little doubt that the

trend in claims is firmly upand that overall labour

market conditions are

deteriorating


4/15


Continuing claims did manage to drop 13k in the week of August 7, to 4.478

million, but this is misleading given the throngs who have moved onto the array

of federal emergency extended benefits; the aggregate backlog of claims tally

soared 192k to 9.925 million. This is an unmitigated disaster.

Lets just say that in the past, there were eight times when claims were on a rising

trajectory and broke above the 500k mark. On six of those occasions, the

economy was already in recession (though the consensus rarely sees this even as

it is unfolding) or heading into one. The two periods that the economy emerged

unscathed were in 1977 and 1992 and both times, it was seasonal adjustment

quirks that were the culprit, along with strike action in Atlanta in the former

episode. Both times were one-off weekly spasms (some will undoubtedly say that

federal government worker claims have skewed this latest move to 500k but lets

be honest all the bulls were saying that these Census workers were going to get

redeployed in the private jobs market very quickly. This clearly is not the case).

Claims are on a clear rising trend but we respect the view that you should never

rely too heavily on one data-point even a nice round number like 500k. Lets

just say that if we see the four-week moving average hit this level, a double dip

assuming we arent still in a single-scoop that began in December 2007

will be baked in the ice cream cake. Fait accompli.

DONT BET ON THIS PHILLY

The Philly Fed index was the final nail in the coffin on the double dip. It may

not even be a double dip because it is not a stretch to believe that the

recession that began in December 2007 was only briefly interrupted by a

truncated inventory cycle and the impact now largely gone of

unprecedented monetary, fiscal and bailout stimulus. What we are now seeingunfold is the primary trendline in the U.S. (and Canada, by the way) economy

when left to its own devices though no doubt the Fed will soon react by yet

again dramatically expanding its already pregnant balance sheet.

CHART 2: DONT BET ON THIS PHILLY

United States: Philadelphia Fed Business Outlook Survey

(diffusion index)

1050505050

60

40

20

0

-2 0

-4 0

-6 0


Source: Haver Analytics, Gluskin Sheff

Page 4 of 15

The Philly Fed index was the

final nail in the coffin on the

double dip


5/15


The Philly Fed came in at -7.7 for August the consensus was looking for +7.0;

the July reading was +5.1, the June reading was +8.0; and the May reading was

+21.4. That is what would otherwise be called a freefall.

This is the first negative reading since July 2009. A 29 point slide in three

months is rare and every recession was followed by such a steep descent,

though in fairness, there have been head fakes along the way. But half the

time in the past, such a steep slide over a three-month span presaged recession

just about half the time. So at best, this is a flip of a coin and yet most Wall

Street economists are still somewhere locked between zero and 35% odds of

the economy turning down again (it looks to be contracting this quarter!).

The components were simply horrible too orders down to -7.1 from -4.3, the

first back-to-back negative prints in 13 months; backlogs at -7.1 too. In a clear

sign that inventories are no longer being accumulated, this component came in

at -11.6, the first minus sign since March and most negative number in nine

months. The employment components were scary they were so bad the

workweek index swung from +1.7 in July to -17.1 in August (worst since June

2009) and the jobs index went from +4.0 to -2.7, a 10-month low.

The bond bulls should have feasted on the inflation components: prices-received

(charged) was negative for the third month running, at -12.5 in August. This is

the weakest since August 2009 in the past five decades, the Philly Fed prices-

received index been this negative less than 5% of the time.

Prices-paid also slipped but only to +11.8 from +13.1 and the fact that this proxy

for input prices is still positive at a time when prices charged for the output is so

deeply negative, strongly suggests that profit margins are rolling off their peak.

The combination of Philly Fed and New York Empire points to a 53.0 reading on

ISM (data out on September 1st) from 55.5 in July. That would be the lowest in

11 months and ratify the view that the peak was turned in at 60.4 in April.

LEADING INDICATORS ROLLING OVER

The Conference Boards index of leading economic indicators magically came in

at +0.1% MoM, as expected, in July but the diffusion index was low at 55% and

has not been better than this since March when it was 70%. The treatment of

the shape of the yield curve seems to skew the number by 0.3 to 0.4 of a

percent point each and every month, so outside of that the LEI actually fell 0.2%

and is down now in two of the past three months. In fact, the LEI is barely up

from the Mach 2009 low without the contributions from the yield curve and thestock market, which together accounted for about two-thirds of the rebound.

Page 5 of 15

The combination of Philly

Fed and New York Empire

points to a 53.0 reading on

ISM from 55.5 in July

Yes, the LEI magically came

in at 0.1% MoM in July, but it

is being boosted by yield

curve; outside of that, the

LEI actually fell 0.2%


6/15


Moreover, the coincident-to-lagging ratio, which our friend Dennis Gartman has

often cited as a fairly reliable leading indicator of the leading indicator itself (!)

slipped to 94.0 from 94.1 in June and 94.3 in May. It really says something

about the lack of impetus in the economic landscape that this ratio would have

peaked at a level that it almost bottomed out at in the recession of the early

1990s. At no time in the past 40 years has the peak been as low as 94.3, and

think of all the hard lifting monetary and fiscal policy had to do just to get there.

CHART 3: COINCIDENT-TO-LAGGING RATIO SLIPPING

United States: Ratio of Coincident Composite Index to Lagging

(2004 = 100)

105050505050

104

100

96

92

88

84

80


Source :The Conference Board, Gluskin Sheff

Below is the chart of the YoY trend in the leading indicator. This puts the data

into current context it peaked at 11.6% in March and the growth has since

been pared to 7.1%.

Page 6 of 15

CHART 4: GROWTH RATE IN THE LEI SLOWING DOWN QUICKLY

United States: Index of Leading Economic Indicators

(year-over-year percent change)

109876543210

12

8

4

0

-4

-8


Source The Conference Board, Gluskin Sheff


7/15


The chart below plots the YoY trend in the LEI with a six-month lead against

industrial production. It has a decent 81% correlation and is pointing to a

discernible slowing ahead.

CHART 5: DISCERNIBLE SLOWING IN INDUSTRIAL PRODUCTION AHEAD

United States

(year-over-year percent change)

Index of Leading Economic Indicators(six-month lead, thick line, left hand side scale)

Industrial Production(thin line, right hand side scale)

1050505050

22.5

15.0

7.5

0.0

-7.5

-15.0

15

10

5

0

-5

-10

-15

r = 0.81


Source: Federal Reserve Board, The Conference Board, Gluskin Sheff

U.S. RECESSION NEVER ENDED; GDP TO CONTRACT IN Q3

Our suspicions have been confirmed the recession never ended.

Macroeconomic Advisers produces a monthly U.S. real GDP series and it shows

that the peak was in April, as we expected, with both May and June down 0.4%in the worst back-to-back performance since the economy was crying Uncle!

back in the depths of despair in September-October 2008. The quarterly data

show that Q2 stands at a +1.1% annual rate (so look for a steep downward

revision for last quarter) and the build in for Q3 is -1.5% at an annual rate.

Depending on the data flow through the July-September period, it looks like we

could see a -0.5% to -1% annualized pace for the current quarter. Most

economists have cut their forecasts but are still in a +2.5% to +3.5% range.

What is truly amazing is that despite all the fiscal, monetary, and bailout

stimulus, the level of real economy activity, as per the M.A. monthly data, is still

2.5% below the prior peak. To put this fact into context, the entire peak to

trough contraction in the 2001 recession was 1.3%! That is incredible.

Interestingly, and dovetailing nicely with our deflation theme, nominal GDP fell0.3% in May and by 0.4% in June. This is a key reason why Treasury yields are

melting.

Page 7 of 15


8/15


CHART 6: NO WONDER THE NBER NEVER SOUNDED THE ALL-CLEAR

United States: Macroeconomic Advisers Monthly Real GDP Index

(seasonally adjusted at an annual rate, 2005 $billion)

1098765

13400

13200

13000

12800

12600

12400

12200

Source: Macroeconomic Advisers, Gluskin Sheff

THE BEAR MARKET IN HOUSING STARTS IS STILL FAR FROM OVER

We got the housing numbers for the U.S. earlier this week and we saw single-

family starts crater for the third month in a row by 4.2% in August to a

432,000 unit annual rate. Only six other times in the past 50 years have starts

been this low.

CHART 7: BEAR MARKET IN HOUSING STILL FAR FROM OVER

United States: Housing Starts: Single Family Units

(thousand units, seasonally adjusted at an annual rate)

105050505050

2000

1600

1200

800

400

0

Source: Census Bureau, Gluskin Sheff

Page 8 of 15

For the real GDP count, this is obviously awful news for the current quarter, and

it seems like this, alongside a variety of other influences (weaker growth in

consumer spending, state and local government cutbacks, a more moderate

profile to the double-digit trend in capital spending, the end of the mini-inventory

cycle), will lead to a modest economic contraction this quarter, which will still

come as a surprise to a consensus still expecting near-2% growth.


9/15


But the cutback in production by the builders is necessary to ultimately restore

balance to the housing market. It is clear that there is no pent-up demand with

mortgage rates diving to new lows and no response coming in terms of new

applications for home purchase (down 38% over the past year), customer traffic

in the showrooms (tied now for the third lowest level in history) or homebuying

intentions surveys (second lowest level in the past three decades, as per the

most recent Conference Board survey).

CHART 8: NEW APPLICATIONS FOR HOME PURCHASE DOWN 38% YoY

United States: Mortgage Loan Applications for Purchase

(March 16, 1990 = 100)

10505

600

500

400

300

200

100

0

Source: Mortgage Bankers Association, Gluskin Sheff

CHART 9: BUYER TRAFFIC VERY WEAKUnited States: Traffic of Prospective Buyers of New Homes

(All Good = 100)

1050505

80

60

40

20

0

Source: National Association of Home Builders, Gluskin Sheff

Page 9 of 15


10/15


CHART 10: VERY FEW ARE EXPECTING TO BUY A HOME

United States: Conference Board Consumer Confidence Survey:

Plans to Buy a Home Within Six Months

(percent)

10505050

6.00

5.25

4.50

3.75

3.00

2.25

1.50

Source: The Conference Board, Gluskin Sheff

With the homeownership rate still at 67%, versus the pre-bubble norm of 64%,

and with lending requirements more stringent, which means the new normal

includes a downpayment (how novel is that?), you can forget there being a

revival in demand coming any time soon. The demand will be coming for my old

room at ma and pas, the basement guest room at the in-laws or space in the

rental sector (think of the math mean-reverting this series will imply a shift of

four million people to the apartment sector in coming years these are the

REITs you probably want to be involved with because we can actually see

demand for apartments doing well in this environment).

CHART 11: HOMEOWNERSHIP RATE STILL ABOVE THE PRE-BUBBLE NORM

United States: Homeownership Rate

(percent)

10505050505

70

68

66

64

62


Page 10 of 15


11/15


But lingering supply concerns and the resultant dampening impact on home

prices will keep buyers at bay, and turnover will be limited by the fact that 25%

of the mortgage population are upside down and as such are immobile (unless

they can cut the lender a big check and move away). This statistic does not get

much play, but the Zillow national home price composite fell 0.2% in June and is

down now for 49 consecutive months.

The critical question is: have the builders done enough cutting? In other words,

have we seen the lows in housing starts and can we begin the process of

building a base for future production?

Hell no.

First, as we mentioned, there is no pent-up demand. At the margin, housing is

simply no longer viewed as a viable investment. Second, the demographics are

awful. Household formation is barely running at over a 600,000 annual rate,

which translates into 430,000 for natural demand for single-family homes and

condos. At the bubble peak, net household formation for new homes was running

well in excess of a million unit annual rate what a shame that the builders had to

cannibalize their own business and right through 2004, 2005, and 2006 were

building at a pace that was more than 50% above the prevailing rate of household

creation. We continue to pay for that irrational exuberance to this day.

It would be nice to have immigration solve our demographic problems but new

visa applications to the U.S. are actually declining on a year-over-year basis.

Who wants to come to a country where there is already a five million pool of

unemployed people competing for every meager job opening? Even Germany

has a 7% unemployment rate, 2% percentage points below Americas.

Third, we have this other dilemma, which is supply. The homeowner vacancy

rate is off its all-time highs but only by a fraction and sits at 2.5%, the pre-bubble

norm was closer to 1.5%, so this means that there is well in excess of a million

units that are in excess inventory. So, with natural demand at an estimated

430,000 units, single-family starts would have to decline further, to around a

330,000 unit annual rate and stay there for a good year, (or correct to 380,000

for two years) for the excess stockpile to disappear and thereby establish a floor

under residential real estate prices. In other words, there is still the chance that

we would have to see single-family starts undergo another 12-24% cutback

before the pain begins to yield a longer-term gain. In the interim, avoid the

homebuilders and any investment correlated with them.

Page 11 of 15

In the U.S., lingering supply

concerns in housing and theresultant dampening impact

on home prices will keep

buyers at bay

Visa applications to the U.S.

are actually declining on a

YoY basis; who wants to

come to a country where

there is already a 5mln pool

of unemployed peopleanyway?


12/15


CHART 12: VACANCY RATE STILL VERY HIGH

United States: Homeowner Vacancy Rate(percent)

1050505050

3.2

2.8

2.4

2.0

1.6

1.2

0.8


Keep in mind one other thing. These are very conservative estimates. Look at the

last chart of vacant homeownership units that are being held off the market for

unspecified reasons a proxy for the oft-cited shadow banking inventory (a

measure of the foreclosure pipeline). At 3.7 million units, this backlog is around

1.3 million higher than the pre-bubble normal levels. So make no mistake, barring

a dramatic reversal in household formation and/or the homeownership rate, the

bottom in starts could well end up being closer to 200,000 units, which would be

another 50% downside from here, which would be a replica of what we saw unfold

in the year to 2009 Q1. Over that period, the S&P 500 homebuilding group

tumbled 40% and the home furnishings sub-sector was off 20% (just a reminder).

Page 12 of 15

CHART 13: SHADOW HOUSING INVENTORY AT 3.7 MILLION UNITS

United States: Vacant Year-Round Housing Units

Held Off the Market For Other Reasons

(thousands)

10505

4000

3600

3200

2800

2400

2000

Source: The Conference Board, Gluskin Sheff


13/15


Page 13 of 15

CANADA: COOLING OFF

We received two more pieces of Canadian data that were on the soft side. The

July leading indicators came in at 0.4% MoM missing the +0.7% expected by

economists and June wholesale sales contracted.

The LEI number is smoothed over five months and we prefer to focus on the

unsmoothed index as its more of a real-time indicator. On this basis, the LEI

rose just 0.2%, although this was the first increase after two months of sharp

declines. Even still, the YoY rate continues to roll over, slowing to 10.5% from

10.6% in June and nearly 5ppt below the April high of 15%. Clearly strong

growth is behind us.

We got another piece of the GDP puzzle, with June wholesale sales, which came

in at a disappointing -0.3% and fell 0.1% once adjusted for price effects (the

second decline in a row). The June GDP picture is a mixed one we had strong

manufacturing data and auto sales were robust as well. All in, we expect June

GDP to rise at 0.2% MoM, leaving the quarter at 2.5% QoQ, about 50 bps shy of

the Banks forecast.


14/15


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Unless otherwise noted, all values are in Canadian dollars.

1. Preliminary unaudited estimate.2. Not all investment strategies are available to non-Canadian investors. Please contact Gluskin Sheff for information specific to your situation.3. Returns are based on the composite of segregated Value and U.S. Equity portfolios, as applicable, and are presented net of fees and expenses.


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IMPORTANT DISCLOSURES

Copyright 2010 Gluskin Sheff + Associates Inc. (Gluskin Sheff). All rights

reserved. This report is prepared for the use of Gluskin Sheff clients andsubscribers to this report and may not be redistributed, retransmitted ordisclosed, in whole or in part, or in any form or manner, without the expresswritten consent of Gluskin Sheff. Gluskin Sheff reports are distributedsimultaneously to internal and client websites and other portals by GluskinSheff and are not publicly available materials. Any unauthorized use ordisclosure is prohibited.

Gluskin Sheff may own, buy, or sell, on behalf of its clients, securities ofissuers that may be discussed in or impacted by this report. As a result,readers should be aware that Gluskin Sheff may have a conflict of interest

that could affect the objectivity of this report. This report should not beregarded by recipients as a substitute for the exercise of their own judgmentand readers are encouraged to seek independent, third-party research onany companies covered in or impacted by this report.

Individuals identified as economists do not function as research analystsunder U.S. law and reports prepared by them are not research reports underapplicable U.S. rules and regulations. Macroeconomic analysis isconsidered investment research for purposes of distribution in the U.K.

under the rules of the Financial Services Authority.

Neither the information nor any opinion expressed constitutes an offer or aninvitation to make an offer, to buy or sell any securities or other financialinstrument or any derivative related to such securities or instruments (e.g.,options, futures, warrants, and contracts for differences). This report is notintended to provide personal investment advice and it does not take intoaccount the specific investment objectives, financial situation and theparticular needs of any specific person. Investors should seek financialadvice regarding the appropriateness of investing in financial instrumentsand implementing investment strategies discussed or recommended in thisreport and should understand that statements regarding future prospectsmay not be realized. Any decision to purchase or subscribe for securities inany offering must be based solely on existing public information on suchsecurity or the information in the prospectus or other offering documentissued in connection with such offering, and not on this report.

Securities and other financial instruments discussed in this report, orrecommended by Gluskin Sheff, are not insured by the Federal DepositInsurance Corporation and are not deposits or other obligations of anyinsured depository institution. Investments in general and, derivatives, inparticular, involve numerous risks, including, among others, market risk,counterparty default risk and liquidity risk. No security, financial instrumentor derivative is suitable for all investors. In some cases, securities andother financial instruments may be difficult to value or sell and reliableinformation about the value or r isks related to the security or financialinstrument may be difficult to obtain. Investors should note that incomefrom such securities and other financial instruments, if any, may fluctuateand that price or value of such securities and instruments may rise or fall

and, in some cases, investors may lose their entire principal investment.

Past performance is not necessarily a guide to future performance. Levelsand basis for taxation may change.

Foreign currency rates of exchange may adversely affect the value, price orincome of any security or financial instrument mentioned in this report.Investors in such securities and instruments effectively assume currencyrisk.

Materials prepared by Gluskin Sheff research personnel are based on publicinformation. Facts and views presented in this material have not beenreviewed by, and may not reflect information known to, professionals inother business areas of Gluskin Sheff. To the extent this report discussesany legal proceeding or issues, it has not been prepared as nor is itintended to express any legal conclusion, opinion or advice. Investorsshould consult their own legal advisers as to issues of law relating to thesubject matter of this report. Gluskin Sheff research personnels knowledgeof legal proceedings in which any Gluskin Sheff entity and/or its directors,officers and employees may be plaintiffs, defendants, co-defendants or co-plaintiffs with or involving companies mentioned in this report is based onpublic information. Facts and views presented in this material that relate to

any such proceedings have not been reviewed by, discussed with, and maynot reflect information known to, professionals in other business areas ofGluskin Sheff in connection with the legal proceedings or matters relevant

to such proceedings.

Any information relating to the tax status of financial instruments discussedherein is not intended to provide tax advice or to be used by anyone toprovide tax advice. Investors are urged to seek tax advice based on theirparticular circumstances from an independent tax professional.

The information herein (other than disclosure information relating to GluskinSheff and its affiliates) was obtained from various sources and GluskinSheff does not guarantee its accuracy. This report may contain links to

third-party websites. Gluskin Sheff is not responsible for the content of anythird-party website or any linked content contained in a third-party website.Content contained on such third-party websites is not part of this report andis not incorporated by reference into this report. The inclusion of a link in

this report does not imply any endorsement by or any affiliation with GluskinSheff.

All opinions, projections and estimates constitute the judgment of theauthor as of the date of the report and are subject to change without notice.Prices also are subject to change without notice. Gluskin Sheff is under noobligation to update this report and readers should therefore assume thatGluskin Sheff will not update any fact, circumstance or opinion contained in

this report.

Neither Gluskin Sheff nor any director, officer or employee of Gluskin Sheffaccepts any liability whatsoever for any direct, indirect or consequentialdamages or losses arising from any use of this report or its contents.

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