david rosenberg presentation at strategic investment conference april 29, 2011

Please be aware that this presentation is provided with the express permission of the speaker and not intended for distribution by you or other persons. The views expressed by the speaker are his own and not those of Altegris or its employees or affiliates. As such, Altegris cannot make any representation or warranty as to the accuracy or completeness of the statements or data in this presentation. You should seek independent verification of any data in this presentation before relying on it in making any investment decisions.

There is no guarantee that any investment product will achieve its objectives, generate profits or avoid losses. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.This document is provided to John Poehling by Altegris Investments, Inc., accessed on 7/21/2011

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BOB FARRELL’S 10 MARKET RULES TO REMEMBER

1 Markets tend to return to the mean over time

2 Excesses in one direction will lead to an opposite excess in the other direction

3 There are no new eras – excesses are never permanent

4 Exponential rapidly rising or falling markets usually go further than you think, but

they do not correct by going sideways

5 The public buys the most at the top and the least at the bottom

6 Fear and greed are stronger than long-term resolve

7 Markets are strongest when they are broad and weakest when they narrow to a

handful of blue chip names

8 Bear markets have three stages – i) sharp down, ii) reflexive rebound, and

iii) a drawn-out fundamental downtrend

9 When all the experts and forecasts agree, something else is going to happen

10 Bull markets are more fun than bear markets

1

There is no guarantee that any investment product will achieve its objectives, generate profits or avoid losses. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.

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7%

14%

15%

19%

23%

27%

34%

Lower inflation

Lower yields

Lower income growth

Lower financial wealth

Lower economic growth

Lower jobs growth

Lower stock market

WHAT’S COMING DOWN? SURVEY SAYS ….

Note:

Source: Conference Board, University of Michigan

United States

American household opinions on what will be declining in the next 6 to 12 months:

2


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3

ALWAYS BEWARE OF THE “FRONT COVER” EFFECT


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4

GAS PAINS AND INFLATION EXPECTATIONS GO HAND-IN-HAND


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3

4

5

6

7

8

'89 '91 '93 '95 '97 '99 '01 '03 '05 '07 '09 '11

2.8% inflation rate a year later

2.4% 2.2%

1.2% 1.7%

3.6%

-1.3%

?

WHEN JOE THE PLUMBER TELLS YOU INFLATION IS ON ITS WAY,

MOVE IN THE OTHER DIRECTION!

(percent)

United States: Expectations 12 Months Hence: Inflation Rate

Note:

Source: The Conference Board 5


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DEFLATION IS STILL THE UNDERLYING TREND

6


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0

2

4

6

8

10

12

14

'58 '63 '68 '73 '78 '83 '88 '93 '98 '03 '08

-4

-2

0

2

4

6

8

10

12

14

16

'48 '53 '58 '63 '68 '73 '78 '83 '88 '93 '98 '03 '08

BIG PICTURE CHART OF INFLATION

Note:

Source: Bureau of Labor Statistics

United States: Consumer Price Index

All Items

7

All Items less Food and Energy

(year-over-year percent change)


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-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

6.0

'06 '07 '08 '09 '10 '11

0.5

1.0

1.5

2.0

2.5

3.0

'06 '07 '08 '09 '10 '11

THE NEAR-TERM PICTURE … INFLATION TICKING UP... FOR NOW

Note:



All Items Less Food and Energy All Items

8



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0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

'84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

5.5

'84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10

TAKE OUT THE NOISE, AND INFLATION IS STILL COMATOSE

Note:

Source: Federal Reserve Bank of Cleveland

United States: Federal Reserve Bank of Cleveland

16% Trimmed-Mean CPI Median CPI

9



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0

1

2

3

4

5

6

7

8

9

10

'78 '80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10

THE DALLAS FED SAYS MUCH THE SAME

Note:

Source: Federal Reserve Bank of Dallas

United States: Federal Reserve Board Dallas: Trimmed-Mean 12-month PCE Inflation Rate

(percent)

10


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0

20

40

60

80

100

120

140

97 00 03 06 09

3.8%

inflation rate 3.0%

4.7%

4.1%

2.8%

2.2%

OIL PRICES CLEARLY SURGING

Note:

Source: Wall Street Journal, Haver Analytics

Spot Oil Price: West Texas Intermediate ($/barrel)

11


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80

100

120

140

160

180

200

'97 '99 '01 '03 '05 '07 '09 '11

3.8% inflation rate

3.0%

4.7% 4.1%

2.8%

2.7%

FOOD PRICES ARE AS WELL

Note:

Source: U.S. Department of Agriculture, Haver Analytics

United States: Prices Received by Farmers: All Farm Products (1990-92 = 100)

12


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BUT IN TERMS OF OIL INFLATION, WE HAVE BEEN HERE BEFORE

Note:

Source: Wall Street Journal, Haver Analytics

Spot Oil Price: West Texas Intermediate [Prior ’82 = Posted Price] (year-over-year percent change)

13

-80

-40

0

40

80

120

160

'78 '81 '84 '87 '90 '93 '96 '99 '02 '05 '08 '11


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-20

-15

-10

-5

0

5

10

15

20

25

30

'76 '78 '80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10

DITTO FOR FOOD

Note:

Source: U.S. Department of Agriculture, Haver Analytics

United States: Prices Received by Farmers: All Farm Products (year-over-year percent change)

14


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-75

-25

25

75

125

175

225

275

325

375

'95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10

Record

High!

OIL IS BEING DRIVEN IN PART BY SPECULATIVE FERVOUR

Net Long Speculative Position on Oil

Note:

Source: Haver Analytics

(thousands of contracts)

15


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-5000

0

5000

10000

15000

20000

25000

'07 '08 '09 '10

Record!

SIMILAR STORY FOR THE GRAINS

Note:

Source: Commodity Futures Trading Commission

Net Speculative Long Position in Grains (thousands of contracts)

16


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-8

-6

-4

-2

0

2

4

6

8

10

'89 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11

GOODS INFLATION RUNNING NEAR ABOVE 3% AND HEADING HIGHER … FOR NOW

Note:

Source: Bureau of Labour Statistics

United States: Consumer Price Index: Commodities (year-over-year percent change)

17


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45%

50%

55%

60%

65%

70%

'59 '62 '65 '68 '71 '74 '77 '80 '83 '86 '89 '92 '95 '98 '01 '04 '07 '10

SERVICES ARE 66% OF THE CONSUMPTION BASKET

Note:

Source: Bureau of Economic Analysis

United States: Personal Consumption Expenditures in Services over Total Personal

Consumption Expenditures (percent)

18


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SERVICE SECTOR INFLATION RUNNING NEAR 1%

Note:


United States: Consumer Price Index: Services (year-over-year percent change)

19

0

2

4

6

8

10

12

14

16

18

20

'57 '60 '63 '66 '69 '72 '75 '78 '81 '84 '87 '90 '93 '96 '99 '02 '05 '08 '11


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-1

0

1

2

3

4

5

6

7

'89 '91 '93 '95 '97 '99 '01 '03 '05 '07 '09 '11

-1

0

1

2

3

4

5

'89 '91 '93 '95 '97 '99 '01 '03 '05 '07 '09 '11

SERVICE SECTOR INFLATION STILL TAME EVEN WITH RENTS HOOKING UP

Note:



Owners’ Equivalent Rent of Residence Rent of Primary Residence

20



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TOO MUCH INFORMATION, NOT ENOUGH INFLATION

Note:


United States: Consumer Price Index: Information & Information Processing (year-over-year percent change)

21

-6

-5

-4

-3

-2

-1

0

1

2

3

4

'94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11


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SORRY, NOBODY HOME

Note:


United States: Consumer Price Index: Telephone Services (year-over-year percent change)

22

-4

-3

-2

-1

0

1

2

3

4

'98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10


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IMAGINE WHAT THIS CHART LOOKS LIKE EXCLUDING NEW YORK YANKEE TICKETS

Note:


United States: Consumer Price Index: Recreation (year-over-year percent change)

23

-2

-1

0

1

2

3

4

'94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11


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-15

-10

-5

0

5

10

15

20

25

'89 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11

INFLATION CHECKING OUT

Note:


United States: Consumer Price Index: Other Lodging From Home Including Hotels/Motels (year-over-year percent change)

24


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2

3

4

5

6

7

8

9

10

'89 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11

HEALTH CARE INFLATION GOING THROUGH SOME SURGERY

Note:


United States: Consumer Price Index: Medical Care Services (year-over-year percent change)

25


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INFLATION SKIPPING SCHOOL

Note:


United States: Consumer Price Index: Tuition, Other School Fees & Child Care (year-over-year percent change)

26

3

5

7

9

11

13

15

'79 '80 '81 '82 '83 '84 '85 '86 '87 '88 '89 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11


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WHAT EVER THIS IS, IT’S DISINFLATING TOO

Note:


United States: Consumer Price Index: Misc Personal Services (year-over-year percent change)

27

0

1

2

3

4

5

6

7

8

'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11


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NO TIPPING AT THE TAVERN?

Note:


United States: Consumer Price Index: Alcoholic Beverages Away From Home (year-over-year percent change)

28

0

1

2

3

4

5

6

7

8

9

10

'89 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11


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29


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-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

14%

16%

'63 '68 '73 '78 '83 '88 '93 '98 '03 '08

Unit Labour Costs

Consumer Price Indexr = 0.88

UNIT LABOUR COSTS THE PRINCIPLE DRIVER OF LONG-TERM INFLATION TREND

Note:


United States

( year-over-year percent change)

30


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3

4

5

6

7

8

9

10

11

94 96 98 00 02 04 06 08 10

6

8

10

12

14

16

18

94 96 98 00 02 04 06 08 10

UNEMPLOYMENT STILL A MAJOR PROBLEM…

Notes:

*Includes all marginally attached workers and those employed part-time for economic reasons.

Source: Bureau of Labor Statistics, Federal Reserve

United States (percent)

U6 Unemployment Rate* Official Unemployment Rate

Record High

Levels!

Still high:

currently at 8.8%!

31


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0

1

2

3

4

5

6

7

'48 '53 '58 '63 '68 '73 '78 '83 '88 '93 '98 '03 '08

0

5

10

15

20

25

30

35

40

45

50

'48 '53 '58 '63 '68 '73 '78 '83 '88 '93 '98 '03 '08

… NOT ONLY ECONOMIC, BUT SOCIAL TOO

Notes:

Shaded area represent periods of U.S. recession


United States: Civilians Unemployed for 27 Weeks or Over

As a percentage of total unemployed (percent)

Total (millions)

Record

High!

Record

High!

32


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EMPLOYMENT RATE UNDERSCORES SOFT LABOUR MARKET

Note:


United States: Employment-to-Population Ratio

(percent)

33

58

59

60

61

62

63

64

65

66

85 88 91 94 97 00 03 06 09

Lowest since 1983


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-3

-2

-1

0

1

2

3

'07 '08 '09 '10 '11

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

'07 '08 '09 '10 '11

U.S. INCOME FUNDAMENTALS ARE SOFTENING

Note:


United States: Average Weekly Earnings

Real Nominal

34



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35


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FOOD AND ENERGY BILL SOAKING UP OVER 22% OF WAGES AND SALARIES

(percent)

United States: Personal Consumption of Food & Energy Over Wage & Salary Disbursements

Notes:

Shaded regions represent periods of U.S. recession

Source: Bureau of Economic Analysis

15%

16%

17%

18%

19%

20%

21%

22%

23%

24%

'90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11

36


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37


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Computers/Eqpt, -6.7

Toys, -4.9

Household Furniture, -4.3

Window/Floor Coverings, -4.3

Household Appliances, -4.0

Information and processing, -1.6

Stationery, -1.3

Tools/Outdoor Eqpt, -1.3

Video and Audio, -1.3

Newspapers/Magazines , -0.4

Apparel, -0.4

Sporting Goods, 0.1

Books, 0.6

Autos, 0.6

Personal Care, 0.8

Rent , 1.1

Household Energy, 1.5

Restaurant, 1.6

Hotels, 2.0

Movies/ Theaters/Concerts, 2.1

Groceries, 2.8

Medical Care, 2.9

Tuition, 4.1

Tobacco, 5.6

Delivery Services, 9.4

Airline Fare, 12.3

Gasoline, 19.2

Bars, 2.4

ONLY A FEW ITEMS ARE REALLY INFLATING

Note:


United States: CPI Special Details (year-over-year percent change)

38


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39


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-2%

-1%

0%

1%

2%

3%

4%

5%

6%

7%

'90 '93 '96 '99 '03 '06 '09

-2%

-1%

0%

1%

2%

3%

4%

'90 '93 '96 '99 '02 '05 '08 '11

STATE & LOCAL GOVERNMENT CUTBACKS REMAIN A KEY MACRO RISK

Notes:

Shaded region represent periods of U.S. recession

Source: Bureau of Economic Analysis, Bureau of Labor Statistics

United States (year-over-year percent change)

Employment: State & Local Government Real State & Local Government Gross Investment

40


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5

7

9

11

13

15

17

19

'70 '75 '80 '85 '90 '95 '00 '05 '10 '15 '20

25

35

45

55

65

75

85

95

105

115

'70 '75 '80 '85 '90 '95 '00 '05 '10 '15 '20

A CHALLENGING ENVIRONMENT FOR THE FEDERAL GOVERNMENT

Notes:

Shaded bars and dotted lines represent estimates (interest payments/total revenue estimates by Gluskin Sheff and debt/GDP estimates by the OMB)

Source: OECD, U.S. Office of Management and Budget (OMB)

United States: Government Finances (percent)

Interest Payments as a Share of Total Revenue Debt as a share of GDP

41 41


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42


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8

9

10

11

12

13

14

89 91 93 95 97 99 01 03 05 07 09

10

11

12

13

14

15

16

17

18

19

20

89 91 93 95 97 99 01 03 05 07 09 11

RECORD LEVEL OF VACANT RESIDENTIAL REAL ESTATE

Note:

Source: Census Bureau

United States

Total Vacant Housing Units (million units)

Total Housing Vacancy Rate (percent)

Record High!

43


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-20

-15

-10

-5

0

5

10

15

20

'04 '05 '06 '07 '08 '09 '10 '11

HOUSE PRICES DEFLATING AGAIN

Note:

Source: S&P, Fiserv, and MacroMarkets LLC

United States: S&P/Case-Shiller Home Price Index: Composite 20 Index

44



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80

100

120

140

160

180

200

220

240

'98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11

HOUSE PRICE DEFLATION NOT OVER

Note:

Source: Robert Shiller (“Irrational Exuberance”), Haver Analytics

United States: Case-Shiller Home Price Index Composite 10

(not seasonally adjusted, January 2000 = 100)

45


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-40

-30

-20

-10

0

10

20

30

'04 '05 '06 '07 '08 '09 '10 '11

COMMERCIAL REAL ESTATE ROLLING OVER AGAIN

Note:

Source: Moody’s, MIT Center for Real Estate

United States: Commercial Real Estate: RCA-Based National Aggregate Index

46



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HELICOPTER BEN BERNANKE ….

47


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800

1300

1800

2300

2800

'07 '08 '09 '10 '11

250

500

750

1000

1250

1500

'07 '08 '09 '10 '11

FED’S QE IS SITTING ON BANKING SECTOR BALANCE SHEETS

Note:

Source: Federal Reserve Board

United States

All Commercial Banks Cash Assets Reserve Bank Credit Outstanding

48

(US$ billion)


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-400

-200

0

200

400

600

800

1000

1200

1400

1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008 2011

CREDIT CONTRACTION CONTINUE UNABATED

Notes:

Shaded region represent periods of U.S. recession


United States: Households Credit Market Debt

49

(4-quarter change, US$ billion)


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-40

-30

-20

-10

0

10

20

30

93 95 97 99 01 03 05 07 09 11

-60

-40

-20

0

20

40

60

93 95 97 99 01 03 05 07 09 11

HOUSEHOLD DEMAND FOR CREDIT IS DECLINING

Note:


United States: Senior Loan Officer Survey (4-quarter moving average, percent)

Banks Reporting Stronger

Demand for Consumer Loans

Banks Reporting More

Demand for Residential Mortgages

Contracting

Expanding

Contracting

Expanding

50


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4

6

8

10

12

14

16

Q1 1979 Q2 1982 Q3 1985 Q4 1988 Q1 1992 Q2 1995 Q3 1998 Q4 2001 Q1 2005 Q2 2008

1 IN 7 U.S. HOUSEHOLDS IN FORECLOSURE OR ARREARS

Note:

Source: Mortgage Bankers Association

United States

Mortgage Past Due and in Foreclosure (percent)

Near Record

High!

51


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0.8

1.0

1.2

1.4

1.6

1.8

2.0

'98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10

1.65

1.70

1.75

1.80

1.85

1.90

1.95

2.00

2.05

2.10

'99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10

STILL NO SIGN OF A MEANINGFUL INCREASE IN

MONEY MULTIPLIER OR VELOCITY

Note:

Source: Federal Reserve Bank of St. Louis, Macroeconomic Advisers, Federal Reserve Board

United States

Velocity of Money: Nominal GDP to M2

52

St Louis M1 Money Multiplier

(ratio)


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“The Holy Grail of Macro Economics: Lessons

From Japan’s Great Recession”

by Richard C. Koo

“The U.S. economic downturn brought about by

the subprime fiasco is a version of a balance

sheet recession, with many of its unpleasant

characteristics ... Although no quick recovery is

possible. With so much damage to household

and bank balance sheets, the lessons we

learned from Japan during the past fifteen years

can be put to good use to minimize the recovery

time for the U.S. economy.”

DÉJÀ VU FROM RICHARD KOO

53


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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)

54


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300

350

400

450

500

550

600

650

700

750

800

'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10

12000

16000

20000

24000

28000

'89 '92 '95 '98 '01 '04 '07 '10

BOTH COUNTRIES EXPERIENCED THE BURSTING OF A HOUSING BUBBLE

Note:


United States

(US$ billions, 2005)

Japan (¥ billions, 2000)

Real Private Residential Spending

55


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0%

5%

10%

15%

20%

25%

'84 '85 '86 '87 '88 '89 '90 '91 '92 '93 '94

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

14%

16%

'95 '97 '99 '01 '03 '05 '07 '09

BOTH COUNTRIES EXPERIENCED A BUBBLE BURST IN HOUSING CREDIT

Note:

Source: Bank of Japan, Federal Reserve Board Flow of Fund

United States: Household Liabilities: Home

Mortgages

Japan: Domestic Bank Lending: Housing Credit


56


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0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

5.5

2007 2008 2009 2010 2011

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

90 91 92 93 94 95 96 97

WHEN T-BILL YIELDS ARE 0%, YOU KNOW IT’S JAPAN ALL OVER AGAIN

Three-Month Bill Yield

Japan United States

Note:


(percent)

57


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0

50

100

150

200

250

300

350

92 93 94 95 96 97 98 99 00 01 02 03 04 05

Japan (billion ¥)

UNPRECEDENTED EXPANSION OF THE CENTRAL BANK’S BALANCE SHEET

Reserve Bank Credit Outstanding

Notes:

Source: Bank of Japan, Federal Reserve Board

United States (billion US$)

700

900

1,100

1,300

1,500

1,700

1,900

2,100

2,300

2,500

2005 2006 2007 2008 2009 2010 2011

58


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-11

-10

-9

-8

-7

-6

-5

-4

-3

-2

-1

0

89 90 91 92 93 94 95 96 97 98

-11

-10

-9

-8

-7

-6

-5

-4

-3

-2

-1

0

1

2

01 02 03 04 05 06 07 08 09 10

EVEN JAPANESE AND U.S. FISCAL POLICY LOOKS THE SAME

Note:

Source: Japanese Cabinet Office, U.S. Office of Management and Budget (OMB), Gluskin Sheff

Government Deficit as a Share of GDP

Japan United States

Deficit Deficit

Surplus

(percent, inverted scale)

59


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-12%

-8%

-4%

0%

4%

8%

12%

'89 '92 '95 '98 '01 '04 '07 '10

JAPAN’S POST-BUBBLE EXPERIENCE: ROLLING RECESSIONS AND RECOVERIES

Japan: Gross Domestic Product

Note:


(year-over-year percentage change)

60


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0%

1%

2%

3%

4%

5%

6%

90 93 96 99 02 05 08

-2%

-1%

0%

1%

2%

3%

4%

90 93 96 99 02 05 08

INFLATION RECEDES A LONG, LONG, TIME AFTER A BUBBLE BURSTS

Note:

Source: Bureau of Labor Statistics, Japan Ministry of Internal Affairs and Communications

Consumer Inflation excluding Food & Energy (year-over-year percent change)

Japan United States

61


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5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

89 91 93 95 97 99 01 03 05 07 09 11

0

1

2

3

4

5

6

7

8

9

89 91 93 95 97 99 01 03 05 07 09 11

JAPAN: A MODERN DAY EXAMPLE OF A PROLONGED DELEVERAGING CYCLE

Note:


Japan

10-year Government Note Yield (percent)

Nikkei Index (index level)

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DISCLAIMER

The information, opinions, and other materials contained in this presentation is the

property of Gluskin Sheff + Associates Inc. and may not be reproduced in any way, in

whole or in part, without express authorization of the copyright holder in writing. The

statements and statistics contained herein have been prepared by Gluskin Sheff +

Associates Inc. based on information from sources considered to be reliable. We make

no representation or warranty, express or implied, as to its accuracy or completeness.

This publication is for the information of investors and business persons and does not

constitute an offer to sell or a solicitation to buy securities.

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david rosenberg presentation at strategic investment conference april 29, 2011

Economy & Finance