2023 FEDERAL BUDGET
Top takeaways
[Soft music]
[Jamie Golombek, Managing Director,
Tax and Estate Planning, CIBC Private Wealth]
Tuesday's federal budget 2023 had a number of changes and measures that affect both individuals and corporations. Let's take a few minutes and review some of the changes that you'll want to know about. 

First, let's begin with the grocery rebate. To help lower income Canadians with increasing costs particularly the cost of food, the budget proposed an increase to the maximum amount of GST credit for January 2023 (that we just received), known as the grocery rebate. 
[Grocery rebate
• Eligible individuals will receive twice the GST rebate received in January 2023
• To be paid ASAP after legislation is passed
• Maximum additional amount will be $153 per adult, $81 per child, $81 additional
single supplement]

And eligible individuals are going to get twice the amount that they received in January that will be paid as soon as possible once the legislation has passed. So, this maximum official amount will be $153 per adult or $81 per child, and another $81 for a single supplement.
[Alternative Minimum Tax (AMT)
• Changes expected to generate an additional $3 billion in revenue over the next five
years]
The big news for higher-income Canadians, of course, is a complete rehaul of the alternative minimum tax known as the AMT. Starting in 2024, the government, being concerned that high income individuals are paying relatively little in personal income tax as a share of their income, are going to be introducing this new, rebranded AMT.
It is expected that the AMT changes will generate an additional $3 billion in revenue over the next five years and in fact will affect and target primarily the highest income earners in Canada.
The Government did announce a number of changes to a variety of registered plans. First of all, they made a couple of changes to RESPs and RDSPs.
[Registered Education Savings Plan
• $8,000 of Educational Assistance Payments (EAPs) allowed in the first 13
consecutive weeks of enrollment
• Divorced/separated couple can open an RESP as joint subscribers]
The RESP, education savings plan, they've made a slight change there to allow $8,000 instead of $5,000 in the first 13 consecutive weeks of enrollment, in terms of an educational assistance payment. And they also amended the requirement when
you open up an RESP, a joint RESP, currently you have to have spouses or common law partners. The new budget proposes to allow a divorced or separated couple to open an RESP as a joint subscriber for one or more of their children.
[Registered Disability Savings Plan
• A parent, spouse or partner is permitted to open an RDSP for a beneficiary over the age of 18 whose capacity is in doubt
• Expanded the definition of a qualifying member to include a brother or sister of the beneficiary]
There's also a small change to the Registered Disability Savings Plans. Under the current rule, there is an issue if you have someone who has a child over the age of 18, but they don't have the mental capacity to be able to enter into a contract. As a
result, under a temporary rule which is now being extended till the end of 2026, a parent or a spouse or partner is permitted to open up the RDSP for them as opposed to just trying to get a guardian or legal representative. And they've also expanded the
definition of a qualifying member to also include a brother or a sister of the beneficiary who's at least 18 years of age, to allow a sibling to establish an RDSP for an adult with disability who doesn't have the capacity to enter into their own RDSP contract.
[Corporate Tax Changes
• Intergenerational business transfers
• Introduced legislation to facilitate employee ownership trusts]
A few quick changes for corporations. There was a bill a number of years ago to facilitate intergenerational share transfers. That was Bill C-208. The government is just making a couple of changes there to make sure that people don't take advantage of that rule inappropriately, if there hasn't been a bona fide sale to a family member. They've also introduced legislation to facilitate employee ownership trusts, which have been popular both in the U.S. and the U.K. as a way of allowing a corporation to transition to some of the key employees of the business in future generations on a tax effective basis.
[General Anti-Avoidance Rule (GAAR)
• GAAR will be amended to address interpretive issues
• This could include a GAAR penalty equal to 25% of the amount of the benefit
• Extending a reassessment period by three years for GAAR assessments]
And then finally, there are some changes coming to the General Anti-Avoidance Rule or the GAAR, to strengthen the GAAR. The GAAR basically is the rule that was introduced back in 1988, that effectively says that a tax benefit could be denied if the
government deems it to be inappropriate. So, the GAAR will be amended to help address the various interpretative issues that the Government is concerned about, that the GAAR is not currently applying as intended. This could include a GAAR
penalty equal to 25% of the amount of the benefit, as well as extending a reassessment period by three years for GAAR assessments.
[Soft music]
[CIBC advisors provide general information on certain tax, investment and estate planning matters; they do not provide tax, accounting or legal advice. Please consult your personal tax advisor, accountant, licensed insurance professional and qualified legal advisor to obtain specialized advice tailored to your needs. 

This video is provided for general informational purposes only and does not constitute financial, investment, tax, legal or accounting advice, nor does it constitute an offer or solicitation to buy or sell any securities referred to. Individual circumstances and current events are critical to sound investment planning; anyone wishing to act on this video should consult with his or her advisor. All opinions and estimates expressed in this video are as of the date of publication unless otherwise indicated and are subject to change.

The CIBC logo is a trademark of Canadian Imperial Bank of Commerce (CIBC), used under license. The material and/or its contents may not be reproduced without the express written consent of CIBC.]
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[The CIBC logo is a trademark of CIBC, used under license.]

2023 Economic Outlook – Light at the End of the Tunnel?
[Soft music plays]
[Benjamin Tal, Managing Director and Deputy Chief Economist
CIBC Capital Markets Inc.]
Everybody is talking about inflation. But the reality is that at the end of the day, this is not
about inflation.
[Sheets of currency being printed. The Bank of Canada, in Ottawa. The Federal Reserve in
Washington.]
This is about the cost of bringing inflation down to 2%, which is the target. The Bank of
Canada, the Fed in the U.S., have established their reputation as inflation fighters. They are
not going to toss it away. Given a choice between a recession and inflation they will take a
recession any day. That's the reality.
[Sources of inflation]
The trajectory of inflation is important here. This trajectory is changing.
[An aerial view of a shipping dock. A person online shops on their phone. An aerial view of a
warehouse and shipping center.]
At any point in time, there are two sources of inflation, supply driven inflation and demand
driven inflation.
[A full warehouse. Bustling shipping docks. The Bank of Canada building. A timelapse of
downtown Toronto.]
What we are seeing more and more, is that the contribution of the supply driven inflation is
diminishing, which means that the supply chain is improving, shipping cost is down. And
that's actually extremely good, because it means that the Bank of Canada is becoming more
powerful in its ability to deal with the situation because more and more inflation is not
coming from the outside, but rather from domestic sources which the Bank of Canada can do
something about.
[Interest rates]
So, what's the next move?
[The Bank of Canada building.]
The Bank of Canada is now at 4.25% overnight rate. We think it's done. We think that's the
end of it. Maybe another 25 basis points if they have to, but we are, basically, extremely
close, maybe at the end of the hiking cycle.
The next question, of course, is what's next? When are you cutting? Usually, the lag between
the last hike and the first easing move is relatively short. This time we believe it will be
relatively long, maybe a year, maybe early 2024.
[The Federal Reserve in Washington. Sheets of currency being printed.]
Why? Because the Bank of Canada and the Fed have to make sure that inflation is dead
before they ease monetary policy.
[An aerial image of the Brooklyn bridge in the 1970s. A CIBC branch in Toronto in the 1970s.]
The last thing they want to do is to repeat the mistakes of the 1970s when monetary policy
was eased prematurely and led to another wave of inflation, and therefore, the double dip
recession of the early 1980s. They would like to avoid that and, therefore, they will wait until
inflation is dead before they cut.
And then when they cut by how much? Now, we started this saga at 1.75% overnight rate.
We are going to 4.25%, 4.5%. We rest for a year. And then cut––to where? I say about 3%. A
full percentage point, maybe more, above the rate we have seen before the crisis.
Why? Because in the background there are three inflationary forces that are putting pressure
on overall inflation.
[A low angle view of a Canadian flag in Ottawa. A full warehouse. A woman carries a box of
office supplies.]
We are talking about deglobalization. We are talking about Just-in-case inventories that are
replacing Just-in-time inventory. And clearly the labour market is much tighter now with
vacancy rates in the sky. And the target is the same target, still 2%. So, in order to achieve
the same target with more inflationary forces, by definition, interest rates have to be higher
and the new neutral rate, about 3%, clearly higher than what it was before the crisis.
[The risk of central bank overshooting]
What's the risk? Overshooting. To the extent that supply chain does not behave. To the
extent that we don't see a significant decline in the external source of inflation, that will lead
to a situation, in which the Bank of Canada will overshoot, will raise interest rates to 5%,
5.5%.
[The Bank of Canada crest. A person fills out a job application. People sit in a waiting room.]
That will take you to a real recession, with the unemployment rate rising significantly. Every
economic recession was helped, if not caused by a monetary policy error, in which central
bankers raised interest rates too much.
[The Bank of Canada building.]
At this point of the game, it seems that the Bank of Canada is getting it. They would like to
avoid this risk. Basically, stop at 4.25%. That's the main case scenario.
[The Housing Market]
Let's talk about the housing market now. The housing market is extremely sensitive to higher
interest rates than in any other time in history.
[An aerial view of houses in Toronto.]
It is slowing down. Is it a correction? Is it a crash? Is it a meltdown? In order to answer those
questions, we have to understand what happened to the housing market during COVID. We
know that prices went up by 46% in two years. The question is why? The answer is the
asymmetrical nature of the crisis. All the jobs that were lost were low paying jobs.
[An empty warehouse. A person reads a layoff notice. Apartment buildings in Toronto.
Homebuyers look at listings in the window of a real estate office.]
Young people, renters. That's why rent actually went down during the pandemic.
[A young couple looks at the front door of a house.]
At the same time, homebuyers and even potential homebuyers, their jobs were there. They
were assuming their income was there and interest rates were in the basement. So basically,
we have a situation in which, if you think about it for a second, homebuyers during COVID
got the benefit of a recession, vis-a-vis extremely low interest rates, without the cost of a
recession, vis-a-vis a broadly-based increase in the unemployment rate.
[A street view of a residential neighbourhood.]
There was a sense of urgency to get into the market. So, if you have a sense of urgency to get
into the market, you frontload activity. You borrow activity from the future. We are in the
future. This is not a freefall. This is not a crash. This is a reallocation of activity over time. We
frontloaded activity, now we are resting due to higher interest rates. That's a very positive
development. It's not over.
[A “For Sale” sign on a lawn.]
Now, this is the first correction ever, in which the supply resale activity is actually down.
Usually, you see supply listings going up when the market is correcting. This is not the case
now. Supply is down because people simply are worried about the overall situation, they are
not willing to list, and therefore, supply is down by 10% on a year-over-year basis. That's
protecting prices from falling further. I believe that will change in 2023 and 2024. We will
see supply rising because the fog will clear.
[An aerial view of houses in Toronto.]
But also, some people will be forced to sell given the huge increase in interest rates and the
shock that they will experience moving from variable rates to fixed rates or renewing their
variable rates. And therefore, I see further downward pressure in the housing market in
2023. However, it's not a crash, it's not a meltdown. It's a very healthy correction.
[An aerial view of houses. A plane lands at an airport. A woman waits for a ride at an airport.
A man holds up the Canadian flag. The Ukrainian flag flying over Kyiv. An agent shows a
couple a condo]
So, expect to see further declining sales and clearly declining prices, especially in the low-rise
segment of the market. At the same time, remember, the fundamentals of this market are
still very strong. This year alone, we got 700,000 new immigrants, plus non-permanent
residents, foreign students, and people from Ukraine. 700,000. None of them carries his or
her house on their back. The demand is there and what's happening to supply? We are not
building.
[An aerial view of houses in Toronto. The interior of a semiconstructed apartment.]]
One third of activity is being canceled or delayed because of the fact the cost is rising too
fast.
So, you don't have the supply coming. The demand is definitely there. You don't need to be
an economist to see what will happen two or three years from now. So, the fundamentals of
the market, the lack of supply, a lot of demand still there. But at the same time, the market is
now adjusting, basically reflecting the asymmetrical nature of this recession.
[This video is provided for general informational purposes only and does not constitute
financial, investment, tax, legal or accounting advice nor does it constitute an offer or
solicitation to buy or sell any securities referred to. Individual circumstances and current
events are critical to sound investment planning; anyone wishing to act on this document
should consult with his or her advisor. All opinions and estimates expressed in this video are
as of the date of publication unless otherwise indicated, and are subject to change.
The CIBC logo is a trademark CIBC, used under licence.
The material and/or its contents may not be reproduced without the express written consent
of CIBC.]
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[The CIBC logo is a trademark of CIBC, used under licence.] 

Opportunities amid turmoil

[CIBC logo]

[Upbeat music]

[Opportunities amid turmoil]

[Michael Sager

Vice-President, Multi-Asset & Currency

CIBC Asset Management]

So it's clear that the US dollar has been broadly strong against pretty much every currency this year, including the Canadian dollar. But the source of that strength has been the US Fed and its willingness and commitment to continue to increase policy interest rates until it sees a meaningful decline in the rate of inflation. That's not likely to happen any time soon because some of the slower moving elements of inflation, things like rents and housing costs broadly and wage costs are just too high and showing no evidence of a downturn.

[Aerial shot of a residential housing. Condo buildings and skyscrapers. Aerial shot of a residential housing.]

So until the Fed sees that evidence of weaker inflation, it's going to keep tightening policy. And as long as it keeps tightening policy, the dollar is going to remain strong.

[Upbeat music]

[Signs inflation has peaked?]

The Fed has become increasingly determined in its efforts to regain control of inflation. The measure of inflation that it focuses on strips out volatile components like oil or food, which have shown some evidence of weakening in recent months.

[Combine harvester in a cornfield. Corn cobs being sorted onto a conveyor belt. Farm workers sorting a larger bin of corn cobs.]

Instead, the Fed focuses on a measure of inflation called "core". The main components of core inflation - the main drivers - are housing and rent and wage costs.

And thus far, there's no evidence that any of those more sticky components are showing any signs of weakening. This means that the Fed has quite a bit more tightening to do. But it also is obvious from "Fed speak" that it's very committed to following through with the necessary rate increases. So this is a very different episode from 2018.

Back then the Fed., under current Chairman Powell, started to tighten policy rates, but stopped too soon as it saw a decline in equity markets. That's not going to be the case this time. It's all eyes on control of inflation to a large extent regardless of the damage it causes to financial markets.

[Upbeat music]

[Investment opportunities]

With central banks committed to delivering low inflation via tighter monetary policy it means that the outlook for economic growth is increasingly difficult, which in turn means the outlook for corporate earnings is also difficult. That hasn't necessarily been fully reflected in market expectations for equity returns, which suggests that in the near term at least, there is more downside side for broad equity markets. But even within that relatively pessimistic outlook, there are opportunities.

The Canadian equity market looks relatively attractive, both given its valuation compared to other markets, but also its focus on dividends in a number of sectors.

[The Toronto skyline. The Toronto Stock Exchange building.]

Both of those are positive attributes in difficult periods, challenging periods for markets. Fixed income opportunities are getting more attractive. That includes both at the short end of the curve, but also if you think about developed markets, sovereign bonds. Yields have increased quite significantly over the last couple of years as market participants have priced in higher policy rates.

But now yields have moved a lot higher. It means that sovereign bonds can get back to playing their traditional role as a counterweight to equities during challenging periods for equity markets. So bonds become relatively more attractive.

[Upbeat music]

[C$ outlook]

The US Dollar is likely to continue to strengthen against the Canadian dollar for as long as the Fed continues to tighten policy. There are a number of reasons. First, it looks like the Fed will increase interest rates more than the Bank of Canada. Interest rates are a key driver of exchange rates, so more tightening from the Fed suggests that the US Dollar will continue to appreciate against the Canadian dollar. The Canadian dollar is also a very pro-cyclical currency. It does well when the economy does well, when commodity prices do well.

[A rural oil refinery station. Rural oil derrick pumps.]

At the moment, the outlook for economies and commodities like oil has soured. And so that suggests, again, that in the short term, at least, the Canadian dollar is likely to experience a little bit more weakening against the US Dollar. Once we get to the point that the US Fed signals an end to its tightening phase. I think that weakening of the Canadian dollar can start to reverse and will probably regain a lot, if not all, that we've lost over the last few weeks in terms of the level of the Canadian dollar against the U.S.

[Upbeat music]

[The views expressed in this document are the views of CIBC Asset Management Inc. and are subject to change at any time. CIBC Asset Management Inc. does not undertake any obligation or responsibility to update such opinions. This document is provided for general informational purposes only and does not constitute financial, investment, tax, legal or accounting advice nor does it constitute an offer or solicitation to buy or sell any securities referred to. Individual circumstances and current events are critical to sound investment planning; anyone wishing to act on this document should consult with his or her advisor. All opinions and estimates expressed in this document are as of the date of publication unless otherwise indicated, and are subject to change.

Certain information that we have provided to you may constitute “forward-looking” statements. These statements involve known and unknown risks, uncertainties and other factors that may cause the actual results or achievements to be materially different than the results, performance or achievements expressed or implied in the forward-looking statements.

CIBC Asset Management and the CIBC logo are trademarks of Canadian Imperial Bank of Commerce (CIBC), used under license.

The material and/or its contents may not be reproduced without the express written consent of CIBC Asset Management Inc.]

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Fall 2022 economic outlook - Recession on the way?

[CIBC logo]

[Fall 2022 economic outlook - Recession on the way?]

[Upbeat music]

[Avery Shenfeld, Managing Director and Chief Economist, CIBC Capital Markets]

There's a Chinese saying, "may you live in interesting times". And these are certainly interesting

times for both an economist as well as for investors. Inflation is, of course, running amok. We

haven't seen an inflation like this since the early 1980s. And what is concerning investors is that

the experience of the early 1980s did not end happily. We had soaring interest rates and a deep

recession to take care of that.

We're still hopeful that while a real soft landing is probably out of the picture—in other words, we

are going to have to have some economic pain to wrestle inflation back down—that central

banks can do that by having two years of minimal economic growth as opposed to an outright

deep recession and the central banks are right now still in the process of finding out what

interest rate it's going to take in order to get us there.

The Bank of Canada still believes it has a little more to go, but we don't think that rates will get

through 4% in either the U.S. or Canada.

[The city of Ottawa. The Bank of Canada. The U.S. Federal Reserve.]

And that does portend a period of slow growth and a tricky period for investors.

Inflation should come down notably in 2023, not only because of slowing growth here in North

America, but also because of visible recession risks in Europe, slow growth in China, which are

already starting to take the heat off of some of the globally determined prices, particularly for

commodities, but for other cyclical goods as well.

[A suburban shipping station. A large shipping boat near a port. Combine harvesters in a wheat

field. A combine harvester transferring wheat into a tractor.]

That will help Canada on the inflation front, but it's not going to be a pain-free exercise. We're

going to need slower economic growth to get that done, and that includes some pain for the real

estate sector. Housing has slowed dramatically in terms of resales.

[A residential housing area. A detached two-storey house. A condo building under construction.

Cement being spread onto the ground. Several construction workers pouring cement.]

The next shoe to drop on that will be construction activity will likely slow as condos stop selling

as briskly this year, it portends weaker starts for new dwellings next year. And all that is going to

mean that the Canadian economy at best is going to hover at growth rates at 1% or maybe even

less. It wouldn't surprise us to see a negative quarter here or there as part of the process of

weaning economic growth down to a level that brings inflation under control.

[Upbeat music]

[Investment outlook]

What does that mean for investors? Well, it does mean that fixed income investors in terms of

short-term yields are getting more of a reward now for their money. Still doesn't look that

generous in after-inflation terms. But if inflation comes down next year, it means that interest

rate products that are locked in this year might actually offer a reasonable return next year.

In terms of the equity market, this is still not safe hunting right now for the equity investor.

[The Wall Street street sign. The New York city financial district. An outdoor stock ticker.]

It means that risk levels are certainly a bit higher than they would normally be given these

economic uncertainties. It means that we need to think about what exposure we want to have to

equities relative to our normal levels might be a shade lower. And if there are risks ahead,

they're more now on the side of earnings disappointments. The market is braced now for higher

interest rates and the impact that that has on equities. So that's part of the risk is already priced

in. But what may not be fully priced in yet is the likelihood that with very slow economic growth

in both the U.S. and Canada, with imminent recession risks in Europe and slow growth in Asia,

that earnings growth also slows to a trickle.

The market right now seems to expect that next year's earnings growth will be similar to this

year. Our view is it's likely to come in lower. We're likely to see a couple of years of very slow

growth in earnings. And so the equity markets still may have some adjustment to do in the next

quarter or two. But if central bankers do manage to do what we said at the outset, which is steer

the economy to two years of very slow growth rather than an outright recession, to get inflation

under control, that should ultimately build the next leg for an equity rally. When we start to see

signs that inflation has in fact been tamed and the risks of a recession are therefore diminished.

So, still a time to certainly rely on professional advice, rely on the expertise of professional

investors to help guide you through that process and to think carefully about the weightings of

your portfolios across asset classes to ensure that you're not too exposed to some of the

downside risks to economic growth that are still very much out there, yet ready to take

advantage of the opportunities that will arise as we start to get a better grip on inflation and

therefore start to diminish the risks that will need a large scale recession in order to get inflation

under control.

[Upbeat music]

[This video is provided for general informational purposes only and does not constitute financial,

investment, tax, legal or accounting advice nor does it constitute an offer or solicitation to buy or

sell any securities referred to. Individual circumstances and current events are critical to sound

investment planning; anyone wishing to act on this document should consult with his or her

advisor. All opinions and estimates expressed in this video are as of the date of publication

unless otherwise indicated, and are subject to change.

The CIBC logo is a trademark CIBC used under licence.

The material and/or its contents may not be reproduced without the express written consent of

CIBC.]

[CIBC logo]

[The CIBC logo is a trademark CIBC used under licence.]

Summer 2022 economic outlook: Short-term pain for

long-term gain

[Midtempo music plays]

[Benjamin Tal, Managing Director and Deputy Chief Economist

CIBC Capital Markets Inc.]

So, if you look at the overall situation, clearly the Bank of Canada is becoming extremely

aggressive for a good reason. We have to realize one thing. Although inflation is rising 7%, 8%

on its way to 9%, what we have to emphasize is that at the end of the day, this is not about

inflation.

[Sheets of Canadian $100 bills being printed. Sheets of U.S. $100 bills being printed.]

That two, three years from now, inflation will be back at 2%.

The issue is the cost of bringing inflation back to 2% in terms of higher interest rates. The Bank

of Canada, the Fed, established their reputation, over the past 40 years, as inflation fighters.

[Urban business district with a Canadian flag visible. The U.S. Federal Reserve.]

They are not going to toss it away. So, although people are panicking about inflation, we have

to realize that at the end of the day, this is not about inflation. This is about the cost of bringing

inflation down to 2%. Therefore, the Bank of Canada has to be aggressive. It's all about

inflation expectations. And their nightmare is that expectations will go up the way it was in the

'70s.

[Downtown Toronto in the 1970s. The Bank of Canada.]

If you give the Bank of Canada two options: one is inflation expectations rising, the other is that

we are in a recession, they will take a recession any time. Their goal is not preventing

recessions. Their goal is to prevent you and me believing that inflation is not under control. We

expect the Bank of Canada to move to about a 3% overnight rate.

[The Bank of Canada.]

This is a significant increase in a very short period of time. The market is pricing in 3.5%.

[A stock ticker.]

And quite frankly, I believe that the difference between 3% and 3.5% will be the difference

between getting it right and overshooting. And overshooting usually leads to a recession. I

suggest that there is 40, 45% probability of a recession. And I'm not sugar-coating anything

here. That's the way it is. Why? Because inflation is a lagging indicator.

[Midtempo music plays]

[Inflation and recessions]

Inflation is telling you about the past. If you look at the past four or five recessions, inflation

peaked–peaked!–six months after the beginning of each recession. But show me the central

banker that will resist raising interest rates while observing accelerating inflation.

[Downtown Toronto in the early 1980s and the 1990s. The Occupy Wall Street protests. An

aerial view of an empty street.]

And economic recession over the past 40 years, with the exception of the COVID recession,

was helped, if not caused by monetary policy error, in which central bankers raised interest

rates too much.

That's more or less where we are. We believe that there is still a chance that the Bank of

Canada will get it right. Why? Because of the effectiveness of monetary policy. If we are going

to get a recession, it would be a very mild recession, reflecting a few things.

[Downtown Ottawa.]

One, the labour market is very tight.

[Laptops being manufactured]

So although it will get less tight, it's starting from a very good position. We know there are help

wanted signs everywhere.

[A “Help Wanted” sign. Time-lapse image of a shopping mall]

That's good. The consumer is sitting on roughly $300 billion of excess savings. And that's a

good thing. And the housing market is undersupplied.

[Midtempo music plays]

[Housing market outlook]

Clearly, the housing market is slowing down. We know why it went up by 50% over the past

two years. It was the abnormality of this recession.

The asymmetrical nature of this recession, with all jobs being lost were low paying jobs. So,

home buyers got the benefit of a recession vis-a-vis extremely low interest rates, without the

cost of a recession, vis-a-vis a broadly based increase in the unemployment rate.

[A graphic of a large percentage symbol surround by dozens of small model houses that

appear to be constructed from paper Canadian flags. An aerial view of a residential

neighbourhood.]

We have never seen anything like that. I suggest that we simply felt that there was a sense of

urgency to get into the market and people got into the market and accelerated their purchasing

activity.

So, we borrowed activity from the future, and the future has arrived. Namely, interest rates are

rising and the level of activity is slowing down. And that's extremely healthy. I would not be

surprised if you see prices falling by 20%, 25%, maybe 30% in some pockets. However, it

means that people who took mortgages in 2020, 2021, they will be exposed later when they

renew their mortgages.

[A mortgage being signed and keys changing hands.]

And that's the risk that we are facing three, four, five years from now. And the hope is that

interest rates by then will be actually lower that will ease that risk. But the more significant

decline will be in the low rise segment of the market.

[A residential neighbourhood. A hyper-lapse image rushing through condo buildings. Aerial

views of condo buildings.]

Detached houses where we reach a price resistance level if you wish, and the condo market,

although it will slow down, will actually do better.

The rental market, in fact, is going to be inflationary given the fact rent did not rise during the

pandemic – it’s starting to rise now. We have a situation in which construction costs are rising

so quickly, much faster than condo prices, therefore, they are losing money so they are not

building.

[Images of construction sites. Several condo buildings. A real estate agent takes a couple

through an apartment. A backhoe working on a construction site. Scaffolding on a building.]

Builders, developers they are canceling projects. They are delaying projects because they

cannot make money.

So, two or three years from now, when we wake up from this slowdown, prices will rise

dramatically.

[A graphic of large dollar symbol surrounded by dozens of small model apartment buildings

and houses that appear to be constructed from paper Canadian flags.]

Why? Because we are not building now. There will not be supply while demand will still be

there. We're still getting 450,000 new immigrants a year and this number is rising.

[Midtempo music plays]

[Equity market outlook]

Turning to the equity market, in my opinion, a lot of bad news is already priced in. And maybe

some overshooting is also priced in, in terms of monetary policy.

[A stock ticker. Exterior images of the Toronto Stock Exchange building.]

Therefore, I believe that if you look at the stock market now, especially Canada, it is relatively

cheap compared to where it will be two or three years from now. If you have a time horizon of

five minutes, I cannot help you. But if your time horizon is two to three years, I believe that

there are some very good opportunities out there, especially in Canada.

[Midtempo music plays]

[This video is provided for general informational purposes only and does not constitute

financial, investment, tax, legal or accounting advice nor does it constitute an offer or

solicitation to buy or sell any securities referred to. Individual circumstances and current events

are critical to sound investment planning; anyone wishing to act on this document should

consult with his or her advisor. All opinions and estimates expressed in this video are as of the

date of publication unless otherwise indicated, and are subject to change.

The CIBC logo is a trademark of Canadian Imperial Bank of Commerce (CIBC).

The material and/or its contents may not be reproduced without the express written consent of

CIBC.]

[CIBC Logo]

[The CIBC logo is a trademark of CIBC, used under licence.]

Global Equities Outlook

[Amber Sinha, Senior Portfolio Manager, CIBC Asset Management]

Today's markets do have some unique characteristics. I guess they do all the time. But

what do we see that's unique today?

[Images of numbers on paper being outlined.]

The usual way to build defensiveness in the portfolios isn't really working today.

[Computer-generated (CG) images of market data.]

Despite the market being down quite significantly this year, you could only win if you

own commodities stocks.

[A wheat field. A forklift carrying a log.]

So, that just doesn't sound very logical. But that's where we are.

[CG image of market data.]

The S&P 500 is down double digits for the year.

[Analysts pour over market data.]

Higher quality stocks, some of which we liked and had to pass on, tend to be very

expensive. Nowadays, I would say no one really seems to care for quality, so those

names can actually be bought at more reasonable valuations. So, you know, why is

this? There’s got to be a reason for everything.

[Inflation’s impact on the market]

I would say we are seeing some kind of a regime change in the market, where the

market is trying to price in higher inflation.

[A glass building. A busy supermarket. The Eaton Center.]

If you take the example of higher quality defensive stocks, you know, consumer staples,

they are not working right now because costs for them are rising because of inflation.

[Canadian currency being printed. A large pile of loonies.]

And this is the kind of inflation that most companies have really not dealt with for the last

30, 40 years. Consumer staples, companies seeing their costs go up, but they are at the

same time unable to pass these prices on because of an uncertain economic

environment. So, there is a margin squeeze that's going to be in play for consumer

staples stocks.

[A businessman looks on his cell phone. A steering wheel turns by itself in a self-driving

car. An aerial view of cars on a highway.]

Take technology. So, technology tends to benefit from low rates, because they tend to

be more growthy companies.

[The Federal Reserve building in Washington.]

So, now that we have the Fed increasing rates to combat inflation, sectors like

technology are underperforming.

[Opportunities for investors]

What's unique? Or what's the opportunity here, is that the Fed, in the process of

controlling inflation, there is a good chance they could even send the economy in to a

recession.

[The St. Louis Federal Reserve building.]

I think inflation, how high it is and how long it has lasted, it's certainly become a

problem.

[Coins being minted. The New York Federal Reserve building.]

And the Fed, if it takes a recession to bring inflation under control, that's what the Fed

will do for us. And, you know, as bizarre as it sounds, the Fed will give us a recession if

that's what it takes. And if we reach that point, then I think there will again be downward

pressure on interest rates and people will again look for safety, look for consistency in

the very stocks that are not working right now.

[CG image of market data.]

The opportunity here is that higher quality defensive stocks are now available at more

reasonable valuations than they have been in the past, and right now could be the best

time to own them if the economy were to falter going forward. So, I think that's a great

setup. And because we play mostly in higher quality stocks, there's just so much more

to choose from and this certainly seems unique to us. '

[Why invest in global equities?]

So, the argument to buy global stocks, I think is pretty clearcut. And I think it's even

more important for us as Canadians.

[The Toronto Skyline at night. The sign of the Toronto Stock Exchange.]

The opportunity set for us is the Canadian stock market. And if you look at the

composition of that market, it certainly doesn't reflect our life.

[A split screen image of a natural gas pipeline, a wheat thresher, and a skyscraper.]

So, as important as the energy or commodities or banks are in the benchmark, they are

not that important in our lives.

[The Eaton Center. A hospital hallway. A woman with a tablet and cell phone.]

What's important in our lives is what we consume, our health care needs, our

technology. Much of that is fairly absent from the Canadian stock market. So, if you just

want to invest based on what we actually do in our lives, I think you ought to look at

stepping outside Canada.

[Timelapse images of downtown Seoul and Tokyo.]

And once you step outside, you do have access to blue chip, large global companies

that are just frankly absent in Canada.

[Looking past the Canadian dollar]

Our home currency, the Canadian dollar, when the markets decline, generally the

Canadian dollar does, too. It's a risk-on type of currency as people label it.

[Piles of U.S., Japanese, Swiss and EU currency.]

In periods of volatility, you will find strength in the U.S. Dollar, so that kind of offsets

some of the losses, generally, in the stock market. You have the U.S. dollar, Japanese

yen, Swiss franc, stable currencies, currencies that work when things are not looking

good that just could offset some of the losses when the markets do go down.

[Tech and healthcare sectors]

If you look for high quality companies in health care, in technology, they are just absent

here.

[A negative COVID-19 test. Vials containing COVID-19 vaccine.]

You know, if you just take COVID as an example, we've all been, I'm sure, tested

multiple times. These tests are all developed by a Swiss company and an American

company. The vaccine was developed by an American company. None of these

opportunities are there in the Canadian market. So, if you want the best of the best, you

have to step outside. That's what I would say to that.

[Soft music plays]

[The views expressed in this video are the personal views of Amber Sinha and should

not be taken as the views of CIBC Asset Management Inc. This video is provided for

general informational purposes only and does not constitute financial, investment, tax,

legal or accounting advice nor does it constitute an offer or solicitation to buy or sell any

securities referred to. Individual circumstances and current events are critical to sound

investment planning; anyone wishing to act on this video should consult with his or her

advisor. All opinions and estimates expressed in this video are as of the date of

publication unless otherwise indicated, and are subject to change.

The CIBC logo is a trademark of Canadian Imperial Bank of Commerce (CIBC), used

under license.

The material and/or its contents may not be reproduced without the express written

consent of CIBC Asset Management Inc. Certain information that we have provided to

you may constitute “forward-looking” statements. These statements involve known and

unknown risks, uncertainties and other factors that may cause the actual results or

achievements to be materially different than the results, performance or achievements

expressed or implied in the forward-looking statements.]

[The CIBC logo.]

[The CIBC logo is a trademark of Canadian Imperial Bank of Commerce (CIBC), used

under license.]

00:00:08.307 --> 00:00:11.357
Thank you very much. I have about 30 minutes to tell.

00:00:11.357 --> 00:00:14.487
you everything I know about the situation that's maybe.

00:00:14.487 --> 00:00:17.617
29 minutes too much because of course nobody.

00:00:17.617 --> 00:00:20.647
knows we're all pretending. But clearly this level of.

00:00:20.647 --> 00:00:23.667
uncertainty is something that we have to deal with and try.

00:00:23.667 --> 00:00:26.777
to make sense out of. So we'll discuss a lot of things.

00:00:26.777 --> 00:00:29.847
They let me start with the list of what I would like to discuss.

00:00:29.847 --> 00:00:32.947
First of all, we must discuss, say, Putin, of course, and just the.

00:00:32.947 --> 00:00:36.267
other day, somebody asked me, what do you think Putin will do next?

00:00:36.267 --> 00:00:38.267
And I said, what next time I have lunch with him.

00:00:38.417 --> 00:00:41.477
Last game, nobody knows, including Putin himself. I.

00:00:41.477 --> 00:00:44.677
don't think he has an exit strategy will discuss clearly.

00:00:44.677 --> 00:00:47.797
the virus. It's not finished. It's not.

00:00:47.797 --> 00:00:50.837
done. We have to discuss the virus and.

00:00:50.837 --> 00:00:54.017
the coexistence Bibles and the economy. See what?

00:00:54.017 --> 00:00:57.257
makes sense. Clearly the elephant in the room. Inflation.

00:00:57.257 --> 00:01:00.837
How much sleep should we lose over inflation?

00:01:00.837 --> 00:01:03.897
And of course, with inflation, rising interest rates are rising the.

00:01:03.897 --> 00:01:07.097
key is how quickly, how quickly will interest rates.

00:01:07.097 --> 00:01:08.277
rise, not just how.

00:01:08.507 --> 00:01:11.877
Hi but how quickly the housing market, the darling?

00:01:11.877 --> 00:01:15.037
of the Covid recession? Is it a bubble will?

00:01:15.037 --> 00:01:18.337
discuss clearly the immigration factor is a very important factor.

00:01:18.337 --> 00:01:21.637
that is changing on a daily basis. We have to understand.

00:01:21.637 --> 00:01:24.797
that and of course investment implications of this.

00:01:24.797 --> 00:01:27.927
crazy situation will discuss let's.

00:01:27.927 --> 00:01:31.057
start with what's happening in.

00:01:31.057 --> 00:01:34.217
Europe. We have to establish one thing Russia.

00:01:34.217 --> 00:01:37.307
is not a superpower economically.

00:01:37.307 --> 00:01:38.897
speaking Russia in South Korea.

00:01:39.117 --> 00:01:40.387
Russia is Brazil.

00:01:41.767 --> 00:01:45.227
The only thing that makes Russia relevant, economically speaking.

00:01:45.227 --> 00:01:46.607
is energy.

00:01:47.387 --> 00:01:50.157
And energy is a major factor in fact.

00:01:51.087 --> 00:01:54.607
Tomorrow, Putin can turn the lights off on Germany.

00:01:54.607 --> 00:01:57.887
This is very important to understand 2011.

00:01:57.887 --> 00:02:01.367
March of 2011, there was the nuclear accident.

00:02:01.367 --> 00:02:02.047
in Japan.

00:02:02.917 --> 00:02:06.047
After that accident, Angela Merkel bugged in the head.

00:02:06.047 --> 00:02:09.307
of Germany, said. I don't want any nuclear in.

00:02:09.307 --> 00:02:12.517
Germany to avoid this kind of situation and.

00:02:12.517 --> 00:02:15.747
therefore they eliminated their nuclear capacity that.

00:02:15.747 --> 00:02:18.907
led to a situation in which there are no natural gas coming from.

00:02:18.907 --> 00:02:21.977
Russia. You wake up and about 40% of your natural.

00:02:21.977 --> 00:02:25.067
gas consumption is coming from Russia. You are totally dependent.

00:02:25.067 --> 00:02:28.307
on Russia and that's the number one reason why Germany.

00:02:28.307 --> 00:02:32.647
and Europe cannot go.

00:02:32.647 --> 00:02:32.647

00:02:32.957 --> 00:02:36.187
With Biden banning input of energy.

00:02:36.187 --> 00:02:39.227
from Russia, that's very, very important, reflecting what's.

00:02:39.227 --> 00:02:42.427
happening. And clearly Putin knows that, and he knew.

00:02:42.427 --> 00:02:44.107
that before we enter Ukraine.

00:02:44.787 --> 00:02:46.927
No, let's go and continue with that.

00:02:47.957 --> 00:02:49.757
Ukraine is actually.

00:02:50.917 --> 00:02:54.057
Potentially an energy superpower, if.

00:02:54.057 --> 00:02:57.157
you look at the natural reserve natural gas reserves in Europe.

00:02:57.157 --> 00:02:59.597
it's the second highest in Ukraine.

00:03:00.297 --> 00:03:02.747
This is undeveloped reserves that can be developed.

00:03:03.587 --> 00:03:06.627
Second only to Norway, what it means it.

00:03:06.627 --> 00:03:09.707
means that an independent Ukraine a member.

00:03:09.707 --> 00:03:13.027
of NATO, can develop that natural gas.

00:03:13.027 --> 00:03:16.047
and replace Russia over time as the men.

00:03:16.047 --> 00:03:19.427
supplier of natural gas to Europe. That's a nightmare.

00:03:19.427 --> 00:03:22.997
scenario as far as far as Putin.

00:03:22.997 --> 00:03:26.257
is concerned. So clearly there are many reasons why is there.

00:03:26.257 --> 00:03:29.467
That's one of them. Energy is definitely one of them. So.

00:03:29.467 --> 00:03:32.617
the question is, what's next? Nobody knows there are many scenarios.

00:03:32.617 --> 00:03:33.647
I will not get into it.

00:03:33.867 --> 00:03:37.077
The best case scenario is that in.

00:03:37.077 --> 00:03:39.297
Ukraine will not recognize Crimea.

00:03:39.577 --> 00:03:42.727
Russia will take parts of.

00:03:42.727 --> 00:03:44.837
the South and they would call it a day.

00:03:44.897 --> 00:03:47.917
They put in will declare victory or.

00:03:47.917 --> 00:03:50.957
Doyle lost and it can get one or two lessons from.

00:03:50.957 --> 00:03:52.357
Mr Trump. How to do it?

00:03:53.107 --> 00:03:56.467
The other option is a partition of Ukraine with.

00:03:56.467 --> 00:03:59.527
a government puppet government in.

00:03:59.527 --> 00:04:02.847
the Kiev and the other government in Lviv. That's another.

00:04:02.847 --> 00:04:05.987
option. The third is taking over Ukraine as they all.

00:04:05.987 --> 00:04:09.447
and basically get into and Afghanistan type scenario nobody.

00:04:09.447 --> 00:04:12.697
knows. But what we do know is that the sanctions.

00:04:12.697 --> 00:04:14.007
that the West is imposing.

00:04:15.317 --> 00:04:18.337
Only Putin will determine the.

00:04:18.337 --> 00:04:23.417
ultimate outcome, so let's discuss those sanctions.

00:04:23.417 --> 00:04:25.507
and clearly we all know about the swift.

00:04:25.937 --> 00:04:28.947
The situation and the ban.

00:04:28.947 --> 00:04:31.997
on the swift transactions, people who don't know what it is, it's.

00:04:31.997 --> 00:04:35.507
basically the Whatsapp of international transaction basically.

00:04:35.507 --> 00:04:39.007
when a bank try to do something, they need this system and most.

00:04:39.007 --> 00:04:42.167
Russian banks now don't have access to it and.

00:04:42.167 --> 00:04:45.977
that's something that is preventing them from doing business. However, it's not complete, it's.

00:04:45.977 --> 00:04:49.547
not 100%. Why? Because we still need to send energy.

00:04:49.547 --> 00:04:52.567
from Russia to the West and therefore.

00:04:52.567 --> 00:04:55.747
you need some banks, especially those that specialize in energy.

00:04:55.747 --> 00:04:55.747

00:04:55.927 --> 00:04:58.997
To have access to SWIFT, and that's exactly what's happening. So it's not.

00:04:58.997 --> 00:05:02.677
complete. Another thing is happening and that's the freezing.

00:05:02.677 --> 00:05:05.697
the FX reserves of Russia, that's.

00:05:05.697 --> 00:05:08.977
huge because Putin put together no less than six.

00:05:08.977 --> 00:05:12.337
billion of FX.

00:05:12.337 --> 00:05:15.537
reserves and now it's frozen in its.

00:05:15.537 --> 00:05:19.117
euro in gold, US dollars, Chinese Ron and.

00:05:19.117 --> 00:05:22.367
all other currencies. Now this is important because they cannot.

00:05:22.367 --> 00:05:25.437
touch, it can sell is goal 20% of the reserves.

00:05:25.437 --> 00:05:26.137
s in gold.

00:05:26.417 --> 00:05:29.587
And, but you need a buyer and this buyer might be.

00:05:29.587 --> 00:05:32.667
China and that's why I'm watching very, very closely.

00:05:32.667 --> 00:05:35.747
what China will be doing because let's face it, we.

00:05:35.747 --> 00:05:37.807
are in a Cold War.

00:05:38.677 --> 00:05:39.857
There is no way back.

00:05:42.137 --> 00:05:43.067
Russia is out.

00:05:43.967 --> 00:05:47.037
And if you are in a cold war and you are a third party.

00:05:47.037 --> 00:05:48.397
you have to choose.

00:05:48.447 --> 00:05:50.217
Whose side?

00:05:51.107 --> 00:05:54.327
In what China will do is crucial, because still.

00:05:54.327 --> 00:05:57.507
China and needs the West, but at the same time it is getting.

00:05:57.507 --> 00:06:00.527
closer and closer to Russia. So this.

00:06:00.527 --> 00:06:03.547
is something that we have to watch very carefully because it will.

00:06:03.547 --> 00:06:06.687
determine the nature of global economy and.

00:06:06.687 --> 00:06:10.467
globalization in the future of very important derivative.

00:06:10.467 --> 00:06:14.187
of this crisis is what China will do and its relationship.

00:06:14.187 --> 00:06:16.107
with the West after the crisis.

00:06:16.997 --> 00:06:18.747
Is over so.

00:06:19.507 --> 00:06:20.687
What are the implications?

00:06:21.297 --> 00:06:24.657
The first question is short term, is it a?

00:06:24.657 --> 00:06:26.217
recessionary situation?

00:06:26.997 --> 00:06:30.317
Or an inflationary situation and I suggest.

00:06:30.317 --> 00:06:33.547
that the Russian crisis is not.

00:06:33.547 --> 00:06:36.597
a recessionary situation for North America.

00:06:36.597 --> 00:06:40.157
You see, when it comes to Russia, Ukraine.

00:06:40.157 --> 00:06:43.317
clearly it is a recessionary situation. Now you go.

00:06:43.317 --> 00:06:45.127
once removed Europe.

00:06:45.717 --> 00:06:48.237
Western Europe, Germany, France, Italy.

00:06:49.377 --> 00:06:52.407
The impact here is about 0.50 point 6.

00:06:52.407 --> 00:06:55.497
of the GDP. Not a big deal.

00:06:55.497 --> 00:06:57.867
quite frankly. And we are twice removed in fact.

00:06:58.677 --> 00:07:01.897
Economically speaking, you might suggest that Canada is benefiting.

00:07:01.897 --> 00:07:05.077
from the crisis, economically speaking, because.

00:07:05.077 --> 00:07:06.517
of.

00:07:06.717 --> 00:07:09.917
GE Potash, which we.

00:07:09.917 --> 00:07:13.027
are major exporters of those goods that we need, so this.

00:07:13.027 --> 00:07:16.057
is a factor that we have to take into account another.

00:07:16.057 --> 00:07:19.997
factor of course is energy and energy.

00:07:19.997 --> 00:07:23.397
prices and what it means for the economy before we get that, let's.

00:07:23.397 --> 00:07:26.497
talk about the long term implications of this crisis which.

00:07:26.497 --> 00:07:29.577
I think are even more important. So we established that this is.

00:07:29.577 --> 00:07:32.797
not a recessionary scenario, it's an inflationary scenario.

00:07:32.797 --> 00:07:36.397
but from a long term perspective, this is clearly going to modify.

00:07:37.247 --> 00:07:40.687
The process of deglobalization Deglobalization started with.

00:07:40.687 --> 00:07:43.647
Trump was accelerated during COVID.

00:07:44.777 --> 00:07:48.357
And now it's actually gaining momentum, so.

00:07:48.357 --> 00:07:51.517
that's significant because that's of course inflationary and.

00:07:51.517 --> 00:07:54.687
has significant implications on trade. I'm not talking about full.

00:07:54.687 --> 00:07:57.817
scale deglobalization and that's why I'm watching China.

00:07:57.817 --> 00:08:01.617
very closely. But I suggest that it's not a stretch.

00:08:01.617 --> 00:08:02.397
to suggest.

00:08:03.277 --> 00:08:06.447
Dot 2025% of what the Americans are buying.

00:08:06.447 --> 00:08:09.497
from China now will come back home for many reasons.

00:08:09.497 --> 00:08:12.677
and that's something that have major implications another.

00:08:12.677 --> 00:08:15.937
factor is green the green revolution.

00:08:15.937 --> 00:08:19.277
will go even faster with the West realizing.

00:08:19.277 --> 00:08:22.457
that they need to rely more heavily because it's not just.

00:08:22.457 --> 00:08:25.737
Russia, it's also Saudi Arabia. It's Qatar, it's other countries.

00:08:25.737 --> 00:08:29.097
that the West would like to minimize the activity.

00:08:29.097 --> 00:08:32.257
in. So that's something that they will happen. So the green.

00:08:32.257 --> 00:08:33.517
Revolution will continue.

00:08:33.597 --> 00:08:36.647
And this crisis will accelerate that, I think.

00:08:36.647 --> 00:08:40.027
that Russia will be a much less significant player when.

00:08:40.027 --> 00:08:43.087
this madness is over and even the.

00:08:43.087 --> 00:08:46.367
crypto currencies I think will be closer to.

00:08:46.367 --> 00:08:49.737
full regulations after this crisis is over because.

00:08:49.737 --> 00:08:52.927
it will expose a situation in which players.

00:08:52.927 --> 00:08:56.267
can outmaneuver bunks when.

00:08:56.267 --> 00:08:59.607
they when they try to restrict the economy. And that's something.

00:08:59.607 --> 00:09:03.087
that the authorities would like to minimize therefore.

00:09:03.087 --> 00:09:04.767
I suggest that we are going to see more.

00:09:05.027 --> 00:09:08.117
Restrictions and regulations in the crypto space so.

00:09:08.117 --> 00:09:11.177
that's the long term implications of.

00:09:11.177 --> 00:09:14.557
the crisis that we are facing now and that's the way I see it now clearly.

00:09:14.557 --> 00:09:17.677
energy prices is a very important factor and we have seen basically.

00:09:17.677 --> 00:09:20.797
an energy shock. I will not get too much into it, but if you.

00:09:20.797 --> 00:09:23.557
go, if you look at this chart, you can see something very interesting.

00:09:24.657 --> 00:09:28.027
You go back to the 70s. Almost every oil shock.

00:09:28.027 --> 00:09:29.027
as you can see.

00:09:30.687 --> 00:09:31.307
Lead.

00:09:32.037 --> 00:09:32.837
Two every session.

00:09:34.177 --> 00:09:36.117
And people say high oil prices.

00:09:36.757 --> 00:09:39.947
Lead to recessions and I say no, it's not high oil prices that little.

00:09:39.947 --> 00:09:43.077
recessions. It's their response to higher oil.

00:09:43.077 --> 00:09:46.187
prices, the monetary response visa vie higher.

00:09:46.187 --> 00:09:49.697
interest rates that led to those sessions in.

00:09:49.697 --> 00:09:52.757
the 90s in the 80s and clearly in the 70s.

00:09:52.757 --> 00:09:56.397
So it's a mistake to suggest based on this chart.

00:09:56.397 --> 00:09:59.617
that oil prices themselves are recessionary. No, it's.

00:09:59.617 --> 00:10:02.717
the response to oil prices. And the question is.

00:10:02.717 --> 00:10:05.897
how sensitive the economy is now.

00:10:05.897 --> 00:10:07.007
to hire.

00:10:07.047 --> 00:10:10.157
Energy prices, and therefore our sensitive interest rates are to.

00:10:10.157 --> 00:10:13.607
higher oil prices and I say much less sensitive.

00:10:13.607 --> 00:10:17.177
than in the past. This is the energy intensity.

00:10:17.177 --> 00:10:20.637
of the economy as a whole and you can see that it's basically 12%.

00:10:20.637 --> 00:10:23.877
loyal than it was ten years ago. So this means that.

00:10:23.877 --> 00:10:26.957
the economy is able to take higher energy prices.

00:10:26.957 --> 00:10:30.237
without the same damage that we have seen a decade or two.

00:10:30.237 --> 00:10:33.337
decades ago. That's extremely important another very.

00:10:33.337 --> 00:10:36.717
important factor that will have major implications.

00:10:36.717 --> 00:10:37.657
on energy.

00:10:37.917 --> 00:10:41.027
Energy producers and investment in energy, in my opinion, is.

00:10:41.027 --> 00:10:44.087
discharged. Look what's happening usually when oil.

00:10:44.087 --> 00:10:48.097
prices go up, Alberta is busy Ceos.

00:10:48.097 --> 00:10:51.107
of energy companies are investing because they want.

00:10:51.107 --> 00:10:54.167
to increase capacity. This time we are not seeing.

00:10:54.167 --> 00:10:57.587
a capacity production response to.

00:10:57.587 --> 00:11:00.987
the crisis. Oil prices went up. We don't see.

00:11:00.987 --> 00:11:04.047
Canadian companies, American companies investing.

00:11:04.047 --> 00:11:07.587
in extra capacity. Why? Because of the green revolution.

00:11:07.587 --> 00:11:07.587

00:11:08.357 --> 00:11:11.487
We know that over time Green will be replacing black.

00:11:11.487 --> 00:11:14.607
and if you are a CEO of an energy company.

00:11:14.607 --> 00:11:18.217
you are thinking twice before committing billions.

00:11:18.217 --> 00:11:21.527
of dollars into increasing capacity. That will not be using.

00:11:21.527 --> 00:11:24.647
in the future. Therefore we are not seeing.

00:11:24.647 --> 00:11:28.067
the production response that we've saw in.

00:11:28.067 --> 00:11:31.237
any other oil shock and.

00:11:31.237 --> 00:11:34.247
therefore the impact on the Canadian economy is not as.

00:11:34.247 --> 00:11:37.327
positive as in the past because usually you get the benefit.

00:11:37.327 --> 00:11:38.527
of extra investment.

00:11:38.787 --> 00:11:42.257
In the oil sector this time around, as you can see from the.

00:11:42.257 --> 00:11:45.367
circled area, it's not opening and it just makes.

00:11:45.367 --> 00:11:48.577
sense to me. So that's the way I see the situation and.

00:11:48.577 --> 00:11:51.997
the energy impact we have to put it in perspective. And we have seen.

00:11:51.997 --> 00:11:55.197
that energy prices recently are starting to slow down.

00:11:55.197 --> 00:11:58.577
People are talking about some sort of resolution to the crisis.

00:11:58.577 --> 00:12:01.737
hina is slowing down because of kovid. That's something that.

00:12:01.737 --> 00:12:04.837
is slowing down expectations regarding demand for.

00:12:04.837 --> 00:12:07.937
energy in the near future. So prices are starting to is.

00:12:07.937 --> 00:12:09.797
but they are still elevated their impact.

00:12:10.097 --> 00:12:10.597
Economy.

00:12:11.517 --> 00:12:15.257
It's not as significant as it used to be, so that's done now.

00:12:15.257 --> 00:12:18.367
let's continue and discuss other things that.

00:12:18.367 --> 00:12:19.497
are important now.

00:12:20.407 --> 00:12:23.827
2022 is the year of the Tiger the tiger.

00:12:23.827 --> 00:12:27.207
the most unpredictable creature audio. And that's.

00:12:27.207 --> 00:12:30.507
very appropriate because 2022 is a very unpredictable.

00:12:30.507 --> 00:12:34.267
year because of so many forces. One of them is this.

00:12:34.267 --> 00:12:34.267

00:12:35.937 --> 00:12:36.737
What is that?

00:12:38.907 --> 00:12:41.887
Go back to your Grade 7 geometry.

00:12:43.507 --> 00:12:45.587
That's the number π.

00:12:46.267 --> 00:12:49.447
No. Why am I showing you the number?

00:12:49.447 --> 00:12:52.787
π during an economic presentation? Because the.

00:12:52.787 --> 00:12:56.227
letter PI happened to be the.

00:12:56.227 --> 00:12:59.467
letter after the Omicron letter.

00:12:59.467 --> 00:13:00.367
in the Greek alphabet.

00:13:02.147 --> 00:13:03.447
So you see where I'm going with that?

00:13:04.487 --> 00:13:08.047
If you think that you cannot get a straight forward answer from an economist.

00:13:08.047 --> 00:13:11.157
try a biologist. Nobody knows but everybody.

00:13:11.157 --> 00:13:14.467
is telling me there will be another variant. Maybe it's already.

00:13:14.467 --> 00:13:14.877
out there.

00:13:16.287 --> 00:13:19.477
So as a society, we will have to learn to live.

00:13:19.477 --> 00:13:22.617
with that. So we have a situation in which we have the tiger.

00:13:22.617 --> 00:13:22.617

00:13:23.737 --> 00:13:26.717
And we have pie and I couldn't resist.

00:13:27.477 --> 00:13:31.157
I don't know if you remember this movie from 2012 life.

00:13:31.157 --> 00:13:34.357
of pi. It's a wonderful, wonderful movie, I.

00:13:34.357 --> 00:13:37.767
highly recommend it's on Netflix. If you haven't seen it, see it.

00:13:37.767 --> 00:13:40.817
tonight. But the point that I'm making here, of course this.

00:13:40.817 --> 00:13:44.157
is not doesn't have any significant, but what I'm.

00:13:44.157 --> 00:13:46.697
saying here is that.

00:13:48.367 --> 00:13:50.777
It's reasonable to assume that this year would be volatile.

00:13:52.267 --> 00:13:55.497
I suggest that with the spring and the summer.

00:13:55.497 --> 00:13:58.637
coming, the economy will be relatively strong with consumers.

00:13:58.637 --> 00:14:01.657
spending a lot of money pent up demand that has been.

00:14:01.657 --> 00:14:04.757
there, but at the same time, we will be dancing to.

00:14:04.757 --> 00:14:07.877
the tune of the virus and if there is another variant.

00:14:07.877 --> 00:14:10.937
and this has an impact on the economy, we will see.

00:14:10.937 --> 00:14:14.417
a kind of zig zag W shaped recovery.

00:14:14.417 --> 00:14:17.637
going up and down, up and down. That's something that we have to.

00:14:17.637 --> 00:14:20.807
learn to live with the hope and prayer is that we have.

00:14:22.717 --> 00:14:25.767
To deal with the next wave of whatever it is in a.

00:14:25.767 --> 00:14:28.887
way that will not damage economic activity in a very significant way.

00:14:28.887 --> 00:14:31.947
but we have to take this into account. It's not over by.

00:14:31.947 --> 00:14:35.407
any stretch of the imagination linked to that is.

00:14:35.407 --> 00:14:38.507
the fear factor, the availability factor.

00:14:38.507 --> 00:14:41.687
is there. We are opening up everything is there. But as you can see.

00:14:41.687 --> 00:14:44.887
in the case of the UK and Germany in the past few.

00:14:44.887 --> 00:14:47.947
months, the UK was basically open Germany.

00:14:47.947 --> 00:14:51.057
was not. But you look at restaurants in the chat.

00:14:51.057 --> 00:14:52.807
to the right basically the same namely.

00:14:52.887 --> 00:14:54.077
The restaurant was opened.

00:14:55.157 --> 00:14:56.057
But nobody showed up.

00:14:56.877 --> 00:15:00.357
Or less people showed up. The fear factor was dominating I.

00:15:00.357 --> 00:15:04.237
suggest in the spring and the summer, the fear factor will.

00:15:04.237 --> 00:15:07.537
diminish in North America. But again, if people are tweeting.

00:15:07.537 --> 00:15:10.697
about the possibility of another variant, the fear.

00:15:10.697 --> 00:15:13.907
factor will be there. So you can open up the economy. You.

00:15:13.907 --> 00:15:17.157
will not get the same amount of activity if nothing happened and.

00:15:17.157 --> 00:15:20.257
that's something that we have to take into account. So given all this.

00:15:20.257 --> 00:15:22.177
now we have to discuss.

00:15:22.767 --> 00:15:27.187
The elephant in the room, and that's inflation. How?

00:15:27.187 --> 00:15:27.187

00:15:27.827 --> 00:15:31.437
Significant is the inflationary force here and.

00:15:31.437 --> 00:15:34.727
outdoor abilities, in my opinion.

00:15:34.727 --> 00:15:37.907
the way to deal with that is.

00:15:37.907 --> 00:15:38.707
to ask.

00:15:39.617 --> 00:15:42.757
A question about the origin of all.

00:15:42.757 --> 00:15:46.117
those inflationary forces, and there are many of them so.

00:15:46.117 --> 00:15:49.367
let's start with the big one and that's supply chain and.

00:15:49.367 --> 00:15:53.187
I'm asking myself how much of this supply chain issue is.

00:15:53.187 --> 00:15:56.277
covered because what we are seeing is something.

00:15:56.277 --> 00:15:58.017
amazing. Look at the chart to the left.

00:15:59.927 --> 00:16:02.747
This is consumption of goods, not service is good.

00:16:04.457 --> 00:16:05.507
In 2021.

00:16:07.217 --> 00:16:10.337
We have seen four years of normal consumption being.

00:16:10.337 --> 00:16:11.437
squeezed into that here.

00:16:12.907 --> 00:16:13.877
In terms of growth?

00:16:14.717 --> 00:16:18.047
Just to put things in perspective, this amount of consumption.

00:16:18.047 --> 00:16:21.237
of goods is equivalent equivalent to a situation in which.

00:16:21.237 --> 00:16:22.837
overnight overnight.

00:16:23.817 --> 00:16:26.997
You parachuted 70.

00:16:26.997 --> 00:16:30.137
million new Americans into.

00:16:30.137 --> 00:16:33.227
the US, and the minute the lender they started to spend, that's.

00:16:33.227 --> 00:16:37.757
what we're talking about. This is a demand shock.

00:16:37.757 --> 00:16:37.757

00:16:39.537 --> 00:16:42.747
And people say yes, but never underestimate the American.

00:16:42.747 --> 00:16:45.917
consumer. And I say yes, but give me a break. How?

00:16:45.917 --> 00:16:47.487
much stuff do you need?

00:16:48.467 --> 00:16:51.937
We have been shopping for two years because it's easy. You press the button.

00:16:51.937 --> 00:16:53.647
and you get your exercise bike.

00:16:56.207 --> 00:16:59.177
And I suggest that all these consumption energy.

00:16:59.797 --> 00:17:02.587
Will be going to services.

00:17:03.417 --> 00:17:05.317
Because this demand shock.

00:17:06.467 --> 00:17:09.847
Would be enough to challenge even a normally functioning.

00:17:09.847 --> 00:17:13.147
supply system, and this supply system.

00:17:13.147 --> 00:17:16.307
is not normally functioning. It's very sick. So you have a.

00:17:16.307 --> 00:17:19.607
very sick supply system dealing with the mother of all demand.

00:17:19.607 --> 00:17:22.827
shocks. But this demand, if we open up in.

00:17:22.827 --> 00:17:23.547
a normal way.

00:17:24.247 --> 00:17:27.847
Will be going to services and.

00:17:27.847 --> 00:17:31.487
the point that I'm making here is that services are less inflationary.

00:17:31.487 --> 00:17:34.727
Why? Because their supply is more elastic.

00:17:34.727 --> 00:17:38.127
If you start overcharging in your restaurant I will open a.

00:17:38.127 --> 00:17:39.747
new one to compete with you.

00:17:41.207 --> 00:17:44.707
It's much easier to start a new restaurant than to establish a new manufacturing.

00:17:44.707 --> 00:17:47.727
facility, so therefore the point that I'm making here.

00:17:47.727 --> 00:17:49.007
is that.

00:17:50.047 --> 00:17:53.057
Tick covid out of it and you have nothing left.

00:17:53.057 --> 00:17:53.067

00:17:53.927 --> 00:17:57.987
60 to 65% of inflation is.

00:17:57.987 --> 00:17:57.987

00:17:58.997 --> 00:17:59.837
Supply chain.

00:18:00.907 --> 00:18:01.727
And all of it.

00:18:03.027 --> 00:18:06.167
Is due to Kovid. If you remove Covid out of.

00:18:06.167 --> 00:18:09.937
it and if we go with our Sumption.

00:18:09.937 --> 00:18:09.937

00:18:11.617 --> 00:18:14.627
Got 2022 is a transition year between.

00:18:14.627 --> 00:18:17.827
the pandemic and endemic. Then I think it's reasonable.

00:18:17.827 --> 00:18:18.667
to assume.

00:18:20.127 --> 00:18:23.287
That this supply chain story will.

00:18:23.287 --> 00:18:25.397
start disappearing in the second half of the year.

00:18:25.997 --> 00:18:29.057
And will not be there in any significant way a year from now.

00:18:29.057 --> 00:18:32.517
That's the hope. That's the prayer. And therefore all these consumption.

00:18:32.517 --> 00:18:35.917
energy will go to services that's.

00:18:35.917 --> 00:18:38.987
one thing. So that's not very durable in terms.

00:18:38.987 --> 00:18:41.477
of inflationary forces, what's more durable.

00:18:42.197 --> 00:18:44.187
Is employment.

00:18:44.837 --> 00:18:45.677
The labor market.

00:18:47.097 --> 00:18:50.117
We all heard about the great resignation trend.

00:18:50.117 --> 00:18:53.497
in the US people are quitting like there is no tomorrow in.

00:18:53.497 --> 00:18:56.717
Canada. By the way. That's not the case and.

00:18:56.717 --> 00:18:59.957
in a recent survey, a record number of Canadians say.

00:18:59.957 --> 00:19:02.997
that we are thinking about quitting. So in the USR.

00:19:02.997 --> 00:19:06.107
quitting in Canada, we are thinking about quitting, that's.

00:19:06.107 --> 00:19:09.467
very Canadian. Nevertheless, it means that the market is tight then.

00:19:09.467 --> 00:19:13.317
you look at a chart of the left and you can see that many older.

00:19:13.317 --> 00:19:16.657
Americans are exiting the market and.

00:19:16.657 --> 00:19:19.277
I say if you are sixty 6568.

00:19:19.537 --> 00:19:22.707
And you decided you weren't copied to exit the labor market. You're not coming back?

00:19:22.707 --> 00:19:22.707

00:19:24.957 --> 00:19:28.077
And that's why the participation rate in the labor market.

00:19:28.077 --> 00:19:30.977
in the USA is below what it was before.

00:19:31.947 --> 00:19:35.047
That's something that we haven't seen in Canada. Therefore the participation rate.

00:19:35.047 --> 00:19:38.327
is actually higher than it was before, but there is another.

00:19:38.327 --> 00:19:41.527
force that is extremely important and that's immigration.

00:19:41.527 --> 00:19:41.527

00:19:42.177 --> 00:19:44.017
In October 2020.

00:19:44.617 --> 00:19:47.717
The Canadian government announced that they would like to see no.

00:19:47.717 --> 00:19:50.777
less than 400,000 new immigrants.

00:19:50.777 --> 00:19:50.777

00:19:51.887 --> 00:19:55.027
Arriving to Canada in 2021 and people.

00:19:55.027 --> 00:19:58.767
said, are you crazy? How can you get 400,000?

00:19:58.767 --> 00:19:58.767

00:19:59.367 --> 00:20:03.467
During Covid, nobody is flying. We got 400 and 1000. How?

00:20:03.467 --> 00:20:03.467

00:20:04.117 --> 00:20:06.677
70% of them were already in Canada.

00:20:07.387 --> 00:20:10.627
There were students, there were non permanent residence.

00:20:10.627 --> 00:20:14.367
for damn it was a change in status, not a change of address.

00:20:14.367 --> 00:20:14.367

00:20:15.077 --> 00:20:18.237
And just to put things in perspective, look at the chart to the right, that's.

00:20:18.237 --> 00:20:21.717
relative to the US we got 400,000.

00:20:21.717 --> 00:20:24.817
they got 500,000, but the last time I checked.

00:20:24.817 --> 00:20:27.927
the US is still 10 times larger than Canada, which means.

00:20:27.927 --> 00:20:31.197
that per capita, we have seen an inflow.

00:20:31.197 --> 00:20:34.917
of new immigrants six times faster than what we're seeing in the US this is.

00:20:34.917 --> 00:20:38.217
a new supply to the labor market that you haven't seen in.

00:20:38.217 --> 00:20:41.357
the USA major force impacting wages in.

00:20:41.357 --> 00:20:44.757
Canada relative to the US and just out of curiosity.

00:20:44.757 --> 00:20:44.757

00:20:45.077 --> 00:20:48.367
I was looking at the skill set of those new immigrants relative.

00:20:48.367 --> 00:20:51.407
to what we need in the economy based on.

00:20:51.407 --> 00:20:51.407

00:20:52.057 --> 00:20:55.457
Because the words and you can see that when it goes across the.

00:20:55.457 --> 00:20:58.497
45 degree line, it's it means that there.

00:20:58.497 --> 00:21:02.457
is nice alignment and you can see there is a nice alignment here however.

00:21:02.457 --> 00:21:05.257
there are few exceptions. One of them is trades and construction.

00:21:07.267 --> 00:21:10.957
One of the most important factors limiting.

00:21:10.957 --> 00:21:14.017
supply in the housing market in Canada is the.

00:21:14.017 --> 00:21:17.517
lack of label, specially thread and clearly construction.

00:21:17.517 --> 00:21:20.137
workers. How many new immigrants we got?

00:21:21.007 --> 00:21:24.107
In construction, basically zero. Same goes for.

00:21:24.107 --> 00:21:25.407
health occupations.

00:21:27.057 --> 00:21:30.257
We need nurses like oxygen. How?

00:21:30.257 --> 00:21:33.737
many did we get? 0. So clearly we need some.

00:21:33.737 --> 00:21:36.897
fine tuning. But overall there is nice alignment.

00:21:36.897 --> 00:21:39.927
between what we need and what they bring. So we have a.

00:21:39.927 --> 00:21:43.017
situation in which all their people exiting the.

00:21:43.017 --> 00:21:46.017
market in the US not in Canada and clearly we have.

00:21:46.617 --> 00:21:47.707
More immigrants.

00:21:48.387 --> 00:21:51.577
Hey, why being relative to the US and?

00:21:51.577 --> 00:21:54.767
therefore the supply of labor in the?

00:21:54.767 --> 00:21:57.887
Canadian market is larger than what you see in the US?

00:21:57.887 --> 00:22:01.047
and therefore most surprise wages?

00:22:01.047 --> 00:22:04.067
in the US are rising faster than wages in?

00:22:04.067 --> 00:22:07.187
Canada with major implications for the Bank of Canada?

00:22:07.187 --> 00:22:10.407
and the rate at which interest rates will be rising we discuss?

00:22:10.407 --> 00:22:11.287
it in a second.

00:22:12.617 --> 00:22:15.667
Now we have a situation which inflation?

00:22:15.667 --> 00:22:18.677
is rising, wages are rising in both countries, more in the U.

00:22:18.677 --> 00:22:22.667
So the question is, what's next in terms of raising interest rates?

00:22:22.667 --> 00:22:25.807
We know that the Bank of Canada already started the.

00:22:25.807 --> 00:22:29.687
Fed will be raising interest rates and we are talking about a situation.

00:22:29.687 --> 00:22:33.037
in which our quickly our fast first.

00:22:33.037 --> 00:22:36.507
we have to examine and look at the effectiveness of.

00:22:36.507 --> 00:22:39.807
monetary policy. Look at this is extremely important to understand.

00:22:39.807 --> 00:22:42.647
Look at the chart of the left. First you have the Gray line.

00:22:43.047 --> 00:22:44.437
And you have the red line.

00:22:45.327 --> 00:22:49.137
The Gray line is the official rate. the Fed funds rate.

00:22:49.907 --> 00:22:51.497
The red light.

00:22:52.437 --> 00:22:55.137
Is effective interest rates basically how much you pay?

00:22:55.767 --> 00:22:58.787
This is actually how much you pay. Look what happened in.

00:22:58.787 --> 00:23:02.087
the 19 in the 2004 five.

00:23:02.087 --> 00:23:03.527
six before the crisis.

00:23:05.007 --> 00:23:08.407
Greenspan Bugden raised into sweats from 1:25.

00:23:08.407 --> 00:23:10.547
basis points to.

00:23:11.867 --> 00:23:12.467
5%.

00:23:14.167 --> 00:23:15.507
Basically, over the course of breakfast.

00:23:16.927 --> 00:23:18.927
What happened to the red line? Basically nothing.

00:23:19.937 --> 00:23:23.237
That's the creative imagination of American bankers.

00:23:23.237 --> 00:23:23.237

00:23:23.827 --> 00:23:27.167
That neutralize the Fed remembered all those ninja mortgages.

00:23:27.167 --> 00:23:28.407
That's what I'm talking about.

00:23:29.167 --> 00:23:32.407
So interest rates went up, but actually interest rates for normal.

00:23:32.407 --> 00:23:35.657
people did not go up. Same goals in 2000.

00:23:35.657 --> 00:23:38.807
Eighteen. You see the red line basically flood. Why?

00:23:38.807 --> 00:23:41.987
Because their mortgages are for 30 years, so it takes a long time.

00:23:41.987 --> 00:23:43.387
to impact actual payments.

00:23:44.047 --> 00:23:47.087
In Canada, I will, mortgages are for five.

00:23:47.087 --> 00:23:47.437
years.

00:23:48.327 --> 00:23:49.047
Therefore.

00:23:49.797 --> 00:23:52.217
When the Bank of Canada starts to raise interest rates.

00:23:54.337 --> 00:23:57.647
I will interest rates, effective interface option actually rise as.

00:23:57.647 --> 00:24:00.867
well. So the effectiveness of monetary policy in Canada is.

00:24:00.867 --> 00:24:04.117
higher than the effectiveness in the US and.

00:24:04.117 --> 00:24:07.147
then you have another force during the two.

00:24:07.147 --> 00:24:10.247
crisis, the Americans.

00:24:10.247 --> 00:24:13.307
went through the model of Aldi leveraging their.

00:24:13.307 --> 00:24:16.427
debt to income ratio went.

00:24:16.427 --> 00:24:19.867
down from 160 to 140 hours in.

00:24:19.867 --> 00:24:23.087
nada went up from 140 to 160 we?

00:24:23.087 --> 00:24:24.107
We assume more debt.

00:24:24.327 --> 00:24:27.357
Because this was not our crisis in 2008, we.

00:24:27.357 --> 00:24:29.017
were basically secondhand smokers.

00:24:30.507 --> 00:24:33.697
So when you have more debt, you're more sensitive to the risk of higher.

00:24:33.697 --> 00:24:36.977
interest rates. Our sensitive more than twice what?

00:24:36.977 --> 00:24:38.907
I mean by that according to this chart.

00:24:40.017 --> 00:24:43.237
Basically, if you raise interest rates in Canada by.

00:24:43.237 --> 00:24:46.437
100 basis point, it's equivalent to the Fed.

00:24:46.437 --> 00:24:49.757
raising interest rates by 200 basis points. In terms of the impact.

00:24:49.757 --> 00:24:52.937
on the consumer, which means that the Bank of Canada.

00:24:52.937 --> 00:24:56.017
is more powerful than the Fed in terms of.

00:24:56.017 --> 00:24:59.187
their ability to slow down the consumer and the housing market.

00:24:59.187 --> 00:25:02.687
So you have inflation in the US rising faster, wages are rising.

00:25:02.687 --> 00:25:05.897
faster and the Bank of Canada is more effective in raising.

00:25:05.897 --> 00:25:09.097
interest rates. You will expect that this wee little situation.

00:25:09.097 --> 00:25:10.497
in which the market will.

00:25:10.957 --> 00:25:14.627
Price in a situation in which the.

00:25:14.627 --> 00:25:17.147
Fed will be moving.

00:25:19.347 --> 00:25:21.537
More aggressively then the Bank of Canada.

00:25:23.247 --> 00:25:26.317
And the opposite was the case until very recently this is.

00:25:26.317 --> 00:25:29.977
a very important chart. If you care about interest rates and the dollar look.

00:25:29.977 --> 00:25:32.157
at the huge increase.

00:25:34.077 --> 00:25:37.217
In November of 2021, towards.

00:25:37.217 --> 00:25:40.737
the end of the year, we have seen the two year rate Canada.

00:25:40.737 --> 00:25:44.157
rising faster than the two year rate. US does this spread?

00:25:44.157 --> 00:25:47.477
between the two of them, which means that the market at this point was expect?

00:25:47.477 --> 00:25:49.297
ng expecting the Bank of Canada not the Fed.

00:25:50.317 --> 00:25:53.677
To be much more aggressive, in fact, at one point the.

00:25:53.677 --> 00:25:56.737
market priced in a situation in which the Bank of Canada would be.

00:25:56.737 --> 00:25:59.897
moving a full year ahead of the Fed, which didn't make any sense.

00:25:59.897 --> 00:26:00.437
whatsoever.

00:26:01.647 --> 00:26:04.867
So we have seen this line rising suggesting.

00:26:04.867 --> 00:26:08.097
that the market was much more aggressive on the Bank of Canada and then just?

00:26:08.097 --> 00:26:11.627
recently over the past few months, the market reversed that.

00:26:11.627 --> 00:26:14.927
red and you can see the number or the trend going down.

00:26:14.927 --> 00:26:16.427
to basically where it belongs.

00:26:17.727 --> 00:26:18.467
So this.

00:26:19.197 --> 00:26:20.097
Situation.

00:26:20.907 --> 00:26:23.007
Is responsible for this.

00:26:24.157 --> 00:26:25.637
Divorce, if you wish.

00:26:26.287 --> 00:26:29.767
Between oil prices and the dollar, usually.

00:26:29.767 --> 00:26:30.567
our dollar.

00:26:31.707 --> 00:26:32.847
Dances to the tune.

00:26:33.657 --> 00:26:36.717
Of oil prices and oil prices went to the sky as we know we.

00:26:36.717 --> 00:26:39.867
obviously the dollar moving. Why? Because over the past few months.

00:26:39.867 --> 00:26:41.427
the market reversed.

00:26:42.087 --> 00:26:43.467
It's a.

00:26:44.657 --> 00:26:48.037
Pricing in situation and basically expected.

00:26:48.037 --> 00:26:51.317
the Fed to move as aggressively as.

00:26:51.317 --> 00:26:54.377
the Bank of Canada as opposed to the Bank of Canada being more aggressive.

00:26:54.377 --> 00:26:57.717
and that basically neutralize all the potential positive.

00:26:57.717 --> 00:27:00.737
impact of higher oil prices on the dollar. That's the.

00:27:00.737 --> 00:27:03.777
reason if you ask why the dollar is not moving up, it's.

00:27:03.777 --> 00:27:06.817
basically the change in expectations regarding interest.

00:27:06.817 --> 00:27:10.177
rates in Canada. So that's something that is very important.

00:27:10.177 --> 00:27:12.977
There is another factor here and that's.

00:27:13.907 --> 00:27:17.177
Our corporations will react because until.

00:27:17.177 --> 00:27:20.257
now we were discussing the inflationary force and.

00:27:20.257 --> 00:27:23.577
the economic implications. Now central bankers.

00:27:23.577 --> 00:27:24.857
they are human.

00:27:25.707 --> 00:27:26.757
And they can make mistakes.

00:27:28.277 --> 00:27:31.417
The Bank of Canada and the Fed are now priced in to raise.

00:27:31.417 --> 00:27:32.077
interest rates.

00:27:32.697 --> 00:27:34.217
Maybe four or five times.

00:27:35.917 --> 00:27:39.027
In 2022 in some places.

00:27:39.027 --> 00:27:42.667
the expectations are for a more aggressive bank of Canada 6 seven times.

00:27:42.667 --> 00:27:42.667

00:27:44.657 --> 00:27:48.817
And that's reasonable. I think that's fraud five times. That's fine, however.

00:27:48.817 --> 00:27:48.817

00:27:50.097 --> 00:27:53.117
If for some reason, and that's extremely important from your perspective, if you care.

00:27:53.117 --> 00:27:54.517
about the market and interest rates.

00:27:55.337 --> 00:27:58.637
We know that inflation will be elevated over the next few months. That's not interesting.

00:27:58.637 --> 00:28:01.817
That's irrelevant. Almost. It will be elevated over.

00:28:01.817 --> 00:28:04.957
the next two or three months. The media would be all over it, but it's.

00:28:04.957 --> 00:28:07.457
almost irrelevant from your perspective, however.

00:28:08.697 --> 00:28:09.537
If by.

00:28:10.467 --> 00:28:14.137
August, September, October. We don't see a significant.

00:28:14.137 --> 00:28:16.097
softness in inflation.

00:28:17.417 --> 00:28:18.457
The Bank of Canada.

00:28:19.287 --> 00:28:22.297
Is risking a situation in which there will be raising it as.

00:28:22.297 --> 00:28:25.597
well as two rapidly. You see every economic recession.

00:28:25.597 --> 00:28:28.677
was helped, if not caused by monetary.

00:28:28.677 --> 00:28:32.007
policy error, in which central bankers raise.

00:28:32.007 --> 00:28:33.337
interest rates way too quickly.

00:28:34.627 --> 00:28:35.787
And derail the economy.

00:28:37.727 --> 00:28:40.897
And again, there are human they can make mistakes, and if you raise.

00:28:40.897 --> 00:28:43.937
interest rates and inflation is still there, what do you raise?

00:28:43.937 --> 00:28:47.497
again and again and again, something that people have to understand.

00:28:47.497 --> 00:28:50.857
in this environment. It is not about inflation.

00:28:50.857 --> 00:28:53.917
Inflation will go back to 2% eventually. It's about the.

00:28:53.917 --> 00:28:57.237
cost that it will take to bring inflation back to 2%.

00:28:57.237 --> 00:29:00.617
namely how much you have to raise interest rates. And if you don't see.

00:29:00.617 --> 00:29:03.677
inflation easing in the second of the year, the.

00:29:03.677 --> 00:29:07.187
risk of a monetary policy error will rise.

00:29:07.187 --> 00:29:07.187

00:29:07.877 --> 00:29:11.297
And that's something that can plant the seeds for recession.

00:29:11.297 --> 00:29:14.537
in 2023. Again, that's not my focus.

00:29:14.537 --> 00:29:17.877
My forecast is that the Bank of Canada will go.

00:29:17.877 --> 00:29:21.397
slowly when I see the Bank of Canada see them very often.

00:29:21.397 --> 00:29:21.397

00:29:22.187 --> 00:29:24.197
Unfortunately, I can tell you.

00:29:24.917 --> 00:29:27.957
That this is the conversation that we are having, the Bank of Canada knows.

00:29:27.957 --> 00:29:31.237
that and they basically said we do not want to repeat past mistakes.

00:29:31.237 --> 00:29:31.237

00:29:32.017 --> 00:29:35.537
But again, inflation can change their mind and the risk.

00:29:35.537 --> 00:29:35.537

00:29:36.097 --> 00:29:36.557
Of.

00:29:37.367 --> 00:29:40.397
And recession in 2023 is there and?

00:29:40.397 --> 00:29:43.517
I'm waiting to see what will happen to inflation in the second half of.

00:29:43.517 --> 00:29:46.597
the year and if it doesn't slow down, I will.

00:29:46.597 --> 00:29:49.797
increase the probability of recession in my calculations, that's.

00:29:49.797 --> 00:29:53.077
more or less where we are, but it doesn't mean that.

00:29:53.077 --> 00:29:56.257
if interest rates and inflation go up, corporations cannot.

00:29:56.257 --> 00:29:59.427
do anything to fight it. Look at this.

00:29:59.427 --> 00:30:00.567
is very interesting.

00:30:01.597 --> 00:30:04.007
This is perfect. This is profit margins.

00:30:04.707 --> 00:30:07.787
And you can see that there was a significant change.

00:30:07.787 --> 00:30:10.857
upward changes, structural change after the year.

00:30:10.857 --> 00:30:14.427
2000. Why? Because of many forces.

00:30:14.427 --> 00:30:17.707
that helped profitability chief among them.

00:30:17.707 --> 00:30:20.867
of course was globalization, which is always good.

00:30:20.867 --> 00:30:24.907
for business. It's the cost structure is lawyer just in.

00:30:24.907 --> 00:30:28.187
time. Inventories of course was very.

00:30:28.187 --> 00:30:31.847
helpful. We also saw a situation in which pricing.

00:30:31.847 --> 00:30:34.927
power in the economy namely fuel.

00:30:34.927 --> 00:30:34.927

00:30:36.157 --> 00:30:39.337
Players controlling more and more of the economy as reason.

00:30:39.337 --> 00:30:42.457
especially in technology and labor, was available.

00:30:42.457 --> 00:30:45.597
and cheap. You can see that the share of labor in production.

00:30:45.597 --> 00:30:48.687
went down and the share of people that in.

00:30:48.687 --> 00:30:51.977
low paying jobs went up so clearly that also.

00:30:51.977 --> 00:30:55.277
helped ability. I suggest that all those forces.

00:30:55.277 --> 00:30:56.017
are being reversed.

00:30:57.247 --> 00:30:58.927
Globalization is being.

00:30:59.587 --> 00:31:02.667
Replaced by an element of Deglobalization.

00:31:04.147 --> 00:31:07.687
That's not good for profit, just in time inventory is.

00:31:07.687 --> 00:31:11.037
being replaced by just in case inventories. People realize that they need more inventories.

00:31:11.037 --> 00:31:14.067
label for the first time in generations.

00:31:14.067 --> 00:31:16.327
Labor has the bargaining power.

00:31:17.107 --> 00:31:19.507
You don't have people you cannot find. People wages are rising.

00:31:20.527 --> 00:31:22.567
And companies are starting to react to it.

00:31:23.317 --> 00:31:25.247
And the react in a very interesting way.

00:31:26.337 --> 00:31:27.557
You have a situation.

00:31:28.367 --> 00:31:31.537
That is like I believe in the 1990s. Look at what happened.

00:31:31.537 --> 00:31:32.557
in the 1990s.

00:31:33.647 --> 00:31:34.977
We're just went up like now.

00:31:35.977 --> 00:31:39.597
Inflation didn't. Why? Because of the Charter, the right productivity.

00:31:39.597 --> 00:31:41.537
went up significantly.

00:31:43.837 --> 00:31:46.857
This was the Internet revolution that led to a huge increase in.

00:31:46.857 --> 00:31:50.267
productivity, and if I give you a 10% pay increase and.

00:31:50.267 --> 00:31:52.987
you are 10% more productive, that's not inflationary.

00:31:53.857 --> 00:31:57.107
And that's something that we have seen in the 1990s and I believe.

00:31:57.107 --> 00:32:00.497
that we have the opportunity and the chance to do it again. Why?

00:32:00.497 --> 00:32:03.557
Because people are starting to realize companies are starting to.

00:32:03.557 --> 00:32:06.637
realize that label is simply unavailable.

00:32:06.637 --> 00:32:10.127
and way too expensive. You can see that labor as a share of.

00:32:10.127 --> 00:32:13.437
production is rising. So what companies are doing?

00:32:13.437 --> 00:32:16.637
they're starting to invest more in capital there simply replacing.

00:32:16.637 --> 00:32:19.657
labor with capital, as you can see from the chart to the right.

00:32:19.657 --> 00:32:22.717
And they have the means to do so, yes.

00:32:22.717 --> 00:32:24.777
individuals are sitting on a mountain of cash.

00:32:26.627 --> 00:32:29.687
But also companies 130 billion.

00:32:29.687 --> 00:32:33.077
n of excess cash, so they use it to buy back stocks.

00:32:33.077 --> 00:32:36.577
the user to raise dividends and they use it.

00:32:36.577 --> 00:32:36.577

00:32:37.267 --> 00:32:39.787
To invest and this investment.

00:32:40.537 --> 00:32:43.697
Will enhance productivity and might be the number one.

00:32:43.697 --> 00:32:43.697

00:32:44.567 --> 00:32:45.367
Protection.

00:32:46.177 --> 00:32:47.217
Form inflation.

00:32:48.147 --> 00:32:49.717
So what does?

00:32:50.557 --> 00:32:53.787
All the above mean for.

00:32:53.787 --> 00:32:56.727
investment. First of all, I think that we have to realize.

00:32:57.347 --> 00:32:58.847
That interest rates will be rising.

00:32:59.617 --> 00:33:02.737
And that's something that makes the situation much.

00:33:02.737 --> 00:33:06.577
more interesting in terms of the impact on economic growth in.

00:33:06.577 --> 00:33:09.597
this environment, I suggest that.

00:33:09.597 --> 00:33:11.267
when you look at the PE ratio.

00:33:12.747 --> 00:33:16.337
The price to earnings ratio 80% of the advance in.

00:33:16.337 --> 00:33:18.417
valuations over the past.

00:33:19.077 --> 00:33:22.177
10 years, including the last two years, was in.

00:33:22.177 --> 00:33:25.537
the P, not in. It was the price, not the earning.

00:33:25.537 --> 00:33:28.607
And it's very difficult to see in this environment hourly earnings.

00:33:28.607 --> 00:33:31.797
will catch up. Therefore, I suggest that.

00:33:31.797 --> 00:33:35.137
we have to be very defensive when it comes to the stock market.

00:33:35.137 --> 00:33:38.157
I believe that the stock market will be positive this year, but we.

00:33:38.157 --> 00:33:41.577
have to be defensive. So what do I like? First of all, I like companies.

00:33:41.577 --> 00:33:43.537
that pay you back.

00:33:44.137 --> 00:33:47.297
Companies with cash, I suggested that energy is 1.

00:33:47.297 --> 00:33:50.317
e of them. Why? Because although oil prices.

00:33:50.317 --> 00:33:53.657
are rising, they are not using the extra money that they have.

00:33:53.657 --> 00:33:56.177
to invest because of obvious.

00:33:56.887 --> 00:34:00.107
Considerations. Therefore, they take this extra money and they pay.

00:34:00.107 --> 00:34:03.267
you in terms of dividends in terms of buyback.

00:34:03.267 --> 00:34:06.547
and basically some sort of investment in maintenance.

00:34:06.547 --> 00:34:09.647
Therefore, I suggest that I would like to be in this.

00:34:09.647 --> 00:34:13.987
environment and simply collect. That's one thing banks always.

00:34:13.987 --> 00:34:16.047
benefit from higher.

00:34:16.797 --> 00:34:20.187
Interest rates, especially Canadian banks, relative to American.

00:34:20.187 --> 00:34:21.427
anks, American banks see.

00:34:22.097 --> 00:34:25.257
Why did the yield curve Canadian banks benefit?

00:34:25.257 --> 00:34:28.367
from the absolute increase in interest rates and interest rates?

00:34:28.367 --> 00:34:31.477
will be rising, especially low, low short term interest rates?

00:34:31.477 --> 00:34:34.857
by about 200 basis points over the next two years?

00:34:34.857 --> 00:34:38.047
So I would like to be part of it. In addition, Canadian banks.

00:34:38.047 --> 00:34:41.557
are sitting on a mountain of cash. This cache will go to again.

00:34:41.557 --> 00:34:45.037
bye bye bug stocks and.

00:34:45.037 --> 00:34:48.537
clearly increased dividends, something that I would like to be in.

00:34:48.537 --> 00:34:52.027
commodities in general, I like commodities at copper.

00:34:52.027 --> 00:34:53.017
because copper is the.

00:34:53.077 --> 00:34:56.147
Future given the electric car, I.

00:34:56.147 --> 00:34:59.207
like nickel.

00:34:59.207 --> 00:35:02.767
I think that it's China. Sorry, Russia is a major.

00:35:02.767 --> 00:35:05.787
supplier of nickel. It will not be in the market for a while. I would like to.

00:35:05.787 --> 00:35:08.847
be in this space as well. Agriculture will be part of it. I.

00:35:08.847 --> 00:35:11.867
would like to be there as well. In addition, I like.

00:35:11.867 --> 00:35:15.247
Big Rosales. Why? Because they can transfer.

00:35:15.247 --> 00:35:18.327
the cost to the consumer and many of them in.

00:35:18.327 --> 00:35:21.427
Canada are not linked to the supply chain issues and.

00:35:21.427 --> 00:35:24.707
they have the pricing power. So I would like to be there. So as you can see.

00:35:24.707 --> 00:35:24.707

00:35:24.817 --> 00:35:28.487
A lot of moving targets here, but if you ask the right questions.

00:35:28.487 --> 00:35:31.647
you can make sense out of this madness. I will stop here.

00:35:31.647 --> 00:35:33.587
Thank you very much for your attention.

00:35:33.657 --> 00:35:43.657

Will Market Volatility Continue?

[Soft music]

[Michael Sager, Executive Director, Multi-Asset and Currency Management

CIBC Asset Management]

I think market volatility is being driven by a number of factors.

[A Russian government building. The Ukrainian flag flying over Kiev.]

The first one, obviously, is the geopolitical situation in Europe with Russia's invasion of Ukraine.

[The EU Central Bank building. The U.S. Federal Reserve building.]

In a more underlying sense, though, we can think back to the pivot by developed market central

banks that has occurred over the last few months, in terms of their policy priorities and how

they're thinking about inflation.

[People wearing masks in public.]

In addition, the third thing that's been around for a little bit longer, of course, is the pandemic,

which has really impacted behaviour and markets.

[Sources of volatility

• Geopolitics

• Policy

• Pandemic]

So, geopolitics, policy, pandemic would be the three sources of relatively heightened volatility at

the moment.

[Volatility - historical context]

[Soft music]

In the grand sweep of history, if you go back and you include some of the big volatility events:

[The Wall Street sign. Market Data.]

2008 with the global financial crisis, or March 2020 with the onset of the pandemic in North

America, volatility in financial markets was much, much higher, at least for a time than we're

currently witnessing. So, I would characterize volatility in the markets at the moment as

elevated, but certainly not exceptional on the high side.

[Volatility outlook]

[Soft music]

I think the most likely case is that volatility stays a little bit elevated, relative to what we're used

to, on average over the last several years. So, there's a number of reasons.

[1. Geopolitics]

[A military checkpoint. Skyscrapers. Market Data]

One, if you look at the history of geopolitical events from the perspective of their impact on

financial markets, it tends to be relatively short lived. That source of volatility might be around

for several weeks yet, even perhaps a couple of months, but after that, that source of volatility

wanes.

[2. Policy]

[A politician’s hands surrounded by microphones.]

More relevant is the policy source of risk and volatility. So, two aspects there. One; clearly, the

pivot to trying to bring inflation back down to more tolerable rates is generating volatility.

[The U.S. Federal Reserve building. The Bank of Canada building.]

And I think that that battle between inflation and central banks is going to last for a little bit

longer yet. So that means that that source of inflation will last for a little bit longer.

[3. Pandemic]

[A woman wearing a mask. The EU Central Bank building.]

Since the onset of the pandemic in North America in March 2020, central banks bought a huge

volume of assets and that buying really dampened down market volatility. As part of their efforts

to get inflation firmly under control, they will be, first of all, reducing the extent of their asset

purchases.

[Market Data on monitors.]

And then actually selling off the assets on their balance sheets. And so that will almost be a

reverse impact. So, whereas the purchases dampened market volatility, that dampening impact

won't be as strong. That in itself will lead to a little bit higher volatility on average.

[Conclusion]

When thinking about periods of volatility, our best counsel is to as best one can, look through

them, continue to focus on long-term fundamentals, ensure that your portfolio is set up to be

consistent with your long-term goals and objectives because it's very easy to get swept up in the

current spike in volatility, the current event risk that is driving that spike. But often times those

spikes are relatively short lived. And then afterwards, what we're left with is a re-engagement

with long-term fundamentals. So, I think best counsel is to wherever possible, look through the

short-term focus on those long-term fundamentals.

[Soft music]

[The views expressed in this video are the personal views of Michael Sager and should not be

taken as the views of CIBC Asset Management Inc. This video is provided for general

informational purposes only and does not constitute financial, investment, tax, legal or

accounting advice nor does it constitute an offer or solicitation to buy or sell any securities

referred to. Individual circumstances and current events are critical to sound investment

planning; anyone wishing to act on this video should consult with his or her advisor. All opinions

and estimates expressed in this video are as of the date of publication unless otherwise

indicated, and are subject to change.™The CIBC Asset Management and the CIBC logo are

trademarks of Canadian Imperial Bank of Commerce (CIBC), used under license. The material

and/or its contents may not be reproduced without the express written consent of CIBC Asset

Management Inc.Certain information that we have provided to you may constitute “forwardlooking”

statements. These statements involve known and unknown risks, uncertainties and

other factors that may cause the actual results or achievements to be materially different than

the results, performance or achievements expressed or implied in the forward-looking

statements.]

[CIBC Logo]

[The CIBC logo is a trademark of CIBC, used under license.]

Ukraine crisis – What investors need to know

[Upbeat music]

[Ukraine crisis – What investors need to know]

[CIBC logo]

[Luc de la Durantaye, Chief Investment Strategist and CIO, CIBC Asset Management]

In our last update, we had mentioned that 2022 would be an eventful year, and so far it has not

disappointed. The events in Ukraine have forced market participants to re-evaluate their global

economic scenario, and the range of possible market outcome has widened in light of Russia's

full military action and also the increased unpredictability of the geopolitical environment, as well

as the rapid and collective response of Western countries. And so, these developments have

naturally translated into higher volatility. So while it remains certainly an understatement that

predicting what Russia's President Putin will do or not do, nevertheless, it's a necessary evil, if

you will, to re-evaluate the environment. Our best take on the conflict at this time so far is that

first, I think NATO is a much stronger opponent than Ukraine. So this suggests that Russia's

invasion will most likely be limited to Ukraine, particularly given the slow progress of Russian

military is making in Ukraine. So that's an important assumption. Second, the extent of the

economic and financial backlash against Russia from G10 countries and a growing contingent

of large multinational corporations suggests that the economic warfare against Russia is very

swift and effective, which means Russia is increasingly isolated. China also is unlikely to come

to its rescue because its economic ties are much, much larger with the West than with Russia.

So this is a new form of economic and financial warfare.

[Upbeat music]

[Economic implications]

It's still uncertain, but we have both direct and indirect effects of this crisis. The direct effects:

the crisis-related sanctions will negatively affect international trade. That's the direct impact, but

it's likely to be small given that Russia contributes to less than two percent of the global

economy and Russia is not very well integrated with the global economy. The indirect effect is

likely more impactful, but also uncertain. It includes obviously expected negative impact from

higher commodity prices, including energy and food. And Russia is also a major producer and

exporter of many commodities. So that's going to have a negative impact on growth and

inflation and likely affect negatively spending plans of corporations and individuals.

[Upbeat music]

[Increased inflation risk]

As a result of recent events and the risks they imply for commodity prices and confidence, our

previous growth and inflation forecasts will have to be adjusted. Probably growth will be

adjusted downwards and inflation will be adjusted upwards. So given the starting economic

landscape, the upside risk to inflation outlook is arguably the most relevant for policymakers. So

what we're going to be watching from here also is policymakers’ reaction, and so far they have

demonstrated that they are continuing on their policy renormalization. So the Bank of Canada

recently raised interest rates and gave indications that they would continue to raise interest

rates and so did the Federal Reserve indicated that they will continue or they would start

removing their accommodations.

[Upbeat music]

[Financial market implications]

The rise in geopolitical events risk confounds what we already see as a complex outlook for the

financial markets. Given the pandemic, given relatively high and broadening inflation, developed

markets, central banks need to remove some of their massive liquidity stimulus since they

injected that since March 2020 after the pandemic. So all this means that in the short term, it

seems likely that we'll experience continued market volatility and a lack of direction in both

equity and fixed income markets as investors continue to evaluate the full impact of the

geopolitical situation. Thereafter I think if we try to lift our eyes on the horizon, a world of higher

commodity prices and receding policy stimulus from central banks could generate a more

pronounced economic slowdown than what we initially expected at the start of the year. This

represents an additional near-term challenge to risky assets, including equity markets, which

had started the year in 2022 at somewhat elevated valuation levels for at least some markets.

Still, I think we do need to keep our eyes on the horizon. Already, some equity markets are in

bear market territory. That creates opportunities, once geopolitical events will calm down.

[Upbeat music]

[Investor outlook]

Well-diversified portfolios, I think, comprising of government bonds, stable paying dividend

stocks, gold and other commodities in the current environment, as well as cash and some safe

haven currencies should provide more stability to a global portfolio. --So that's number one.

Again, to balance your portfolio with non risky and risky assets is always helpful. And finally,

given the uncertainty, resisting the urge to do something I think is often better than reacting to

daily events that can change on a dime given the current situation. So I think that's another

element that sometimes we feel we need to do something and sometimes not doing anything is

the best thing.

[Upbeat music]

[Canadian assets]

The prospects for Canadian assets is actually relatively favourable. Canada is very far away

from this whole situation. Exposure to Russia is very low. Yet we are an exporter of commodity.

Our trade balance will benefit from these high commodity prices. Our equity market index has a

favorable composition with high-dividend-paying stocks, energy stocks and commodity stocks in

the index. That's also a favorable composition for our equity markets. And our equity market has

performed relatively well and has outperformed. And our Canadian bonds - Canadian

government bonds - are of highest quality and can be attractive for foreign investors in this type

of environment. And finally, our currency is somewhat undervalued and is supported to a certain

degree by higher commodity prices. So all in all, many mandates that we have, that we run, we

remain overweight Canadian equities, and we have a good portion of our balanced portfolios in

Canadian assets. so that brings some stability in this difficult environment.

[Upbeat music]

[This video is provided for general informational purposes only and does not constitute financial,

investment, tax, legal or accounting advice nor does it constitute an offer or solicitation to buy or

sell any securities referred to. Individual circumstances and current events are critical to sound

investment planning; anyone wishing to act on this document should consult with his or her

advisor. All opinions and estimates expressed in this document are as of the date of publication

unless otherwise indicated and are subject to change.

The CIBC logo is a trademark of Canadian Imperial Bank of Commerce (CIBC), used under

license. The material and/or its contents may not be reproduced without the express written

consent of CIBC Asset Management Inc. Certain information that we have provided to you may

constitute “forward-looking” statements.

These statements involve known and unknown risks, uncertainties and other factors that may

cause the actual results or achievements to be materially different than the results, performance

or achievements expressed or implied in the forward-looking statements.]

[CIBC Logo]

[The CIBC logo is a trademark of CIBC, used under license.]

.

2022 Economic Outlook – Light at the End of Another Tunnel
 

[Soft music plays] [Benjamin Tal, Managing Director and Deputy Chief Economist CIBC Capital Markets] 2022, so what should we expect? Early in this madness, we looked at the trajectory of the economy and we said it's going to be like a zigzag economy. The economy will be dancing to the tune of the virus, and that's exactly what we are seeing. We can discuss the numbers, but the trajectory in many ways is predictable. [Empty airports in winter.] Basically, the winter is bad. [A time-lapse image of a bustling airport.] The summer is much better. We have seen it in 2020, 2021, and we will see it in 2022. [A man in a mask walks down a winter street. A man in a mask picks up a winter jacket in a store. A close view of an empty luggage carrier at an airport. A food courier in a mask walks down a winter street.] Now we are, unfortunately in the winter, it's going to be a long winter and we see some seasonality when it comes to the virus. So, we know that the first quarter of the year will be actually negative. [A bird’s eye view of people jogging on a bridge in spring.] The spring will be better. [High angle view of a crowded beach. Time lapse images of bustling malls.] The summer will be on fire as people start spending this mountain of cash that they are sitting on. So, it's very predictable. We know that it's going to be very complicated, and we know that in the case of Canada, it's going to be more complicated than, let's say, in the U.S. and even Europe, because we reach capacity in our health care system much faster than most other OECD countries. [Images of busy hospital hallways.] And therefore, we have to introduce restrictions much faster. And that's why Canada has been lagging the U.S. economically. We will see the same in 2022, but it will be mostly in the first half of the year. In the second half, especially this summer we are going to see actually very strong growth. Overall, you sum it up, and we are talking about GDP growth in 2022 of about 4%, 4.5%, starting from a very low base in the first quarter, as we go through the winter. [Inflation] In the background, we have inflation. And we have to watch this inflation. And let me tell you one thing. Nobody knows where inflation will be six months from now. [Low angle view on a Canadian flag attached to a government building. Low angle view on an American flag attached to a government building.] And when I say nobody, I include the Bank of Canada and the Fed in that. Everybody's pretending, but nobody knows. So, clearly there is a risk here and the source of this inflation is coming from wages. The labor market is very tight. Vacancy rates are extremely high. We cannot find people. [A shipping barge docked in ice. An empty warehouse.] We have supply chains that we are all aware of. And we have this kind of spending that will be coming in the second half of the year. [A woman shops for shoes on her phone followed by images of people online shopping on their computers.] When it comes to supply chain, it's very important to understand that it's mostly a demand led shock. Listen to this. In the U.S., this huge increase in spending on goods, and it's easy to spend on goods; [A woman rides an exercise bike in her living room.] You press a button, and you get your exercise bike, it's very easy. [Images of multiple people parachuting through the sky followed by someone landing on the ground.] This extra spending is equivalent to basically overnight, parachuting 75 million people, extra people, into the U.S. and the minute they land, they start spending. This is a demand shock, and even a normally functioning supply system will have difficulties facing this demand shock. And this is not a normally functioning supply system. So, I think it's reasonable to assume that it will take a while. [The exterior of the Bank of Canada building. The exterior of the St. Louis Federal Reserve building.] The Bank of Canada, the Fed underestimated how long it would take. Now it's clear that this supply chain issue will be with us until late 2022, so inflation will be there. [Interest rates] Wages are rising, and that's something that will lead to higher interest rates. [The exterior of the Bank of Canada building.] Now the market is pricing in no less than six or maybe five moves by the Bank of Canada, namely 125 basis points in 2022. That's a significant increase. That's what the market is expecting. I believe that the market is wrong on that because I think that the Bank of Canada is aware that the number one enemy of the economy is overshooting. You don't want to raise interest rates too quickly. Every economic recession over the past 50 years was helped, if not caused by monetary policy error in which central bankers raised interest rates too much. [The crest of the Bank of Canada building. The Bank of Canada building at night.] Therefore, we believe that the Bank of Canada will be more muted. They will move only by three times, namely 75 basis points in 2022. They will continue to go in 2023. Overall, we see the bank rates rising from 25 basis points to maybe 2% by the end of 2024, but a very gradual trajectory as opposed to a very quick trajectory, what the market is expecting now. [Stock and bond market implications] This, of course, has major implications for the stock market and asset allocations. [Computer generated imagery of market data. A bank of computer monitors featuring market data.] Clearly, the bond market is not your friend at this point. I believe that rates will be rising, reflecting inflation expectations, and reflecting the rebound in the economy in the second half of the year. Therefore, in the stock market, clearly you have to be very choosy. [Market data on various tablets and screens.] And I would focus on growth-oriented stocks. I would focus on stocks that are actually going to pay back investors, dividend paying stocks like banks, utilities that will benefit from this environment. [An aerial view of a hydro electric dam. A low angle view of bank towers.] Banks will benefit also from higher rates. The spreads will improve. That's another positive, and we believe that all this is under one big assumption that Omicron is basically a transition from a pandemic to endemic. And by spring, summer of 2022, although COVID will not disappear, we will learn to live with the virus, basically coexist with it as an endemic as opposed to pandemic. And this, of course, has implications for the market. So overall, economic growth, mostly in the spring and the summer in 2022, it will be strong. I believe that inflation will last in 2022 above target. Therefore, the Bank of Canada will be raising interest rates, but not as quickly as anticipated by the market at this point. This has implications for not the bond market, but the stock market. I believe that when it comes to the stock market, we are going to see growth-oriented dividend paying stocks outperforming in this environment of rising interest rates. As well, I believe that service-oriented companies will be benefiting due to the fact that the consumer, especially in the spring and the summer, will be spending this mountain of cash that they are sitting on at this point. [This video is provided for general informational purposes only and does not constitute financial, investment, tax, legal or accounting advice nor does it constitute an offer or solicitation to buy or sell any securities referred to. Individual circumstances and current events are critical to sound investment planning; anyone wishing to act on this document should consult with his or her advisor. All opinions and estimates expressed in this video are as of the date of publication unless otherwise indicated, and are subject to change. ™The CIBC logo is a trademark of Canadian Imperial Bank of Commerce (CIBC). The material and/or its contents may not be reproduced without the express written consent of CIBC.] [CIBC Logo] [The CIBC logo is a trademark of CIBC, used under licence.]

Canadian housing – Logic behind the madness? [Upbeat music] [CIBC logo] [Canadian housing – Logic behind the madness?] [Benjamin Tal Managing Director and Deputy Chief Economist CIBC Capital Markets] The big question is to what extent the Canadian housing market will continue with this kind of very strong activity? And the first question is why it's happening in the middle of a pandemic? And the answer, of course, is the asymmetrical nature of this recession, with all the jobs lost being low paying, rentals and therefore homebuyers found themselves in a position - and that's very important - that they were able to take advantage of what the recession can give you, namely low interest rates without the cost of a recession, vis-a-vis a broadly based increase in the unemployment rate. That's something that we have never seen before and led to this surge in home buying. [Urban cityscapes] Today, what we are seeing is another factor. Namely, interest rates are starting to rise. People are tweeting about the Bank of Canada moving. Bond yields are starting to move. Therefore, people are sensing that the window is closing and there is this sense of urgency to get into the market and basically, buy this house before it's too late. So, we are borrowing activity from the future. [Aerial shot of a sprawling suburb. A bungalow with a ‘for sale’ sign in front of it. Aerial shot of a sprawling suburb in winter.] And that's exactly why we see activity still accelerating at this stage of the game. That will slow down in the second half of the year as interest rates start rising and the future basically has arrived. [Upbeat music] [The impact of gifting] Now, it doesn't mean that the housing market will derail. The opposite is the case. The fundamentals of the housing market are still very strong, and two things are happening that we have to understand. One is gifting. We have a situation in which one third – one third! – of homebuyers now are getting a significant gift from a family. [Vancouver suburbs and city skyline. Aerial shot of a subdivision.] The average gift is about $80,000. In places like Toronto, Vancouver, it's close to two hundred thousand. And mover-uppers, another 10 percent of people who get a gift, in places like Vancouver, the average gift is three hundred and forty thousand. That's a big gift. This is a major factor impacting the housing market, and if you are interested in understanding the housing market, that's part of it. [Upbeat music] [The impact of immigration] During COVID 2021, last year, we got four hundred and ten thousand new immigrants. That's a huge wave of increase in activity. And next year, we will get more as the quota is rising, which means that this demand will continue to influence the market. [A jet descending onto a landing strip. A timelapse of a jet being filled with passengers. A construction site. A worker making measurements on a construction site.] And we have still very limited supply, with inventories at record low. For the first time, governments at all levels are admitting that supply is the issue because until now we were using demand tools to fight supply issues. For the first time, governments are suggesting that they have to do something about supply. This will take time, but at least it's a step in the right direction. So, at this point, we might see the market still accelerating in the next few months, maybe slow down in the second half of the year as rates start rising, but it will not be derailed. The only thing that can lead to a major adjustment in the market at this point is a monetary policy error in which the central bank, the Bank of Canada, will start raising interest rates way too quickly. That can shock the market. I believe that will not happen, but that's a risk that is facing the housing market at this point. [Upbeat music] [This video is provided for general informational purposes only and does not constitute financial, investment, tax, legal or accounting advice nor does it constitute an offer or solicitation to buy or sell any securities referred to. Individual circumstances and current events are critical to sound investment planning; anyone wishing to act on this document should consult with his or her advisor. All opinions and estimates expressed in this video are as of the date of publication unless otherwise indicated, and are subject to change. ™The CIBC logo is a trademark of Canadian Imperial Bank of Commerce (CIBC). The material and/or its contents may not be reproduced without the express written consent of CIBC.] [CIBC logo] [The CIBC logo is a trademark of CIBC, used under license.]

1
2021 YEAR END TAX TIPS
[Soft music plays]
[Jamie Golombek, Managing Director, Tax and Estate Planning, CIBC Private Wealth]
As we get closer to the end of 2021, there are a number of specific tax planning
opportunities that you might wish to take a look at before the end of the year.
We just released our brand new and updated 2021 year end tax tips. And it's something
that would be a great reference to review before the end of the year. Let's go through
some of the highlights and things that you want to think about before December 31st.
[Tax-loss selling]
Every year we talk about tax loss-selling. Most people don't have a lot of losses in the
portfolio this year, but if you do, you want to recognize that loss so that the trade date is
no later than December the 29th, so that the trade settles by December 31st. So, you
can recognize that capital loss in 2021.
[A close-up of various international currencies followed by U.S. $100 bills fanned out]
Pay attention; if you bought perhaps securities in foreign currencies like the U.S. dollar,
to take into account any foreign exchange rates when calculating that gain or loss.
Because depending on the timing of when you bought that security, you might actually
have a gain on the FX side, even if it appears that you had a loss on the security side.
[Be mindful of the superficial loss rules]
Of course, you want to be mindful of the superficial loss rules.
[A young man types at a desk looking at financial data on a computer screen. A young
couple look at the screen of a laptop.]
2
If you buy it back within 30 days, the loss would be denied. If you buy it back, your
spouse buys it back, your partner buys it back, corporation, trust, RRSP, TFSA, any of
those things buy it back within 30 days, you're going to be denied that capital loss. So,
just pay attention, wait at least 30 days plus one before you buy back a stock or any
other position that you've sold and you wish to recognize the capital loss.
[RRSP contributions]
RRSP deadline, of course, is still March 1st.
[An older man sits at a table talking on a cell phone with a laptop open in front of him.]
However, if you did turn 71 in 2021, you've got to make your final contribution by the
end of the year unless, of course, you have a younger spouse or partner, which you can
continue to make a spousal RRSP contributions.
[Prescribed rate loan strategy]
The prescribed rate loan strategy will be available still till the end of the year.
[An older couple talk to a financial advisor.]
That's the 1% prescribed rate loan, so an opportunity to loan assets to a spouse or
partner for the benefit of income splitting, as long as you charge a minimum prescribed
rate. And just a reminder that if you have done a prescribed rate loan, you’ve got to
make sure that you make those payments within 30 days of the end of the year. That's
January 30, 2022, which is coming up pretty soon, for that strategy to work for the
current year and for all future tax years.
[Changes to tax rates]
Other things to think about, in particular, are changes to tax rates.
[People fill out tax forms on a messy desk.]
3
So, in other words, if you think your tax rate is going to be very different next year in
2022 versus 2021, there may be things that you can do depending on your situation to
either accelerate income for this year or defer that income to next year.
[Low angle shot of Canadian flags on a sidewalk. Images of the Parliament of Canada
buildings.]
You may also want to think about changes to our tax regime in general, as a result of
the recent federal election. We know that there are certain potential changes in tax law
that might actually impact your future taxes.
[The clocktower of the Parliament of Canada seen at dusk. A lawn sign that reads,
“HOUSE FOR SALE BY OWNER. An aerial view of a residential neighbourhood. The
interior of an empty apartment.]
For example, the Liberals’ pre-election proposal to tax the sale of residential properties
that were held less than one year, could result in tax payable on what otherwise would
have been something that would qualify for a principal residence exemption.
We also know that the NDP have a couple of proposals to increase the top marginal
rate and increase the capital gains inclusion rate.
[Drone shot over Rideau Canal with parliament buildings in the distance. The clocktower
of the Parliament of Canada.]
Those may hold some sway with the Liberals as they put together their agenda in the
months ahead. So, keep in mind that there could be higher tax rates in 2022 and think
about whether you want to take some of those potential gains in 2021, if it makes sense
to do so.
[Business owners and employers]
4
For business owners and employers, things to think about, compensation planning, that
classic issue of salary versus dividends. You want to think about being able to pay
yourself, in most cases, sufficient salary in 2021 to make an RRSP contribution in 2022.
[An image of the report “Just do it: The case for tax-free investing”.]
So, something to think about. We discuss this in several of our other reports, including a
report called “Just do it: The case for tax-free investing”…
[An image of the report ““Bye-Bye bonus! Why business owners may prefer dividends
over a bonus”.]
…and a report “Bye-Bye bonus”, which discusses compensation decisions in greater
detail.
[Get your affairs in order before tax season]
And then finally, you want to think about the opportunity to make sure that you get all
your tax affairs in order well before tax season.
[Folders stacked on top of each other. Numbers being input on the calculator app of a
cell phone. Images of people looking over documents and tax forms.]
So again, instead of rushing next March or April to prepare your personal tax return,
now is a great time to go through the year, review your financial records. Because most
of the tax planning that you're going to do for 2021, and your 2021 tax return, must be
done in 2021.
So, for example, if you've got significant medical expenses, you want to make a
significant charitable donation, if you've got interest on deductible investment loans,
those all must be paid by December 31st to claim a deduction in 2021.
It will be too late come next spring when you're trying to file your 2021 tax return, to do
most of the tax planning that we talked about today. So again, think about it, read the
5
report and at the end, speak to your tax advisor to recommend if any of these strategies
would be appropriate for you.
[Soft music plays]
[CIBC advisors provide general information on certain tax, investment and estate
planning matters; they do not provide tax, accounting or legal advice. Please consult
your personal tax advisor, accountant, licensed insurance professional and qualified
legal advisor to obtain specialized advice tailored to your needs.
This video is provided for general informational purposes only and does not constitute
financial, investment, tax, legal or accounting advice, nor does it constitute an offer or
solicitation to buy or sell any securities referred to. Individual circumstances and current
events are critical to sound investment planning; anyone wishing to act on this video
should consult with his or her advisor. All opinions and estimates expressed in this
video are as of the date of publication unless otherwise indicated, and are subject to
change.
™The CIBC logo is a trademark of Canadian Imperial Bank of Commerce (CIBC), used
under license. The material and/or its contents may not be reproduced without the
express written consent of CIBC.]
[CIBC logo]
[The CIBC logo is a trademark of CIBC, used under license.]

Inflation Fears - Fixed Income Outlook 

 

[Patrick O’Toole Vice-President, Global Fixed Income CIBC Asset Management]

 

We said at the beginning of 2021 that inflation would be the issue this year. It'd be higher than the consensus thought in the first half of 21 and remain higher in the latter half of this year. Now I think it's interesting that we think it's actually going to be a bit lower than the consensus expects in the latter half of 2022.

[Images of U.S. and Canadian currency.]

We think inflation is going to be a bit sticky at the current elevated levels and probably won't peak until Q1 2022. But will move back below two and a half for the third and fourth quarters next year.

[Inflation drivers]

Now our view that inflation will be moving lower soon is really based on GDP, which peaked in the U.S. in the second quarter of 2021, and in Canada, is likely peaking in the second half of this year. But we see it slowing due to a few factors. [The Capitol building in Washington. Parliament of Canada in Ottawa.]

One, there is going to be less government support.

[The exterior of The White House. Aerial view of the Bank of America tower. Low angle views of an American flag on Wall Street and a Canadian flag in downtown Ottawa.]

For example, fiscal policy was about a 12% boost to GDP this year and be flipped to about a 5% drag in the next year. And in Canada, a budget deficit to GDP was about 6% this year. We expect about half that next year.

[Parliament of Canada in Ottawa. The Capitol building in Washington.]

And the U.S. budget deficit, the GDP was 15% this year, and we expect 6% in 2022. So that's a big hurdle.

[A woman sits on the floor in her living room looking over an invoice. A cheque is signed.]

I also think household income will take a hit from less government transfers, and governments are also going to do less quantitative easing next year.

[The exteriors of the Federal Reserve building and the old Bank of Canada building.]

The Fed is expected to be done their bond purchase program by June 22 and the Bank of Canada finished theirs in October of 21.

[Laptops on an assembly line. Aerial views of shipping containers. A sparsely stocked warehouse.]

In addition to the drag on inflation that should result from slower GDP, supply chain bottlenecks should also diminish for the next four quarters, as countries reopen more fully.

[Images of delivery men moving cardboard boxes.]

There still are some lingering concerns. Unit labour costs, which are one of the best predictors of where inflation is headed; they remain contained in Canada, but they have spiked higher in the U.S. Now there's other inflation drivers.

[High angle views of an oil pipeline, cars on an assembly line, and the aisles of a supermarket.]

There's the fear that has been driven by higher oil prices, car prices, food prices and wages going up. Regarding commodities, yeah, they're up, but many are well off their peaks.

[High angle view of a lumber yard. Low angle view of large iron drums and a cornfield. An oil tanker and platform in the ocean.]

You can look at lumber, iron ore, corn, copper, even oil is down. And in wages, average hourly earnings have been higher in the U.S., not really much in Canada, but there's something called the Atlanta Federal Reserve Wage Tracker.

[Aerial views of downtown Atlanta.]

And that does a better job of telling you where wages are going.

[Teenagers working on laptops. A man in his 30’8s works at a desk in a stylish office. A group of 30-somethings sit at a table together. A busines man in his 60’s types on a laptop.]

It shows that all the pressure is really among the 16-to-24-year-olds. 25 to 55’s, their wages aren't really rising anymore on a year-over-year basis than they were pre-COVID. And 55 plus, their year-over-year wage growth rate has actually fallen. [Timing of interest rate hikes]

We have had central banks spook the market a little bit here.

[The exterior of the Federal Reserve building.]

The Fed by announcing they're going to taper their bond purchase program and end it by middle of next year by June, meaning they could be setting the stage to hike rates as soon as the third quarter next year. That's faster than the consensus had expected.

[The exterior of the old Bank of Canada building. Parliament in Ottawa.]

And in Canada, the Bank of Canada talked about the output gap closing in the second quarter of 22 and saying it could hike in the middle quarters of 22. Again, that's sooner than expected. So, the futures markets moved very quickly. And I'd argue too quickly to price in hikes, particularly here, where they see four to five Bank of Canada rate hikes in the next twelve months. And about two Fed funds’ hikes. And let's remember, the futures markets are notoriously wrong and too aggressive in expecting rate hikes.

[The exterior of the Federal Reserve building.]

And we think the central banks are going to be more stubborn than the consensus expects, given their focus on full employment. The Fed and the Bank of Canada both have a plan to slowly raise rates when they've seen a recovery for all groups.

[A man looks over a checklist in a recycling facility. Workers at an oil derrick. Delivery men moving boxes. A woman works at a laptop. Workers in an autobody repair shop. A large meeting in a boardroom.]

But there may come what I call, like, a "Mike Tyson moment."

[Boxing gloves lying on the mat of a boxing ring.]

Like Mike said, everyone has a plan until they get punched in the face. The central banks have a plan, but the bond market may derail their plans. Bond yields or longer-term interest rates, they could still move up a little bit, but nothing too excessive. That's mainly because we see GDP, even though it's slowing, it's still going to be fairly healthy around 3% both in Canada and in the U.S. in 22. And inflation moving back down to the low twos. So, a bit higher bond yields probably is warranted, and the bank could be hiking rates, but not as much as the market currently has priced in.

[Impact for fixed income investors]

What does a nervous fixed income investor do in this environment? Clients buy fixed income for basically three reasons: usually diversification from volatility of stocks, they buy them for income, and they buy bonds, also, for capital preservation. None of these things really have changed. I mean, regarding diversification, let's look at starting point. Well, bonds currently today the benchmark in Canada has just a little above a 2% yield.

[Patrick O’Toole looks at market data on a bank of monitors.]

Let's look at stocks. At the current, what they call the cyclically adjusted PE multiple of ten-year average. Let's look at the U.S. market.

[Time-lapse shot of downtown San Francisco.]

The San Francisco Fed says that stocks historically have returned about 0% real over the next ten-year period when you're at the current level of that cyclically adjusted PE multiple in the U.S. So, it could be that bonds and stocks have similar returns for the next ten years on an after inflation basis. It's not overly exciting for either asset class.

[A man points to a paper with bond market data. Patrick O’Toole and various analysts look at market data on banks of monitors.]

So, the starting point tells us that you better still have some bonds as a ballast in your portfolio, and there's no change regarding income. They still provide income. And yes, it's lower than historically, but so are growth and inflation when you're looking at inflation on longer run averages, not the recent experience. In capital preservation, there's no change there, so all the reasons for owning bonds still exist.

[Patrick O’Toole looks at market data on a bank of monitors.]

To me, it comes down to what do I buy in my fixed income sleeve? And that should include products that have some high yield bonds some foreign bonds, maybe private debt, etc. So, look at maybe a shorter-term duration products if you think rates are going to rise more materially.

[Patrick O’Toole and various analysts look at market data on banks of monitors.]

So, you need more levers in a low interest rate world. You shouldn't be reducing your levers and reducing your diversification by getting out of bonds. They’re still an important lever for investors.

[The views expressed in this video are the personal views of Patrick O’Toole and should not be taken as the views of CIBC Asset Management Inc. This video is provided for general informational purposes only and does not constitute financial, investment, tax, legal or accounting advice nor does it constitute an offer or solicitation to buy or sell any securities referred to. Individual circumstances and current events are critical to sound investment planning; anyone wishing to act on this video should consult with his or her advisor. All opinions and estimates expressed in this video are as of the date of publication unless otherwise indicated, and are subject to change. ™The CIBC Asset Management and the CIBC logo are trademarks of Canadian Imperial Bank of Commerce (CIBC), used under license. The material and/or its contents may not be reproduced without the express written consent of CIBC Asset Management Inc. Certain information that we have provided to you may constitute “forward-looking” statements. These statements involve known and unknown risks, uncertainties and other factors that may cause the actual results or achievements to be materially different than the results, performance or achievements expressed or implied in the forward-looking statements.]

Election outcome - Liberal minority: What's next for investors?

[Soft music plays] Financial Markets tend to react to surprises, and this election result was anything but a surprise.

[Avery Shenfeld, Chief Economist, CIBC World Markets] Score one for the pollsters, they basically had the seat count projections right on.

[Low angle tracking shots of parliament buildings in Ottawa.] And of course, in terms of the parliament, it's out with the old parliament, in with the old parliament, because we really haven't changed the distribution of seats. So, I don't expect a significant market reaction to this. What investors will be focusing on are some of the new agenda items that came out during the election.

[Aerial view of the Parliament of Canada in Ottawa. Low angle tracking shots of Canadian flags.] So, we see in Canada, as in other countries, for example, on climate change…

[Aerial view of solar panels. A wind turbine on a cliff. A man charges an electric car at a dealership.] …some further measures proposed, a more ambitious target, for example, for Canadians to be buying electric vehicles.

[An aerial view of two smokestacks. A time-lapse shot of cars speeding past two smokestacks. A high angle view of traffic at night.] I think in general, people around the world are seeing that the political momentum is towards more efforts on carbon emissions, and therefore some realignments of portfolios designed to both avoid the companies that might be most affected negatively, but also capitalize on the opportunities there. There were some items in terms of raising corporate taxes on some sectors that I think investors will be looking at for their implications.

[Parliament of Canada at night. Parliament of Canada during the day. Low angle tracking shots of Canadian flags.] But remember, all of this was an election result that was well predicted by pollsters, leaves the political landscape in Canada little changed, and therefore, you really have to just look back to the last liberal budget. That's where most of the initiatives are. And that's where most of the things that will affect investors also lie. Good news is that we didn't see in this campaign talk of increasing the tax on capital gains. That's always one that every budget I get asked about. Are we going to see an increase in the capital gains inclusion rate?

[Low angle tracking shot of a parliament building in Ottawa. Aerial view of the Parliament of Canada.] It didn't come up in this campaign. There is a tax on high income earners, a minimum tax of 15 percent that really won't affect that many people. So overall, I would say that investors are probably a bit relieved that at least during the campaign, we didn't see more of an effort to dip into people's pockets.

[Soft music plays]

[Economic outlook] In terms of the economic outlook.

[Low angle view of the parliament clock tower. Aerial view of the Parliament of Canada.] We come out of the election pretty much where we were at the beginning of this campaign, which is that in terms of the biggest risks to the economy, but also the biggest opportunities for the economy, it's all about COVID.

[Birdseye view of an empty parking lot, followed by images of an empty mall and grocery store.] So, in the here and now, we're seeing some disappointments in some economic readings associated with some caution on behalf of consumers in terms of what they're doing out there in the world due to the latest wave of COVID. But it's also still the biggest opportunity. [An plane sits on the tarmac. An empty restaurant.] Most of the gains that we will see in GDP in 2022 and 2023 will lie in the recovery of sectors that have been held back by COVID.

[Vaccine vials in a row. A nurse holds up a vial to camera.] That will benefit as increasing vaccination rates and the fact that more people around the world will be somewhat immune because they've already had COVID.

[A time-lapse shot of cars on a highway. Time-lapse shots of workers in a warehouse.] All of that is going to open the doors to, we think, quite brisk growth globally in 2022, a move to full employment. And while a lot of that is priced into equity markets, you know they're counting on earnings gains associated with the revitalization of the global economy. We still are reasonably comfortable that those gains are in fact coming.

[Soft music plays] [What this means for budget deficits] There isn't much of an impact of the election on budget deficits. They are slated to come down quite dramatically over the next few years, largely because the economy will recover… [Aerial views of the Parliament of Canada.] …and therefore, government revenues will recover. And in addition to that, of course, we'll gradually see the fading out of some of the pandemic relief spending that has helped elevate budget deficits. It turns out that although the liberal platform did include some additional spending as well as part of that paid by tax increases, we also, between the time of the last budget and the election, had an upgraded economic outlook that has lowered the projected budget deficits. So, at the end of the day, we might have had a slightly faster track of deficit reduction that's now offset by the new campaign measures if those indeed go ahead. And you can see that from the bond markets perspective, it doesn't seem that markets are particularly worried about the current level of deficits not only in Canada but around the world.

[Low angle tracking shot of a Canadian flag. Low angle shot of a row of American flags in front of the Washington Monument.] Just judging by how low real interest rates are not only in Canada but in the U.S.

[Soft music plays]

[Market outlook] We don't think that the election itself will cause jitters in the equity market. We certainly didn't see any volatility in equities during the campaign that you could attribute to the election. Nor for that matter did we see it in the bond market or the value of the Canadian dollar. In the very near term, there are reasons for some caution.

[A man wearing a mask walks down a street in slow motion. A woman wearing a mask looks at her phone on a train.] Again, a lot of the optimism that's already reflected in stocks could be challenged a little bit in the near term by the fact that COVID-19 is still out there, might weigh on economic activity and therefore earnings in the upcoming quarter. But for investors with a longerterm perspective, I think we have to look through this, this last perhaps serious wave of COVID towards the better times beyond 2021.

[Soft music plays]

[This video is provided for general informational purposes only and does not constitute financial, investment, tax, legal or accounting advice nor does it constitute an offer or solicitation to buy or sell any securities referred to. Individual circumstances and current events are critical to sound investment planning; anyone wishing to act on this document should consult with his or her advisor. All opinions and estimates expressed in this video are as of the date of publication unless otherwise indicated, and are subject to change. ®The CIBC logo is a registered trademark of Canadian Imperial Bank of Commerce (CIBC). The material and/or its contents may not be reproduced without the express written consent of CIBC.] [CIBC Logo] [This logo is a trademark of CIBC, used under license.]

Fake inflation now, but real inflation coming?

 

[Upbeat music]

[Fake inflation now, but real inflation coming?]

[CIBC logo]

[Avery Shenfeld, Chief Economist, CIBC World Markets]

We're going to see two little waves of inflation. One in the here-and-now that I would consider to be a head fake. So this is showing up a lot in the U.S. data, we expect to see it in Canada as well, where prices look very elevated relative to where they were a year ago for two largely temporary reasons. One is that prices for many things were simply very cheap a year ago when the economy was in the throes of the worst of the initial Covid wave.

[A super highway on the outskirts of an urban area without a single car]

So everything from gasoline to hotel rooms to plane tickets were obviously very cheap in that year-ago period.

[A person filling up their car with gas. An airport runway. An airplane in flight.]

And it makes the yearly change look impressive. But if you compare prices to where they were two years ago at this time, they don't actually look that elevated. There is another thing going on, which is that in trying to restart the engines of the global economy in a hurry, really an unprecedented upswing, we're finding it difficult to get everything moving smoothly. We had production difficulties in everything from computer chips to mining to shipping goods.

[A computer circuit board assembly line. A close-up of a computer chip. A mining truck driving through a mine. A waterside shipping yard.]

And the result is that some of the things we're trying to buy are in short supply and the prices are therefore, not surprisingly, being pushed up. But again, that's a one-time phenomenon.

We're expecting that all of these various disruptions and plant closures that took place when Covid was still around will start to disappear as globally Covid cases come down and it'll be easier to get goods to market and therefore relieve some of that price pressure. So this is a bit of fake inflation.

[Upbeat music sting]

[Real inflation threat]

What I do want to warn you about, though, is that very speed of that recovery that we expect to see over the balance of this year and into 2022 is going to start to bring more of a real inflation threat, which is that by 2022 the U.S. economy first and later in the year, the Canadian economy will be approaching full employment again.

[The New York City skyline. The Toronto skyline. A timelapse of a busy urban highway.]

And we could start to get the usual cyclical pressure on prices in which we have a lot of demand, we're running out of workers, wages start to be bid up, and we start to get some core inflation that looks more persistent so we can start to see some inflation numbers again in the sort of 2.5% range, maybe a bit higher. And that's a sign of real inflation pressure starting to build. The question is, what will the central banks do about that? We're still pretty confident that the Federal Reserve and the Bank of Canada will take that as a warning sign that the economy is, in effect, starting to overheat late next year, will start to raise interest rates the way they have done in past cycles, very gently initially, but continuing into 2023. And essentially, they will moderate the pace of growth to get us back to the sort of 2% inflation world we're looking for. So as a long-term bet, I would still bet on the side of the central banks doing what they've done in recent decades. The thing that they failed to do back in the 70s, which is use the interest rate tool they have to keep inflation under control.

[Upbeat music sting]

[Implications for investors]

Nevertheless, all this does have some implications for investors. In the very near term, there could be a little bit of an inflation scare, which could lift longer-term bond rates, making the bond market a little bit of a risky place. There are certainly equities that have prices that go up with inflation and where you might benefit from expectations of price increases that may not actually happen, but which the market will build in. But I think the longer-term issue that you have to think about is that if we do need interest rate hikes to keep inflation under control, then ultimately we are going to see short-term interest rates moving up, long-term interest rates moving up as that happens. And it will be the time over the next year to start tilting your portfolio in a way that protects you against those interest rate increases. So, again, longer-term bonds might be a bit hazardous because their prices fall as rates rise. Equities that are valued largely as bond market substitutes may not do as well as they have done. And instead, it's really about shifting your portfolio towards the kind of stocks that benefit from the heating up of the economy that we're talking about as the driver of inflation.

[An oceanside resort. An overhead shot of a resort house with a woman swimming lengths in a pool. A woman relaxing in a beach-side hammock. A bartender preparing several icy drinks.]

And that is the kind of companies whose sales will respond as consumer spending, particularly on services, starts to revive as Covid fades away. So I don't think we're going to see, the bottom line is, the kind of longer term inflation problem that we saw in the 1970s, the kind that really did affect economic growth and equity returns. Instead, I think we're going to see as central banks take their tools in hand, keep inflation at bay after a couple of what might look like scary spikes.

And as a result, I don't see inflation as the big risk here for the investment market in the next couple of years. Instead, I think the challenges are still to find the companies that are going to benefit from the revival of the economy. And looking a little harder, actually, for those companies where that's not already fully priced in.

[Upbeat music]

[This video is provided for general informational purposes only and does not constitute financial, investment, tax, legal or accounting advice nor does it constitute an offer or solicitation to buy or sell any securities referred to. Individual circumstances and current events are critical to sound investment planning; anyone wishing to act on this document should consult with his or her advisor. All opinions and estimates expressed in this video are as of the date of publication unless otherwise indicated, and are subject to change.

®The CIBC logo is a registered trademark of Canadian Imperial Bank of Commerce (CIBC). The material and/or its contents may not be reproduced without the express written consent of CIBC.]

[CIBC logo]

[The CIBC logo is a registered trademark of CIBC, used under license]

ROARING BACK TO LIFE – PERSPECTIVES: APRIL 2021

[Soft music plays]

[Luc De la Durantaye, Chief Investment Strategist and CIO CIBC Asset Management]

From a global economic perspective, I think the consensus has been coming around to our strong growth outlook.

[Computer generated imagery of stock market data.]

The data is starting to confirm that as well.

[A factory floor with automated equipment running. A man taps a tablet on a factory floor.]

When we look at ISM manufacturing or ISM services in the U.S. at a record high, we see improving manufacturing in Europe as well. Hiring intentions are very strong.

[Computer generated (CG) image of stock market data.]

The labour market data that came out was very strong. And we're ahead in the second quarter, third quarter of this year. We're going to have phenomenal growth numbers.

[Soft music plays]

[Inflation fears]

First of all, let's acknowledge that inflation is a variable that has been historically very difficult to forecast.

[Sheets of Canadian $100 bills being printed. A man draws “Inflation” and “Price” on a pane of glass. Closeups of U.S. $100 bills and other currency.]

We must say that economists have less than an A-plus rating on forecasting inflation. Second is, the last 10, 20 years is probably not a good blueprint to forecast what's ahead of us, because we're facing circumstances that are unprecedented, in the sense that, we've never seen central banks that are all focused towards growth.

[Birdseye view of downtown Toronto. Exterior of European Central Bank building. Exterior of the old Bank of Canada Office in Toronto.]

All keeping interest rates towards zero.

[Aerial view of Parliament in Ottawa.]

And in conjunction with governments, are supporting extremely large fiscal deficits that we haven't seen in a number of decades.

[Exterior of the White House.]

And third is, the incentive from governments is very strong towards having strong growth and inflation. Because of the large debt that they have accumulated. And so, the one way to repay debt and lower the debt to GDP level, is to have strong growth and strong inflation as a way to lower the debt burden.

[An empty playground and an empty bike rack. A ladder swings around on a fire truck.]

Because the other elements to lower the debt burden would be to reduce services, increase taxes, or even worse, default on debt, which is unacceptable from a political perspective.

[Aerial view of Parliament in Ottawa.]

So, inflation, we give the benefit of the doubt, at least over the next 12, 18, 24 months, that policy will be very stimulative, and inflation will rise, which will lead to some investors’ concerns.

[Soft music plays]

[Rising prices, rising wages]

What we do look into of what could rise in terms of prices, we look at, for example, commodity prices have been very strong.

[A thresher drives through a wheat field. Coffee beans running through a woman’s fingers]

In terms of wages, which is the key longer term, there are elements that could point towards eventually a bit higher wages.

[Official Whitehouse phot of Joe Biden.]

We see that the Biden administration wants to raise the minimum wage.

[Time-lapse images of factory assembly lines. Exterior of the Federal Reserve building in Washington.]

The growth in employment has been very strong.

[A worker takes a shopping cart through a garden center. Time-lapse image of a shipping dock.]

All central banks have an interest of running the economy hot and raising the employment to the maximum employment level.

[A homeless man carries a garbage bag and walks under a train bridge. A birdseye view of a yacht. A woman taps a tablet in a garden center.]

Having an objective of reducing inequality in society today. So, wages might be a bit stronger in the next twenty-four months. All of that points towards slightly higher inflation that we may have experienced in the last decade.

[Soft music plays]

[Changing investment environment]

So, what does that mean for investors? There's a number of conclusions that are very important because this is a changing investment environment.

[A man writes in a notebook while looking at monitors showing market data.]

One is if central banks are committed to maintain short-term rates anchored close to zero for a lot longer, and run the economy hot, it means that the good economic news will be reflected in the mid-term to long-term bond yields. So, we're going to have a steeper yield curve. And with that comes a number of related conclusions.

[Toronto skyline at night. The Peace Tower in Ottawa.]

Everything that is duration-based, is going to struggle a little bit more. So, the mid-tolong term maturities and the government bond markets, is going to continue to experience a little bit of a backup.Note, though, that bond yields have already backed up. So, there's less to rise in interest rates than we've already seen. So that's the good news.

[Aerial view of the bridge to downtown Ottawa. A red pen underlines financial data on a sheet of paper. Computer generated image of stock market data.]

That being said, the backup in government bond yields will eventually provide an attractive opportunity, adding that asset class to portfolios and help balance a portfolio over time.

[An airplane lands. An empty hotel hallway. A red pen circles financial data.]

From an equity perspective, cyclicals, value and financials, for example, benefit from a steepening yield curve relative to interest sensitive sectors and growthy sectors going forward. So that changes that investment environment.

[A low angle view of buildings on Wall St.]

The other related element to that is the composition of the U.S. market is more growthy oriented versus non-U.S.

[The CIBC flag in front of the Canadian and Ontario flags in downtown Toronto.]

So, a continued potential outperformance of non-U.S. markets versus the U.S.

[Soft music plays]

[This video is provided for general informational purposes only and does not constitute financial, investment, tax, legal or accounting advice nor does it constitute an offer or solicitation to buy or sell any securities referred to. Individual circumstances and current events are critical to sound investment planning; anyone wishing to act on this document should consult with his or her advisor. All opinions and estimates expressed in this document are as of the date of publication unless otherwise indicated and are subject to change.

®The CIBC logo is a registered trademark of the Canadian Imperial Bank of Commerce (CIBC), used under license. The material and/or its contents may not be reproduced without the express written consent of CIBC Asset Management Inc. Certain information that we have provided to you may constitute “forward-looking” statements. These statements involve known and unknown risks, uncertainties and other factors that may cause the actual results or achievements to be materially different than the results, performance or achievements expressed or implied in the forward-looking statements.]

[CIBC Logo]

[The CIBC logo is a registered trademark of CIBC, used under license.]

 

 

 

needs.

This video is provided for general informational purposes only and does not constitute financial, investment, tax, legal or accounting advice, nor does it constitute an offer or solicitation to buy or sell any securities referred to. Individual circumstances and current events are critical to sound investment planning; anyone wishing to act on this video should consult with his or her advisor. All opinions and estimates expressed in this video are as of the date of publication unless otherwise indicated, and are subject to change. ®The CIBC logo is a registered trademark of Canadian Imperial Bank of Commerce (CIBC), used under licens be reproduced without the express

written consent of CIBC.]

Reddit GameStop and the Short squeeze: Market Impact

[Soft music plays]

[Craig Jerusalim, Portfolio Manager, Canadian Equities, CIBC Asset Management]

Reddit and message boards in general are nothing new. However, when you have a pandemic

on your hands and masses of bored people sitting at home on their phones, combined with

generationally low interest rates, zero cost fractional share purchases, and stimulus cheques

sitting in bank accounts, we had the perfect scenario for the gamification and exploitation of

targeted loopholes.

[CRT televisions are piled on top of each other. One turns on and images of the Wallstreetbets

reddit page, a GameStop storefront, skyscrapers, a man in casual cloths looking at his phone,

and compute-generated imagery of stock market data.]

Now, don’t be fooled. This isn’t quite the David versus Goliath story that it’s made out to be in

the media. It’s more likely a case of David plus Goliath versus Goliath. As there were likely many

sophisticated hedge funds and professionals on both sides of the short squeeze.

[The prisoner’s dilemma]

Now, the speculative frenzy in GameStop and AMC has already begun to abate, just as we

assumed it would. Because in the end it comes down to fundamentals. But more importantly

than fundamentals it comes down to human nature. This was your classic game of prisoner’s

dilemma.

[Images of men in casual cloths looking at their phones. Images of stock market data.]

If every retail investor that had bought those stocks held onto their long positions and

continued to buy more, then theoretically, they could have continued drive the stocks higher

and send the shorts running for the exits.

[compute-generated imagery of a laptop keyboard with the word, “Exit” on one of the keys.]

But the incentive structure is such that no one wants to be left holding the bag. So, greed and

self-interest dictate the run for the exits.

[Ramifications?]

So, what are the ramifications?

[1. Short sellers will be less vocal in their positions.]

Firstly, short sellers will be a less vocal in their positions so as to not draw attention by retail

mobs.

[2. This is a sign of froth in the market]

Second, this is yet another signpost along with SPACs and Bitcoin of froth in the market,

which has to be monitored, as well as the potential that these actions erode confidence in the

market, which could hurt overall sentiment.

[A close-up of gold coins]

[3. Expect additional regulations to come into effect after the fact]

And finally, three. Do expect additional regulations to come into effect after the fact.

But other than those, and a little bit of excitement, markets will move on to the next big thing

like they always do. And GameStop will become a tiny footnote in history.

[Soft Music plays]

[The views expressed in this video are the personal views of Craig Jerusalim and should not be

taken as the views of CIBC Asset Management Inc. This video is provided for general

informational purposes only and does not constitute financial, investment, tax, legal or

accounting advice nor does it constitute an offer or solicitation to buy or sell any securities

referred to. Individual circumstances and current events are critical to sound investment

planning; anyone wishing to act on this video should consult with his or her advisor. All opinions

and estimates expressed in this video are as of the date of publication unless otherwise

indicated, and are subject to change.

®The CIBC logo is a registered trademark of CIBC, used under license.

The material and/or its contents may not be reproduced without the express written consent of

CIBC Asset Management Inc.

Certain information that we have provided to you may constitute “forward-looking”

statements. These statements involve known and unknown risks, uncertainties and other

factors that may cause the actual results or achievements to be materially different than the

results, performance or achievements expressed or implied in the forward-looking statements.]

Canadian stocks May Outshine in 2021

[Soft music plays]

[Craig Jerusalim, Portfolio Manager, Canadian Equities, CIBC Asset Management]

The S&P 500 has outperformed the TSX nine out of the past 10 years.

[Broad equity indices: U.S. versus Canada

10-year total return annualized

S&P 500 Index (C$) S&P/TSX Index (C$)

Source: Bloomberg, 10-year period as at Jan. 31, 2021]

Since the depths of the financial crisis in 2009, the U.S. benchmark has outpaced the TSX on a total

return basis by well over 300%. But I see the tide turning, and now is not the time to be chasing past

performance.

[A high-angle view of the Alberta tar sands.]

[Valuations]

Let’s start by looking at valuations, which is a moving target, and a messy predictor is the short term, but

can give clues for expected returns over the medium and longer term. Both the S&P 500 and the TSX are

trading well above their long-term averages, and for good reasons:

[The exterior of the old Bank of Canada building in Toronto. A hand clicking pay on cell phone. A woman

holds a credit card and types on a computer.]

Low interest rates, monumental stimulus efforts by governments & central banks, and pent-up demand

from a consumer who is just waiting to get back to normal. But the magnitudes of the divergence is

quite different.

[Canada vs. U.S.

25-year price earnings ratio (P/E)

Source: Bloomberg, 25-period as at Jan. 31, 2021, calculated on a monthly basis]

The S&P 500 is trading at about 10 turns higher than its 25-year average price to earnings ratio. Versus a

premium of about six turns higher for the TSX. Furthermore, the variance between the two indices is

about as wide as it’s been since the latter stages of the tech wreck in 2001.

[Aerial views downtown San Francisco, and Silicon Valley.]

I wouldn’t go as far as claiming the TSX is a ‘value’ play, but there is much more valuation support

relative to the U.S. benchmark.

[Growth prospects]

But you can’t just consider valuation in isolation; one needs to also consider growth prospects.

[Inside the Eaton centre, followed by time-lapse images of shopping centers from around the world.]

Once we get past this COVID chapter, and the world begins to reopen, and commerce once again begins

to ramp up, we will be facing a massive case of global synchronized growth to the likes we haven’t seen

in generations.

[An oil tanker drifting on the water. An aerial view of Google headquarters. A train hauls shipping

container in north Ontario.]

We will likely have all major pistons of the global economy firing at the same time, which has historically

been good for commodities and the cyclically sensitive TSX. Given these prospects, our economics team

projects Canada’s GDP growth to modestly outpace the U.S. over the next 10 years with an average

growth rate a respectably 2.8% compound annual growth rate. Which is likely front loaded due to the

recovery efforts.

[Aerial views of oil and natural gas refineries.]

We also know that this strong global growth is good for the commodities like oil and gas that Canada

produces.

[Environment, Social & Governance (ESG) issues]

Now with the prudent focus on Environment, Social & Governance issues, it is also important to

highlight Canada’s world leading standards when it comes to carbon production and carbon reduction.

[Aerial views of an oil refinery and wind turbines. A man checks a gauge at an oil derrick. A train

transports oil drums.]

While it is important for the world to wean itself off of fossil fuels, it is too disruptive for that to happen

all at once, and it is much better for society, for the barrels needed to be produced, to come from a

country like Canada where environmental precautions and adherence to socially responsibly practices

are followed fervently.

[Population growth]

Another often overlooked case for Canada is population growth.

[Time-lapse shot of downtown Calgary.]

Canada’s aging population doesn’t immediately come to mind when one thinks of population growth,

but once you add immigration, which will surely start to get back to prior peak levels more than

compensates for our birth rate to project Canada to the top of the population growth charts amongst

developed OECD nations.

[Computer generated images of social media symbols. A time-lapse of Parliament hill in Ottawa.]

Just spend 10 minutes on twitter or Fox news, and it’s easy to see why people from all over the world

are clamouring to migrate to a safe, accepting, progressive country like ours with a strong rule of

law. Now many of the people migrating to Canada are on compassionate grounds fleeing persecution

from their homelands, but many more are also choosing to come to Canada as their best opportunity for

their own and their offspring’s future prospects. While the latter groups bring more immediate

economic prosperity, both groups are bringing strong work ethics, higher education, and

entrepreneurial spirits that are translating into many more jobs and much more prosperity for our great

country.

[Mergers and Acquisitions (M&A)]

A final motivation in favour of the TSX, is the M&A super cycle that we are only recently beginning to

see. With generationally low interest rates and lots of money sitting on the sidelines the theme of

corporate consolidation and growth is at its infancy.

[Time-lapse images of Montreal, Parliament hill in Ottawa, and downtown Vancouver and Toronto.]

And it’s not just Canadian resource companies that will benefit, but Canada’s technology sector in hubs

like Montreal, Ottawa, Vancouver and the Toronto Windsor corridor has ballooned beyond the likes of

just Shopify, Constellation and CGI. It’s not just the Canadian companies being targets by larger foreign

entities, but we’re also seeing some of the global champions like the Brookfield Group, Intact Financial

and Couche Tarde establish themselves as global leaders competing on the world stage.

So, putting all this information together, I wouldn’t be advocating for a disproportionate amount of

one’s asset allocation be invested in the TSX, but to the extent that the relative shifting of assets has

been moving south for the past few decades, there is clearly a good case to be made as to why the TSX

could finally begin a period of outperformance relative to its southern counterpart.

[Broad equity indices: U.S. versus Canada

(10-year total return annualized)

S&P 500 Index (C$) S&P/TSX Composite

Source: Bloomberg, 10-year period as at Jan. 31, 2021

Canada vs. U.S

25-year price earnings ratio (P/E)

Source: Bloomberg, 25-period as at Jan. 31, 2021, calculated on a monthly basis]

[Soft music plays]

[The views expressed in this video are the personal views of Craig Jerusalim and should not be taken as

the views of CIBC Asset Management Inc. This video is provided for general informational purposes only

and does not constitute financial, investment, tax, legal or accounting advice nor does it constitute an

offer or solicitation to buy or sell any securities referred to. Individual circumstances and current events

are critical to sound investment planning; anyone wishing to act on this video should consult with his or

her advisor. All opinions and estimates expressed in this video are as of the date of publication unless

otherwise indicated, and are subject to change.

®The CIBC logo is a registered trademark of CIBC, used under license.

The material and/or its contents may not be reproduced without the express written consent of CIBC

Asset Management Inc.

Certain information that we have provided to you may constitute “forward-looking” statements. These

statements involve known and unknown risks, uncertainties and other factors that may cause the actual

results or achievements to be materially different than the results, performance or achievements

expressed or implied in the forward-looking statements.]

HOW FAST WILL CANADA’S ECONOMY RECOVER IN 2021?

[Soft music plays]

[Benjamin Tal, Deputy Chief Economist, CIBC World Markets]

The recessions impact on housing

At this point, if you care about the economy is going, you have to ask yourself three

questions: how bad is the winter going to be? How strong the recovery is going to be in

the second half? And how much scarring are we going to take? Namely, what is the

long-term impact of the double dip recession of COVID?

[Bracing for a bad winter]

Let's start with the first question, how bad? It will be bad. But we are in the midst of a

double dip recession.

[Aerial views of an empty rail yard and an empty residential street.]

The economy is now in the midst of shrinking by about two percent. So clearly, we are

in a recession already. We know that.

[An empty apartment complex in winter. A snow-covered swing set.]

We know that the winter is going to be very long, and the number of cases will rise, and

the vaccine is still not there sufficiently. So, I believe that the first quarter will be very,

very difficult. And I think that the market is already pricing it in. We have seen it in the

bond market already. The good news is that you can find some positives in the negative

in the sense that even this recession could have been much worse.

[A sign that says, “SORRY WE ARE CLOSED DUE TO THE CORONAVIRUS!”, is

plastered on a shop window. An aerial view of refinery on the water.]

We have to realize that we are not shutting down the economy completely the way we

did in March or April.

[A time-lapse shot of a grocery store where a man wearing a mask looks at the camera

and holds on to a shopping cart as people pass him by. A woman sits on the couch

holding a credit card. A closeup of a man holding a credit card and typing onto a laptop.]

Also, we are much more productive at this point because we are used to living in this

kind of situation, and e-commerce is more available for businesses, again, allowing

them to do their work in a more efficient way. So overall, yes, it's going to be negative. It

could have been much worse.

[Strong recovery looming]

The good news is that the recovery will be stronger than currently the market is

anticipating.

[Time-lapse images of the sun rising over cities at dawn.]

I believe that this recovery in the second half of the year, starting in the spring, will be in

the neighbourhood of five, six, seven percent GDP growth, up from negative two. So, it

will be very significant. Why? Because we are ready for this.

[An aerial view of a residential neighbourhood. An aerial view of a mansion. A

computer-generated image of multiple skyscrapers and small homes emblazoned with

the Canadian flag—in between the building are gold dollar signs.]

We have a situation in which individuals, households today in Canada are sitting on noless than one hundred billion dollars of extra money, excess cash, excess saving,

looking for direction. There is so much pent up demand in the system. There is money,

income actually went up dramatically, while spending went down.

[A Canadian flag flaps in the breeze in downtown Toronto. A closeup of a green light

flashing.]

Most of this money is held by wealthy individuals and they want to spend and the

minute they have the green light to spend, they will spend that money.

[Images of phones touching debit machines. A young couple shops in a high-end store.

A time-lapse shot of a bustling airport.]

And this money will be spent, where? Not on goods but on services, exactly where you

need the money to go, exactly where we need the jobs to go. Namely, the multiplier

impact of this spending will be very significant.

[A wide shot of baggage being loaded on an airplane. An airport worker fuels-up a

plane. A waiter places a coffee cup on a table.]

Most of it will stay at home and it will go exactly where it should be going, namely the

service sector generating employment where we need to see employment.

[An aerial view of a small city covered in snow. A time-lapse image of a busy market]

So, the short answer, the winter will be tough. The recovery in the second half of the

year will be stronger than expected. We are in a position to take advantage of this kind

of situation.

[A CG image of Canadian money being printed. A card swipes through a debit

machine.]

The money is there. The ability is there. Consumer confidence is there. The income is

there. We just need the green light to spend and this money will be spent in a very

significant way.

[Long-term economic implications]

The third question, the long-term implications, namely the question is to what extent

COVID-19 is an event or a condition? And I believe that in many ways it is an event, in a

sense that after 2008 it took the economy many years to recover with major structural

changes because we lost capacity, we lost employment, and it was very long and tough

process to recover.

[An empty warehouse. A time-lapse image of workers in a manufacturing plant.]

At this time, I think it is very different. We have to remember that this is a very abnormal

situation, in which the vast majority of people are not feeling financially the impact of the

crisis. Most of the jobs lost were in low wage occupations. So, you have a very

asymmetrical damage here, which means that many people will be able to recover very,

very fast.

[A customer grabs a coffee to go at a coffee shop. A new empty restaurant. An aerial

view of a manufacturing plant under construction.]

Also, it's mostly services and it is much easier to start a new restaurant than establish a

new manufacturing facility. So, the recovery would be faster. And for people who are

feeling the pain, the government is there, which is another positive.

[An aerial view of Parliament in Ottawa. A CG image of multiple skyscrapers and small

homes emblazoned with the Canadian flag, in between the building are gold dollar

signs.]

The Canadian government is spending much more than any other country in terms of

support. And that's why the savings rate in Canada is rising and that's why income is

rising. And that will buy us some time until we are ready for the recovery.

So bottom line, the recovery will be stronger than expected. And then we have a

situation, in which, the recovery will be long lasting, and it will not be as bad as we have

seen in 2008. Because the very specific nature of this crisis means that the recovery

would be long lasting.

[Impact for investors]

When it comes to investment, clearly, the near-term is not positive for valuations, but I

believe that the market is already pricing it in.

[An aerial view of Google headquarters in Silicon Valley. A time-lapse shot of an airport.

An aerial view of a city in winter.]

That's one of the reasons why technology is still doing relatively OK, while the victims of

COVID are not doing so well. That will continue to be the case during the winter.

However, I think it's time to start thinking about taking positions in the laggards. In those

industries that are not doing so well now.

[An aerial view of a train. A low angle shot of an airplane landing. An aerial view of a city

in winter. A luxurious hotel lobby. A time-lapse of a shopping mall.]

Because I believe that the minute we turn the corner, especially in the second half of the

year, you will see transportation, aviation, hospitality, restaurants, retail doing better

than expected. So, the laggards will become the winners.

I think we have to start thinking and take opportunities here in terms of valuations,

because now the market is starting to focus only on the near term, while the medium

term would be much, much better. Better than expected.

[Soft music plays]

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