Pacifica Perspectives

Zoomer Magazine Interviews Pacifica Partners

Pacifica Partners — Wed, 15 May 2013 01:05:01 PDT

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Zoomer
Magazine interviews Pacifica Partners’ Chief Investment Officer, AJ
Sull in their March 2013 Smart Money Strategies issue. AJ provides his
insight on investment strategies for the 50 something demographic. An
excerpt of the Smart Money Strategies column is included below.
Please visist target="_blank">everythingzoomer.com for more
articles.

href="http://www.pacificapartners.com" target="_blank"
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Pacifica
Partners Capital Management Inc. style="color: rgb(0, 128, 128);">
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report is for information purposes only and is neither a solicitation
for the purchase of securities nor an offer of securities. The
information contained in this report has been compiled from sources we
believe to be reliable, however, we make no guarantee, representation
or warranty, expressed or implied, as to such information’s accuracy or
completeness. All opinions and estimates contained in this report,
whether or not our own, are based on assumptions we believe to be
reasonable as of the date of the report and are subject to change
without notice. Past performance is not indicative of future
performance. Please note that, as at the date of this report, our firm
may hold positions in some of the companies mentioned. class="Apple-converted-space">

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Social
Media: It is Pacifica Partners Capital Managment Inc.’s policy not to
respond via online
and social media outlets to questions or comments directed to it or in
response to its online and social media
publications. Pacifica Partners Capital Management Inc. does
not
acknowledge or encourage testimonials posted by third party
individuals. Third party users that have bookmarked Pacifica
Partners Inc.’s social media publications or profile
through options
including “like”, “follow”, or similar bookmarking variations are not
and should not be viewed as endorsement of Pacifica Partners Capital Management Inc., its
services, or future or past investment performance. To view our full
disclaimer please href="http://pacificapartners.com/legal/vancouver-investment-management.html">click
here.
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(C) 2013 Pacifica Partners Capital Management Inc. All rights reserved.

Canada & the USA, a Tale of Two Economies

Pacifica Partners — Tue, 14 May 2013 22:53:38 PDT

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When two countries are as interconnected as Canada and the US, it is often the case that their respective economic circumstances are at least somewhat similar. For these two North American neighbors, however, their economies and stock markets have diverged considerably over recent months. This shouldn’t come as too much of a surprise, as we had indicated in our last newsletter that leading economic indicators of each economy were already signaling a slow down in Canada’s economy and a much awaited resurgence of the US. 
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by title="View Pacifica Partners Capital Management's profile on Scribd"
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Capital Management Inc.

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Canada & the USA, a Tale
of Two Economies

Canada
Out-of-Step With the US

href="http://pacificapartners.com/contact/"> style="border: 0px solid ; width: 210px; height: 558px; float: right;"
alt="Investment Guidance"
src="http://www.pacificapartners.com/blog/wp-content/uploads/2013/04/Trust-Guidance-Experience-USA.png"
hspace="15" vspace="5">When
two countries are as interconnected as Canada and the US, it is often
the case that their respective economic circumstances are at least
somewhat similar. For these two North American neighbors, however,
their economies and stock markets have diverged considerably over
recent months. This shouldn’t come as too much of a surprise, as we had
indicated in our last newsletter that leading economic indicators of
each economy were already signaling a slow down in Canada’s economy and
a much awaited resurgence of the US.

It
is important to point out that stock markets are only a partial
reflection of the overall economy. And despite ebbs between the
performance of Canadian and US economies, historically their two stock
markets have been highly correlated. More recently, however,
a pronounced divergence has emerged with Canadian stock markets
remaining relatively flat over the last year as US stocks marched
higher. This disconnect is illustrated below.

If
one were to search for an explanation for this divergence then the
fundamentals of the Canadian economy and slowing global commodity
prices are a great place to start. One of the biggest reasons for this
underperformance has to do with the makeup of the two countries’
markets. Approximately 40% of the Canadian stock market is made up of
natural resource stocks – more than double the 15% resource exposure of
the S&P 500 (US Stocks).

href="http://pacificapartners.ca/blog/wp-content/uploads/2013/05/Canadian-Underperformance-to-the-US.png"> style="border: 0px solid ; width: 600px; height: 332px;"
alt="Canadian and US Stock Markets"
src="http://pacificapartners.ca/blog/wp-content/uploads/2013/05/Canadian-Underperformance-to-the-US.png"
hspace="0" vspace="10">

style="color: rgb(51, 102, 255);">Canada’s Decade
of Success

For
much of the last decade, rising commodity prices were a strong tailwind
to Canadian equities. The world was knocking on Canada’s door. The
allure of the riches of the Canadian oil sands, robust commodity
consumption from China and an appreciating Canadian dollar made
Canadian equities attractive assets. As this went on, the capital
inflows into Canada from around the world made Canadian equities even
more attractive.

style="color: rgb(51, 102, 255);">The Energy
Sector

The Canadian energy sector, which comprises over 25% of the
S&P/TSX index, has in large part acted as an anchor on Canadian
equities.

While the price of oil has stayed relatively high, Canadian oil
companies have not been able to benefit as much as their US
counterparts. In fact, for much of 2012, Canadian oil companies were
receiving up to $20/barrel less for oil shipped to the US. This was due
to limited US refinery capacity, pipeline constraints, and rising US
oil production that combined to create a glut of oil.

Profits for the Canadian energy sector declined by more than 50% in
2012, to a little more than $7 billion which is on par with 1999
levels. As the sixth largest oil producing nation in the
world, the discount that Canadian oil companies receive on their crude
production has an economic impact. Estimates indicate losses
due to the discount in pricing to be upwards of $15 billion to $18
billion per year.

This issue will likely continue to confront our oil producers for some
time as pipeline capacity will continue to be constrained even if the
Keystone XL pipeline wins approval later this year from the Obama
Administration. The 830,000 barrel/day pipeline would not start moving
oil until late 2014 at the earliest. The chart below illustrates its
proposed route from Hardisty Alberta to Cushing Oklahoma.

href="http://pacificapartners.ca/blog/wp-content/uploads/2013/05/Pipeline-Map-CAPP.png"> style="border: 0px solid ; width: 600px; height: 362px;"
alt="Map of North American Pipelines impacting Canada"
src="http://pacificapartners.ca/blog/wp-content/uploads/2013/05/Pipeline-Map-CAPP.png">

style="text-align: center; font-style: italic;">Chart
source: Canadian Association of Petroleum Producers ( href="http://www.capp.ca/Pages/default.aspx" target="_blank">www.capp.ca)

As investor confidence has been jarred by the developments in the
Canadian oil sector, it has left many of the largest oil producers in
Canada trading at very cheap valuations – rivalling the levels reached
during the recession. These valuations plus their strong
track records of dividend growth has made them very attractive
investments. After releasing first quarter 2013 earnings, Canadian
energy giants, Suncor and Canadian Natural Resources raised their
dividends by 54% and 21% respectively.

The catalyst to unlock this value and move stock prices higher will
come from the approval of new pipelines that will move Canadian crude
faster to the US Gulf Coast, Eastern Canada and to the Pacific Coast
where Canadian oil companies will be able to access Asian markets. The
access to Asia is especially important as US energy production
continues to rise and China assumes its expected title of world’s
largest oil importer. According to the International Energy Agency, US
production of oil will help to lower US oil imports from 10 million
barrels/day in 2010 to about six million/day by 2035. As of the end of
April 2013, US oil production stands at 7.3 million barrels/day which
is up nearly 20% from a year ago.

style="color: rgb(51, 102, 255);">Commodities
Sector

Another drag on the Canadian stock market has been the sharp drop in
agricultural and base metal prices. Commodity stocks represent almost
20% of the Canadian stock market while they are less than 1% of the US
S&P 500.

Copper has earned the nickname of “Dr. Copper” for its reputed ability
to call turning points in the economy. Oftentimes, copper prices have
turned higher or lower in anticipation of the economy’s turning points.
Copper prices have fallen by about 5% over the last two years. A large
part of the reason for the decline in copper prices is likely due to
fears about the Chinese economy.

China’s leadership has made a central plank of its policies the
intention to make the Chinese economy less reliant on construction and
capital investment. The excessive reliance on construction and capital
investment has led to fears of a bubble in property and overinvestment
in various industrial sectors. In addition, the European Union is the
second largest consumer of copper and it is mired in recession which
has hindered copper demand further. Offsetting this weakness
is the budding rebound in US construction.

style="color: rgb(51, 102, 255);">Financial Sector

When
the Great Recession ended in 2009, Canadian banks were trading at a
significant premium to banks in most countries. Gradually, the rise in
the stock prices of US banks has helped to narrow the valuation gap
between Canadian and US banks. In recent quarters, investor fears about
Canadian consumer debt and elevated house prices have made investors
cautious on Canada’s banks. The fear arises from the distinct
possibility that a decline in Canadian real estate will impact banks
through rising mortgage defaults and a made-in-Canada debt-reduction
process.

style="color: rgb(51, 102, 255);">North American
Economic Landscape

When the Great Recession ended in 2009, one of the most repeated
predictions was that the US savings rate would rise to match the levels
of the 1960s and 1970s. The thought was that consumers had undergone a
generational change in mindset towards spending and saving as a result
of the economic turmoil that had enveloped the global
economy. After a brief rise in the immediate aftermath of the
Great Recession, the personal savings rate in the US has fallen once
again to 2.3%. While this has helped the US economy achieve one of the
best economic growth records amongst the advanced economies, the low
savings rate is a function of poor wage growth. In fact, wages as a
percent of the US economy are at a record low.

Stagnant wage growth has helped to propel US corporate profits and they
are now at a record level as a percentage of the US economy. As Ron
Perelman, the chairman and CEO of Revlon stated recently in an
interview:

“Unfortunately
what is good news for American industry…is bad news for those looking
for work …We’ve rationalized our businesses over the last five years…
those people that we laid off in 2008-2009, there’s no need for us to
hire back … We’ve gotten more efficient and we’ve gotten more
productive.” style="color: rgb(153, 0, 0);">

style="color: rgb(153, 0, 0);">- CEO of Revlon

As the current economic recovery has been sub-par by historical
standards, corporations have struggled to maintain revenue growth so
they have been focusing on cost controls to help meet profit
expectations. Corporate profit growth in the US was lower in 2012 than
2011 but the US market has been able to overcome slowing profits
because investors have given the economy the benefit of the doubt. The
Price-to-Earnings (P/E) ratio has risen to about 16 – meaning investors
are willing to pay $16 for each dollar of corporate profits.
This has allowed the market to continue higher as central banks around
the world are going to remain ultra-accommodative and help to ensure
liquidity is well supplied to the markets. Though economic data has
been disappointing in recent weeks, investor confidence is strong and
the demand for equities has been resilient.

Pacifica
Partners Capital Management style="color: rgb(0, 128, 128);">
Inc. style="color: rgb(0, 128, 128);">

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Social
Media: It is Pacifica Partners Capital Management Inc.’s policy not to
respond via online
and social media outlets to questions or comments directed to it or in
response to its online and social media
publications. Pacifica Partners Capital Management Inc. does
not
acknowledge or encourage testimonials posted by third party
individuals. Third party users that have bookmarked Pacifica
Partners Inc.’s social media publications or profile
through options
including “like”, “follow”, or similar bookmarking variations are not
and should not be viewed as endorsement of Pacifica Partners Capital Management Inc., its
services, or future or past investment performance. To view our full
disclaimer please href="http://pacificapartners.ca/legal/vancouver-investment-management.html">click
here.
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(C) 2013 Pacifica Partners Capital Management Inc. All rights reserved.

Canada US Real Estate Chartbook

Pacifica Partners — Tue, 14 May 2013 12:34:51 PDT

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Horace, the ancient Roman poet of the first century BCE wrote in his work Ars Poetica, “many shall be restored that are now fallen and many shall fall that are now in honor.” We can say with absolute certainty that Horace was not referring to modern day North American real estate markets. However, his statement appropriately captures the essence of the current Canadian and US economic landscape.
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style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> src="http://www.pacificapartners.ca/blog/wp-content/uploads/2013/05/Canada-US-Real-Estate-USA.png"
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style="color: rgb(80, 80, 80); font-family: Arial; font-size: 14px; line-height: 150%; text-align: left; background-color: white;">Horace,
the Roman poet of the first century BCE wrote in his work Ars Poetica style="font-style: italic;">“ style="color: rgb(0, 0, 153); font-style: italic;">many
shall be restored that are now fallen and many shall fall that are now
in honor.”
We can say with absolute certainty that Horace was not referring to
modern day North American real estate markets, however, his statement
appropriately captures the essence of the current Canadian and US
economic landscape.

style="font-weight: bold; color: rgb(204, 0, 0);">US
recovery, Canadian weakness

href="http://pacificapartners.com/contact/"> style="border: 0px solid ; width: 210px; height: 558px; float: right;"
alt="Investment Guidance"
src="http://www.pacificapartners.com/blog/wp-content/uploads/2013/04/A-Team-Approach-to-Wealth-Management-USA.png"
hspace="15" vspace="5">On
many levels an economic mean-reversion is taking place as a decade long
bull-market in Canadian real estate has now stalled, coinciding with
other faltering drivers of the Canadian economy. Meanwhile,
the
US housing market has surged 8% higher in the last year and cities such
as Phoenix Arizona have risen over 25%. This recovery has emerged after
a six-year US real estate drudging that has left in its wake
systemically high US unemployment and a global economic dependence on
central bank-sponsored stimulus.

style="font-family: "Arial","sans-serif";" lang="EN-US">Unlike
with the US, Canadian markets are undergoing a period of price
weakness; home prices in major markets of Toronto, Montreal, Vancouver,
and Calgary are all lower from their all-time highs as the chart below
illustrates. Notably, Canada’s three largest cities,
Vancouver,
Toronto, and Montreal are only into the first year of a potential
lengthy period of price weakness.

However, even these
early signs of weakness are significant because they are being
accompanied by a systemic “drying up” of home sales volume. In some
markets the volume drought has been large in magnitude.
Vancouver
in particular experienced April 2013 sales which were the lowest April
sales since 2001, or 20.9% below the ten-year April average ( href="http://www.vancouversun.com/business/mortgages/Vancouver+home+sales+remain+sluggish+while+prices/8327848/story.html"
target="_blank">Vancouver Sun).
This reduction in sales volume is not just in Vancouver. The Canadian
Real Estate Association (CREA) reported 90 percent of the local markets
that it monitors posting year-over-year March sales declines ( href="http://www.bnn.ca/News/2013/4/15/March-home-sales-drop-153-from-year-ago.aspx"
target="_blank">BNN).
Why is the volume of home sales important? Sales volume contraction is
often a precursor to price declines within any asset class, and
particularly so in housing. We examined this fact in our previous
chartbook publication by examining US housing sales volume changes
leading up to the US housing crash ( href="http://pacificapartners.com/blog/2012/12/07/the-canadian-real-estate-housing-correction-chartbook/"
target="_blank">Chartbook Dec 2012).

href="http://pacificapartners.com/blog/wp-content/uploads/2012/10/Failed-US-Bank-Chart-With-Logo.png"> class="Apple-style-span" style="line-height: 14px;"> href="http://www.pacificapartners.ca/blog/wp-content/uploads/2013/05/A-price-drop-chart.png"
target="_blank"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> alt="Canadian housing price drop"
src="http://pacificapartners.ca/blog/wp-content/uploads/2013/05/A-price-drop-chart.png"
style="border: 0px solid ; margin: 5px; line-height: 100%; text-decoration: none; display: inline; width: 600px; height: 367px;"
hspace="5" vspace="5">

class="Apple-style-span" style="line-height: 14px;"> href="http://www.pacificapartners.ca/blog/wp-content/uploads/2013/05/A-price-drop-chart.png"
target="_blank"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> style="color: rgb(0, 0, 128);">Click Here style="color: rgb(0, 0, 128);"> to view a larger version of
this diagram

In
addition to the sales volume
drought, average home prices are also exhibiting weaknesses.
In
Vancouver, widely considered Canada’s “bubbliest” city, average single
family home sale prices are down over 14% from their highs and average
condo prices are close to 2007 levels ( href="http://www.chpc.biz/vancouver_chart.html" target="_blank">Brian
Ripley’s CHPC).

The
decade long shift in leadership between Canadian and US housing prices
is best observed through our charts on relative US/Canadian housing
markets ( style="color: rgb(51, 51, 255);">Section D–chart library).
Canadian markets of Vancouver, Toronto, and Montreal have now all
reversed bullish trends versus US markets which had been in place since
December of 2005 (See Vancouver Chart below). The only major
exception is Calgary, where home prices have continued their sideways
move relative to US home prices which began in
2009.

style="font-family: Arial; font-size: 14px; font-style: normal; font-variant: normal; letter-spacing: normal; line-height: 21px; text-align: justify; text-indent: 0px; text-transform: none; white-space: normal; word-spacing: 0px; background-color: rgb(255, 255, 255); font-weight: bold; color: rgb(102, 102, 102);">Chart
2) style="font-family: Arial; font-size: 14px; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: 21px; text-align: justify; text-indent: 0px; text-transform: none; white-space: normal; word-spacing: 0px; background-color: rgb(255, 255, 255); color: rgb(102, 102, 102);"> class="Apple-converted-space"> style="font-family: Arial; font-size: 14px; font-style: normal; font-variant: normal; letter-spacing: normal; line-height: 21px; text-align: justify; text-indent: 0px; text-transform: none; white-space: normal; word-spacing: 0px; background-color: rgb(255, 255, 255); font-weight: bold; color: red;"> style="color: rgb(102, 102, 102);"> class="Apple-converted-space"> name="Chart2Vancouver">
href="http://pacificapartners.com/blog/wp-content/uploads/2012/10/Failed-US-Bank-Chart-With-Logo.png"> class="Apple-style-span" style="line-height: 14px;"> href="http://pacificapartners.ca/blog/wp-content/uploads/2013/05/US-Home-Prices-vs.-Vancouver-Home-Prices.png"
target="_blank"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> alt="Vancouver Real Estate vs US Home Prices"
src="http://pacificapartners.ca/blog/wp-content/uploads/2013/05/US-Home-Prices-vs.-Vancouver-Home-Prices.png"
style="border: 0px solid ; margin: 5px; line-height: 100%; text-decoration: none; display: inline; width: 600px; height: 367px;"
hspace="5" vspace="5">

class="Apple-style-span" style="line-height: 14px;"> href="http://pacificapartners.ca/blog/wp-content/uploads/2013/05/US-Home-Prices-vs.-Vancouver-Home-Prices.png"
target="_blank"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> style="color: rgb(0, 0, 128);">Click Here style="color: rgb(0, 0, 128);"> to view a larger version of
this diagram

style="line-height: 14px;"> style="color: rgb(0, 0, 128);">

style="font-weight: bold; color: rgb(204, 0, 0);">Leading
indicators of the economy
style="font-weight: bold; color: rgb(204, 0, 0);">

style="font-weight: bold; color: rgb(204, 0, 0);">
The
strength of the US and weakness of Canada is not confined to real
estate markets. Since our last update to the Canadian Real
Estate
Chartbook in December 2012, a pronounced shift in both Canadian and US
economies has taken place. The Canadian economy, once the envy of
Americans, Europeans, and others, is now widely viewed as a commodity
dependent, “one trick pony”.

Nothing better illustrates the economic differential than the OECD’s
leading economic indicators, which we first cited in our href="http://pacificapartners.com/blog/2013/02/18/debt-profits-canada-more/"
target="_blank">Winter 2013 newsletter
and are updated below. Canadian leading economic indicators
are
now falling behind US leading indicators by the widest margin in over
two decades.

href="http://pacificapartners.com/blog/wp-content/uploads/2012/10/Failed-US-Bank-Chart-With-Logo.png"> class="Apple-style-span" style="line-height: 14px;"> href="http://www.pacificapartners.ca/blog/wp-content/uploads/2013/05/B-OECD-Leading-Indicators.png"
target="_blank"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> alt="OECD Leading Economic Indicators"
src="http://pacificapartners.ca/blog/wp-content/uploads/2013/05/B-OECD-Leading-Indicators.png"
style="border: 0px solid ; margin: 5px; line-height: 100%; text-decoration: none; display: inline; width: 600px; height: 367px;"
hspace="5" vspace="5">

class="Apple-style-span" style="line-height: 14px;"> href="http://www.pacificapartners.ca/blog/wp-content/uploads/2013/05/B-OECD-Leading-Indicators.png"
target="_blank"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> style="color: rgb(0, 0, 128);">Click Here style="color: rgb(0, 0, 128);"> to view a larger version of
this diagram

style="line-height: 14px;"> style="color: rgb(0, 0, 128);">

style="line-height: 14px;"> style="color: rgb(0, 0, 128);">Stock
markets, which are themselves a leading indicator of the future state
of the economy, have also diverged from one another. The Canadian
market and its foremost index, the S&P TSX composite, has
lagged
its US counterpart the, S&P 500, for the better part of two
years. In the interest of brevity we direct readers
interested in
a more detailed explanation of the divergence to our recently published
href="http://pacificapartners.com/blog/2013/05/14/canada-the-usa-a-tale-of-two-economies/#.UZMjMrXbNn9"
target="_blank">Spring 2013 newsletter.
Alternatively, the following chart is presented below illustrating the
extent of the recent Canadian underperformance. This ominous
pattern could foreseeably continue should drivers of the Canadian stock
market, notably global commodity demand, continue to weaken.

href="http://pacificapartners.com/blog/wp-content/uploads/2012/10/Failed-US-Bank-Chart-With-Logo.png"> class="Apple-style-span" style="line-height: 14px;"> href="http://www.pacificapartners.ca/blog/wp-content/uploads/2013/05/C-Canadian-vs-US-Stocks.png"
target="_blank"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> alt="Canadian Versus US Stock Markets"
src="http://pacificapartners.ca/blog/wp-content/uploads/2013/05/C-Canadian-vs-US-Stocks.png"
style="border: 0px solid ; margin: 5px; line-height: 100%; text-decoration: none; display: inline; width: 600px; height: 367px;"
hspace="5" vspace="5">

class="Apple-style-span" style="line-height: 14px;"> href="http://www.pacificapartners.ca/blog/wp-content/uploads/2013/05/C-Canadian-vs-US-Stocks.png"
target="_blank"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> style="color: rgb(0, 0, 128);">Click Here style="color: rgb(0, 0, 128);"> to view a larger version of
this diagram
style="line-height: 14px;"> style="color: rgb(0, 0, 128);">

style="line-height: 14px;"> style="color: rgb(0, 0, 128);">
The
leading economic indicator which gives the most reason for pause is the
slowing new Canadian home starts, which are now declining on a
year-over-year basis and doing so at the fastest rate since the
financial crisis (see below). Bank of Montreal economist Sal
Guatieri recently addressed this fact by stating, “ style="font-style: italic; color: rgb(0, 0, 153);">Canadian
home builders are facing the new reality that the decade-long housing
boom has ended” ( target="_blank">Globe and Mail).
With 20% of Canadian GDP directly involved in construction and real
estate activities, a continued slowdown in housing-starts will have a
marked impact on the consumer behavior and ripple through other
consumer sensitive areas of the economy, including retail sales,
financial services, transportation, and warehousing.

href="http://pacificapartners.com/blog/wp-content/uploads/2012/10/Failed-US-Bank-Chart-With-Logo.png"> class="Apple-style-span" style="line-height: 14px;"> href="http://www.pacificapartners.ca/blog/wp-content/uploads/2013/05/D-Housing-Starts.png"
target="_blank"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> alt="Year over Year Change in Housing Starts"
src="http://pacificapartners.ca/blog/wp-content/uploads/2013/05/D-Housing-Starts.png"
style="border: 0px solid ; margin: 5px; line-height: 100%; text-decoration: none; display: inline; width: 600px; height: 367px;"
hspace="5" vspace="5">

class="Apple-style-span" style="line-height: 14px;"> href="http://www.pacificapartners.ca/blog/wp-content/uploads/2013/05/D-Housing-Starts.png"
target="_blank"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> style="color: rgb(0, 0, 128);">Click Here style="color: rgb(0, 0, 128);"> to view a larger version of
this diagram

style="line-height: 14px;"> style="color: rgb(0, 0, 128);">

style="font-weight: bold; color: rgb(204, 0, 0);">Lacking
confidence

As
a consumer-driven asset class, real estate is intimately tied to
domestic consumer outlook. Due to this, it is important to note that
Canadian consumer confidence has slid stealthily lower since peaking in
early 2010. In fact, consumer confidence is now approaching
the
same levels last seen immediately following the financial crisis! (see
chart below).

href="http://pacificapartners.com/blog/wp-content/uploads/2012/10/Failed-US-Bank-Chart-With-Logo.png"> class="Apple-style-span" style="line-height: 14px;"> href="http://www.pacificapartners.ca/blog/wp-content/uploads/2013/05/Canadian-Consumer-Confidence.png"
target="_blank"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> alt="Canadian housing price drop"
src="http://pacificapartners.ca/blog/wp-content/uploads/2013/05/Canadian-Consumer-Confidence.png"
style="border: 0px solid ; margin: 5px; line-height: 100%; text-decoration: none; display: inline; width: 600px; height: 367px;"
hspace="5" vspace="5">

class="Apple-style-span" style="line-height: 14px;"> href="http://www.pacificapartners.ca/blog/wp-content/uploads/2013/05/Canadian-Consumer-Confidence.png"
target="_blank"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> style="color: rgb(0, 0, 128);">Click Here style="color: rgb(0, 0, 128);"> to view a larger version of
this diagram. Chart Source href="http://www.tradingeconomics.com/canada/consumer-confidence"
target="_blank">Trading Economics
style="line-height: 14px;"> style="color: rgb(0, 0, 128);">

style="line-height: 14px;"> style="color: rgb(0, 0, 128);">
Adding
to the decline in consumer confidence are recent employment numbers
that indicate private Canadian companies, those most indicative of
overall economic health, shed 105,400 jobs in March and April
2013. This number of private sector job loss again mimics the
numbers last witnessed during the financial crisis.

style="font-family: "Arial","sans-serif";">The weakness in
the Canadian job market may come as a surprise to some readers as news
headlines
often indicate a reduction in the unemployment rate. The unemployment
rate has
been on a downward trend since the end of the recession, however, it
has stubbornly
failed to fall below 7%. This
is in
comparison to the sub 6% unemployment rates seen in Canada before the
recession.

style="font-family: "Arial","sans-serif";">In addition,
the overall unemployment rate does not always capture the true inherent
weakness in the employment environment due to the often misleading
inclusion of
individuals indicating their status as “self-employed”. style=""> Chief economist of Gluskin
Sheff, David
Rosenberg, recently commented on the significance of swelling US
self-employed
ranks by stating, the self-employed are, “ style="font-style: italic; color: rgb(0, 0, 102);">…consultants
working out of their
basement offices and not exactly picking up much business…“
( href="http://online.barrons.com/article/SB50001424052748703591404578453000846155088.html?mod=BOLFeed#articleTabs_article%3D2">Barrons). style=""> Thus the loss of private
sector jobs is a
critical weakness in the Canadian economy also voice by Benoit
Durocher, senior
economist of Desjardins Securities, “ style="font-style: italic; color: rgb(0, 0, 102);">The
replacement of private-sector jobs
with independent work is usually not a sign of a healthy labour market.”
href="http://www.theglobeandmail.com/report-on-business/economy/jobs/private-sector-employment-decline-is-no-blip/article11847191/"> style="font-family: "Arial","sans-serif";">Globe and Mail style="font-family: "Arial","sans-serif";">

style="font-family: "Arial","sans-serif";">These findings
on unemployment are echoed in Canadian “Misery Index” (inflation +
unemployment rates), as illustrated below.
All major markets are signaling
upticks in misery. Toronto,
Montreal, and Vancouver are
exhibiting it above pre-recession lows, this despite barely-existent
inflation
and employment numbers that are likely understating reality.

href="http://pacificapartners.com/blog/wp-content/uploads/2012/10/Failed-US-Bank-Chart-With-Logo.png"> class="Apple-style-span" style="line-height: 14px;"> href="http://www.pacificapartners.ca/blog/wp-content/uploads/2013/05/G-Misery-Index.png"
target="_blank"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> alt="Canadian Misery Index"
src="http://pacificapartners.ca/blog/wp-content/uploads/2013/05/G-Misery-Index.png"
style="border: 0px solid ; margin: 5px; line-height: 100%; text-decoration: none; display: inline; width: 600px; height: 367px;"
hspace="5" vspace="5">

class="Apple-style-span" style="line-height: 14px;"> href="http://www.pacificapartners.ca/blog/wp-content/uploads/2013/05/G-Misery-Index.png"
target="_blank"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> style="color: rgb(0, 0, 128);">Click Here style="color: rgb(0, 0, 128);"> to view a larger version of
this diagram

style="line-height: 14px;"> style="color: rgb(0, 0, 128);">

style="font-weight: bold; color: rgb(204, 0, 0);">Debt
burdens

We
reiterate our belief that the Canadian housing bull market of the last
decade has been primarily driven by credit expansion, a.k.a. increased
debt levels by Canadians. style="color: rgb(51, 51, 51);">Readers are directed to href="#GDP_MORTGAGE_CREDIT"> style="color: rgb(153, 0, 0);">Chart A2
in the chart library for support of this belief.
The desire for Canadians to take on more debt and thus more risk has
largely been due to low interest rates which now stand at a
generational low of less than 2% as indicated by 10 year government of
Canada bonds. These low rates have allowed for enhanced
cash-flow-affordability (not to be mistaken with actual affordability)
as home owners’ monthly mortgage interest expense has declined by -
over 11% since 2009. Notably, all other major components of
home
ownership costs including replacement costs, property taxes, insurance,
maintenance, furnishings, and miscellaneous expenses have grown at
least as must as Canadian core inflation and in some cases more than
twice as much! (See below)

href="http://pacificapartners.com/blog/wp-content/uploads/2012/10/Failed-US-Bank-Chart-With-Logo.png"> class="Apple-style-span" style="line-height: 14px;"> href="http://www.pacificapartners.ca/blog/wp-content/uploads/2013/05/C-Home-ownership-costs.png"
target="_blank"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> alt="Canadian housing price drop"
src="http://pacificapartners.ca/blog/wp-content/uploads/2013/05/C-Home-ownership-costs.png"
style="border: 0px solid ; margin: 5px; line-height: 100%; text-decoration: none; display: inline; width: 600px; height: 367px;"
hspace="5" vspace="5">

class="Apple-style-span" style="line-height: 14px;"> href="http://www.pacificapartners.ca/blog/wp-content/uploads/2013/05/C-Home-ownership-costs.png"
target="_blank"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> style="color: rgb(0, 0, 128);">Click Here style="color: rgb(0, 0, 128);"> to view a larger version of
this diagram
style="line-height: 14px;"> style="color: rgb(0, 0, 128);">

style="line-height: 14px;"> style="color: rgb(0, 0, 128);">
How
large has the outstanding mortgage and consumer debt grown to?
Statistics Canada reported that in the final quarter of 2012 the
average Canadian household owed $164.97 in debt for every $100 of
disposable, after-tax income. In total, Canadian households now hold a
combined $1.1 trillion of mortgage debt and $477 billion of consumer
debt ( href="http://www.huffingtonpost.ca/2013/03/15/household-debt-canada-net-worth_n_2883255.html"
target="_blank">Huffington Post).
To put this number into perspective, it is a large enough sum to
purchase every single publicly traded stock share listed on either the
Australian stock exchange (ASX), or the SIX Swiss Exchange, or even the
Deutsche Börse of Germany. The size of this debt relative to
the
entire Canadian economy (GDP) and its progression over time is
illustrated below. Canadian debt levels relative to GDP
appeared
to have now stalled near the 90% levels and the growth rate is far
below the heady days witnessed prior to 2010.

href="http://pacificapartners.com/blog/wp-content/uploads/2012/10/Failed-US-Bank-Chart-With-Logo.png"> class="Apple-style-span" style="line-height: 14px;"> href="http://www.pacificapartners.ca/blog/wp-content/uploads/2013/05/J-Debt-to-GDP.png"
target="_blank"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> alt="Household Debt to GDP"
src="http://pacificapartners.ca/blog/wp-content/uploads/2013/05/J-Debt-to-GDP.png"
style="border: 0px solid ; margin: 5px; line-height: 100%; text-decoration: none; display: inline; width: 600px; height: 367px;"
hspace="5" vspace="5">

style="line-height: 14px;"> style="color: rgb(0, 0, 128);">
An
important finding that emerged recently is that Canadian debt burdens
are not largely borne by young first-time home owners desperate to get
into the housing market and thus overpaying and overleveraging
themselves. In fact, bankruptcy trustees Hoyes, Michalos
&
Associates were recently cited in a study finding that the highest debt
levels occur in the 50 to 59 year old age demographic. As one
trustee at the firm stated, “ style="font-style: italic; color: rgb(0, 0, 102);">At a time
in their lives when they should be rapidly paying down debt, their
financial burden continues to grow.” ( href="http://www.newswire.ca/en/story/1158797/joe-debtor-the-aging-face-of-personal-debt-squeezed-from-all-sides"
target="_blank">Canada Newswire)
This finding further identifies limitations on future credit expansion
and emphasizes the impact that demographic challenges will have on
Canadian real estate. Effectively, debt-burdened Canadians
approaching or entering retirement will be more reliant on wealth
currently locked in the form of home-equity. We touched on
the
role of Canadian demographics in real estate valuation in our last
chartbook ( href="http://pacificapartners.com/blog/2012/12/07/the-canadian-real-estate-housing-correction-chartbook/"
target="_blank">Chartbook Dec 2012)

style="font-family: "Arial","sans-serif";">Canadian
consumer debt burdens and the dependence on it by the domestic economy
and real
estate are best summarized by the Bank of Canada itself: style="orphans: 2; widows: 2; float: none; word-spacing: 0px;">“ style="font-style: italic; color: rgb(0, 0, 102);">These
measures
[tightening government-insured mortgage lending standards] reduce
the
number one style="color: red; font-style: italic;"> style="font-family: "Arial","sans-serif"; color: red; font-style: italic;">risk style="font-family: "Arial","sans-serif";"> style="font-style: italic;"> style="color: rgb(0, 0, 102); font-style: italic;">… to
the Canadian economy,“
- Former Governor of the
Bank of Canada Mark Carney, June 21 2012 style="font-style: italic;"
href="http://in.reuters.com/article/2012/06/21/canada-economy-carney-idINL1E8HLB4920120621">Reuters

class="MsoNormal"> style="font-size: 14pt; line-height: 115%; font-family: "Arial","sans-serif"; color: rgb(192, 0, 0);">The
slowdown

The economic slowdown in Canada is difficult to ignore – the
International Monetary Fund (IMF) cut its growth outlook for Canada’s
economy to 1.5% from 1.8%, the weakest growth rate since the financial
crisis ( href="http://www.theglobeandmail.com/report-on-business/imf-cuts-outlook-for-canadian-economy/article11247584/"
target="_blank">Globe and Mail).
The Bank of Canada itself also cut domestic growth estimates in April
while indicating emergency-level low interest rates would persist ( href="http://www2.macleans.ca/2013/04/17/bank-of-canada-lowers-2013-growth-forecast-keeps-key-rate-unchanged/"
target="_blank">Maclean’s).
Despite low rates, the net result of such events is likely a headwind
for Canadian real estate markets. Sustained weakness in the
economy will only serve to burden Canadian consumers further.
In
addition, Canadian consumers have already extrapolated the persistence
of low interest rates further into the future than the Bank of
Canada. In other words, consumers have already reflected a
prolonged low rate environment into home price valuations.

class="MsoNormal"> style="font-size: 14pt; line-height: 115%; font-family: "Arial","sans-serif"; color: rgb(192, 0, 0);">Words
of the wise

A portion of our last commentary was dedicated to a summary of policy
errors that led up to the current state of excessive Canadian mortgage
debt. Recent tightening by the Finance Minister on lending
standards, although generally considered prudent, has been lobbied
against by those in the lending industry. The question now emerges:
Will Canadian Finance Minister, Jim Flaherty, reverse course on last
year’s mortgage tightening in the face of a weakening Canadian
economy? If his future actions are consistent with recent
statements made in Britain to the G7 finance ministers, then the answer
is “no”. Minister Flaherty was vocal in indicating that the
lack
of resolve by other G7 finance ministers to stick with debt reducing
austerity measures was an error. ( href="http://news.yahoo.com/canada-says-loosening-austerity-mistake-wary-bubbles-165400665.html;_ylt=Asf5zFxAZw0ztzbLkRYoUt.r9HQA;_ylu=X3oDMTVxdTE2aXBwBGNjb2RlA2dtcHRvcDEwMDBwb29sd2lraXVwcmVzdARtaXQDQXJ0aWNsZSBNaXhlZCBMaXN0IE5ld3MgZm9yIFlvdSB3aXRoIE1vcmUgTGluawR"
target="_blank">Reuters)

style="font-family: "Arial","sans-serif";">At this
latest G7 meeting, not only did Minister Flaherty provide insight on
his
conviction to stick to austerity despite the economic hardships that it
creates,
he also shed light on how Canadian policy makers truly viewed the
Canadian
housing market prior to the latest round of tightening. “ style="font-style: italic; color: rgb(0, 0, 102);">We are
seeing
moderation in the Canadian housing market. We did not have a bubble, style="font-style: italic; color: rgb(204, 0, 0);">but we
had the
beginnings of the indications of a bubble style="font-style: italic; color: rgb(204, 0, 0);">.”
- Jim Flaherty ( href="http://news.yahoo.com/canada-says-loosening-austerity-mistake-wary-bubbles-165400665.html;_ylt=Asf5zFxAZw0ztzbLkRYoUt.r9HQA;_ylu=X3oDMTVxdTE2aXBwBGNjb2RlA2dtcHRvcDEwMDBwb29sd2lraXVwcmVzdARtaXQDQXJ0aWNsZSBNaXhlZCBMaXN0IE5ld3MgZm9yIFlvdSB3aXRoIE1vcmUgTGluawR"> style="font-family: "Arial","sans-serif"; color: windowtext; text-decoration: none;">Reuters style="font-family: "Arial","sans-serif";">). style=""> Readers are reminded that
any stronger
statement as to the existence of a bubble would be unlikely since it is
common practice
for policy makers to attempt to “talk down” fears.

class="MsoNormal">
style="font-size: 14pt; line-height: 115%; font-family: "Arial","sans-serif"; color: rgb(192, 0, 0);">Summary

style="font-family: "Arial","sans-serif";">We remain
bearish on the Canadian real estate market with real estate appearing
overvalued by approximately 30% in most major markets (See table). style=""> Canadian economic
weakness, the expected
contraction of outstanding consumer credit, and already heightened real
estate
prices serve as the basis for our bearish stance.

style="font-style: italic; color: rgb(3, 185, 155); font-weight: bold;"
class="MsoNormal">

style="font-family: "Arial","sans-serif";">An update of
this chartbook will be made available in October/November 2013.

style="color: rgb(3, 185, 155); font-weight: bold;"
class="MsoNormal"> style="font-size: 14pt; line-height: 115%; font-family: "Arial","sans-serif"; color: rgb(192, 0, 0); font-weight: bold;">

style="color: rgb(3, 185, 155); font-weight: bold;"
class="MsoNormal"> style="font-size: 14pt; line-height: 115%; font-family: "Arial","sans-serif"; font-weight: bold; color: black;"> name="Library">Real estate chartbook library style="font-family: "Arial","sans-serif";">

style="font-family: "Arial","sans-serif";">All charts not
referenced above are included below:
Due to changes with Google trends data, the housing bubble sentiment
grid has been discontinued.

Section A: Economics

style="font-family: "Arial","sans-serif";">Chart A1) Wages
vs. Home Price Growth
Chart A2) Canadian GDP, Home Prices, and Outstanding Mortgage Credit
style="font-family: "Arial","sans-serif";">Chart A3)
Population Growth and Housing Capacity
Chart A4) Consumer Credit Growth style="font-family: "Arial","sans-serif";">

style="font-family: "Arial","sans-serif";">

class="MsoNormal"> style="font-family: "Arial","sans-serif";">Section B:
Valuation

style="font-family: "Arial","sans-serif";">Chart B1) Home
Prices over Present Value of Rents Chart
Table B1) Home Prices over Present Value of Rents Table
style="font-family: "Arial","sans-serif";">Chart B2) Home
Prices to Rents

class="MsoNormal"> style="font-family: "Arial","sans-serif";">Section C:
Real Index Values

style="font-family: "Arial","sans-serif";">Chart C1)
Canadian Real Rent Index
Chart C2) Canadian Real Home Price Index style="font-family: "Arial","sans-serif";">

class="MsoNormal"> style="font-family: "Arial","sans-serif";">Section D:
Canadian versus US Real
Estate

style="font-family: "Arial","sans-serif";">Chart D1) US Home
Prices vs Vancouver Home Prices – href="#Chart2Vancouver">Presented above in report
style="font-family: "Arial","sans-serif";">Chart D3) US Home
Prices vs Toronto Home Prices
style="font-family: "Arial","sans-serif";">Chart D4) US Home
Prices vs Montreal Home Prices
style="font-family: "Arial","sans-serif";">Chart D5) US Home
Prices vs Calgary Home Prices style="font-family: "Arial","sans-serif";">

class="MsoNormal"> style="font-family: "Arial","sans-serif";">Section E:
City Summaries,
Home Price QoQ change, Inflation, Unemployment

style="font-family: "Arial","sans-serif";">Chart E1)
Vancouver
Chart E2) Edmonton
Chart E3) Calgary
Chart E4) Winnipeg
Chart E5) Toronto
Chart E6) Ottawa
Chart E7) Montreal
Chart E8) Halifax

style="font-family: "Arial","sans-serif";">Section F:
Home Price and Sales Pair
Volume Change for Major Canadian Cities

style="font-family: "Arial","sans-serif";">Chart F1) Canada
style="font-family: "Arial","sans-serif";">Chart F2) style="font-family: "Arial","sans-serif";">Vancouver
style="font-family: "Arial","sans-serif";">Chart F3) style="font-family: "Arial","sans-serif";">Calgary
style="font-family: "Arial","sans-serif";">Chart F4) style="font-family: "Arial","sans-serif";">Toronto
style="font-family: "Arial","sans-serif";">Chart F5) style="font-family: "Arial","sans-serif";">Ottawa
style="font-family: "Arial","sans-serif";">Chart F6) style="font-family: "Arial","sans-serif";">Montreal
style="font-family: "Arial","sans-serif";">Chart F7) style="font-family: "Arial","sans-serif";">Halifax

class="MsoNormal"> style="font-family: "Arial","sans-serif";">Section G:
Stocks vs Real Estate

style="font-family: "Arial","sans-serif";">Chart G1)
Canadian Stocks vs Canadian Real Estate (Long Term)
Chart G2) Canadian Stocks vs Canadian Real Estate (Medium Term)
Chart G3) US Stocks vs US Real Estate (Long Term)
Chart G4) US Stocks vs US Real Estate (Medium Term)

class="MsoNormal">

class="MsoNormal"> style="font-size: 14pt; line-height: 115%; font-family: "Arial","sans-serif"; font-weight: bold; color: black;">Section
A) Economics style="font-size: 14pt; line-height: 115%; font-family: "Arial","sans-serif"; font-weight: bold; color: black;"> name="SectionA"> href="#Library"> style="font-family: "Arial","sans-serif";">Return to Library

style="color: rgb(3, 185, 155); font-weight: bold;"
class="MsoNormal"> style="font-family: "Arial","sans-serif"; font-weight: normal; color: rgb(51, 51, 51);">Chart
A1) Wages
vs. Home Price Growth

href="http://www.pacificapartners.ca/blog/wp-content/uploads/2013/05/M-Wages-vs-Home-Price-Growth.png"
target="_blank"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> alt="Household Credit as a Percentage of Nominal Canadian GDP"
src="http://www.pacificapartners.ca/blog/wp-content/uploads/2013/05/M-Wages-vs-Home-Price-Growth.png"
style="border: 0px solid ; margin: 5px; line-height: 100%; text-decoration: none; display: inline; width: 600px; height: 367px;"
hspace="5" vspace="5">

class="Apple-style-span" style="line-height: 14px;"> href="http://www.pacificapartners.ca/blog/wp-content/uploads/2013/05/M-Wages-vs-Home-Price-Growth.png"
target="_blank"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> style="color: rgb(0, 0, 128);">Click Here style="color: rgb(0, 0, 128);"> to view a larger version of
this diagram

style="color: rgb(3, 185, 155); font-weight: bold;"
class="MsoNormal"> style="font-weight: normal; color: rgb(51, 51, 51);">Chart
A2) name="GDP_MORTGAGE_CREDIT">Canadian GDP, Home
Prices, and Outstanding Mortgage Credit

class="Apple-style-span" style="line-height: 14px;"> href="http://www.pacificapartners.ca/blog/wp-content/uploads/2013/05/F-Canadian-GDP-Outstanding-Mortgage-Credit.png"
target="_blank"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> style="color: rgb(0, 0, 128);">Click Here style="color: rgb(0, 0, 128);"> to view a larger version of
this diagram

style="color: rgb(3, 185, 155); font-weight: bold;"
class="MsoNormal"> style="font-family: "Arial","sans-serif"; font-weight: normal; color: rgb(51, 51, 51);">Chart
A3) Population
Growth and Housing Capacity style="font-weight: normal; color: rgb(51, 51, 51);">
style="font-weight: normal; color: rgb(51, 51, 51);">

style="color: rgb(3, 185, 155); font-weight: bold;"
class="MsoNormal"> style="color: rgb(80, 80, 80); font-family: Arial; font-size: 14px; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: 21px; text-align: justify; text-indent: 0px; text-transform: none; white-space: normal; word-spacing: 0px; background-color: rgb(255, 255, 255); display: inline ! important; float: none;">In
all major Canadian housing markets housing capacity growth has exceeded
population increases between 2002 and March 2013. Calgary,
Edmonton, Ottawa, Montreal and Halifax are what we would consider to be
“severely overbuilt” with excess housing capacity of roughly 50% or
more than population growth over the same period. Vancouver,
Toronto, and Winnipeg, are “overbuilt” with excess housing capacity
close to 20% more than population growth over the examined
period. style="color: rgb(80, 80, 80); font-family: Arial; font-size: 14px; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: 21px; text-align: justify; text-indent: 0px; text-transform: none; white-space: normal; word-spacing: 0px; background-color: rgb(255, 255, 255);">
style="color: rgb(80, 80, 80); font-family: Arial; font-size: 14px; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: 21px; text-align: justify; text-indent: 0px; text-transform: none; white-space: normal; word-spacing: 0px; background-color: rgb(255, 255, 255);">
style="color: rgb(80, 80, 80); font-family: Arial; font-size: 14px; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: 21px; text-align: justify; text-indent: 0px; text-transform: none; white-space: normal; word-spacing: 0px; background-color: rgb(255, 255, 255); display: inline ! important; float: none;">Housing
capacity is defined as the number of individuals that can be reasonably
housed in new housing units, whether or not a new housing unit sits
unoccupied, under-occupied, or over-occupied. Assumptions
made
may be more appropriate for some markets over others.
href="http://www.pacificapartners.ca/blog/wp-content/uploads/2013/05/E-Population-Growth-Housing-Capacity.png"
target="_blank"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> alt="Population Growth and Housing Capacity"
src="http://www.pacificapartners.ca/blog/wp-content/uploads/2013/05/E-Population-Growth-Housing-Capacity.png"
style="border: 0px solid ; margin: 5px; line-height: 100%; text-decoration: none; display: inline; width: 600px; height: 367px;"
hspace="5" vspace="5">

class="Apple-style-span" style="line-height: 14px;"> href="http://www.pacificapartners.ca/blog/wp-content/uploads/2013/05/E-Population-Growth-Housing-Capacity.png"
target="_blank"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> style="color: rgb(0, 0, 128);">Click Here style="color: rgb(0, 0, 128);"> to view a larger version of
this diagram

style="font-weight: normal; color: rgb(51, 51, 51);">Chart
A4) Consumer
Credit Growth

class="Apple-style-span" style="line-height: 14px;"> href="http://www.pacificapartners.ca/blog/wp-content/uploads/2013/05/J-Consumer-Credit-Growth-YoY.png"
target="_blank"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> style="color: rgb(0, 0, 128);">Click Here style="color: rgb(0, 0, 128);"> to view a larger version of
this diagram

class="MsoNormal"> style="font-size: 14pt; line-height: 115%; font-family: "Arial","sans-serif"; font-weight: bold; color: black;">Section
B) Valuation style="font-size: 14pt; line-height: 115%; font-family: "Arial","sans-serif"; font-weight: bold; color: black;"> href="Chartbook.html#Library"> style="font-family: "Arial","sans-serif";">Return to Library

Chart B1) Home Prices
over Present Value of Rents
style="color: rgb(80, 80, 80); font-family: Arial; font-size: 14px; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: 21px; text-align: left; text-indent: 0px; text-transform: none; white-space: normal; word-spacing: 0px; background-color: rgb(255, 255, 255); display: inline ! important; float: none;">
In
theory, residential real estate prices should equal the discounted sum
of future rental income. As a result, we have attempted to
estimate fair values for residential real estate in major cities by
comparing actual prices to theoretical discounted prices (valuation
ratio). In theory, this ratio should equal one and deviations
from this value should regress back to the value one over
time.
Note, discounted cash flow calculations are highly volatile and
dependent on underlying model assumptions. However based off
of
this methodology, Canadian real estate appears extremely expensive in
most major markets. Canadian real estate only appears
somewhat
reasonably priced if the assumption that current emergency low interest
rates continue indefinitely into the future. Any increase in
interest rates to even pre recession levels (which were also
historically low) causes Canadian real estate as a whole to appear
grossly overvalued.

href="http://www.pacificapartners.ca/blog/wp-content/uploads/2013/05/I-Home-Prices-over-PV-of-Rents.png"
target="_blank"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> alt="Home Prices over Present Value of Rents"
src="http://www.pacificapartners.ca/blog/wp-content/uploads/2013/05/I-Home-Prices-over-PV-of-Rents.png"
style="border: 0px solid ; margin: 5px; line-height: 100%; text-decoration: none; display: inline; width: 600px; height: 367px;"
hspace="5" vspace="5">

class="Apple-style-span" style="line-height: 14px;"> href="http://www.pacificapartners.ca/blog/wp-content/uploads/2013/05/I-Home-Prices-over-PV-of-Rents.png"
target="_blank"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> style="color: rgb(0, 0, 128);">Click Here style="color: rgb(0, 0, 128);"> to view a larger version of
this diagram

Table B1) Home Prices
over Present Value of Rents

Using
the data from Chart B1 above, the following table attempts to quantify
the degree of price correction necessary to return the valuation ratio
in these five real estate markets back to the historical average
valuation ratio. The price corrections necessary to return
the
valuation ratio to the historical moving average range from -39% in
Montreal, to -31% in Edmonton.

href="http://pacificapartners.ca/blog/wp-content/uploads/2013/05/I-Home-Prices-over-PV-of-Rents-TABLE.png"
target="_blank"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> alt="Home Prices over Present Value of Rents Table"
src="http://pacificapartners.ca/blog/wp-content/uploads/2013/05/I-Home-Prices-over-PV-of-Rents-TABLE.png"
style="border: 0px solid ; margin: 5px; line-height: 100%; text-decoration: none; display: inline; width: 600px; height: 367px;"
hspace="5" vspace="5">

class="Apple-style-span" style="line-height: 14px;"> href="http://pacificapartners.ca/blog/wp-content/uploads/2013/05/I-Home-Prices-over-PV-of-Rents-TABLE.png"
target="_blank"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> style="color: rgb(0, 0, 128);">Click Here style="color: rgb(0, 0, 128);"> to view a larger version of
this diagram

Chart B3) Home
Prices to Rents

style="color: rgb(3, 185, 155); font-weight: bold;"
class="MsoNormal"> style="font-weight: normal; color: rgb(51, 0, 0);">Canadian
home prices are currently not in line with historic multiples of
residential rental prices. Most extended from historical
norms
are Vancouver, Montreal, and Toronto. While Edmonton and
Calgary,
are elevated from historic averages but below previous witnessed
highs.

href="http://pacificapartners.ca/blog/wp-content/uploads/2013/05/H-Price-to-Rent.png"
target="_blank"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> alt="Home Price to Rent"
src="http://pacificapartners.ca/blog/wp-content/uploads/2013/05/H-Price-to-Rent.png"
style="border: 0px solid ; margin: 5px; line-height: 100%; text-decoration: none; display: inline; width: 600px; height: 367px;"
hspace="5" vspace="5">

class="Apple-style-span" style="line-height: 14px;"> href="http://pacificapartners.ca/blog/wp-content/uploads/2013/05/H-Price-to-Rent.png"
target="_blank"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> style="color: rgb(0, 0, 128);">Click Here style="color: rgb(0, 0, 128);"> to view a larger version of
this diagram

class="MsoNormal"> style="font-size: 14pt; line-height: 115%; font-family: "Arial","sans-serif"; font-weight: bold; color: black;">Section
C) Real Index Values style="font-size: 14pt; line-height: 115%; font-family: "Arial","sans-serif"; font-weight: bold; color: black;"> name="Real_Index_Values"> href="Chartbook.html#Library"> style="font-family: "Arial","sans-serif";">Return to Library

style="color: rgb(3, 185, 155); font-weight: bold;"
class="MsoNormal"> style="font-family: "Arial","sans-serif"; font-weight: normal; color: rgb(51, 51, 51);">Chart
C1) Canadian
Real Rent Index

style="color: rgb(3, 185, 155); font-weight: bold;"
class="MsoNormal"> href="http://pacificapartners.ca/blog/wp-content/uploads/2013/05/K-Canadian-real-rent-index.png"
target="_blank"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> alt="Canadian Real Rent Index"
src="http://pacificapartners.ca/blog/wp-content/uploads/2013/05/K-Canadian-real-rent-index.png"
style="border: 0px solid ; margin: 5px; line-height: 100%; text-decoration: none; display: inline; width: 600px; height: 367px;"
hspace="5" vspace="5">

class="Apple-style-span" style="line-height: 14px;"> href="http://pacificapartners.ca/blog/wp-content/uploads/2013/05/K-Canadian-real-rent-index.png"
target="_blank"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> style="color: rgb(0, 0, 128);">Click Here style="color: rgb(0, 0, 128);"> href="http://pacificapartners.ca/blog/wp-content/uploads/2013/05/K-Canadian-real-rent-index.png"
target="_blank"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;">
to view a larger version of
this diagram

style="color: rgb(3, 185, 155); font-weight: bold;"
class="MsoNormal"> style="font-family: "Arial","sans-serif"; font-weight: normal; color: rgb(51, 51, 51);">Chart
C2) Canadian
Real Home Price Index

style="color: rgb(3, 185, 155); font-weight: bold;"
class="MsoNormal"> href="http://pacificapartners.ca/blog/wp-content/uploads/2013/05/L-Canadian-real-home-price-index.png"
target="_blank"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> alt="Canadian Real Home Price Index"
src="http://pacificapartners.ca/blog/wp-content/uploads/2013/05/L-Canadian-real-home-price-index.png"
style="border: 0px solid ; margin: 5px; line-height: 100%; text-decoration: none; display: inline; width: 600px; height: 367px;"
hspace="5" vspace="5">

class="Apple-style-span" style="line-height: 14px;"> href="http://pacificapartners.ca/blog/wp-content/uploads/2013/05/L-Canadian-real-home-price-index.png"
target="_blank"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> style="color: rgb(0, 0, 128);">Click Here style="color: rgb(0, 0, 128);"> to view a larger version of
this diagram

style="font-size: 14pt; line-height: 115%; font-family: "Arial","sans-serif"; font-weight: bold; color: black;"> style="font-size: 14pt; line-height: 115%; font-family: "Arial","sans-serif"; font-weight: bold; color: black;">Section
D) Canadian versus US Real Estate style="font-size: 14pt; line-height: 115%; font-family: "Arial","sans-serif"; font-weight: bold; color: black;">
style="font-family: "Arial","sans-serif";">Return to Library

style="color: rgb(3, 185, 155); font-weight: bold;"
class="MsoNormal"> href="http://pacificapartners.ca/blog/wp-content/uploads/2013/05/US-Home-Prices-vs.-Toronto-Home-Prices.png"
target="_blank"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> alt="Canadian Real Rent Index"
src="http://pacificapartners.ca/blog/wp-content/uploads/2013/05/US-Home-Prices-vs.-Toronto-Home-Prices.png"
style="border: 0px solid ; margin: 5px; line-height: 100%; text-decoration: none; display: inline; width: 600px; height: 367px;"
hspace="5" vspace="5">

class="Apple-style-span" style="line-height: 14px;"> href="http://pacificapartners.ca/blog/wp-content/uploads/2013/05/US-Home-Prices-vs.-Toronto-Home-Prices.png"
target="_blank"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> style="color: rgb(0, 0, 128);">Click Here style="color: rgb(0, 0, 128);"> to view a larger version of
this diagram style="font-size: 14pt; line-height: 115%; font-family: "Arial","sans-serif"; font-weight: bold; color: black;"> style="font-size: 14pt; line-height: 115%; font-family: "Arial","sans-serif"; font-weight: bold; color: black;">

style="font-size: 14pt; line-height: 115%; font-family: "Arial","sans-serif"; font-weight: bold; color: black;">

style="font-family: "Arial","sans-serif"; font-weight: normal; color: rgb(51, 51, 51);">Chart
D3) US
Home Prices vs Montreal Home Prices style="color: rgb(80, 80, 80); font-family: Arial; font-size: 14px; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: 21px; text-align: justify; text-indent: 0px; text-transform: none; white-space: normal; word-spacing: 0px; background-color: rgb(255, 255, 255); display: inline ! important; float: none;">

style="color: rgb(3, 185, 155); font-weight: bold;"
class="MsoNormal"> href="http://pacificapartners.ca/blog/wp-content/uploads/2013/05/US-Home-Prices-vs.-Montreal-Home-Prices.png"
target="_blank"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> alt="Canadian Real Rent Index"
src="http://pacificapartners.ca/blog/wp-content/uploads/2013/05/US-Home-Prices-vs.-Montreal-Home-Prices.png"
style="border: 0px solid ; margin: 5px; line-height: 100%; text-decoration: none; display: inline; width: 600px; height: 367px;"
hspace="5" vspace="5">

class="Apple-style-span" style="line-height: 14px;"> href="http://pacificapartners.ca/blog/wp-content/uploads/2013/05/US-Home-Prices-vs.-Montreal-Home-Prices.png"
target="_blank"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> style="color: rgb(0, 0, 128);">Click Here style="color: rgb(0, 0, 128);"> to view a larger version of
this diagram style="font-size: 14pt; line-height: 115%; font-family: "Arial","sans-serif"; font-weight: bold; color: black;"> style="font-size: 14pt; line-height: 115%; font-family: "Arial","sans-serif"; font-weight: bold; color: black;">

style="font-size: 14pt; line-height: 115%; font-family: "Arial","sans-serif"; font-weight: bold; color: black;">

style="font-family: "Arial","sans-serif"; font-weight: normal; color: rgb(51, 51, 51);">Chart
D4) US
Home Prices vs Calgary Home Prices style="color: rgb(80, 80, 80); font-family: Arial; font-size: 14px; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: 21px; text-align: justify; text-indent: 0px; text-transform: none; white-space: normal; word-spacing: 0px; background-color: rgb(255, 255, 255); display: inline ! important; float: none;">

style="color: rgb(3, 185, 155); font-weight: bold;"
class="MsoNormal"> href="http://pacificapartners.ca/blog/wp-content/uploads/2013/05/US-Home-Prices-vs.-Calgary-Home-Prices.png"
target="_blank"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> alt="Canadian Real Rent Index"
src="http://pacificapartners.ca/blog/wp-content/uploads/2013/05/US-Home-Prices-vs.-Calgary-Home-Prices.png"
style="border: 0px solid ; margin: 5px; line-height: 100%; text-decoration: none; display: inline; width: 600px; height: 367px;"
hspace="5" vspace="5">

class="Apple-style-span" style="line-height: 14px;"> href="http://pacificapartners.ca/blog/wp-content/uploads/2013/05/US-Home-Prices-vs.-Calgary-Home-Prices.png"
target="_blank"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> style="color: rgb(0, 0, 128);">Click Here style="color: rgb(0, 0, 128);"> to view a larger version of
this diagram style="font-size: 14pt; line-height: 115%; font-family: "Arial","sans-serif"; font-weight: bold; color: black;"> style="font-size: 14pt; line-height: 115%; font-family: "Arial","sans-serif"; font-weight: bold; color: black;">

style="font-family: "Arial","sans-serif"; font-weight: normal; color: rgb(51, 51, 51);"> style="font-size: 14pt; line-height: 115%; font-family: "Arial","sans-serif"; font-weight: bold; color: black;">Section
E) Canadian City Summaries style="font-size: 14pt; line-height: 115%; font-family: "Arial","sans-serif"; font-weight: bold; color: black;">
style="font-family: "Arial","sans-serif";">Return to Library

style="color: rgb(3, 185, 155); font-weight: bold;"
class="MsoNormal"> style="font-family: "Arial","sans-serif"; font-weight: normal; color: rgb(51, 51, 51);">Chart
E1) Vancouver

style="color: rgb(3, 185, 155); font-weight: bold;"
class="MsoNormal"> href="http://pacificapartners.ca/blog/wp-content/uploads/2013/05/Summary-Vancouver.png"
target="_blank"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> alt="Canadian Real Rent Index"
src="http://pacificapartners.ca/blog/wp-content/uploads/2013/05/Summary-Vancouver.png"
style="border: 0px solid ; margin: 5px; line-height: 100%; text-decoration: none; display: inline; width: 600px; height: 367px;"
hspace="5" vspace="5">

class="Apple-style-span" style="line-height: 14px;"> href="http://pacificapartners.ca/blog/wp-content/uploads/2013/05/Summary-Vancouver.png"
target="_blank"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> style="color: rgb(0, 0, 128);">Click Here style="color: rgb(0, 0, 128);"> to view a larger version of
this diagram

style="font-family: "Arial","sans-serif"; font-weight: normal; color: rgb(51, 51, 51);">Chart
E2) Edmonton style="color: rgb(80, 80, 80); font-family: Arial; font-size: 14px; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: 21px; text-align: justify; text-indent: 0px; text-transform: none; white-space: normal; word-spacing: 0px; background-color: rgb(255, 255, 255); display: inline ! important; float: none;">

style="color: rgb(3, 185, 155); font-weight: bold;"
class="MsoNormal"> href="http://pacificapartners.ca/blog/wp-content/uploads/2013/05/Summary-Edmonton.png"
target="_blank"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> alt="Canadian Real Rent Index"
src="http://pacificapartners.ca/blog/wp-content/uploads/2013/05/Summary-Edmonton.png"
style="border: 0px solid ; margin: 5px; line-height: 100%; text-decoration: none; display: inline; width: 600px; height: 367px;"
hspace="5" vspace="5">

class="Apple-style-span" style="line-height: 14px;"> href="http://pacificapartners.ca/blog/wp-content/uploads/2013/05/Summary-Edmonton.png"
target="_blank"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> style="color: rgb(0, 0, 128);">Click Here style="color: rgb(0, 0, 128);"> to view a larger version of
this diagram

style="font-family: "Arial","sans-serif"; font-weight: normal; color: rgb(51, 51, 51);">Chart
E3) Calgary style="color: rgb(80, 80, 80); font-family: Arial; font-size: 14px; font-style: normal; font-variant: normal; letter-spacing: normal; line-height: 21px; text-align: justify; text-indent: 0px; text-transform: none; white-space: normal; word-spacing: 0px; background-color: rgb(255, 255, 255); display: inline ! important; float: none; font-weight: bold;">

style="color: rgb(3, 185, 155); font-weight: bold;"
class="MsoNormal"> href="http://pacificapartners.ca/blog/wp-content/uploads/2013/05/Summary-Calgary.png"
target="_blank"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> alt="Canadian Real Rent Index"
src="http://pacificapartners.ca/blog/wp-content/uploads/2013/05/Summary-Calgary.png"
style="border: 0px solid ; margin: 5px; line-height: 100%; text-decoration: none; display: inline; width: 600px; height: 367px;"
hspace="5" vspace="5">

class="Apple-style-span" style="line-height: 14px;"> href="http://pacificapartners.ca/blog/wp-content/uploads/2013/05/Summary-Calgary.png"
target="_blank"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> style="color: rgb(0, 0, 128);">Click Here style="color: rgb(0, 0, 128);"> to view a larger version of
this diagram

style="font-family: "Arial","sans-serif"; font-weight: normal; color: rgb(51, 51, 51);">Chart
E4) Winnipeg style="color: rgb(80, 80, 80); font-family: Arial; font-size: 14px; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: 21px; text-align: justify; text-indent: 0px; text-transform: none; white-space: normal; word-spacing: 0px; background-color: rgb(255, 255, 255); display: inline ! important; float: none;">

style="color: rgb(3, 185, 155); font-weight: bold;"
class="MsoNormal"> href="http://pacificapartners.ca/blog/wp-content/uploads/2013/05/Summary-Winnipeg.png"
target="_blank"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> alt="Canadian Real Rent Index"
src="http://pacificapartners.ca/blog/wp-content/uploads/2013/05/Summary-Winnipeg.png"
style="border: 0px solid ; margin: 5px; line-height: 100%; text-decoration: none; display: inline; width: 600px; height: 367px;"
hspace="5" vspace="5">

class="Apple-style-span" style="line-height: 14px;"> href="http://pacificapartners.ca/blog/wp-content/uploads/2013/05/Summary-Winnipeg.png"
target="_blank"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> style="color: rgb(0, 0, 128);">Click Here style="color: rgb(0, 0, 128);"> to view a larger version of
this diagram

style="font-family: "Arial","sans-serif"; font-weight: normal; color: rgb(51, 51, 51);">Chart
E5) Toronto style="color: rgb(80, 80, 80); font-family: Arial; font-size: 14px; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: 21px; text-align: justify; text-indent: 0px; text-transform: none; white-space: normal; word-spacing: 0px; background-color: rgb(255, 255, 255); display: inline ! important; float: none;">

style="color: rgb(3, 185, 155); font-weight: bold;"
class="MsoNormal"> href="http://pacificapartners.ca/blog/wp-content/uploads/2013/05/Summary-Toronto.png"
target="_blank"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> alt="Canadian Real Rent Index"
src="http://pacificapartners.ca/blog/wp-content/uploads/2013/05/Summary-Toronto.png"
style="border: 0px solid ; margin: 5px; line-height: 100%; text-decoration: none; display: inline; width: 600px; height: 367px;"
hspace="5" vspace="5">

class="Apple-style-span" style="line-height: 14px;"> href="http://pacificapartners.ca/blog/wp-content/uploads/2013/05/Summary-Toronto.png"
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this diagram

style="font-family: "Arial","sans-serif"; font-weight: normal; color: rgb(51, 51, 51);">Chart
E6) Ottawa style="color: rgb(80, 80, 80); font-family: Arial; font-size: 14px; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: 21px; text-align: justify; text-indent: 0px; text-transform: none; white-space: normal; word-spacing: 0px; background-color: rgb(255, 255, 255); display: inline ! important; float: none;">

style="color: rgb(3, 185, 155); font-weight: bold;"
class="MsoNormal"> href="http://pacificapartners.ca/blog/wp-content/uploads/2013/05/Summary-Ottawa.png"
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src="http://pacificapartners.ca/blog/wp-content/uploads/2013/05/Summary-Ottawa.png"
style="border: 0px solid ; margin: 5px; line-height: 100%; text-decoration: none; display: inline; width: 600px; height: 367px;"
hspace="5" vspace="5">

class="Apple-style-span" style="line-height: 14px;"> href="http://pacificapartners.ca/blog/wp-content/uploads/2013/05/Summary-Ottawa.png"
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style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> style="color: rgb(0, 0, 128);">Click Here style="color: rgb(0, 0, 128);"> to view a larger version of
this diagram

style="font-family: "Arial","sans-serif"; font-weight: normal; color: rgb(51, 51, 51);">Chart
E7) Montreal style="color: rgb(80, 80, 80); font-family: Arial; font-size: 14px; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: 21px; text-align: justify; text-indent: 0px; text-transform: none; white-space: normal; word-spacing: 0px; background-color: rgb(255, 255, 255); display: inline ! important; float: none;">

style="color: rgb(3, 185, 155); font-weight: bold;"
class="MsoNormal"> href="http://pacificapartners.ca/blog/wp-content/uploads/2013/05/Summary-Montreal.png"
target="_blank"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> alt="Canadian Real Rent Index"
src="http://pacificapartners.ca/blog/wp-content/uploads/2013/05/Summary-Montreal.png"
style="border: 0px solid ; margin: 5px; line-height: 100%; text-decoration: none; display: inline; width: 600px; height: 367px;"
hspace="5" vspace="5">

class="Apple-style-span" style="line-height: 14px;"> href="http://pacificapartners.ca/blog/wp-content/uploads/2013/05/Summary-Montreal.png"
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this diagram

style="font-family: "Arial","sans-serif"; font-weight: normal; color: rgb(51, 51, 51);">Chart
E8) Halifax style="color: rgb(80, 80, 80); font-family: Arial; font-size: 14px; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: 21px; text-align: justify; text-indent: 0px; text-transform: none; white-space: normal; word-spacing: 0px; background-color: rgb(255, 255, 255); display: inline ! important; float: none;">

style="color: rgb(3, 185, 155); font-weight: bold;"
class="MsoNormal"> href="http://pacificapartners.ca/blog/wp-content/uploads/2013/05/Summary-Halifax.png"
target="_blank"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> alt="Canadian Real Rent Index"
src="http://pacificapartners.ca/blog/wp-content/uploads/2013/05/Summary-Halifax.png"
style="border: 0px solid ; margin: 5px; line-height: 100%; text-decoration: none; display: inline; width: 600px; height: 367px;"
hspace="5" vspace="5">

class="Apple-style-span" style="line-height: 14px;"> href="http://pacificapartners.ca/blog/wp-content/uploads/2013/05/Summary-Halifax.png"
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this diagram

style="font-size: 14pt; line-height: 115%; font-family: "Arial","sans-serif"; font-weight: bold; color: black;">Section
F) Home Price and Sales Pair Volume Change for Major Canadian
Cities style="font-size: 14pt; line-height: 115%; font-family: "Arial","sans-serif"; font-weight: bold; color: black;">
style="font-family: "Arial","sans-serif";">Return to Library

style="color: rgb(3, 185, 155); font-weight: bold;"
class="MsoNormal"> href="http://pacificapartners.ca/blog/wp-content/uploads/2013/05/Teranet-Calgary.png"
target="_blank"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> alt="Canadian Home Price Index"
src="http://pacificapartners.ca/blog/wp-content/uploads/2013/05/Teranet-Calgary.png"
style="border: 0px solid ; margin: 5px; line-height: 100%; text-decoration: none; display: inline; width: 600px; height: 367px;"
hspace="5" vspace="5">

class="Apple-style-span" style="line-height: 14px;"> href="http://pacificapartners.ca/blog/wp-content/uploads/2013/05/Teranet-Calgary.png"
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this diagram

style="line-height: 14px;"> style="color: rgb(0, 0, 128);">

style="color: rgb(3, 185, 155); font-weight: bold;"
class="MsoNormal"> href="http://pacificapartners.ca/blog/wp-content/uploads/2013/05/Teranet-Vancouver.png"
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src="http://pacificapartners.ca/blog/wp-content/uploads/2013/05/Teranet-Vancouver.png"
style="border: 0px solid ; margin: 5px; line-height: 100%; text-decoration: none; display: inline; width: 600px; height: 367px;"
hspace="5" vspace="5">

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src="http://pacificapartners.ca/blog/wp-content/uploads/2013/05/Teranet-Toronto.png"
style="border: 0px solid ; margin: 5px; line-height: 100%; text-decoration: none; display: inline; width: 600px; height: 367px;"
hspace="5" vspace="5">

class="Apple-style-span" style="line-height: 14px;"> href="http://pacificapartners.ca/blog/wp-content/uploads/2013/05/Teranet-Toronto.png"
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this diagram

style="color: rgb(3, 185, 155); font-weight: bold;"
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src="http://pacificapartners.ca/blog/wp-content/uploads/2013/05/Teranet-Ottawa.png"
style="border: 0px solid ; margin: 5px; line-height: 100%; text-decoration: none; display: inline; width: 600px; height: 367px;"
hspace="5" vspace="5">

class="Apple-style-span" style="line-height: 14px;"> href="http://pacificapartners.ca/blog/wp-content/uploads/2013/05/Teranet-Ottawa.png"
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this diagram

style="color: rgb(3, 185, 155); font-weight: bold;"
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target="_blank"
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src="http://pacificapartners.ca/blog/wp-content/uploads/2013/05/Teranet-Montreal.png"
style="border: 0px solid ; margin: 5px; line-height: 100%; text-decoration: none; display: inline; width: 600px; height: 367px;"
hspace="5" vspace="5">

class="Apple-style-span" style="line-height: 14px;"> href="http://pacificapartners.ca/blog/wp-content/uploads/2013/05/Teranet-Montreal.png"
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this diagram

style="color: rgb(3, 185, 155); font-weight: bold;"
class="MsoNormal"> href="http://pacificapartners.ca/blog/wp-content/uploads/2013/05/Teranet-Halifax.png"
target="_blank"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> alt="Canadian Home Price Index"
src="http://pacificapartners.ca/blog/wp-content/uploads/2013/05/Teranet-Halifax.png"
style="border: 0px solid ; margin: 5px; line-height: 100%; text-decoration: none; display: inline; width: 600px; height: 367px;"
hspace="5" vspace="5">

class="Apple-style-span" style="line-height: 14px;"> href="http://pacificapartners.ca/blog/wp-content/uploads/2013/05/Teranet-Halifax.png"
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style="line-height: 14px;"> style="color: rgb(0, 0, 128);">

style="font-size: 14pt; line-height: 115%; font-family: "Arial","sans-serif"; font-weight: bold; color: black;">Section
G) Stocks versus Real Estate style="font-size: 14pt; line-height: 115%; font-family: "Arial","sans-serif"; font-weight: bold; color: black;">
style="font-family: "Arial","sans-serif";">Return to Library

style="font-family: "Arial","sans-serif"; font-weight: normal; color: rgb(51, 51, 51);">Chart
G1) Canadian
Stocks vs. Canadian Real Estate (Long Term)

style="color: rgb(3, 185, 155); font-weight: bold;"
class="MsoNormal"> href="http://pacificapartners.ca/blog/wp-content/uploads/2013/05/Stock-vs-Real-Estate-Long-Term-SP-TSX.png"
target="_blank"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> alt="Canadian Home Price Index"
src="http://pacificapartners.ca/blog/wp-content/uploads/2013/05/Stock-vs-Real-Estate-Long-Term-SP-TSX.png"
style="border: 0px solid ; margin: 5px; line-height: 100%; text-decoration: none; display: inline; width: 600px; height: 367px;"
hspace="5" vspace="5">

class="Apple-style-span" style="line-height: 14px;"> href="http://pacificapartners.ca/blog/wp-content/uploads/2013/05/Stock-vs-Real-Estate-Long-Term-SP-TSX.png"
target="_blank"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> style="color: rgb(0, 0, 128);">Click Here style="color: rgb(0, 0, 128);"> to view a larger version of
this diagram

style="font-family: "Arial","sans-serif"; font-weight: normal; color: rgb(51, 51, 51);">Chart
G2) Canadian
Stocks vs. Canadian Real Estate (Medium Term)

style="color: rgb(3, 185, 155); font-weight: bold;"
class="MsoNormal"> href="http://pacificapartners.ca/blog/wp-content/uploads/2013/05/Stock-vs-Real-Estate-Medium-Term-SP-TSX.png"
target="_blank"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> alt="Canadian Home Price Index"
src="http://pacificapartners.ca/blog/wp-content/uploads/2013/05/Stock-vs-Real-Estate-Medium-Term-SP-TSX.png"
style="border: 0px solid ; margin: 5px; line-height: 100%; text-decoration: none; display: inline; width: 600px; height: 367px;"
hspace="5" vspace="5">

class="Apple-style-span" style="line-height: 14px;"> href="http://pacificapartners.ca/blog/wp-content/uploads/2013/05/Stock-vs-Real-Estate-Medium-Term-SP-TSX.png"
target="_blank"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> style="color: rgb(0, 0, 128);">Click Here style="color: rgb(0, 0, 128);"> to view a larger version of
this diagram

style="font-family: "Arial","sans-serif"; font-weight: normal; color: rgb(51, 51, 51);">Chart
G3) US Stocks vs
US Real Estate (Long Term)

style="color: rgb(3, 185, 155); font-weight: bold;"
class="MsoNormal"> href="http://pacificapartners.ca/blog/wp-content/uploads/2013/05/Stock-vs-Real-Estate-Long-Term-SP-500.png"
target="_blank"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> alt="Canadian Home Price Index"
src="http://pacificapartners.ca/blog/wp-content/uploads/2013/05/Stock-vs-Real-Estate-Long-Term-SP-500.png"
style="border: 0px solid ; margin: 5px; line-height: 100%; text-decoration: none; display: inline; width: 600px; height: 367px;"
hspace="5" vspace="5">

class="Apple-style-span" style="line-height: 14px;"> href="http://pacificapartners.ca/blog/wp-content/uploads/2013/05/Stock-vs-Real-Estate-Long-Term-SP-500.png"
target="_blank"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> style="color: rgb(0, 0, 128);">Click Here style="color: rgb(0, 0, 128);"> to view a larger version of
this diagram

style="font-family: "Arial","sans-serif"; font-weight: normal; color: rgb(51, 51, 51);">Chart
G4) US Stocks vs
US Real Estate (Medium Term)

style="color: rgb(3, 185, 155); font-weight: bold;"
class="MsoNormal"> href="http://pacificapartners.ca/blog/wp-content/uploads/2013/05/Stock-vs-Real-Estate-Medium-Term-SP-500.png"
target="_blank"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> alt="Canadian Home Price Index"
src="http://pacificapartners.ca/blog/wp-content/uploads/2013/05/Stock-vs-Real-Estate-Medium-Term-SP-500.png"
style="border: 0px solid ; margin: 5px; line-height: 100%; text-decoration: none; display: inline; width: 600px; height: 367px;"
hspace="5" vspace="5">

class="Apple-style-span" style="line-height: 14px;"> href="http://pacificapartners.ca/blog/wp-content/uploads/2013/05/Stock-vs-Real-Estate-Medium-Term-SP-500.png"
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this diagram

Thank you to the following data providers:

href="http://www.housepriceindex.ca/">Teranet-National Bank
href="http://www5.statcan.gc.ca/cansim/home-accueil?lang=eng">Statistics
Canada
href="http://www.standardandpoors.com/home/en/us">Standard
& Poor’s
href="http://www.tradingeconomics.com/canada/indicators">Trading
Economics
OECD
Bank
of Canada
href="http://www.econ.yale.edu/%7Eshiller/data.htm"
target="_blank">Dr. Robert J. Shiller

class="addthis_toolbox addthis_default_style addthis_32x32_style">

Pacifica
Partners Capital Management style="color: rgb(0, 128, 128);">
Inc. style="color: rgb(0, 128, 128);">

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hspace="5" vspace="15">

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class="Apple-style-span" style="line-height: 14px;">Copyright
(C) 2013 Pacifica Partners Capital Management Inc. All rights reserved.

The buying power of Gold

Pacifica Partners — Thu, 18 Apr 2013 23:10:00 PDT

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With a decade of surging gold prices behind us and a more recent period of weakness that has sent bullion back to mid-2011 levels, investors are left wondering what to do. This question actually consists of two real dilemmas. Firstly, for those owning copious amounts of bullion, gold-stocks, or other precious metals – do I sell? For everyone else the question reduces down to, should I buy because gold is “cheap”?.
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style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> src="http://www.pacificapartners.com/blog/wp-content/uploads/2013/04/Gold-Versus-Stocks-USA.png"
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valign="top"> style="color: rgb(80, 80, 80); font-family: Arial; font-size: 14px; line-height: 150%; text-align: left; background-color: white;">With
a decade of surging gold prices behind us and a more recent period
of weakness that has sent bullion back to mid-2011 levels, investors
are left wondering what to do. This question actually
consists of two real dilemmas. Firstly, for those owning copious
amounts of bullion, gold-stocks, or other precious metals – do I
sell? For everyone else the question reduces down to, should
I buy because gold is “cheap”?

href="http://pacificapartners.com/contact/"> style="border: 0px solid ; width: 210px; height: 558px; float: right;"
alt="Investment Guidance"
src="http://www.pacificapartners.com/blog/wp-content/uploads/2013/04/A-Team-Approach-to-Wealth-Management-USA.png"
hspace="15" vspace="5">Burdening the
decision making of investors is the overabundance of polarized articles
by “gold-bugs” and those less in favor of the yellow metal.
Even billionaire investor Warren Buffet is frequently cited in the
debate through his 1998 observations on gold in which he stated, “Gold
gets dug out of the ground… we melt it down, dig another hole, bury it
again and pay people to stand around guarding it. It has no utility.
Anyone watching from Mars would be scratching their head.”

It is true that Gold is a relatively useless metal. It is not
used widely in electronics unlike silver, it isn’t widely used in the
automotive industry unlike platinum, nor does it conduct electricity as
well as copper, and we needn’t even begin to make a comparison on the
uses of gold versus steel. However, it is important to
remember that gold has spanned thousands of years as a cornerstone of
monetary systems. Ancient Egyptians used gold bars
to standardize exchange of goods and gold even backed the US dollar
until as recently as the 1970s.

It
is because of this that gold investors should ultimately view gold as a
currency similar to the Yen, Euro, or US Greenback. The value
of gold comes from the fact that it is an element and can’t be created
thereby holding its value through scarcity and not through any
industrial uses. This point becomes even more important as
governments around the world look to devalue their currencies through
stimulus programs such as the US Fed’s Quantitative Easing, or as in
Japan with their recent attempts to reflate their deflationary economy
through massive Yen devaluation. As these fiat currencies
become more abundant, their purchasing power should ultimately suffer.
Or so the common argument goes.

href="http://pacificapartners.com/blog/wp-content/uploads/2012/10/Failed-US-Bank-Chart-With-Logo.png"> class="Apple-style-span" style="line-height: 14px;"> href="http://www.pacificapartners.com/blog/wp-content/uploads/2013/04/Gold-versus-stocks-chart.png"
target="_blank"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> alt="Gold versus stocks"
src="http://pacificapartners.com/blog/wp-content/uploads/2013/04/Gold-versus-stocks-chart.png"
style="border: 0px solid ; margin: 5px; line-height: 100%; text-decoration: none; display: inline; width: 600px; height: 367px;"
hspace="5" vspace="5">

class="Apple-style-span" style="line-height: 14px;"> href="http://www.pacificapartners.com/blog/wp-content/uploads/2013/04/Gold-versus-stocks-chart.png"
target="_blank"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> style="color: rgb(0, 0, 128);">Click Here style="color: rgb(0, 0, 128);"> to view a larger version of
this diagram

The
natural question that now arises is if gold is a currency, then what is
its buying power? The chart above examines this by comparing
stocks, S&P 500, to gold bullion for the last 142
years. Specifically, how many ounces of gold can be
purchased by one “unit” of the S&P 500 (US stocks).
The higher the number, the less buying power gold has versus stocks,
thus gold is “cheap” relative to stocks historically. The
lower the number, the greater buying power gold has, or gold is
“expensive” relative to stocks historically.

The
bullion-stock ratio peaked during the dot com bubble as equity markets
soared and bullion pricing remained stagnant. The ratio
reached a record of five ounces of gold for each “unit” of the
S&P 500. The gold bull market that ensued for the
following decade reduced the ratio to just under a value of
one. Comparing this ratio to the period after 1971
when gold was enabled to be freely priced following the abolishment of
the gold standard is revealing. The purchasing power of gold
relative to US stocks is actually very close to what it has been over
the last four decades. Although gold does not look extremely
cheap relative to stocks as it did in 2000, it also does not look
extremely expensive as it did in the early 1980s. Thus
fleeing bullion as a result of a belief that its buying power
is over extended may be less than prudent.

The triggering event in the panicked sale of bullion this week was the
announcement by Cyprus that it would be selling style="background: white none repeat scroll 0% 50%; -moz-background-clip: initial; -moz-background-origin: initial; -moz-background-inline-policy: initial; font-family: "Arial","sans-serif"; color: rgb(34, 34, 34);">€400m
worth of gold from its gold reserves. This amounts to a
sizeable fraction of Cypriot gold holdings. However,
according to the World Gold Council, Cypriot gold holdings are only the
59th largest gold holdings in the world. Thus even a sale of
their entire gold reserves, or 13.9 tonnes, would amount to only 0.17%
of US reserves or 0.059% of the gold reserves of the 10 largest
countries and organizations (including the IMF). Putting the
Cypriot gold sale into perspective should make investors questions
whether the magnitude on the bullion sell-off is warranted.
The above comparisons do not even take into consideration the
1,100 tonnes of bullion held by the SPDR GLD gold shares exchange
traded fund.

Canadian investors whose portfolios are heavy on bullion should be
aware that despite the apparent reasonableness in gold prices versus
stocks, gold price volatility will likely continue. Canada being the
seventh largest gold producer in the world and home of five of the ten
largest gold companies is already intimately tied to the strength or
weakness of bullion. Approximately 10% of all Canadian
publicly traded companies are gold or precious metal producers and
exploration companies. With demand for the precious metal comes demand
for the Canadian dollar and therefore a very palpable impact on the
Canadian consumer.

Pacifica
Partners style="color: rgb(0, 128, 128);">
style="color: rgb(0, 128, 128);">Capital
Management Inc.

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Not all stock buybacks are created equal

Pacifica Partners — Thu, 11 Apr 2013 17:04:36 PDT

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To an income oriented investor, today’s low interest rates are proving to be a challenge. The “easy money” policies of most central banks have driven interest rates “lower for longer” and created a demand for income oriented equities. The boards of many publicly traded companies have responded to the demand by promising to return cash back to shareholders through increased dividends and stock buybacks.
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The
following Pacifica Partners article was also published in the href="http://business.financialpost.com/2013/04/10/not-all-stock-buybacks-are-created-equal/"
target="_blank">Financial Post

To
an income oriented investor,
today’s low interest rates are proving to be a challenge. The “easy
money” policies of most central banks have driven interest rates “lower
for longer” and created a demand for income oriented equities. The
boards of many publicly traded companies have responded to the demand
by promising to return cash back to shareholders through increased
dividends and stock buybacks.

href="http://pacificapartners.com/contact/"> style="border: 0px solid ; width: 210px; height: 558px; float: right;"
alt="Investment Guidance"
src="http://www.pacificapartners.com/blog/wp-content/uploads/2013/04/Trust-Guidance-Experience-USA.png"
hspace="15" vspace="5">
While dividends are the most well-known method of returning cash to
shareholders stock buybacks are becoming increasingly important because
of the sheer dollar volume of these transactions. A stock buyback is
when companies purchase their own shares in the open market. Where the
cash for these purchases comes from is important: it is either borrowed
or generated from operating cash flow. For companies with strong credit
ratings, borrowing to fund share buybacks can make financial sense.

There
has been considerable debate as
to whether or not the benefits of share buybacks are better for
shareholders than simply rewarding them with direct cash payments
through increased dividends. In short, “What is the best bang for the
buck?” Some investors prefer the direct cash payments from dividends
over buybacks.

Supporters
of buybacks over dividends
believe that buybacks are in fact valuable because they reduce the
number of shares outstanding. This makes the remaining shares become
more valuable because they now represent a greater percentage ownership
in the company. However, this is not always the case. From the chart,
we can see that large stock buybacks do not always correlate to great
stock performance. For example, Safeway bought back over 40% of its
shares outstanding in the ten year period from 2003 to 2012 but its
stock price actually declined. The buyback history of the other
companies shows that price performance and size of the buyback do not
necessarily correlate well. This means that other factors such as
profitability and industry conditions that impact stock performance can
offset even substantial stock buybacks.

href="http://pacificapartners.com/blog/wp-content/uploads/2012/10/Failed-US-Bank-Chart-With-Logo.png"> class="Apple-style-span" style="line-height: 14px;"> href="http://pacificapartners.com/blog/wp-content/uploads/2013/04/Blog-Buybacks.png"
target="_blank"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> alt="Corporate Buybacks"
src="http://pacificapartners.com/blog/wp-content/uploads/2013/04/Blog-Buybacks.png"
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class="Apple-style-span" style="line-height: 14px;"> href="http://pacificapartners.com/blog/wp-content/uploads/2013/04/Blog-Buybacks.png"
target="_blank"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> style="color: rgb(0, 0, 128);">Click Here style="color: rgb(0, 0, 128);"> to view a larger version of
this diagram

In
short, not all buybacks are the
same. Some investors complain that buyback decisions are sometimes
driven by companies whose executive teams have their compensation tied
to changes in earnings per share (EPS). For example, some studies have
found that a company that needs to meet a certain EPS target often turn
to buybacks to hit its earnings target. Other times, companies buy back
their shares to offset the shares that they issue to key employees as
part of their compensation.

style="line-height: 14px;"> style="color: rgb(0, 0, 128);">

Too
often, great excitement is
generated by an announced buyback. What investors need to remember is
that an announcement is an intention – not a promise – to buy back
stock. According to data from Standard & Poor’s, of the 317
companies that repurchased shares in Q4 2012 only 98 actually reduced
their share count while 203 of these buyers saw their share counts
actually rise. This means that the companies were using the repurchases
to offset shares issued; that is, buying shares with one hand and
issuing more with the other.

style="line-height: 14px;"> style="color: rgb(0, 0, 128);">

Another
weakness often pointed out in
the buyback data is that too often companies buy back more shares near
peaks in their share price rather than when the shares are at low
points. This means that the buyback companies are not getting a “good
bang for the buck.”

One
of the strongest examples of
buybacks that largely reflect money not well spent was in 2007 – just
prior to the financial crisis. That year, U.S. companies set a record
for buybacks as companies spent $589.1-billion. It seems that
corporations and their boards that authorize buybacks tend to spend
more on buybacks during booms and are reluctant or unable to do
buybacks during downturns – when their share prices might reflect a
greater bargain price. Too often, these misplaced buybacks actually
destroy shareholder value.

While investors rightly focus on share buybacks as a potential positive
for equity returns, not all buybacks are the same. Investors must try
to sift through some of the noise that too often surrounds stock
buybacks and be able to separate the wheat from the chaff.

Pacifica
Partners style="color: rgb(0, 128, 128);">
style="color: rgb(0, 128, 128);">Capital
Management Inc.

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Social
Media: It is Pacifica Partners Capital Management Inc.’s policy not to
respond via online
and social media outlets to questions or comments directed to it or in
response to its online and social media
publications. Pacifica Partners Capital
Management does not
acknowledge or encourage testimonials posted by third party
individuals. Third party users that have bookmarked Pacifica
Partners Capital Management Inc.’s social media publications or profile
through options
including “like”, “follow”, or similar bookmarking variations are not
and should not be viewed as endorsement of Pacifica Partners Capital
Management Inc., its
services, or future or past investment performance. To view our full
disclaimer please href="http://pacificapartners.com/legal/vancouver-investment-management.html">click
here.
class="Apple-style-span" style="line-height: 14px;">
class="Apple-style-span" style="line-height: 14px;">Copyright
(C) 2013 Pacifica Partners Capital Management Inc. All rights reserved.

Debt, Profits, Canada & more

Pacifica Partners — Mon, 18 Feb 2013 10:48:26 PST

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In the final hours of the 2012 trading year, the financial markets showed their relief that Congress and the White House had reached an agreement and the “Fiscal Cliff” would be averted. The collective attention of the markets is now turning to the Debt Ceiling talks which involve Congress signing off on yet another increase in the borrowing limits of the US. Given that the US debt limit has been raised at regular intervals, some Congressional members are not willing to rubber stamp yet another debt limit increase. 
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data-auto-height="false" data-aspect-ratio="undefined"
id="doc_22034" frameborder="0" height="600"
scrolling="no" width="100%"> > style="font-style: italic; color: rgb(51, 51, 255);">If the
embedded document above is not
visible, the text and charts have also been included below as follows:

size="+1"> style="">
Turning the Page on the Fiscal Cliff

In
the final hours of the 2012 trading year, the financial markets showed
their relief that Congress and the White House had reached an agreement
and the “Fiscal Cliff” would be averted. The collective attention of
the markets is now turning to the Debt Ceiling talks which involve
Congress signing off on yet another increase in the borrowing limits of
the US. Given that the US debt limit has been raised at
regular intervals, some Congressional members are not willing to rubber
stamp yet another debt limit increase. This sets the table
for the next potential fight between Congress and the President and is
one that could upset investor portfolios. Essentially, the
“national credit card” of the US could be maxed out against the debt
ceiling. Without an agreement that would allow the US to borrow more,
the US could begin to default on its $16.4 trillion debt. The markets
would not take kindly to such an event.

Fortunately,
this is not a high probability event – though it could
still provide the markets a bumpy ride. Currently, the markets are
pricing in a scenario of yet another 11th hour deal.

Investors here find themselves at polar opposites. The pessimistic side
believes that the national debt is too high a hurdle for the economy to
overcome and the deleveraging process will continue for some time yet.
The bullish argument is that the economy is on the mend with a
rebounding housing and auto sector leading the way. Add in low
inflation, a Federal Reserve willing to hold interest rates lower for
longer, and rising corporate earnings and we have an attractive
environment. Globally, central banks are continuing their bold efforts
to seemingly do whatever it takes to ensure their respective economies
are strengthened. Nearly 40 central banks around the world are engaged
in aggressive monetary easing in order to stimulate their economies.

size="+1"> style="">Putting Money to Work

Investors
have been so cheered by this backdrop that for the week ending January
9th, they have put more capital to work into equity mutual funds in the
US than any other single week since October 2007. A similar occurrence
took place when US markets were peaking before the financial crisis.
This is a marked turnaround from the trend that has prevailed for the
last five years as investors withdrew close to $500 billion from US
equity mutual funds while adding $1.2 trillion to bond funds according
to the Investment Company Institute (see chart above).

This trend has also caught on in emerging markets (China, India,
Brazil, Russia, etc.). According to Morgan Stanley, emerging market
stock funds have seen cash inflows for 18 consecutive weeks. In
comparison the previous record was 29 weeks of money inflows ending
December 2010.

As we have highlighted over the years, such data points are not
comforting. In fact, extremes in investor fund flows tend to be a
contrarian indicator as mutual fund investors often invest by piling
into fads or assets that have already been bid up. It should be noted
that the last time we observed this much of an increase in investor
risk appetite, US equities tumbled 57 percent in almost 18 months after
the S&P 500 stock market index reached its peak in October
2007. However, no one indicator can be used in isolation and
there is currently a modest undercurrent of strength to the global
economy.

href="http://pacificapartners.com/blog/wp-content/uploads/2013/02/Chart-Fund-Flows.png"> style="border: 0px solid ; width: 500px; height: 399px;"
alt="Projected US Deficit in CBO's Baseline and Alternative Scenarios"
src="http://pacificapartners.com/blog/wp-content/uploads/2013/02/Chart-Fund-Flows.png"
hspace="5" vspace="5">

style="font-style: italic;">Chart source: href="http://www.ici.org/" target="_blank"> style="text-decoration: underline;">www.ici.org style="font-style: italic;"> to view a larger version of the
above chart href="http://pacificapartners.com/blog/wp-content/uploads/2013/02/Chart-Fund-Flows.png"
target="_blank">click here style="font-style: italic;"
href="http://pacificapartners.com/blog/wp-content/uploads/2013/02/Chart-Fund-Flows.png"
target="_blank">.

size="+1"> style="">Any Deal is Better than No Deal

Officially called the American Taxpayer Relief Act of 2012, the fiscal
cliff deal will raise revenue of $617 billion over the next ten years
as compared to the option of allowing the Bush tax cuts to carry on.
Over $540 billion will come from households making over $1 million per
year. While the budget deal provides markets with temporary relief from
anxiety, critics believe that the tax impact will actually raise taxes
on almost 80% of US taxpayers through higher income taxes, payroll
taxes or both. They state that the impact of the higher taxes will hurt
the economy while the US federal deficit will likely remain in the
frightening $1 trillion range and the debt-to-GDP ratio for 2013 will
still climb to about 107% of GDP from the current 100% level. The
budgetary challenge for the US will lie in whether or not the increase
in tax revenues outweighs the drag on the economy that those same tax
increases will create. Looking at the US budgetary numbers, this much
is clear: the budget will continue to be a headwind until the
tough
decisions on spending controls on entitlement programs and defense
budgets are made.

size="+1"> style="">Canada’s Challenge

Canada is going to be impacted by whatever route the US economy takes.
Domestic challenges to the Canadian economy are only now starting to
make the front pages. For some time, our commentaries and newsletters
have tried to make the point that Canadian consumer debt, elevated
house prices and accelerating government spending at the federal,
provincial and municipal levels could combine to hinder future economic
growth.

href="http://www.pacificapartners.com/blog/wp-content/uploads/2013/02/Leading-indicators-Canada-and-the-US.jpg"> style="border: 0px solid ; width: 590px; height: 322px;"
alt="Canadian Consumer Credit Growth YoY"
src="http://www.pacificapartners.com/blog/wp-content/uploads/2013/02/Leading-indicators-Canada-and-the-US.jpg">

style="font-style: italic;">Data
Source: href="http://www.oecd.org/" target="_blank">www.oecd.org style="font-style: italic;"> to view larger version
of this
chart href="http://www.pacificapartners.com/blog/wp-content/uploads/2013/02/Leading-indicators-Canada-and-the-US.jpg"
target="_blank">click here style="font-style: italic;">.

The Bank of Canada has kicked off 2013 with some candid comments
suggesting the economy is going to take longer to recover and rates
will stay low for sometime. One of the objectives of the fiscal and
monetary authorities in Canada has been to slow the increase in
household credit. To this end, the data are moving in the
right direction as the increase in household credit has been moderating
from a 5.5% growth rate to a little more than 3% in the most recent
quarter. This is the lowest rate of growth since 1999 and is being led
by slowing mortgage credit. However, the troubling fact is that this
slower increase in credit is still above the growth of disposable
income which means that consumer debt is still rising faster than
incomes.

Amazingly, in a few short years Canadian consumers have managed to
increase their debt levels to beyond the levels that US consumers had
at the beginning of the collapse in the US real estate market. The
latest data from the Bank of Canada shows that the ratio of household
debt to income is at 165%.

Therein lies the challenge for Canada’s economy. Canadian consumer
spending accounts for 58% of GDP but debt levels are already at record
highs. Thus, consumer spending will not be able to lead in any
significant way a potential rebound in economic growth. As the chart
above shows, Canada’s leading economic indicators point to a Canadian
economy that will lag the United States and the rest of the G7.

While Canadians have been accustomed to tax cuts over the last fifteen
years, it is highly unlikely that Canadian taxes will be able to fall
any further. The deterioration in the budgetary picture at all levels
of government will likely mean higher taxes – further restraining the
economy and disposable income.

size="+1"> style="">Profits and Expectations

For several quarters, most analysts have been lowering their
expectations for profit growth. This is due to the fact that GDP
numbers for much of the world are coming in lower than expected.
However, as the bar has been lowered successively, most companies have
been able to jump over the bar to the relief of investors. The bearish
argument around corporate earnings is that earnings growth has slowed
and revenue growth has all but stalled. According to data from Thompson
Reuters, current expectations are for US corporate earnings
to rise 1.9% year over year. Three months ago, expectations were for a
9.9% annual increase and six months ago it was for a 13.7% increase.
Clearly, expectations have come down.

This
is significant because revenue growth is tied to growth of the economy
(GDP growth). If GDP growth rates stall or come in under
expectations, corporate revenue is likely to come in under
expectations. Therefore, corporations would not be able to
meet the expectations that are built into stock prices. Thus far,
fourth quarter 2012 earnings announcements are beating expectations by
more than 2 to 1 – albeit on lowered expectations.
Currently, the S&P 500 is trading at a level of approximately
13.2 times 2013 earnings estimates which makes the market cheaper than
the longer term average of closer to 15 times. While the US stock
market is not cheap, it is fairly valued. In order for the
market to continue to be fairly valued, global GDP will have to
continue to strengthen and corporate profit margins must hold steady.
As a percentage of US GDP, corporate profit margins in the US are at
record highs as wages have been restrained, interest rates are low and
corporate balance sheets are pristine.

These characteristics have allowed S&P 500 corporations to buy
back over 8 billion shares (net) over the last twenty-one months,
thereby providing support to stock prices. As of 3Q 2012, the
S&P 500 companies had about 300 billion shares outstanding –
which was the lowest number of shares since mid 2009.

While the markets have somewhat elevated expectations, an improving
economy and a calmer macro- economic environment will help to support
the markets. The key outcome to monitor will be to see whether revenue
growth, corporate profit margins, and earnings continue to make stocks
an attractive asset class.

Pacifica
Partners – Capital Management
Navigating
a Sea of Opportunity

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class="Apple-style-span" style="line-height: 14px;">This
report is for information purposes only and is neither a solicitation
for the purchase of securities nor an offer of securities. The
information contained in this report has been compiled from sources we
believe to be reliable, however, we make no guarantee, representation
or warranty, expressed or implied, as to such information’s accuracy or
completeness. All opinions and estimates contained in this report,
whether or not our own, are based on assumptions we believe to be
reasonable as of the date of the report and are subject to change
without notice. Past performance is not indicative of future
performance. Please note that, as at the date of this report, our firm
may hold positions in some of the companies mentioned.

class="Apple-style-span" style="line-height: 14px;">Social
Media: It is Pacifica Partners Inc.’s policy not to respond via online
and social media outlets to questions or comments directed to it or in
response to its online and social media
publications. Pacifica Partners does not
acknowledge or encourage testimonials posted by third party
individuals. Third party users that have bookmarked Pacifica
Partners’ social media publications or profile through options
including “like”, “follow”, or similar bookmarking variations are not
and should not be viewed as endorsement of Pacifica Partners Inc., its
services, or future or past investment performance. To view our full
disclaimer please href="http://pacificapartners.ca/legal/vancouver-investment-management.html">click
here.
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Earnings Forecasting Obama Victory

class="Apple-style-span"
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current U.S. presidential election has seen both candidates locked in a
fairly tight battle with polls showing neither able to garner much more
than 45% support on a week to week basis. However, in upcoming polls,
it is likely that the Obama campaign will receive a boost from its
recent convention – as it is customary for a party to get a shot in the
arm in the polls of about 5-9%.
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style="margin: 0pt 0pt 10px; color: rgb(32, 32, 32); display: block; font-family: Arial; font-size: 22px; font-weight: bold; line-height: 100%; text-align: left;"> style="color: rgb(0, 128, 128);"> class="Apple-style-span"
style="font-size: 14px; font-weight: normal; line-height: 21px;"> style="background-color: rgb(255, 255, 255);">Transferring
Your IRA/401K to Canada

class="Apple-style-span"
style="color: rgb(80, 80, 80); font-size: 14px; font-weight: normal; line-height: 21px;">Often
expatriate employees accrue retirement and/or pension benefits while
working for an employer. If you decide to move back home (Canada in
this case), what should you do with the 401k or IRA account?
style="color: rgb(80, 80, 80); font-size: 14px; font-weight: normal; line-height: 21px;">

style="margin: 0pt 0pt 10px; color: rgb(32, 32, 32); display: block; font-family: Arial; font-size: 22px; font-weight: bold; line-height: 100%; text-align: left;"> class="Apple-style-span"
style="color: rgb(80, 80, 80); font-size: 14px; font-weight: normal; line-height: 21px;"> href="http://www.pacificapartners.com/blog/2012/01/12/dividend-growth-opportunities/"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;">
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"
href="http://pacificapartners.com/blog/2012/09/06/transferring-your-401k-to-an-rrsp/">Click
here href="http://pacificapartners.ca/blog/2012/05/18/us-economy-a-beacon-of-hope/#.T7ah9kU7Vdn"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;">
for full story.

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valign="top"> style="text-align: center; color: rgb(80, 80, 80); font-family: Arial; font-size: 14px; line-height: 150%;"> href="http://pacificapartners.com/blog/2012/07/18/canadian-real-estate-bubble-chart-book/"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> src="http://pacificapartners.com/media/Housing%20Bubble.png"
alt="BNN Interview: Demographics"
style="border: 0px solid ; margin: 0pt; padding: 0pt; line-height: 100%; text-decoration: none; display: inline; width: 142px; height: 125px;"> style="color: rgb(80, 80, 80); font-family: Arial; font-size: 14px; line-height: 150%; text-align: left;">

style="color: rgb(0, 128, 128);"> class="Apple-style-span"
style="font-size: 14px; font-weight: normal; line-height: 21px;">
Canadian Real-Estate Chart Book

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style="color: rgb(80, 80, 80); font-size: 14px; font-weight: normal; line-height: 21px;">This
report is our latest update of trends and valuations of the Canadian
real estate market. The 34 charts and two tables included
below comprise an exhaustive look at the valuation drivers of Canadian
real estate.
href="http://pacificapartners.ca/blog/2012/04/25/the-politics-of-gas-prices/"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"
target="_blank">
href="http://pacificapartners.com/blog/2012/07/18/canadian-real-estate-bubble-chart-book/">Click
here for full story.

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Gold Companies Looking to Forget 2012

Pacifica Partners — Tue, 08 Jan 2013 22:01:21 PST

content="text/html; charset=iso-8859-1">
It is a safe bet to say that 2012 will not be looked back upon with a great deal of fondness by the CEOs of the gold mining industry. From the executive suites of the largest gold miners to the smallest junior exploration companies, this past year will go down as the “annus horribilis” (horrible year) for investors in gold stocks. The S&P/TSX Gold Index will close the year down about 21%.
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style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> src="http://pacificapartners.ca/blog/wp-content/uploads/2013/01/Gold-Miners.png"
alt="Navigating a Sea of Opportunity"
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valign="top"> style="color: rgb(80, 80, 80); font-family: Arial; font-size: 14px; line-height: 150%; text-align: left; background-color: white;">

The
following Pacifica Partners article was also published in the href="http://business.financialpost.com/2012/12/31/gold-companies-looking-to-forget-2012/"
target="_blank">Financial Post

It
is a safe bet to say that 2012 will not be looked back upon with a
great deal of fondness by the CEOs of the gold mining industry. From
the executive suites of the largest gold miners to the smallest junior
exploration companies, this past year will go down as the “annus
horribilis” (horrible year) for investors in gold stocks. The
S&P/TSX Gold Index will close the year down about 21%.

href="http://pacificapartners.com/contact/"> style="border: 0px solid ; width: 210px; height: 558px; float: right;"
alt="Crossborder investment specialists"
src="http://www.pacificapartners.com/blog/wp-content/uploads/2012/09/Crossborder-investment-specialists.png"
hspace="2" vspace="2">It is a bit of a
head-scratcher at first glance as gold has spent most of 2012 trading
north of $1600 per ounce. Just a few short years ago, many companies
were basing the economics of their projects on gold prices that were
significantly lower. Current analyst estimates are that the gold stocks
are discounting gold prices of about $1000/ounce — a significant
discount to the current spot price of over $600/ounce. So
what happened to make investors so disenchanted with gold mining
equities?

One
significant factor has been the skyrocketing of miners’ costs. The
costs of everything from energy to labour to engineering have risen
faster than the price of gold. This has crimped the profit margins of
the mining companies. In turn, investors have taken an axe to the value
of the reserves being uncovered by exploration companies. For the
junior companies, this has made it a difficult environment in which to
raise capital since a weak equity environment for gold companies’
shares has made investors skittish to invest in these companies.

The
most recent illustration of the cost escalation issue comes from
Barrick Gold. During its last quarterly conference call the company
announced a continuation of cost escalations at its major development
projects. Its capital cost estimates have risen by over $-billion for
next year — after a significant cost increase announced during Q2 2012.
To be sure Barrick is not alone – it is an industry wide problem and
not limited to geography.

href="http://pacificapartners.com/blog/wp-content/uploads/2012/10/Failed-US-Bank-Chart-With-Logo.png"> class="Apple-style-span" style="line-height: 14px;"> href="http://pacificapartners.ca/blog/wp-content/uploads/2013/01/gold-blog-chart.jpg"
target="_blank"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> alt="Investing in Gold Miners"
src="http://pacificapartners.ca/blog/wp-content/uploads/2013/01/gold-blog-chart.jpg"
style="border: 0px solid ; margin: 5px; line-height: 100%; text-decoration: none; display: inline; width: 600px; height: 241px;"
hspace="5" vspace="5">

class="Apple-style-span" style="line-height: 14px;"> href="http://pacificapartners.ca/blog/wp-content/uploads/2013/01/gold-blog-chart.jpg"
target="_blank"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> style="color: rgb(0, 0, 128);">Click Here style="color: rgb(0, 0, 128);"> to view a larger version of
this diagram

South
Africa has long been a major gold producer but as its reserves are
increasingly deeper underground and grades are getting increasingly
skinnier, the cost structure is adversely impacting the profits of the
South African producers. In addition, significant labor problems in the
country have impacted gold production in recent months.

style="line-height: 14px;"> style="color: rgb(0, 0, 128);">

As
the industry CEOs try to placate investors by promising to evaluate
projects based on their return on capital rather than production growth
for the sake of growth, they hope that investors will begin to give
their shares a second look. Many significant mega projects have been
delayed or scrapped this year by the industry. In a world where gold
production from mines has been virtually stagnant for the better part
of a decade and where central banks are increasingly raising their gold
reserves, some industry observers are starting to wonder if we have
reached a point of “peak gold” where supply will no longer be able to
keep up with demand. Historically, calls for peaks in supply of most
commodities have been.

style="line-height: 14px;"> style="color: rgb(0, 0, 128);">

Globally,
the grades of new gold projects are lower today and that has an impact
on costs and therefore the economics of the mines. Some longtime
veterans of the industry say that some of the projects being built or
considered today would not have made it past preliminary discussions in
“the old days.”

The
challenges of the industry are significant but so are the
opportunities for investors. The valuations have been compressed and
investor expectations are low for this segment of the market. Sentiment
levels have been a reliable contrarian indicator for trading
opportunities in the gold sector. Right now, the negative sentiment
towards gold stocks means they are not on too many investors’ to-do
lists for 2013.

target="_blank"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> alt=""
src="http://www.pacificapartners.com/blog/wp-content/uploads/2011/09/Surrey-Wealth-Management.png"
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Pacifica
Partners Capital Management Inc.
Navigating
a Sea of Opportunity

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(C) 2012 Pacifica Partners Capital Management Inc. All rights reserved.

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mchideable="hideable_repeat_1_1">

valign="top"> style="text-align: center; color: rgb(80, 80, 80); font-family: Arial; font-size: 14px; line-height: 150%;"> href="http://pacificapartners.com/blog/2012/12/07/the-canadian-real-estate-housing-correction-chartbook/"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> src="http://pacificapartners.ca/media/Site%20content/Demographics%20and%20Real%20Estate.jpg"
alt="Canadian Real Estate Bomb"
style="border: 0px solid ; margin: 0pt; padding: 0pt; line-height: 100%; text-decoration: none; display: inline; width: 150px; height: 130px;"> style="color: rgb(80, 80, 80); font-family: Arial; font-size: 14px; line-height: 150%; text-align: left;">

style="margin: 0pt 0pt 10px; color: rgb(32, 32, 32); display: block; font-family: Arial; font-size: 22px; font-weight: bold; line-height: 100%; text-align: left;"> style="color: rgb(0, 128, 128);"> class="Apple-style-span"
style="font-size: 14px; font-weight: normal; line-height: 21px;">Canadian
Real Estate and Demographic Trends
style="color: rgb(80, 80, 80); font-size: 14px; font-weight: normal; line-height: 21px;">

style="margin: 0pt 0pt 10px; color: rgb(32, 32, 32); display: block; font-family: Arial; font-size: 22px; font-weight: bold; line-height: 100%; text-align: left;"> class="Apple-style-span"
style="color: rgb(80, 80, 80); font-size: 14px; font-weight: normal; line-height: 21px;">Last
fall Paris based bank, Societe Generale, produced a comprehensive
report on the impact of changing global demographics on consumer
trends. The report points to the rapid development of
property markets in much of the western world since the 1990′s as a
by-product of maturing baby boomers shifting into an
asset-accumulation-phase of their consumer life.

style="margin: 0pt 0pt 10px; color: rgb(32, 32, 32); display: block; font-family: Arial; font-size: 22px; font-weight: bold; line-height: 100%; text-align: left;"> class="Apple-style-span"
style="color: rgb(80, 80, 80); font-size: 14px; font-weight: normal; line-height: 21px;"> href="http://pacificapartners.com/blog/2012/12/07/the-canadian-real-estate-housing-correction-chartbook/">Click
here for full story.

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class="Apple-style-span"
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style="margin: 0pt 0pt 10px; color: rgb(32, 32, 32); display: block; font-family: Arial; font-size: 22px; font-weight: bold; line-height: 100%; text-align: left;"> style="color: rgb(0, 128, 128);"> class="Apple-style-span"
style="font-size: 14px; font-weight: normal; line-height: 21px;"> style="background-color: rgb(255, 255, 255);">Transferring
Your IRA/401K to Canada

style="color: rgb(80, 80, 80); font-size: 14px; font-weight: normal; line-height: 21px;">

style="margin: 0pt 0pt 10px; color: rgb(32, 32, 32); display: block; font-family: Arial; font-size: 22px; font-weight: bold; line-height: 100%; text-align: left;"> class="Apple-style-span"
style="color: rgb(80, 80, 80); font-size: 14px; font-weight: normal; line-height: 21px;"> href="http://www.pacificapartners.com/blog/2012/01/12/dividend-growth-opportunities/"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;">
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"
href="http://pacificapartners.com/blog/2012/09/06/transferring-your-401k-to-an-rrsp/">Click
here href="http://pacificapartners.ca/blog/2012/05/18/us-economy-a-beacon-of-hope/#.T7ah9kU7Vdn"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;">
for full story.

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valign="top" width="180">

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valign="top"> style="text-align: center; color: rgb(80, 80, 80); font-family: Arial; font-size: 14px; line-height: 150%;"> href="http://pacificapartners.com/blog/2012/10/16/us-banks-safer-but-still-too-big-to-fail/"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> src="http://pacificapartners.ca/media/News%20Icons%20NEW/US%20Bank%20Failures%20-%20Financial%20Post.png"
alt="US banks safer but still too big to fail"
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style="color: rgb(0, 128, 128);"> class="Apple-style-span"
style="font-size: 14px; font-weight: normal; line-height: 21px;">
US Banks Safer But Still “Too Big To Fail” style="color: rgb(80, 80, 80); font-family: Arial; font-size: 14px; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: 21px; orphans: 2; text-align: justify; text-indent: 0px; text-transform: none; white-space: normal; widows: 2; word-spacing: 0px; background-color: rgb(255, 255, 255); display: inline ! important; float: none;">

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Season’s Greetings

Pacifica Partners — Fri, 07 Dec 2012 17:10:45 PST

Pacifica Partners would like to wish you the best for the holidays.

In lieu of Cards we have donated food and supplies to the local food bank.

From our family to yours, Happy Holidays.

The Canadian Real Estate Correction Chartbook

Pacifica Partners — Fri, 07 Dec 2012 11:13:21 PST

content="text/html; charset=iso-8859-1">
Last fall Paris based bank, Societe Generale, produced a comprehensive report on the impact of changing global demographics on consumer trends. The report points to the rapid development of property markets in much of the western world since the 1990s as a by-product of maturing baby boomers shifting into an asset-accumulation-phase of their consumer life.
content="text/html; charset=UTF-8">

style="margin: 0pt; padding: 0pt; background-color: rgb(255, 255, 255); width: 100% ! important;"
marginheight="0" marginwidth="0">

style="margin: 0pt; padding: 0pt; background-color: rgb(255, 255, 255); height: 100% ! important; width: 100% ! important;"
border="0" cellpadding="0" cellspacing="0"
height="100%" width="100%">

valign="top">

style="border: 1px solid rgb(255, 255, 255); background-color: rgb(255, 255, 255);"
border="0" cellpadding="0" cellspacing="0"
width="600">

align="center" valign="top">

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border="0" cellpadding="0" cellspacing="0"
width="600">

style="padding: 0pt; border-collapse: collapse; color: rgb(32, 32, 32); font-family: Arial; font-size: 34px; font-weight: bold; line-height: 100%; text-align: center; vertical-align: middle;">

href="http://www.pacificapartners.com/"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> src="http://www.pacificapartners.com/blog/wp-content/uploads/2012/12/Canadian-Demographic-Trends.png"
alt="Navigating a Sea of Opportunity"
style="border: 0px solid ; margin: 0pt; padding: 0pt; line-height: 100%; text-decoration: none; width: 600px; height: 175px;">

align="center" valign="top">
cellpadding="0" cellspacing="0" width="600">

style="border-collapse: collapse; background-color: rgb(255, 255, 255);"
valign="top">
border="0" cellpadding="20" cellspacing="0">

valign="top"> style="color: rgb(80, 80, 80); font-family: Arial; font-size: 14px; line-height: 150%; text-align: left; background-color: white;">

href="http://pacificapartners.com/contact/"> style="border: 0px solid ; width: 150px; height: 437px; float: right;"
alt="Canadian Economic Data"
src="http://www.pacificapartners.com/blog/wp-content/uploads/2012/12/Data-Providers1.png"
hspace="2" vspace="2"> style="color: rgb(0, 0, 0);"> style="font-size: 20px;"> style="color: rgb(3, 185, 155);">Canadian Demographics
& Real Estate

Last
fall Paris based bank, Societe Generale, produced a comprehensive
report on the impact of changing global demographics on consumer
trends. The report points to the rapid development of
property
markets in much of the western world since the 1990′s as a by-product
of
maturing baby boomers shifting into an asset-accumulation-phase of
their consumer life. Although the drivers of the Canadian
housing
boom are best explained by the coalescence of many factors,
demographics
shifts are often an underappreciated and often misunderstood
contributor.

To
better understand current consumer age demographics in
Canada, Chart D1 below dissects Canada’s current population by age and
consumer behaviour groups. As displayed in the chart a large
bulbous
mass of “experienced workers” will enter retirement in upcoming years -
a fact that should come as no surprise and one that is frequently
cited. These retirees are generally asset rich but with
decreasing ability to generate revenue and with reduced
savings
potential. But most relevant to real estate, retirees finance
consumption
in
large part through depletion of both: liquid-savings and illiquid
equity in hard assets (eg. real estate).

style="font-weight: bold; color: rgb(102, 102, 102);">Chart
D1: style="font-weight: bold; color: red;"> style="color: rgb(102, 102, 102);">- new
href="http://www.pacificapartners.com/blog/wp-content/uploads/2012/12/D1-Canadian-Population-Distribution-by-Age-2012.png"> style="border: 0px solid ; width: 600px; height: 289px;"
alt="Housing Bubble"
src="http://www.pacificapartners.com/blog/wp-content/uploads/2012/12/D1-Canadian-Population-Distribution-by-Age-2012.png">

class="Apple-style-span" style="line-height: 14px;">
href="http://www.pacificapartners.com/blog/wp-content/uploads/2012/12/D1-Canadian-Population-Distribution-by-Age-2012.png"
target="_blank"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> style="color: rgb(0, 0, 128);">Click Here style="color: rgb(0, 0, 128);"> to view a larger version of
this chart.

An
interesting observation by Societe Generale (Soc Gen) is that most
housing
bubbles in industrialized nations appear when the share of the
pre-retiree population (i.e. aged 45-65) experiences rapid growth.
These two events, housing price appreciation and growth in the 45-65
year old population, are – as the report states, “no
coincidence”. In other words, the run up in housing
prices
over this period of shifting demographics is largely explained by the
same group’s changes in consumer demand.

Applying Soc Gen’s observation to
present day Canada, we uncovered a significant break in trend over the
last two
decades. The inital trend, as shown in Chart D2 below,
involved
the 45-to-65 year old cohort which remained a relatively constant
proportion of the total Canadian population at
just below 20%. The trend continued for two
decades, the 1970’s and
1980’s. Yet over the
following two decades, the 1990′s and 2000′s, this same cohort swelled
to contain 10% more of the overall Canadian
population. In
absolute numbers, there are approximately 4.3
million more Canadians in the 45-65 age group now than there were in
1990.
The
size of the shift in demographics is almost
equivalent to
the current population of Canada’s third largest province, British
Columbia. What should be taken from this is that the shift in
proportional population sizes had a tremendous impact in aggregate
Canadian consumer behaviour.

style="font-weight: bold; color: rgb(102, 102, 102);">Chart
D2: style="font-weight: bold; color: red;"> style="color: rgb(102, 102, 102);">- new

href="http://www.pacificapartners.com/blog/wp-content/uploads/2012/12/D2-Proportion-of-Canadian-Population-by-Age-Group.png"> style="border: 0px solid ; width: 600px; height: 307px;"
alt="Canadian Population Proportions by Age Group"
src="http://www.pacificapartners.com/blog/wp-content/uploads/2012/12/D2-Proportion-of-Canadian-Population-by-Age-Group.png"
align="middle">

class="Apple-style-span" style="line-height: 14px;"> href="http://www.pacificapartners.com/blog/wp-content/uploads/2012/12/D2-Proportion-of-Canadian-Population-by-Age-Group.png"
target="_blank"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> style="color: rgb(0, 0, 128);">
Click Here
to view a larger version of
this chart.

The
other interesting observation from the chart above is the
decreasing supply of
“young dependents”, or youth under the age of 20, that is now at
generational lows. This cohort
in
past generations was plentiful enough to not only replenish older
workers exiting the Canadian labour force, but also fueled growth of
the labour force itself. What is the impact of this shift?
Simply put, the potential labour force in Canada is forecast to shrink.
Barring changes to immigration, Canada is forecast to see an increasing
“dependency ratio”, or the number of child
dependents and elderly in relation
to the potential labour force (Chart D3
below). These dependents will effectively act as a social
tax resulting from a shrinking labour force
carrying the social costs of a rapidly aging population.

To fully
appreciate Canadian historic and projected demographic shifts and their
impact on real estate pricing, one should pay attention to Chart D3
below. The chart identifies that the economic boom witnessed
in
Canada over the last decade was not only a function of global commodity
demand and increasing leverage, but was also assisted by the tail end
of a massive demographics boom. This demographics boom began
in
1965 and lasted until 2010. The by-product of the boom was
rapid
growing demand for consumer products, consumer services, real estate
and anything else coveted or required by a young growing work force
powered by
expanding credit. Assuming United
Nations’ population forecasts for Canada hold, Canada’s
shifting
demographics will likely result in a headwind for some
consumer-sensitive components of the domestic economy. Components of
the economy that once serviced the needs of a younger population but
are out of favour by the elderly will come under pressure. style="font-weight: bold;">It is reasonable to
assume that future Canadian consumer behaviour will be markedly
different than what was witnessed over the last half century.
Please note, the reliability of even basic demographic
forecasts begin
to
severely erode after approximately 20 years, however, for illustrative
purposes we have included the UN’s projections to 2100 in the chart
below.

style="font-weight: bold; color: rgb(102, 102, 102);">Chart
D3: style="font-weight: bold; color: red;"> style="color: rgb(102, 102, 102);">- new

href="http://www.pacificapartners.com/blog/wp-content/uploads/2012/12/D3-Canadian-dependency-ratio-UN-Forecasts.png"> style="border: 0px solid ; width: 600px; height: 307px;"
alt="Canadian dependency ratio"
src="http://www.pacificapartners.com/blog/wp-content/uploads/2012/12/D3-Canadian-dependency-ratio-UN-Forecasts.png"
align="middle">

style="font-size: 20px;"> style="color: rgb(3, 185, 155);">Real Estate Review – The
last six months

href="http://pacificapartners.com/contact/"> style="border: 0px solid ; width: 182px; height: 592px; float: right;"
alt="Real estate looking risky"
src="http://www.pacificapartners.com/blog/wp-content/uploads/2012/08/Canadian-Real-Estate-Experts.png"
hspace="2" vspace="2"> style="width: 150px; height: 90px; float: left;"
alt="Real Estate 6 month review"
src="http://www.pacificapartners.com/blog/wp-content/uploads/2012/12/Tag-6-Month-Review1.png"
hspace="2" vspace="2">Since
our last chartbook update in July 2012, the Canadian housing market has
been anything but uneventful. The headline news of the period
was
the change to mortgage rules by the Finance Minster, Jim Flaherty, that
were put into effect in early July with the goal of curbing aggressive
expansion of Canadian mortgage debt ( href="http://www.theglobeandmail.com/report-on-business/economy/housing/flaherty-clamps-down-on-mortgage-rules-to-cool-overheating-market/article4359232/"
target="_blank">read more).

In the same
month that new mortgage rules were put into place, Standard
&
Poor’s Rating Services revised its credit outlook from stable to
negative on several Canadian Banks due to exposure to consumer debt and
unsustainable home prices ( href="http://www.cbc.ca/news/business/story/2012/07/30/sandp-debt-rating-banks.html"
target="_blank">read more). The change in
S&P’s credit outlook
was in addition to a later warning by credit
rating agency Moody’s, indicating that it too was reviewing the credit
rating of six Canadian banks and downgrades could follow ( href="http://www.theglobeandmail.com/globe-investor/moodys-reviews-six-canadian-banks-could-downgrade/article4687294/"
target="_blank">read more).
Additionally in October the International Monetary Fund (IMF) cut
Canada’s economic growth forecasts also citing overvalued Canadian
housing market and heightened consumer debt levels ( href="http://www.theglobeandmail.com/report-on-business/top-business-stories/imf-cuts-canadas-outlook-frets-over-housing-consumer-debt/article4597907/"
target="_blank">read more).

Even
esteemed Yale economist and US housing expert Dr. Robert Shiller
weighed in on Canadian housing in a CBC interview in September in which
he stated, “I worry that
what is happening in Canada is kind of a
slow-motion version of what happened in the US” ( href="http://www.cbc.ca/news/world/story/2012/09/20/f-rfa-macdonald-housing-prices.html"
target="_blank">read more).

At the
data level, Credit reporting agency TransUnion reported that Canadian
debt loads grew at the fastest pace in two years during the Summer of
2012, despite numerous warnings by Mark Carney and Jim Flaherty to
Canadians on the risks of excessive leverage ( href="http://www.cbc.ca/news/canada/story/2012/11/14/transunion-debt-credit.html"
target="_blank">read more). Statistics
Canada also released data revisions indicating that Canadian debt had
risen
to 163% of disposable income, placing Canadian ahead of indebted
Americans and British consumers on credit consumption style="text-decoration: underline;">(read more).

Added
to all of this activity was yet another standard-issue warning by Mark
Carney, Governor of the Bank of Canada, on the dangers of excessive
household debt ( href="http://www.ctvnews.ca/canada/carney-warns-again-about-canadians-household-debt-1.1019922"
target="_blank">read more).
Unfortunately, Governor Carney’s warning
came only weeks before announcing he was leaving the Bank of Canada for
the equivalent seat at the Bank of England, a country that has already
experienced its housing correction.

Our gauge of
consumer real-estate sentiment, powered by Google search volume for
bearish real estate terms, spiked in mid 2012 as the
aforementioned events began
to unfold (Table 1).

Significant price weakness also occurred. In
Vancouver, (Chart 11),
quarter over quarter home prices have experienced
the largest drop since the 2008 financial crisis and the second largest
drop in a decade. Average single family detached home prices,
which can be skewed by non-representative sales, have dropped almost
13% between April and October. Meanwhile price appreciation
for
Vancouver town houses and condos is non-existent with current prices
nearing early 2008 levels and trending lower (monthly averages courtesy
of target="_blank">Brian Ripley). Yet,
Vancouver still remains 38% overvalued when
compared to its historical valuation ratio (Table
2). Edmonton,
Calgary, Toronto, and Montreal appear similarly overvalued.

style="font-size: 20px;"> style="color: rgb(3, 185, 155);">Policy Analysis: Errors and
Heroes

style="width: 150px; height: 89px; float: left;"
alt="Real Estate 6 month review"
src="http://www.pacificapartners.com/blog/wp-content/uploads/2012/12/Tag-Policy-Library1.png"
hspace="2" vspace="2">The
recent decrease in home sales has been incorrectly blamed on the July
change in government insured mortgages. Under most scenarios,
the
reduction in max amortization had the equivalent impact on monthly
mortgage payments of roughly a 1% increase in mortgage lending
rates. Thus the weakness in housing that followed sent a
clear
signal that the real estate market was dependent on low rates and
expanding credit to fuel further price appreciation. style="font-weight: bold;">The
tightening of amortization periods served more as a real-time stress
test for the Canadian real estate market than an attack on the Canadian
consumers. Unfortunately in this stress test
Canadian
real-estate failed to display any resilience.

Prior to the 2006
loosening of government insured mortgages; the Canadian real estate
sector had already experienced a half decade of surging
prices.
The National Bank – Teranet home price index for the aggregate Canadian
housing market indicated a 50% rise in home prices between January 2000
and December 2005 (Chart 27). style="font-weight: bold;"> Thus the
policy change of 2006 was counter to basic Keynesian economics
which advocates the use of fiscal and monetary policy for smoothing of
business cycles. This is achieved by stimulating
slow
growth environments and enacting policies to cool excessively high
growth economic environments. The 2006 policy
change, however, served a contrary
goal of
stimulating an already surging market.
style="color: rgb(3, 185, 155); font-weight: bold;">What
followed was a 26% increase in outstanding mortgage credit between mid
2006 and mid 2008 ( style="color: rgb(3, 185, 155); font-weight: bold;"
href="#Chart2">Chart 2 style="color: rgb(3, 185, 155); font-weight: bold;">).
Meanwhile, Canadian
nominal GDP grew by half as much, only 13% ( style="color: rgb(3, 185, 155); font-weight: bold;"
href="#Chart5">Chart
5)
and weekly
Canadian Wages grew at slightly more than one-quarter at only 7% ( style="color: rgb(3, 185, 155); font-weight: bold;"
href="#Chart6">Chart 6 style="color: rgb(3, 185, 155); font-weight: bold;">).

In a recent statement the Canadian Finance Minister, Jim
Flaherty, is now attempting to take credit for his recent actions,
which in truth, only served to reverse his critical 2006 policy
error. Minister Flaherty exact statement was, “The housing
market
has softened somewhat in part because of steps that I’ve taken and I’m
happy about that,” ( href="http://www.cbc.ca/m/touch/business/story/2012/12/04/flaherty-housing.html"
target="_blank">read more). In
truth, the only policy
maker
in Canada that should be held in high regard is former Bank of Canada
Governor, Dr. David Dodge, who in June of 2006 angrily criticised the
Canada Mortgage and Housing Corp for utilizing new mortgage products
which would lead to housing price inflation and reduce affordability
( href="http://www.cbc.ca/news/business/story/2006/10/30/cmhc.html">read
more). It is now apparent that Dr. Dodge was
correct.

style="font-size: 20px;"> style="color: rgb(3, 185, 155);">Liquidity Crisis – Why
Volume Matters.

style="width: 150px; height: 95px; float: left;"
alt="Real Estate 6 month review"
src="http://www.pacificapartners.com/blog/wp-content/uploads/2012/12/Tag-Sales-Volume1.png"
hspace="2" vspace="2">The
fall of 2012 also witnessed the start of a Canadian real estate market
slowdown as observed through rising unsold-home inventory levels, and
falling sales volumes. Even in Canada’s previous hotbed of
real
estate activity, Vancouver, sales volumes slowed significantly and
inventory builds followed. The Real Estate Board of Greater
Vancouver reported that November 2012 sales were 28.6% lower than they
were the same month last year ( href="http://www.rebgv.org/monthly-reports?month=November&year=2012"
target="_blank">read more).
The Toronto Real
Estate Board reported similar findings with November mid month sales
down 17.5% with the same period of 2011 ( href="http://www.torontorealestateboard.com/market_news/release_market_updates/news2012/nr_mid_month_1112.htm"
target="_blank">read more).

The
drastic slowdown in sales volume in some Canadian markets has important
impacts on future pricing. This is because a slowdown in home sales
can create a build in unsold housing inventory as we are seeing in
various regional markets. As
with any consumer good, in order to
liquidate excess inventory back to a long term average, the price of
the goods must be reduced. Essentially, homes have to be
put on bargain
pricing to entice buying and reduce inventory.

Homeowners
are naturally reluctant to lower prices and will first attempt to
remove listing and re-list in a more favorable environment.
However, home prices are determined not by idle
inventory but the price that units are exchanged at. style="font-weight: bold;">During
periods of decreased sales volume, the few sales that occur will set
the prices for the entire market. This is what
took place in the US real estate correction over the last half decade. style="font-weight: bold;">

Table
V1 below displays the S&P Case Shiller home price index
for
seasonal “sales pair” data, an approximation for aggregate home sales
in major US housing markets. The table tracks the
relative
proportion of sales per year and per season to the same period’s ten
year
moving average. What we glean from this is that the surge in
US
home prices leading up to the 2006 housing crisis was on the back of
increasing sales volume. Alternatively, the severe drops in US home
prices occurred during periods of shrinking sales volume. style="font-weight: bold;">
Effectively, US home prices dropped on a housing liquidity drought in
which home prices for the entire market were determined by a shrinking
number of transactions at lower and lower prices.
The
US home sellers who refused to budge on price themselves, had their
homes forcibly re-valued by the market through lower priced comparable
sales.

style="font-weight: bold; color: rgb(102, 102, 102);">Table
V1: style="font-weight: bold; color: red;"> style="color: rgb(102, 102, 102);">- new

href="/blog/wp-content/uploads/2012/12/US-Sales-Volume-Reduced-Canadian-Sales-Volume.png"> style="border: 0px solid ; width: 500px; height: 478px;"
alt="Canadian dependency ratio"
src="http://www.pacificapartners.com/blog/wp-content/uploads/2012/12/US-Sales-Volume-Reduced-Canadian-Sales-Volume.png"
align="middle">

style="line-height: 14px;"> href="http://www.pacificapartners.com/blog/wp-content/uploads/2012/12/D2-Proportion-of-Canadian-Population-by-Age-Group.png"
target="_blank"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> style="color: rgb(0, 0, 128);">

class="Apple-style-span" style="line-height: 14px;"> href="http://www.pacificapartners.com/blog/wp-content/uploads/2012/12/US-Sales-Volume-Reduced-Canadian-Sales-Volume.png">Click
Here
to view a larger version of
this table.

style="color: rgb(0, 0, 0);"> style="font-size: 14px;"> style="font-style: italic; color: rgb(3, 185, 155);">An
update to this Chartbook will be published in April/May 2013. style="font-style: italic;">

style="font-size: 20px;"> style="color: rgb(3, 185, 155);">
Real Estate Chartbook Library

style="width: 150px; height: 95px; float: left;"
alt="Real Estate 6 month review"
src="http://www.pacificapartners.com/blog/wp-content/uploads/2012/12/Tag-Chart-Library1.png"
hspace="2" vspace="2">Chart
summaries are provided below and are divided into the following
six categories:

style="font-weight: bold;" href="#Section_A">Section A
(table 1 & 2 charts 1 to
4): style="color: red;">
style="color: rgb(3, 185, 155); font-weight: bold;">Canadian
Real Estate Sentiment, Canadian Consumer Credit
Growth,
Household Debt as a Percentage of GDP, Real Estate Supply &
Demand,
Canadian Real Estate Valuation and Correction Table

href="#Section_B">Section
B (charts 5 through 10):
Canadian Real Estate Market Trends, Valuations, and Drivers of Home
Prices

style="font-weight: bold;" href="#Section_C">Section
C (charts 11 through 18):
Canadian Real Estate Unemployment, Vacancy Rates, and Home Price Growth
in Major Canadian Cities

style="font-weight: bold;">Section
D (charts 19 through 22):
Canadian and US Real Estate versus Stock Markets (TSX and S&P
500)

style="font-weight: bold;">Section
E (charts 23 through 26):
US Housing Price Performance vs. Major Canadian Cities

style="font-weight: bold;">Section
F (charts 27 through 33):
Home Price and Sales Pair Volume Change for Major Canadian Cities

size="+1"> style="font-size: 15px;"> style="color: rgb(3, 185, 155);">Section A size="+1">(Tables 1 & 2 and Charts 1 to 4): name="Section_A">
Canadian Real Estate Sentiment, Wage Growth, and Housing Supply

style="color: rgb(0, 102, 255);"> style="font-size: 15px;">Table
1)
Housing Bubble Sentiment
Indicator

Canadian
Real Estate bulls have continued to cite the fact that real estate
valuations have appeared “expensive” for years, yet, the momentum
has continued to take prices higher. Real estate bears, on
the other
hand, claim that home prices have been so stretched from fundamental
valuations that past price momentum is irrelevant. As with
all asset classes, a change to investor sentiment regardless
of the
catalyst that triggers the change (eg. rising interest rates,
government policy, extreme valuations, etc.) will dictate future real
estate returns.

To attempt to monitor real estate sentiment analytically, we examine
the proportion of
Google searches for the combined terms “ style="font-weight: bold;">housing
bubble“, summarized by the originating city of the
searches. The table below displays the top six cities
globally in which the term “housing bubble” searched in each
year
from 2005 to 2012. The
highest proportion of city-sourced searches for
“housing bubble” arise from two Canadian cities,
Vancouver and
Toronto. The
progression of the
trend is ominous
as California cities dominated much of the top searches until 2009,
after which Canadian and Australian cities began to emerge.
Absolute search volume for all of Canada is also plotted.
Note, the spike in search volume in mid 2012 corresponding
with a slow-down in housing sales volume and mortgage lending rule
changes.

The data below reflects recent updates to Google-Trend’s data.

class="Apple-style-span" style="line-height: 14px;"> href="http://www.pacificapartners.com/blog/wp-content/uploads/2012/12/C1-Canadian-Real-Estate-Sentiment-Indicator.png"
target="_blank"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> alt="Canadian Real Estate"
src="http://www.pacificapartners.com/blog/wp-content/uploads/2012/12/C1-Canadian-Real-Estate-Sentiment-Indicator.png"
style="border: 0px solid ; margin: 5px; line-height: 100%; text-decoration: none; display: inline; width: 600px; height: 575px;"
hspace="5" vspace="5">
href="http://www.pacificapartners.com/blog/wp-content/uploads/2012/12/C1-Canadian-Real-Estate-Sentiment-Indicator.png"
target="_blank"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> style="color: rgb(0, 0, 128);">Click Here style="color: rgb(0, 0, 128);"> to view a larger version of
this table.

style="color: rgb(0, 102, 255);"> style="font-size: 15px;">Chart 1)
Canadian Consumer Credit Growth Rates style="color: rgb(0, 102, 255);"> style="font-size: 15px;"> style="color: red;">

Despite
falling interest rates,
Canadian consumer credit growth has slowed to the lowest levels in more
than 12 years. This observation is despite the fact that real
bond yields, or inflation adjusted yields, have dropped
significantly. The axis on the right in red tracks 3
to 5
year real
Canadian government bond yields which are now below zero. In
other words, interest income on these bonds are no longer sufficient to
overcome lost purchasing power from the effects of inflation.
Should consumer and mortgage credit begin to contract then this
will serve as a major headwind to future real estate appreciation.

class="Apple-style-span" style="line-height: 14px;"> href="http://www.pacificapartners.com/blog/wp-content/uploads/2012/12/C7-Canadian-Consumer-Credit-YoY-Growth-and-Real-Interest-Rates.png"
target="_blank"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> alt="Canadian Real Estate"
src="http://www.pacificapartners.com/blog/wp-content/uploads/2012/12/C7-Canadian-Consumer-Credit-YoY-Growth-and-Real-Interest-Rates.png"
style="border: 0px solid ; margin: 5px; line-height: 100%; text-decoration: none; display: inline; width: 600px; height: 321px;"
hspace="5" vspace="5">
href="http://www.pacificapartners.com/blog/wp-content/uploads/2012/12/C7-Canadian-Consumer-Credit-YoY-Growth-and-Real-Interest-Rates.png"
target="_blank"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> style="color: rgb(0, 0, 128);">Click Here style="color: rgb(0, 0, 128);"> to view a larger version of
this chart.

style="color: rgb(0, 102, 255);"> style="font-size: 15px;">Chart
2)
Canadian household credit
as a percentage of nominal GDP

Canadian
household credit, both consumer credit and residential
mortgage credit, has increased sharply over the last decade.
Total
credit as a percentage of nominal GDP increased from under 60% during
the third quarter of 2001, to the current levels
of 90%. The
surge in Canadian
household debt is predominantly comprised of residential mortgage
credit as can be observed from the chart below. Canadian
consumer debt
accumulation appears to have been exhausted and is currently in a stall
state of approximately 90% of GDP. Lack of debt accumulation
is a headwind for further real estate price appreciation.

class="Apple-style-span" style="line-height: 14px;"> href="http://www.pacificapartners.com/blog/wp-content/uploads/2012/12/C6-Canadian-Household-Credit-as-a-percentage-of-Nominal-Canadian-GDP.png"
target="_blank"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> alt="Canadian Real Estate"
src="http://www.pacificapartners.com/blog/wp-content/uploads/2012/12/C6-Canadian-Household-Credit-as-a-percentage-of-Nominal-Canadian-GDP.png"
style="border: 0px solid ; margin: 5px; line-height: 100%; text-decoration: none; display: inline; width: 600px; height: 329px;"
hspace="5" vspace="5">
href="http://www.pacificapartners.com/blog/wp-content/uploads/2012/12/C6-Canadian-Household-Credit-as-a-percentage-of-Nominal-Canadian-GDP.png"
target="_blank"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> style="color: rgb(0, 0, 128);">Click Here style="color: rgb(0, 0, 128);"> to view a larger version of
this chart.

style="color: rgb(0, 102, 255);"> style="font-size: 15px;">Chart 3)
Real Estate Supply and
Demand Growth: Vancouver,
Calgary, Edmonton, Winnipeg, Ottawa, Toronto,
Montreal, Halifax

In
all major Canadian housing markets housing capacity
growth has exceeded population increases between 2001 and Sept
2012. Calgary, Edmonton, Ottawa, Montreal and Halifax are
what we
would
consider to be “severely overbuilt” with excess housing capacity
of 50% or more than population growth over the same
period.
Vancouver, Toronto, and Winnipeg, are “overbuilt” with excess
housing capacity 20% more than population growth over the examined
period.

Housing capacity is defined
as the number of individuals that can be reasonably housed in new
housing units, whether or not a new housing unit sits unoccupied,
under-occupied, or over-occupied. Assumptions made may be
more appropriate for some markets over others.

class="Apple-style-span" style="line-height: 14px;"> href="http://pacificapartners.com/blog/wp-content/uploads/2012/12/Population-Growth-Demand-vs.-Housing-Capacity-Growth-Supply.png"
target="_blank"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> alt="Canadian Real Estate"
src="http://pacificapartners.com/blog/wp-content/uploads/2012/12/Population-Growth-Demand-vs.-Housing-Capacity-Growth-Supply.png"
style="border: 0px solid ; margin: 5px; line-height: 100%; text-decoration: none; display: inline; width: 600px; height: 335px;"
hspace="5" vspace="5">
href="http://pacificapartners.com/blog/wp-content/uploads/2012/12/Population-Growth-Demand-vs.-Housing-Capacity-Growth-Supply.png"
target="_blank"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> style="color: rgb(0, 0, 128);">Click Here style="color: rgb(0, 0, 128);"> to view a larger version of
this chart.

style="color: rgb(0, 102, 255);"> style="font-size: 15px;">Chart 4)
Canadian home prices over
discounted rent valuation: Vancouver,
Calgary, Edmonton, Toronto, and
Montreal

In
theory, residential real estate prices should equal the discounted
sum of future rental income. As a result, we have attempted
to estimate
fair values for residential real estate in major cities by comparing
actual prices to theoretical discounted prices (valuation
ratio). In theory, this ratio
should equal one and deviations from this value should regress back to
the value one over time. Note, discounted cash flow
calculations are highly volatile
and dependent on underlying model assumptions.
However based
off of this
methodology, Canadian real estate appears extremely expensive in most
major markets. Canadian real
estate only appears somewhat reasonably priced if the assumption that
current
emergency low interest rates continue indefinitely into the
future. Any increase
in interest rates to even pre recession levels (which were also
historically low) causes Canadian real estate as a whole to appear
grossly overvalued.

Table
2 below attempts to quantify the degree of price correction
necessary to return the valuation ratio in these
five real
estate markets back to the historical average valuation ratio.

class="Apple-style-span" style="line-height: 14px;"> href="http://pacificapartners.com/blog/wp-content/uploads/2012/12/C5-Home-Price-over-Present-Value-of-Expected-Rents-in-Canada.png"
target="_blank"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> alt="Canadian Real Estate"
src="http://pacificapartners.com/blog/wp-content/uploads/2012/12/C5-Home-Price-over-Present-Value-of-Expected-Rents-in-Canada.png"
style="border: 0px solid ; margin: 5px; line-height: 100%; text-decoration: none; display: inline; width: 600px; height: 439px;"
hspace="5" vspace="5">
href="http://pacificapartners.com/blog/wp-content/uploads/2012/12/C5-Home-Price-over-Present-Value-of-Expected-Rents-in-Canada.png"
target="_blank"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> style="color: rgb(0, 0, 128);">Click Here style="color: rgb(0, 0, 128);"> to view a larger version of
this chart.

style="color: rgb(0, 102, 255);"> style="font-size: 15px;">Table
2)
Canadian home prices over
discounted rent valuation: Vancouver,
Calgary, Edmonton, Toronto, and
Montreal style="color: rgb(0, 102, 255);"> style="font-size: 15px;"> style="color: red;">

Using
the data from Chart 5 above, the following table attempts to
quantify the degree of price correction necessary to return
the
valuation ratio in these five real estate markets back to
the historical average valuation ratio. The price
corrections
necessary to return the valuation ratio to the historical moving
average
range from -39% in Vancouver, to -31% in Edmonton.

class="Apple-style-span" style="line-height: 14px;"> href="http://pacificapartners.com/blog/wp-content/uploads/2012/12/C5-Home-Price-over-Present-Value-of-Expected-Rents-in-Canada-TABLE.png"
target="_blank"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> alt="Canadian Real Estate"
src="http://pacificapartners.com/blog/wp-content/uploads/2012/12/C5-Home-Price-over-Present-Value-of-Expected-Rents-in-Canada-TABLE.png"
style="border: 0px solid ; margin: 5px; line-height: 100%; text-decoration: none; display: inline; width: 600px; height: 454px;"
hspace="5" vspace="5">
href="http://pacificapartners.com/blog/wp-content/uploads/2012/12/C5-Home-Price-over-Present-Value-of-Expected-Rents-in-Canada-TABLE.png"
target="_blank"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> style="color: rgb(0, 0, 128);">Click Here style="color: rgb(0, 0, 128);"> to view a larger version of
this table.

style="color: rgb(0, 0, 0);"> style="font-size: 15px;"> style="color: rgb(3, 185, 155);" size="+2">Section B
(charts 5 through 10):
Canadian Real Estate
Market Trends, Valuations, and Drivers of Home Prices

style="color: rgb(0, 102, 255);"> style="font-size: 15px;">Chart 5)
Growth of Canadian home
prices in comparison to nominal GDP growth and mortgage credit

Appreciation in Canadian home prices (from January 2000 onward) has
more
closely reflected growth in mortgage credit rather than growth in
Canadian nominal GDP.

class="Apple-style-span" style="line-height: 14px;"> href="http://www.pacificapartners.com/blog/wp-content/uploads/2012/12/C3-Canadian-GDP-Outstanding-Mortgage-Credit-and-Home-Prices.png"
target="_blank"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> alt="Canadian Real Estate"
src="http://www.pacificapartners.com/blog/wp-content/uploads/2012/12/C3-Canadian-GDP-Outstanding-Mortgage-Credit-and-Home-Prices.png"
style="border: 0px solid ; margin: 5px; line-height: 100%; text-decoration: none; display: inline; width: 600px; height: 268px;"
hspace="5" vspace="5">
href="http://www.pacificapartners.com/blog/wp-content/uploads/2012/12/C3-Canadian-GDP-Outstanding-Mortgage-Credit-and-Home-Prices.png"
target="_blank"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> style="color: rgb(0, 0, 128);">Click Here style="color: rgb(0, 0, 128);"> to view a larger version of
this chart.

style="color: rgb(0, 102, 255);"> style="font-size: 15px;">Chart 6)
Provincial wage growth
versus home price appreciation style="color: black; font-weight: normal;">: style="font-weight: bold;">Vancouver, Calgary,
Edmonton, Winnipeg, Ottawa, Toronto, Montreal, and Halifax style="color: red;">

Canadian
wage growth versus home price appreciation from 2001 to 2012 is
reported below. Average weekly wage growth per home province
of each city is reported. Also, only wages of full time
workers between the ages of 25 and 54 were examined in an attempt to
capture changes to the buying power potential of
first-time-homebuyers. In all ten markets examined, home
price appreciation far surpassed
average weekly wage growth. The markets with the largest
difference between wage growth and home price appreciation in
descending
order are: Winnipeg, Vancouver, Montreal, Edmonton,
Calgary, Ottawa, Toronto, Halifax

class="Apple-style-span" style="line-height: 14px;"> href="http://pacificapartners.com/blog/wp-content/uploads/2012/12/C11-Home-Price-Growth-per-City-vs.-Weekly-Average-Wage-Growth-by-Province.png"
target="_blank"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> alt="Canadian Real Estate"
src="http://pacificapartners.com/blog/wp-content/uploads/2012/12/C11-Home-Price-Growth-per-City-vs.-Weekly-Average-Wage-Growth-by-Province.png"
style="border: 0px solid ; margin: 5px; line-height: 100%; text-decoration: none; display: inline; width: 600px; height: 404px;"
hspace="5" vspace="5">
href="http://pacificapartners.com/blog/wp-content/uploads/2012/12/C11-Home-Price-Growth-per-City-vs.-Weekly-Average-Wage-Growth-by-Province.png"
target="_blank"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> style="color: rgb(0, 0, 128);">Click Here style="color: rgb(0, 0, 128);"> to view a larger version of
this chart.

style="color: rgb(0, 102, 255);"> style="font-size: 15px;">Chart 7)
Canadian misery index -
National,
Vancouver, Toronto, and Montreal

The
Canadian misery index (inflation + unemployment rate) had been
climbing since hitting a low at the end of the first quarter
2008. It has since peaked in 2012 as a result of lower
inflationary pressure. Calgary is approaching multi year lows in
misery. The three largest
Canadian cities have misery levels above the lows reached prior to the
2008 financial crisis.

class="Apple-style-span" style="line-height: 14px;"> href="http://www.pacificapartners.com/blog/wp-content/uploads/2012/12/C2-Canadian-Real-Estate-Misery-Index.png"
target="_blank"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> alt="Canadian Real Estate"
src="http://www.pacificapartners.com/blog/wp-content/uploads/2012/12/C2-Canadian-Real-Estate-Misery-Index.png"
style="border: 0px solid ; margin: 5px; line-height: 100%; text-decoration: none; display: inline; width: 600px; height: 350px;"
hspace="5" vspace="5">
href="http://www.pacificapartners.com/blog/wp-content/uploads/2012/12/C2-Canadian-Real-Estate-Misery-Index.png"
target="_blank"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> style="color: rgb(0, 0, 128);">Click Here style="color: rgb(0, 0, 128);"> to view a larger version of
this chart.

style="color: rgb(0, 102, 255);"> style="font-size: 15px;">Chart 8)
Canadian real (inflation
adjusted) rent index: Calgary,
Vancouver, Edmonton, Winnipeg, Montreal,
Halifax, Ottawa, Toronto

class="Apple-style-span" style="line-height: 14px;"> href="http://www.pacificapartners.com/blog/wp-content/uploads/2012/12/C9-Cumulative-Real-Rent-Index.png"
target="_blank"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> alt="Canadian Real Estate"
src="http://www.pacificapartners.com/blog/wp-content/uploads/2012/12/C9-Cumulative-Real-Rent-Index.png"
style="border: 0px solid ; margin: 5px; line-height: 100%; text-decoration: none; display: inline; width: 600px; height: 409px;"
hspace="5" vspace="5">
href="http://www.pacificapartners.com/blog/wp-content/uploads/2012/12/C9-Cumulative-Real-Rent-Index.png"
target="_blank"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> style="color: rgb(0, 0, 128);">Click Here style="color: rgb(0, 0, 128);"> to view a larger version of
this chart.

style="color: rgb(0, 102, 255);"> style="font-size: 15px;">Chart 9)
Canadian real (inflation
adjusted) home price index: Vancouver,
Edmonton, Toronto, Calgary,
Regina, Montreal, Victoria, Winnipeg

Long
term real (inflation adjusted) annual home price returns have
exceeded 3% in Vancouver and Victoria BC, while exceeding 1.5% in
most other large Canadian cities. Edmonton is the only
exception with a
compounded annual house price appreciation of 0.64% over the examined
period. To put this into perspective, numerous examinations
of long term real
US home price appreciation
indicate that they have only slightly exceeded inflation at an
approximate annual
compounded rate of 0.5% per year.

class="Apple-style-span" style="line-height: 14px;"> href="http://pacificapartners.com/blog/wp-content/uploads/2012/12/C10-Cumulative-Real-Home-Price-Index.png"
target="_blank"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> alt="Canadian Real Estate"
src="http://pacificapartners.com/blog/wp-content/uploads/2012/12/C10-Cumulative-Real-Home-Price-Index.png"
style="border: 0px solid ; margin: 5px; line-height: 100%; text-decoration: none; display: inline; width: 600px; height: 451px;"
hspace="5" vspace="5">
href="http://pacificapartners.com/blog/wp-content/uploads/2012/12/C10-Cumulative-Real-Home-Price-Index.png"
target="_blank"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> style="color: rgb(0, 0, 128);">Click Here style="color: rgb(0, 0, 128);"> href="http://pacificapartners.com/blog/wp-content/uploads/2012/12/C10-Cumulative-Real-Home-Price-Index.png"
target="_blank"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;">
to view a larger version of
this chart.

style="color: rgb(0, 102, 255);"> style="font-size: 15px;">Chart 10)
Canadian home prices to
rents: Vancouver, Calgary,
Edmonton, Toronto, Montreal

Canadian
home prices are currently not in line with historic multiples
of residential rental prices. Most extended from historical
norms are
Vancouver, Montreal, and Toronto. While Edmonton and Calgary,
are
elevated from historic averages but below previous witnessed
highs.

class="Apple-style-span" style="line-height: 14px;"> href="http://pacificapartners.com/blog/wp-content/uploads/2012/12/C4-Home-Price-Index-to-Rent-Index-Canada.png"
target="_blank"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> alt="Canadian Real Estate"
src="http://pacificapartners.com/blog/wp-content/uploads/2012/12/C4-Home-Price-Index-to-Rent-Index-Canada.png"
style="border: 0px solid ; margin: 5px; line-height: 100%; text-decoration: none; display: inline; width: 600px; height: 345px;"
hspace="5" vspace="5">
href="http://pacificapartners.com/blog/wp-content/uploads/2012/12/C4-Home-Price-Index-to-Rent-Index-Canada.png"
target="_blank"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> style="color: rgb(0, 0, 128);">Click Here style="color: rgb(0, 0, 128);"> to view a larger version of
this chart.

style="color: rgb(0, 0, 0);"> style="font-size: 15px;"> style="color: rgb(3, 185, 155);" size="+2">Section C (charts
11 through 18):
Canadian Real Estate
Unemployment, Vacancy Rates,
and Home Price Growth in Major Canadian
Cities

The following charts display a time
series of unemployment, vacancy rates, and quarterly home price changes
for: Vancouver, Calgary, Edmonton, Winnipeg, Ottawa, Toronto, Montreal,
and Halifax.

style="color: rgb(0, 102, 255);"> style="font-size: 15px;">Chart 11)
Vancouver unemployment,
vacancy rates, and home price growth

class="Apple-style-span" style="line-height: 14px;"> href="http://pacificapartners.com/blog/wp-content/uploads/2012/12/C8-Vancouver-Real-Estate.png"
target="_blank"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> alt="Canadian Real Estate"
src="http://pacificapartners.com/blog/wp-content/uploads/2012/12/C8-Vancouver-Real-Estate.png"
style="border: 0px solid ; margin: 5px; line-height: 100%; text-decoration: none; display: inline; width: 600px; height: 299px;"
hspace="5" vspace="5">
href="http://pacificapartners.com/blog/wp-content/uploads/2012/12/C8-Vancouver-Real-Estate.png"
target="_blank"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> style="color: rgb(0, 0, 128);">Click Here style="color: rgb(0, 0, 128);"> to view a larger version of
this chart.

style="color: rgb(0, 102, 255);"> style="font-size: 15px;">Chart 12)
Edmonton unemployment,
vacancy rates, and home price growth

class="Apple-style-span" style="line-height: 14px;"> href="http://pacificapartners.com/blog/wp-content/uploads/2012/12/C8-Edmonton-Real-Estate.png"
target="_blank"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> alt="Canadian Real Estate"
src="http://pacificapartners.com/blog/wp-content/uploads/2012/12/C8-Edmonton-Real-Estate.png"
style="border: 0px solid ; margin: 5px; line-height: 100%; text-decoration: none; display: inline; width: 600px; height: 363px;"
hspace="5" vspace="5">
href="http://pacificapartners.com/blog/wp-content/uploads/2012/12/C8-Edmonton-Real-Estate.png"
target="_blank"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> style="color: rgb(0, 0, 128);">Click Here style="color: rgb(0, 0, 128);"> to view a larger version of
this chart.

style="color: rgb(0, 102, 255);"> style="font-size: 15px;">Chart 13)
Calgary unemployment,
vacancy rates, and home price growth

class="Apple-style-span" style="line-height: 14px;"> href="http://pacificapartners.com/blog/wp-content/uploads/2012/12/C8-Calgary-Real-Estate.png"
target="_blank"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> alt="Canadian Real Estate"
src="http://pacificapartners.com/blog/wp-content/uploads/2012/12/C8-Calgary-Real-Estate.png"
style="border: 0px solid ; margin: 5px; line-height: 100%; text-decoration: none; display: inline; width: 600px; height: 345px;"
hspace="5" vspace="5">
href="http://pacificapartners.com/blog/wp-content/uploads/2012/12/C8-Calgary-Real-Estate.png"
target="_blank"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> style="color: rgb(0, 0, 128);">Click Here style="color: rgb(0, 0, 128);"> to view a larger version of
this chart.

style="color: rgb(0, 102, 255);"> style="font-size: 15px;">Chart 14) Winnipeg unemployment,
vacancy rates, and home price growth

class="Apple-style-span" style="line-height: 14px;"> href="http://pacificapartners.com/blog/wp-content/uploads/2012/12/C9-Winnipeg-Real-Estate.png"
target="_blank"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> alt="Canadian Real Estate"
src="http://pacificapartners.com/blog/wp-content/uploads/2012/12/C9-Winnipeg-Real-Estate.png"
style="border: 0px solid ; margin: 5px; line-height: 100%; text-decoration: none; display: inline; width: 600px; height: 410px;"
hspace="5" vspace="5">
href="http://pacificapartners.com/blog/wp-content/uploads/2012/12/C9-Winnipeg-Real-Estate.png"
target="_blank"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> style="color: rgb(0, 0, 128);">Click Here style="color: rgb(0, 0, 128);"> to view a larger version of
this chart.

style="color: rgb(0, 102, 255);"> style="font-size: 15px;">Chart 15) Ottawa unemployment,
vacancy rates, and home price growth

class="Apple-style-span" style="line-height: 14px;"> href="http://pacificapartners.com/blog/wp-content/uploads/2012/12/C8-Ottawa-Real-Estate.png"
target="_blank"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> alt="Canadian Real Estate"
src="http://pacificapartners.com/blog/wp-content/uploads/2012/12/C8-Ottawa-Real-Estate.png"
style="border: 0px solid ; margin: 5px; line-height: 100%; text-decoration: none; display: inline; width: 600px; height: 410px;"
hspace="5" vspace="5">
href="http://pacificapartners.com/blog/wp-content/uploads/2012/12/C8-Ottawa-Real-Estate.png"
target="_blank"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> style="color: rgb(0, 0, 128);">Click Here style="color: rgb(0, 0, 128);"> to view a larger version of
this chart.

style="color: rgb(0, 102, 255);"> style="font-size: 15px;">Chart 16) Toronto unemployment,
vacancy rates, and home price growth

class="Apple-style-span" style="line-height: 14px;"> href="http://pacificapartners.com/blog/wp-content/uploads/2012/12/C8-Toronto-Real-Estate.png"
target="_blank"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> alt="Canadian Real Estate"
src="http://pacificapartners.com/blog/wp-content/uploads/2012/12/C8-Toronto-Real-Estate.png"
style="border: 0px solid ; margin: 5px; line-height: 100%; text-decoration: none; display: inline; width: 600px; height: 401px;"
hspace="5" vspace="5">
href="http://pacificapartners.com/blog/wp-content/uploads/2012/12/C8-Toronto-Real-Estate.png"
target="_blank"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> style="color: rgb(0, 0, 128);">Click Here style="color: rgb(0, 0, 128);"> to view a larger version of
this chart.

style="color: rgb(0, 102, 255);"> style="font-size: 15px;">Chart 17) Montreal unemployment,
vacancy rates, and home price growth

class="Apple-style-span" style="line-height: 14px;"> href="http://pacificapartners.com/blog/wp-content/uploads/2012/12/C8-Montreal-Real-Estate.png"
target="_blank"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> alt="Canadian Real Estate"
src="http://pacificapartners.com/blog/wp-content/uploads/2012/12/C8-Montreal-Real-Estate.png"
style="border: 0px solid ; margin: 5px; line-height: 100%; text-decoration: none; display: inline; width: 600px; height: 354px;"
hspace="5" vspace="5">
href="http://pacificapartners.com/blog/wp-content/uploads/2012/12/C8-Montreal-Real-Estate.png"
target="_blank"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> style="color: rgb(0, 0, 128);">Click Here style="color: rgb(0, 0, 128);"> to view a larger version of
this chart.

style="color: rgb(0, 102, 255);"> style="font-size: 15px;">Chart 18) Halifax unemployment,
vacancy rates, and home price growth

class="Apple-style-span" style="line-height: 14px;"> href="http://pacificapartners.com/blog/wp-content/uploads/2012/12/C8-Halifax-Real-Estate.png"
target="_blank"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> alt="Canadian Real Estate"
src="http://pacificapartners.com/blog/wp-content/uploads/2012/12/C8-Halifax-Real-Estate.png"
style="border: 0px solid ; margin: 5px; line-height: 100%; text-decoration: none; display: inline; width: 600px; height: 413px;"
hspace="5" vspace="5">
href="http://pacificapartners.com/blog/wp-content/uploads/2012/12/C8-Halifax-Real-Estate.png"
target="_blank"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> style="color: rgb(0, 0, 128);">Click Here style="color: rgb(0, 0, 128);"> to view a larger version of
this chart.

style="color: rgb(0, 0, 0);"> style="font-size: 15px;"> style="color: rgb(3, 185, 155);" size="+2">Section D
(charts 19 through 22):
Canadian and US Real Estate versus Stock Markets (TSX and S&P
500)

style="color: rgb(0, 102, 255);"> style="font-size: 15px;">Chart 19) From 1977 – Canadian real
estate
versus the TSX index

Displayed
in the chart below are Canadian home prices as a ratio of the
TSX index (Canadian stock market) from 1977. Seven cities are
included:
Vancouver,
Victoria, Calgary, Edmonton, Regina, Toronto, and Montreal.
Over the
long term, home prices in Canada have
lagged price appreciation of stocks. Note, the stock index
below is a
“price index” and therefore, excludes payment of dividends.

class="Apple-style-span" style="line-height: 14px;"> href="http://www.pacificapartners.com/blog/wp-content/uploads/2012/12/C50-Stocks-vs-Real-Estate-Medium-Term-USA.png"
target="_blank"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> alt="Canadian Real Estate"
src="http://www.pacificapartners.com/blog/wp-content/uploads/2012/12/C50-Stocks-vs-Real-Estate-Medium-Term-USA.png"
style="border: 0px solid ; margin: 5px; line-height: 100%; text-decoration: none; display: inline; width: 600px; height: 369px;"
hspace="5" vspace="5">
href="http://www.pacificapartners.com/blog/wp-content/uploads/2012/12/C50-Stocks-vs-Real-Estate-Medium-Term-USA.png"
target="_blank"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> style="color: rgb(0, 0, 128);">Click Here style="color: rgb(0, 0, 128);"> to view a larger version of
this chart.

style="color: rgb(0, 102, 255);"> style="font-size: 15px;">Chart 20) From 1998 – Canadian real
estate
versus the TSX index

Displayed
in the chart below are Canadian home prices as a ratio of the
TSX index (Canadian stock market) from 1998. Nine cities are
included:
Vancouver,
Victoria, Calgary, Edmonton, Regina, Ottawa, Toronto, Montreal, and
Halifax. Over the medium term, home prices in Canada have
outperformed price appreciation of stocks. Note, the spike on
the
charts observed at March 2009 represent the stock market bottom during
the financial crisis.

class="Apple-style-span" style="line-height: 14px;"> href="http://pacificapartners.com/blog/wp-content/uploads/2012/12/C50-Stocks-vs-Real-Estate-Medium-Long-Term-Canada.png"
target="_blank"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> alt="Canadian Real Estate"
src="http://pacificapartners.com/blog/wp-content/uploads/2012/12/C50-Stocks-vs-Real-Estate-Medium-Long-Term-Canada.png"
style="border: 0px solid ; margin: 5px; line-height: 100%; text-decoration: none; display: inline; width: 600px; height: 380px;"
hspace="5" vspace="5">
href="http://pacificapartners.com/blog/wp-content/uploads/2012/12/C50-Stocks-vs-Real-Estate-Medium-Long-Term-Canada.png"
target="_blank"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> style="color: rgb(0, 0, 128);">Click Here style="color: rgb(0, 0, 128);"> to view a larger version of
this chart.

style="color: rgb(0, 102, 255);"> style="font-size: 15px;">Chart 21) From 1987 – US real
estate versus the S&P 500 index

For
comparison purposes the following two charts (Chart 20 and Chart
21) have also been
included which display US home prices as a multiple of the
S&P 500 (US stock market). The chart immediately
below displays US home prices as a ratio of the
S&P
500 index (US stock market) from 1987 onward. Fourteen US
cities are
included in the chart below as well as a composite index of ten major
US Cities. Over the medium term, home prices in Canada have
outperformed price appreciation of stocks. Note, the spike on
the
charts observed at March 2009 represent the stock market bottom during
the financial crisis.

class="Apple-style-span" style="line-height: 14px;"> href="http://pacificapartners.com/blog/wp-content/uploads/2012/12/C50-Stocks-vs-Real-Estate-Long-Term-USA.png"
target="_blank"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> alt="Canadian Real Estate"
src="http://pacificapartners.com/blog/wp-content/uploads/2012/12/C50-Stocks-vs-Real-Estate-Long-Term-USA.png"
style="border: 0px solid ; margin: 5px; line-height: 100%; text-decoration: none; display: inline; width: 600px; height: 364px;"
hspace="5" vspace="5">
href="http://pacificapartners.com/blog/wp-content/uploads/2012/12/C50-Stocks-vs-Real-Estate-Long-Term-USA.png"
target="_blank"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> style="color: rgb(0, 0, 128);">Click Here style="color: rgb(0, 0, 128);"> to view a larger version of
this chart.

style="color: rgb(0, 102, 255);"> style="font-size: 15px;">Chart 22) From 1998 – US Real
Estate versus the S&P 500 Index

For comparison purposes the following chart and the chart above have
been included which display US home prices as a multiple of the
S&P 500 (US stock market). The chart below displays
US home prices as a ratio of the S&P
500 index (US stock market) from 1987 onward. Fourteen US
cities are
included in the chart below as well as a composite index of ten major
US Cities. Over the medium term, home prices in Canada have
outperformed price appreciation of stocks. Note, the spike on
the
charts observed at March 2009 represent the stock market bottom during
the financial crisis.

class="Apple-style-span" style="line-height: 14px;"> href="http://pacificapartners.com/blog/wp-content/uploads/2012/12/C50-Stocks-vs-Real-Estate-Medium-Term-USA.png"
target="_blank"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> alt="Canadian Real Estate"
src="http://pacificapartners.com/blog/wp-content/uploads/2012/12/C50-Stocks-vs-Real-Estate-Medium-Term-USA.png"
style="border: 0px solid ; margin: 5px; line-height: 100%; text-decoration: none; display: inline; width: 600px; height: 369px;"
hspace="5" vspace="5">
href="http://pacificapartners.com/blog/wp-content/uploads/2012/12/C50-Stocks-vs-Real-Estate-Medium-Term-USA.png"
target="_blank"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> style="color: rgb(0, 0, 128);">Click Here style="color: rgb(0, 0, 128);"> to view a larger version of
this chart.

style="color: rgb(0, 0, 0);"> style="font-size: 15px;"> style="color: rgb(3, 185, 155);" size="+2">Section E (charts
23 through 26):
US Housing Price Performance vs. Major Canadian Cities

The following charts indicate relative
performance of US home prices
to Canadian home prices in four Canadian markets: Vancouver, Calgary,
Toronto, and Montreal. US home prices reflect Canadian
dollars by
applying a timely CAD/USD exchange rate to the US home price index.

style="color: rgb(0, 102, 255);"> style="font-size: 15px;">Chart 23) US Home Prices versus
Vancouver Home Prices

class="Apple-style-span" style="line-height: 14px;"> href="http://pacificapartners.com/blog/wp-content/uploads/2012/12/C12-US-vs-Vancouver-Home-Prices.png"
target="_blank"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> alt="Canadian Real Estate"
src="http://pacificapartners.com/blog/wp-content/uploads/2012/12/C12-US-vs-Vancouver-Home-Prices.png"
style="border: 0px solid ; margin: 5px; line-height: 100%; text-decoration: none; display: inline; width: 600px; height: 363px;"
hspace="5" vspace="5">
href="http://pacificapartners.com/blog/wp-content/uploads/2012/12/C12-US-vs-Vancouver-Home-Prices.png"
target="_blank"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> style="color: rgb(0, 0, 128);">Click Here style="color: rgb(0, 0, 128);"> to view a larger version of
this chart.

style="color: rgb(0, 102, 255);"> style="font-size: 15px;">Chart 24) US Home Prices versus
Calgary Home Prices

class="Apple-style-span" style="line-height: 14px;"> href="http://pacificapartners.com/blog/wp-content/uploads/2012/12/C12-US-vs-Calgary-Home-Prices.png"
target="_blank"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> alt="Canadian Real Estate"
src="http://pacificapartners.com/blog/wp-content/uploads/2012/12/C12-US-vs-Calgary-Home-Prices.png"
style="border: 0px solid ; margin: 5px; line-height: 100%; text-decoration: none; display: inline; width: 600px; height: 358px;"
hspace="5" vspace="5">
href="http://www.pacificapartners.comhttp://pacificapartners.com/blog/wp-content/uploads/2012/12/C12-US-vs-Calgary-Home-Prices.png"
target="_blank"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> style="color: rgb(0, 0, 128);">Click Here style="color: rgb(0, 0, 128);"> to view a larger version of
this chart.

style="color: rgb(0, 102, 255);"> style="font-size: 15px;">Chart 25) US Home Prices versus
Toronto Home Prices

class="Apple-style-span" style="line-height: 14px;"> href="http://pacificapartners.com/blog/wp-content/uploads/2012/12/C12-US-vs-Toronto-Home-Prices.png"
target="_blank"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> alt="Canadian Real Estate"
src="http://pacificapartners.com/blog/wp-content/uploads/2012/12/C12-US-vs-Toronto-Home-Prices.png"
style="border: 0px solid ; margin: 5px; line-height: 100%; text-decoration: none; display: inline; width: 600px; height: 367px;"
hspace="5" vspace="5">
href="http://pacificapartners.com/blog/wp-content/uploads/2012/12/C12-US-vs-Toronto-Home-Prices.png"
target="_blank"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> style="color: rgb(0, 0, 128);">Click Here style="color: rgb(0, 0, 128);"> to view a larger version of
this chart.

style="color: rgb(0, 102, 255);"> style="font-size: 15px;">Chart 26) US Home Prices versus
Montreal Home Prices

class="Apple-style-span" style="line-height: 14px;"> href="http://pacificapartners.com/blog/wp-content/uploads/2012/12/C12-US-vs-Montreal-Home-Prices.png"
target="_blank"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> alt="Canadian Real Estate"
src="http://pacificapartners.com/blog/wp-content/uploads/2012/12/C12-US-vs-Montreal-Home-Prices.png"
style="border: 0px solid ; margin: 5px; line-height: 100%; text-decoration: none; display: inline; width: 600px; height: 366px;"
hspace="5" vspace="5">
href="http://pacificapartners.com/blog/wp-content/uploads/2012/12/C12-US-vs-Montreal-Home-Prices.png"
target="_blank"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> style="color: rgb(0, 0, 128);">Click Here style="color: rgb(0, 0, 128);"> to view a larger version of
this chart.

style="color: rgb(0, 0, 0);"> style="font-size: 15px;"> style="color: rgb(3, 185, 155);" size="+2">Section F
(charts 27 through 33):
Price and Sales Pair Volume Change for Major Canadian Cities

The following charts indicate annual
changes in monthly home prices and “sales pair” volume. Data
has been
generously made available by Teranet – National Bank for: Canada,
Vancouver, Calgary, Ottawa, Toronto, Montreal, and Halifax.
Please visit http://www.housepriceindex.ca/
for the definitions and methodologies used
calculating their indices.

style="color: rgb(0, 102, 255);"> style="font-size: 15px;">Chart
27) Canadian Home Price and
Sales Volume Change

class="Apple-style-span" style="line-height: 14px;"> href="http://www.pacificapartners.com/blog/wp-content/uploads/2012/12/C12-Canadian-Housing-Bubble.png"
target="_blank"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> alt="Canadian Real Estate"
src="http://www.pacificapartners.com/blog/wp-content/uploads/2012/12/C12-Canadian-Housing-Bubble.png"
style="border: 0px solid ; margin: 5px; line-height: 100%; text-decoration: none; display: inline; width: 600px; height: 424px;"
hspace="5" vspace="5">
href="http://www.pacificapartners.com/blog/wp-content/uploads/2012/12/C12-Canadian-Housing-Bubble.png"
target="_blank"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> style="color: rgb(0, 0, 128);">Click Here style="color: rgb(0, 0, 128);"> to view a larger version of
this chart.

style="color: rgb(0, 102, 255);"> style="font-size: 15px;">Chart 28) Vancouver Home Price and
Sales Volume Change

class="Apple-style-span" style="line-height: 14px;"> href="http://www.pacificapartners.com/blog/wp-content/uploads/2012/12/C12-Vancouver-Housing-Bubble.png"
target="_blank"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> alt="Canadian Real Estate"
src="http://www.pacificapartners.com/blog/wp-content/uploads/2012/12/C12-Vancouver-Housing-Bubble.png"
style="border: 0px solid ; margin: 5px; line-height: 100%; text-decoration: none; display: inline; width: 600px; height: 429px;"
hspace="5" vspace="5">
href="http://www.pacificapartners.com/blog/wp-content/uploads/2012/12/C12-Vancouver-Housing-Bubble.png"
target="_blank"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> style="color: rgb(0, 0, 128);">Click Here style="color: rgb(0, 0, 128);"> to view a larger version of
this chart.

style="color: rgb(0, 102, 255);"> style="font-size: 15px;">Chart 29) Calgary Home Price and
Sales Volume Change

class="Apple-style-span" style="line-height: 14px;"> href="http://www.pacificapartners.com/blog/wp-content/uploads/2012/07/Real-Estate-Bubble-Calgary.png"
target="_blank"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> alt="Canadian Real Estate"
src="http://www.pacificapartners.com/blog/wp-content/uploads/2012/12/C12-Calgary-Housing-Bubble.png"
style="border: 0px solid ; margin: 5px; line-height: 100%; text-decoration: none; display: inline; width: 600px; height: 402px;"
hspace="5" vspace="5">
href="http://www.pacificapartners.com/blog/wp-content/uploads/2012/12/C12-Calgary-Housing-Bubble.png"
target="_blank"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> style="color: rgb(0, 0, 128);">Click Here style="color: rgb(0, 0, 128);"> to view a larger version of
this chart.

style="color: rgb(0, 102, 255);"> style="font-size: 15px;">Chart 30) Ottawa Home Price and
Sales Volume Change

class="Apple-style-span" style="line-height: 14px;"> href="http://www.pacificapartners.com/blog/wp-content/uploads/2012/12/C12-Ottawa-Housing-Bubble.png"
target="_blank"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> alt="Canadian Real Estate"
src="http://www.pacificapartners.com/blog/wp-content/uploads/2012/12/C12-Ottawa-Housing-Bubble.png"
style="border: 0px solid ; margin: 5px; line-height: 100%; text-decoration: none; display: inline; width: 600px; height: 396px;"
hspace="5" vspace="5">
href="http://www.pacificapartners.com/blog/wp-content/uploads/2012/12/C12-Ottawa-Housing-Bubble.png"
target="_blank"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> style="color: rgb(0, 0, 128);">Click Here style="color: rgb(0, 0, 128);"> to view a larger version of
this chart.

style="color: rgb(0, 102, 255);"> style="font-size: 15px;">Chart 31) Toronto Home Price and
Sales Volume Change

class="Apple-style-span" style="line-height: 14px;"> href="http://www.pacificapartners.com/blog/wp-content/uploads/2012/12/C12-Toronto-Housing-Bubble.png"
target="_blank"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> alt="Canadian Real Estate"
src="http://www.pacificapartners.com/blog/wp-content/uploads/2012/12/C12-Toronto-Housing-Bubble.png"
style="border: 0px solid ; margin: 5px; line-height: 100%; text-decoration: none; display: inline; width: 600px; height: 427px;"
hspace="5" vspace="5">
href="http://www.pacificapartners.com/blog/wp-content/uploads/2012/12/C12-Toronto-Housing-Bubble.png"
target="_blank"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> style="color: rgb(0, 0, 128);">Click Here style="color: rgb(0, 0, 128);"> to view a larger version of
this chart.

style="color: rgb(0, 102, 255);"> style="font-size: 15px;">Chart 32) Montreal Home Price and
Sales Volume Change

class="Apple-style-span" style="line-height: 14px;"> href="http://www.pacificapartners.com/blog/wp-content/uploads/2012/12/C12-Montreal-Housing-Bubble.png"
target="_blank"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> alt="Canadian Real Estate"
src="http://www.pacificapartners.com/blog/wp-content/uploads/2012/12/C12-Montreal-Housing-Bubble.png"
style="border: 0px solid ; margin: 5px; line-height: 100%; text-decoration: none; display: inline; width: 600px; height: 430px;"
hspace="5" vspace="5">
href="http://www.pacificapartners.com/blog/wp-content/uploads/2012/12/C12-Montreal-Housing-Bubble.png"
target="_blank"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> style="color: rgb(0, 0, 128);">Click Here style="color: rgb(0, 0, 128);"> to view a larger version of
this chart.

style="color: rgb(0, 102, 255);"> style="font-size: 15px;">Chart 33) Halifax Home Price and
Sales Volume Change

class="Apple-style-span" style="line-height: 14px;"> href="http://www.pacificapartners.com/blog/wp-content/uploads/2012/12/C12-Halifax-Housing-Bubble.png"
target="_blank"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> alt="Canadian Real Estate"
src="http://www.pacificapartners.com/blog/wp-content/uploads/2012/12/C12-Halifax-Housing-Bubble.png"
style="border: 0px solid ; margin: 5px; line-height: 100%; text-decoration: none; display: inline; width: 600px; height: 429px;"
hspace="5" vspace="5">
href="http://www.pacificapartners.com/blog/wp-content/uploads/2012/12/C12-Halifax-Housing-Bubble.png"
target="_blank"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> style="color: rgb(0, 0, 128);">Click Here style="color: rgb(0, 0, 128);"> to view a larger version of
this chart.

Pacifica
Partners – Capital Management
Navigating
a Sea of Opportunity

style="color: rgb(80, 80, 80); font-family: Arial; font-size: 14px; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: 21px; orphans: 2; text-align: justify; text-indent: 0px; text-transform: none; white-space: normal; widows: 2; word-spacing: 0px; background-color: rgb(255, 255, 255);"> style="font-size: 11px;"> style="line-height: 14px;">This report is for information
purposes only and is neither a solicitation for the purchase of
securities nor an offer of securities. The information contained in
this report has been compiled from sources we believe to be reliable,
however, we make no guarantee, representation or warranty, expressed or
implied, as to such information’s accuracy or completeness. All
opinions and estimates contained in this report, whether or not our
own, are based on assumptions we believe to be reasonable as of the
date of the report and are subject to change without notice. Past
performance is not indicative of future performance. Please note that,
as at the date of this report, our firm may hold positions in some of
the companies mentioned. style="color: rgb(80, 80, 80); font-family: Arial; font-size: 14px; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: 21px; orphans: 2; text-align: justify; text-indent: 0px; text-transform: none; white-space: normal; widows: 2; word-spacing: 0px; background-color: rgb(255, 255, 255);">
style="color: rgb(80, 80, 80); font-family: Arial; font-size: 14px; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: 21px; orphans: 2; text-align: justify; text-indent: 0px; text-transform: none; white-space: normal; widows: 2; word-spacing: 0px; background-color: rgb(255, 255, 255);">
style="color: rgb(80, 80, 80); font-family: Arial; font-size: 14px; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: 21px; orphans: 2; text-align: justify; text-indent: 0px; text-transform: none; white-space: normal; widows: 2; word-spacing: 0px; background-color: rgb(255, 255, 255);"> style="font-size: 11px;"> style="line-height: 14px;">Social Media: It is Pacifica
Partners Inc.’s policy not to respond via online and social media
outlets to questions or comments directed to it or in response to its
online and social media publications.
Pacifica Partners does not acknowledge or encourage testimonials posted
by third party individuals. Third party users that have
bookmarked Pacifica Partners’ social media publications or profile
through options including “like”, “follow”, or similar bookmarking
variations are not and should not be viewed as endorsement of Pacifica
Partners Inc., its services, or future or past investment performance.
To view our full disclaimer please href="http://pacificapartners.ca/legal/vancouver-investment-management.html"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;">click
here. style="color: rgb(80, 80, 80); font-family: Arial; font-size: 14px; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: 21px; orphans: 2; text-align: justify; text-indent: 0px; text-transform: none; white-space: normal; widows: 2; word-spacing: 0px; background-color: rgb(255, 255, 255);">
style="color: rgb(80, 80, 80); font-family: Arial; font-size: 14px; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: 21px; orphans: 2; text-align: justify; text-indent: 0px; text-transform: none; white-space: normal; widows: 2; word-spacing: 0px; background-color: rgb(255, 255, 255);"> style="font-size: 11px;"> style="line-height: 14px;"> style="color: rgb(80, 80, 80); font-family: Arial; font-size: 14px; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: 21px; orphans: 2; text-align: justify; text-indent: 0px; text-transform: none; white-space: normal; widows: 2; word-spacing: 0px; background-color: rgb(255, 255, 255);">
style="color: rgb(80, 80, 80); font-family: Arial; font-size: 14px; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: 21px; orphans: 2; text-align: justify; text-indent: 0px; text-transform: none; white-space: normal; widows: 2; word-spacing: 0px; background-color: rgb(255, 255, 255);"> style="font-size: 11px;"> style="line-height: 14px;">Copyright (C) 2012 Pacifica
Partners Inc. All rights reserved.

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valign="top"> style="text-align: center; color: rgb(80, 80, 80); font-family: Arial; font-size: 14px; line-height: 150%;"> href="http://pacificapartners.ca/blog/2012/10/16/us-banks-safer-but-still-%E2%80%9Ctoo-big-to-fail%E2%80%9D/"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> src="http://pacificapartners.ca/media/News%20Icons%20NEW/US%20Bank%20Failures%20-%20Financial%20Post.png"
alt="Investment Counsel Firms in Canada"
style="border: 0px solid ; margin: 0pt; padding: 0pt; line-height: 100%; text-decoration: none; display: inline; width: 150px; height: 140px;"> style="color: rgb(80, 80, 80); font-family: Arial; font-size: 14px; line-height: 150%; text-align: left;">

style="margin: 0pt 0pt 10px; color: rgb(32, 32, 32); display: block; font-family: Arial; font-size: 22px; font-weight: bold; line-height: 100%; text-align: left;"> style="color: rgb(0, 128, 128);"> class="Apple-style-span"
style="font-size: 14px; font-weight: normal; line-height: 21px;">US
Banks Safer But Still “Too Big To Fail”

class="Apple-style-span"
style="color: rgb(80, 80, 80); font-size: 14px; font-weight: normal; line-height: 21px;">One
of the strongest reminders of the depths of the financial crisis has
been the number of US bank failures…
style="color: rgb(80, 80, 80); font-size: 14px; font-weight: normal; line-height: 21px;">

style="margin: 0pt 0pt 10px; color: rgb(32, 32, 32); display: block; font-family: Arial; font-size: 22px; font-weight: bold; line-height: 100%; text-align: left;"> class="Apple-style-span"
style="color: rgb(80, 80, 80); font-size: 14px; font-weight: normal; line-height: 21px;"> href="http://www.pacificapartners.com/blog/2012/01/31/putting-a-floor-under-oil-prices/"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"
target="_blank">
href="http://pacificapartners.ca/blog/2012/10/16/us-banks-safer-but-still-%E2%80%9Ctoo-big-to-fail%E2%80%9D/">Click
here for full story.

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valign="top"> style="text-align: center; color: rgb(80, 80, 80); font-family: Arial; font-size: 14px; line-height: 150%;"> href="http://pacificapartners.ca/blog/2012/10/16/the-global-economy-and-the-fiscal-cliff/"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> src="http://pacificapartners.ca/media/News%20Icons%20NEW/Wealth-Management-for-Expat-Americans-in-Canada.jpg"
alt="Wealth Management Surrey Fraser Valley"
style="border: 0px solid ; margin: 0pt; padding: 0pt; line-height: 100%; text-decoration: none; display: inline; width: 149px; height: 150px;"> style="color: rgb(80, 80, 80); font-family: Arial; font-size: 14px; line-height: 150%; text-align: left;">

style="margin: 0pt 0pt 10px; color: rgb(32, 32, 32); display: block; font-family: Arial; font-size: 22px; font-weight: bold; line-height: 100%; text-align: left;"> style="color: rgb(0, 128, 128);"> class="Apple-style-span"
style="font-size: 14px; font-weight: normal; line-height: 21px;"> style="background-color: rgb(255, 255, 255);">US Economy – A
Beacon of Hope

class="Apple-style-span"
style="color: rgb(80, 80, 80); font-size: 14px; font-weight: normal; line-height: 21px;">During
the past quarter, much of the marekt’s collective attention was
forcused on wheter or not the US Federal Reserve would in fact turn to
a third round of Quantitative Easing (QE)…
style="color: rgb(80, 80, 80); font-size: 14px; font-weight: normal; line-height: 21px;">

style="margin: 0pt 0pt 10px; color: rgb(32, 32, 32); display: block; font-family: Arial; font-size: 22px; font-weight: bold; line-height: 100%; text-align: left;"> class="Apple-style-span"
style="color: rgb(80, 80, 80); font-size: 14px; font-weight: normal; line-height: 21px;"> href="http://www.pacificapartners.com/blog/2012/01/12/dividend-growth-opportunities/"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;">
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"
href="http://pacificapartners.ca/blog/2012/10/16/the-global-economy-and-the-fiscal-cliff/#.UMI98oN3gQg">Click
here href="http://pacificapartners.ca/blog/2012/05/18/us-economy-a-beacon-of-hope/#.T7ah9kU7Vdn"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;">
for full story.

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valign="top"> style="text-align: center; color: rgb(80, 80, 80); font-family: Arial; font-size: 14px; line-height: 150%;"> href="http://pacificapartners.ca/blog/2012/09/06/transferring-your-ira-401k-to-canada/"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> src="http://pacificapartners.ca/media/401K%20to%20RRSP%20Rollover.png"
alt="BNN Interview: Demographics"
style="border: 0px solid ; margin: 0pt; padding: 0pt; line-height: 100%; text-decoration: none; display: inline; width: 150px; height: 130px;"> style="color: rgb(80, 80, 80); font-family: Arial; font-size: 14px; line-height: 150%; text-align: left;">

style="margin: 0pt 0pt 10px; color: rgb(32, 32, 32); display: block; font-family: Arial; font-size: 22px; font-weight: bold; line-height: 100%; text-align: left;"> style="color: rgb(0, 128, 128);"> class="Apple-style-span"
style="font-size: 14px; font-weight: normal; line-height: 21px;">Transferring
Your IRA / 401K to Canada

style="color: rgb(80, 80, 80); font-size: 14px; font-weight: normal; line-height: 21px;"> style="color: rgb(80, 80, 80); font-family: Arial; font-size: 14px; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: 21px; orphans: 2; text-align: left; text-indent: 0px; text-transform: none; white-space: normal; widows: 2; word-spacing: 0px; background-color: rgb(255, 255, 255); display: inline ! important; float: none;">When
moving between Canada and the USA, there are common challenges that
individuals often face. Aside from the practical aspects of the move,
there are also tax and financial considerations to assess. In
particular, you may have accumulated savings in a recognized retirement
arrangement like a 401k plan or an individual IRA.
style="color: rgb(80, 80, 80); font-size: 14px; font-weight: normal; line-height: 21px;"> href="http://pacificapartners.ca/blog/2012/04/25/the-politics-of-gas-prices/"
style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"
target="_blank">
href="http://pacificapartners.ca/blog/2012/09/06/transferring-your-ira-401k-to-canada/">Click
here for full story.

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The Global Economy & The Fiscal Cliff

Pacifica Partners — Tue, 16 Oct 2012 14:21:19 PDT

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Possibly more so than at any other time in history, all parts of the world are simultaneously feeling the impact of what a globalized world we live in. The impact of the globalized economy to transmit shockwaves from one part of the world to another is unparalleled. As corporations have begun releasing their earnings for the first quarter of 2012, the markets are starting to get a sense of just where things sit with respect to the economy. As the economic recovery continues to wobble along, every negative eventseems to get magnified and ripples across the world.
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During
the past quarter, much of the
market’s collective attention was focused on whether or not the US
Federal Reserve would in fact turn to a third round of quantitative
easing (QE) or stimulus. QE is the term used to describe the US central
bank’s efforts to stimulate the economy by injecting money into the
banking system through the purchase of various types of bonds.

The
question was answered on September 13th when Federal Reserve Chairman
Ben Bernanke announced that the US central bank would begin buying $40
billion of mortgage backed securities. He also extended the Fed’s
commitment to keep interest rates low through most of 2015, an
extension of almost six months from prior policy. In short, the Fed
committed to keep interest rates “lower for longer”.

size="+1"> style="">US Economy Leads the Way

This
move has taken monetary policy into uncharted territory by making
unemployment levels the focal point of US monetary
policy.
Essentially, the Fed hopes to force feed money into the US financial
system until a stronger, more durable economic recovery takes
root. To underline this commitment, the Fed said that it
would
maintain its policies for a “considerable time after the economic
recovery strengthens”.

Under
its official charter, the Fed is tasked with the dual-mandate of price
stability (controlling inflation) and maximum employment. But
this is the first time that the Federal Reserve has made jobs the
yardstick by which it will measure its success. However, the Fed’s
decision has once again fired up its critics, even within the Fed
itself.

Richard Fisher, the President of the Dallas Fed,
stated that “all the monetary accommodation in the world” would not get
businesses hiring again. He argues, and correctly so, that tax reform
and more policy certainty from the US federal government do more for
the economy than taking interest rates from extremely low to near zero.
In short, the political process needs to function again in Washington
and Europe.

href="http://pacificapartners.com/blog/wp-content/uploads/2012/10/fiscal-cliff-chart.png"> style="border: 0px solid ; width: 580px; height: 346px;"
alt="Projected US Deficit in CBO's Baseline and Alternative Scenarios"
src="http://pacificapartners.com/blog/wp-content/uploads/2012/10/fiscal-cliff-chart.png"
hspace="5" vspace="5">

style="font-style: italic;">Chart source: style="font-style: italic;" href="http://www.cbo.gov/"
target="_blank">www.cbo.gov style="font-style: italic;"> to view a larger version of the
above chart href="http://pacificapartners.com/blog/wp-content/uploads/2012/10/fiscal-cliff-chart.png"
target="_blank">click here style="font-style: italic;">.

size="+1"> style="">Driving the Economy Over the “Fiscal Cliff”

As
the current US presidential election cycle heads into the home stretch,
the term “fiscal cliff” has been mentioned with increasing
frequency. It refers to the large spending cuts and
tax
increases set to hit the economy at the end of 2012. When President
Obama had extended the 2001 Bush tax cuts until 2012, it was designed
to allow the economic recovery to gather momentum. In August 2011,
after the failure of the debt ceiling talks, Congress passed the Budget
Control Act of 2011 which provided for a bipartisan Supercommittee that
was tasked with coming up with a deficit reduction plan over
a 10
year period. The plan was then to come up for a vote in both houses of
Congress, with no further amendments allowed.

The
Supercommittee failed to come to an agreement and under the Budget
Control Act, if there was a failure to come to an agreement, then
automatic spending cuts (sequestration) and tax increases will kick in
as of January 2013. Complicating matters is the fact that
this is
an election year and neither side wants to give the other anything that
can be construed as a political victory. With Congress on recess until
after the November elections, it does not leave a lot of time to come
to an agreement.

size="+1"> style="">Consequences of Going Over the Fiscal Cliff

According
to the Congressional Budget Office (CBO), the tax increases and
spending cuts would leave the budget deficit at about $641billion
versus the $1.03 trillion deficit without them. If the US were to go
over the fiscal cliff, it would act as a sizeable brake on the global
economy because it would remove a significant amount of
stimulus,
therefore potentially halting the recovery even with QE3 in motion.

The
International Monetary Fund (IMF) has weighed in by warning that
“Growth would stall in 2013 with the full materialization of the cliff
and … would inflict large spillovers on major US trading partners and
also on commodity exporters”. The IMF has recently reduced
its
expectations for global economic growth this year for a second time and
expects the economy to grow at about the same rate as 2009.

For
Canada, which relies on the US economy so strongly, the impact would be
significant. With over 70% of Canadian exports going to the US,
Canadians should be paying close attention to what happens with this
issue.

The most likely scenario is for both US political
parties to come to a “mini agreement” and leave the bigger issues until
after the election. This would be a partial “kick the can down the
road” approach. However, bond rating agency Moody’s has stated that if
no major deal is announced to deal with the debt and deficit then it
will react by joining Standard and Poor’s and also downgrade its rating
for US government bonds from AAA.

It is worth noting that
both Democrats and Republicans agree on much of the outstanding issues.
The biggest area of disagreement is whether the tax cuts for those
earning over $250,000 annually should be allowed to expire. Democrats
have said they would like to allow the tax rate for those higher income
earners to rise back to the levels that prevailed during the Clinton
years.

size="+1"> style="">Canada: No Longer Bucking the Global Trend

During
the last recession, Canada fared better than any of the other members
of the G7. Its reputation as a prudent fiscal manager and well
regulated banking system shone through and other world leaders sat up
and took notice. However, the afterglow has faded.

Recently, the
IMF admonished Canada for its high level of consumer debt and potential
problems arising from its housing market. It has reduced its forecast
for Canadian economic growth to 1.9% for 2012 and only 2.0% for 2013.
However, this is still second best in the G7 – marginally behind the US
economy.

href="http://www.pacificapartners.com/blog/wp-content/uploads/2012/07/Growth-in-Canadian-Consumer-Credit.png"> style="border: 0px solid ; width: 590px; height: 322px;"
alt="Canadian Consumer Credit Growth YoY"
src="http://www.pacificapartners.com/blog/wp-content/uploads/2012/07/Growth-in-Canadian-Consumer-Credit.png">

style="font-style: italic;">Chart Source: style="font-style: italic;"
href="http://pacificapartners.ca/blog/2012/07/18/canadian-real-estate-bubble-chart-book/"
target="_blank">Real Estate Chart Book style="font-style: italic;">to view larger version of this
chart href="http://www.pacificapartners.com/blog/wp-content/uploads/2012/07/Growth-in-Canadian-Consumer-Credit.png"
target="_blank">click here style="font-style: italic;">.

The housing market in Canada is starting to slow as
price increases have moderated and sales activity is starting to fall
in the hottest housing markets such as Vancouver and Victoria. Part of
this is due to mortgage reforms designed to tighten lending standards
and partly due to prices that do not make real estate appealing for
many buyers. The government has warned that further measures could be
imposed if the real estate sector proves resilient to policy measures.

size="+1"> style="">Recovery in US Real Estate

Two
of the key sectors for the US economy are autos and real
estate.
Autos have been a key contributor to the US economy’s ability to shake
off the recession and now real estate is helping to provide
momentum. In fact, the US real estate sector is one of the
bright
spots for the global economy given its size and impact on a wide range
of other industries from lumber to household furnishings – and most
certainly employment in construction. Furthermore, a
stabilizing
housing market provides a boost to US consumer confidence which is so
important to the world economy.

size="+1"> style="">Risk & Rewards

As
an export oriented nation, the global economy has a significant impact
on Canada. As the IMF states in its most recent World Economic Outlook,
“… risks for recession in advanced economies (entailing a serious
slowdown in emerging market and developing economies) are alarmingly
high which is about a 15% probability for the US, 25% for Japan and 80%
for Europe”.

Offsetting
these risks are the unprecedented commitments by the US, Japan and
European central banks to provide seemingly limitless stimulus. They
recognize the challenges facing their respective nations and are
meeting them head on. China has also begun to reverse its
tighter
monetary policies as it tries to provide a boost to slowing economic
growth there.

Risks
are always apparent and always present. In order to navigate the risks
effectively, a keen eye must be kept on how these risks are being
mitigated and dealt with. At present, the financial markets seem to be
discounting a successful resolution to the fiscal cliff issues and are
increasingly confident that European leaders will ultimately find a
combination of policies that will allow them to emerge from their
crises. While the monetary authorities have led the way forward, it is
now imperative for governments to provide the fiscal and legislative
reforms that will allow economic growth to flourish again.

Pacifica
Partners – Capital Management
Navigating
a Sea of Opportunity

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style="font-size: 14px; font-weight: normal; line-height: 21px;">Corporate
Earnings Forecasting Obama Victory

style="margin: 0pt 0pt 10px; color: rgb(32, 32, 32); display: block; font-family: Arial; font-size: 22px; font-weight: bold; line-height: 100%; text-align: left;"> class="Apple-style-span"
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target="_blank">
href="http://pacificapartners.ca/blog/2012/09/12/corporate-earnings-forecasting-obama-victory/">Click
here for full story.

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style="margin: 0pt 0pt 10px; color: rgb(32, 32, 32); display: block; font-family: Arial; font-size: 22px; font-weight: bold; line-height: 100%; text-align: left;"> style="color: rgb(0, 128, 128);"> class="Apple-style-span"
style="font-size: 14px; font-weight: normal; line-height: 21px;"> style="background-color: rgb(255, 255, 255);">Transferring
Your IRA/401K to Canada

style="margin: 0pt 0pt 10px; color: rgb(32, 32, 32); display: block; font-family: Arial; font-size: 22px; font-weight: bold; line-height: 100%; text-align: left;"> class="Apple-style-span"
style="color: rgb(80, 80, 80); font-size: 14px; font-weight: normal; line-height: 21px;"> href="http://www.pacificapartners.com/blog/2012/01/12/dividend-growth-opportunities/"
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style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"
href="http://pacificapartners.com/blog/2012/09/06/transferring-your-401k-to-an-rrsp/">Click
here href="http://pacificapartners.ca/blog/2012/05/18/us-economy-a-beacon-of-hope/#.T7ah9kU7Vdn"
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for full story.

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style="color: rgb(51, 102, 153); font-weight: normal; text-decoration: underline;"> src="http://pacificapartners.com/media/Housing%20Bubble.png"
alt="BNN Interview: Demographics"
style="border: 0px solid ; margin: 0pt; padding: 0pt; line-height: 100%; text-decoration: none; display: inline; width: 142px; height: 125px;"> style="color: rgb(80, 80, 80); font-family: Arial; font-size: 14px; line-height: 150%; text-align: left;">

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Canadian Real-Estate Chart Book

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style="color: rgb(80, 80, 80); font-size: 14px; font-weight: normal; line-height: 21px;">This
report is our latest update of trends and valuations of the Canadian
real estate market. The 34 charts and two tables included
below comprise an exhaustive look at the valuation drivers of Canadian
real estate.
href="http://pacificapartners.ca/blog/2012/04/25/the-politics-of-gas-prices/"
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href="http://pacificapartners.com/blog/2012/07/18/canadian-real-estate-bubble-chart-book/">Click
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