Are we headed for a ? November 5th, 2019

Joel Kaczor, CFA® PORTFOLIO MANAGER, PARTNER Are we headed for a recession? 2 Disclaimer

This document has been prepared by Letko, Brosseau & Associates Inc. for informational purposes only and is not intended to provide, and should not be relied upon for, accounting, legal or tax advice or investment recommendations. Where the information contained in this document has been obtained or derived from third- party sources, the information is from sources believed to be reliable, but the firm has not independently verified such information. No representation or warranty is provided in relation to the accuracy, correctness, completeness or reliability of such information. Any opinions or estimates contained herein constitute our judgment as of this date and are subject to change without notice. This document may contain certain forward-looking statements which reflect our current expectations or forecasts of future events concerning the economy, market changes and trends. Forward-looking statements are inherently subject to, among other things, risks, uncertainties and assumptions regarding currencies, economic growth, current and expected conditions, and other factors that are believed to be appropriate in the circumstances which could cause actual events, results, performance or prospects to differ materially from those expressed in, or implied by, these forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements. Are we headed for a recession? 3 U.S. Stock Market During

Dow Jones Recession Date Peak Trough % Change

1899-1900 Recession June 1899-Dec. 1900 45 38 -15% 1902-1904 Recession Sep. 1902-Aug. 1904 57 31 -46% May 1907-June 1908 75 38 -49% Panic of 1910-1911 Jan. 1910-Jan. 1912 73 53 -27% Recession of 1913-1914 Jan. 1913- Dec. 1914 68 52 -24% Post WW1 Recession Aug. 1918-Mar. 1919 110 79 -28% Depression of 1920-1921 Jan. 1920-July 1921 120 65 -46% 1923-1924 Recession May 1923-June 1924 105 86 -18% 1926-1927 Recession Oct. 1926-Nov. 1927 166 146 -12% Aug. 1929-Mar. 1933 348 41 -88% Recession of 1937-1938 May 1937-June 1938 194 99 -49% Recession of 1945 Feb. 1945-Oct. 1945 158 152 -4% Nov. 1948-Oct. 1949 213 162 -24% July 1953-May 1954 294 256 -13% Aug. 1957-Apr. 1958 521 420 -19% Recession of 1960-1961 Apr. 1960-Feb. 1961 686 566 -17% Recession of 1969-1970 Dec. 1969-Nov. 1970 995 631 -37% 1973-1975 Recession Nov. 1973-Mar. 1975 1,052 578 -45% 1980 Recession Jan. 1980-July 1980 1,015 759 -25% 1981-1982 Recession July 1981-Nov. 1982 1,024 777 -24% Early 1990s US Recession July 1990-Mar. 1991 2,935 2,365 -19% Dot Com Bubble Mar. 2001-Nov. 2001 11,723 8,236 -30% Dec. 2007-June 2009 14,165 6,547 -54% Average -31% Post-WW2 average -28% Are we headed for a recession? 4 What drives the ?

• Classical economists: Technology • Keynes: Consumer/business expectations • Friedman/Monetarists: Money supply & • Fisher: Credit, debt & imbalances • Schumpeter/Austrians: Government Are we headed for a recession? 5 Long list of distractions

Since the financial crisis / recession (2008-2009): • Potential for double dip recession • Loss of AAA-rating for U.S. • European debt crisis • Russia’s invasion of Ukraine • Sharp decline in oil prices and basic metals prices • Chinese economic slowdown • Trump • Stock market valuations • North Korea • Brexit • Trade protectionism??? Are we headed for a recession? 6 The stock market carries on

Trade protectionism: -20%

Rate hike fears: -10%

Greece : -11%

EU debt crisis : China: -13% -10% Greece / flash crash: -16% Weak US data / EU debt fears : -10% Global US budget financial debacle: -19% crisis: -57%

Source: Standard & Poor's. Last data point: October 16th, 2019. Are we headed for a recession? 7 The U.S now in the mature phase of the cycle

U.S. Actual vs. Potential Real GDP

Source: Bureau Economic Analysis, Congressional Budget Office, Letko Brosseau Are we headed for a recession? 8 Global growth is slowing… but is still expanding Are we headed for a recession? 9 Powerful animal spirits Are we headed for a recession? 10 Inflationary pressures building… moderately Are we headed for a recession? 11 Credit growth remains firm… Are we headed for a recession? 12 Fiscal policy is supportive

Federal fiscal deficit (% of GDP) 2018: 3.8% 2019: 4.7% 2020: 4.7% Are we headed for a recession? 13 …and is accommodative

MAIN POLICY RATE Dec-18 Oct-19 ∆ YTD Australia 1.50% 0.75% -0.75% Brazil 6.50% 5.50% -1.00% China * 14.50% 13.00% -1.50% Egypt 17.25% 13.75% -3.50% Eurozone ** -0.40% -0.50% -0.10% Hong Kong 2.75% 2.25% -0.50% India 6.50% 5.40% -1.10% Indonesia 6.00% 5.25% -0.75% Malaysia 3.25% 3.00% -0.25% Mexico 8.25% 7.75% -0.50% New Zealand 1.75% 1.00% -0.75% Peru 2.75% 2.50% -0.25% Phillipines 4.75% 4.00% -0.75% Russia 7.75% 7.00% -0.75% South Africa 6.75% 6.50% -0.25% South Korea 1.75% 1.50% -0.25% Sri Lanka 8.00% 7.00% -1.00% Thailand 1.75% 1.50% -0.25% Turkey 24.00% 16.50% -7.50% Ukraine 18.00% 16.50% -1.50% U.S. *** 2.50% 2.00% -0.50% *Reserve required ratio rate for large depository institutions **Eurozone deposit rate ***Top of U.S. Fed Funds range Are we headed for a recession? 14 New structural imbalances emerging…

On our radar:

I. Non-banking credit and debt in developed markets and China

II. Private equity and debt markets

III. Capital flows to/from emerging markets

v Trade protectionism

… but they should not derail global growth Are we headed for a recession? 15 Implication for stocks Good prospects, reasonable valuations…

… but stock selection remains key Are we headed for a recession? 16 Implication for bonds Yields still below their "fair" value… Are we headed for a recession? 17 Summary

• World entering the mature phase of the cycle, not near the end

• Macroeconomic environment still favourable for companies

• Stocks > Bonds