Investor update

Jul 17, 2012

Good morning, ladies and gentlemen. I will now turn the meeting over to Ms. Jane Gullion-Maru. Please go ahead. Thanks very much. Good morning and welcome to BMO Harris Private Banking's third quarter market outlook call. Thanks very much for joining us today. My name is Jane Gullion-Maru, and I am Vice President and National Director for Investment Platform at BMO Harris Private Banking. Over the last few months, and I am sure this has not escaped you, it certainly feels as though almost each week brings us some information about the Eurozone, and we see many countries continuing to face serious debt issues and having to then deal with the political challenges that come with economic instability. We have also seen equity markets reacting almost instantly to headlines and each new data release. To help place all this into context and get beneath the headlines, today we are joined by three expert panelists, Eoin Fahy from Europe, Paul Taylor from Canada, and Jack Ablin from the U.S. Eoin, Paul, and Jack will talk to us about the latest developments in the Eurozone and other recent headline-grabbing issues. They will also share their observations and perspectives on the potential impacts to North American investors. As a bit of introduction, Eoin Fahy is the Chief Economist at Kleinwort Benson Investors. Eoin advises his firm's clients and its investment management team on economic trends globally. Eoin joins us from Dublin today. Paul Taylor is the Chief Investment Officer for Fundamental Equities at BMO Asset Management, and he is also an investment strategist for BMO Harris Private Banking. For BMO Harris, he is responsible for the management of all of our Canadian equity strategies, as well as developing the asset allocation strategy across asset classes for all of our clients' portfolios. Paul is a frequent media commentator in Canada about capital markets and investing issues, and he joins us from Toronto. Third, we have Jack Ablin, who is the Chief Investment Officer of Harris Private Bank. He is widely followed in the industry and is also the author of "Reading Minds and Markets: Minimizing Risk and Maximizing Returns in a Volatile Global Marketplace." He has also been named one of the top 100 wealth advisors in North America. Jack joins us from Chicago. Before we begin, I would like to remind everyone that you can ask questions following the presentations. Our operator, Jason, will provide instructions on submitting your questions at that time. We would like now to turn over the discussion to Eoin Fahy to lead us. Eoin, over to you. Thank you. I thought a very good way to look at the last several months in Europe is to compare what's been going on at policy level with what the markets have been doing, and they've been doing very different things to each other. Let's start with what's happened in terms of policy developments and issues such as that over the last while, which really have been quite significant. Perhaps the best way to think about this is to think about the number of things that could have gone wrong but didn't. For example, there was a referendum here in Ireland on a key European Union treaty, part of the mechanism to get the European Union and the Eurozone in general out of the fiscal crisis in which it is embedded. That referendum, in many people's judgment, was too close to call, but in the event, the electorate voted yes, and another part of the reform mechanism was put in place successfully. More importantly, probably, in Greece, we also had, as you know, not one, but two general elections in quick succession. Again, the outcome of that was favorable to the Eurozone in the parties which were, loosely speaking, pro-austerity or pro-Eurozone, won a reasonably comfortable majority in the end, something that wasn't really expected several weeks beforehand. Another mildly pleasant surprise for the Eurozone policymakers. We also had an exceptionally successful outcome to a key summit meeting on June 29th, the very last day of the quarter, which of course, led to a very strong market reaction. That European summit meeting agreed, against all expectations, on a number of measures which were seen as distinctly positive for the outlook. Firstly, and probably most importantly, they agreed that it was essential to break the link between troubled banking sectors in Europe and the sovereign states of those countries. As you may know, a good part of the fiscal crisis, particularly in Spain and in Ireland, arose because the banking sector got into difficulties. The governments in those countries rescued the banking system, but in so doing, damaged their own fiscal state to the extent that they were to either a full extent in Ireland or partial extent in Spain, frozen out of the bond markets because of fears of the enormous burden they had taken on by supporting their bank sectors. And the positive development was that EU authorities said, "If we're going to provide funds to bail out banking systems in future, we may, at European level, be able to do so directly to the banks without lending it to the governments first." So breaking that link between the two, which has been so damaging. We also saw a number of other developments at that summit meeting, including the creation of a single bank regulator. Many other countries around the world, their economies may take that for granted, that where you have an economy, you have a single bank regulator, but that's, of course, not true in the Eurozone, where all the different countries in the Eurozone have their own bank regulators, and there was nobody really in charge of bank regulation. It was also a key condition for Germany to accept further bailouts in the future or further calls on its own taxpayers in the future. It's been a key condition that it would get a single bank regulator. That was, I suppose, a quid pro quo. You've had a number of things go in the right direction at that level. Another key issue was the stabilization of the Spanish banking sector in the sense that for many months, market participants certainly were aware that the Spanish banking system was in a mess and would need large-scale funding, but nobody quite knew how much, and the government was giving very little leadership. They were really in the mode of, "Oh, there's one or two banks that are in difficulties, but that's okay. Move along, there's nothing to see here," type of attitude. But increasingly and really dramatically over the last months, the Spanish authorities changed their views on that. They came out with credible estimates of how much money that the Spanish banks would need, even in a negative scenario. And of course, they got agreement from the EU to fund the amount of recapitalization that the troubled Spanish banks will need. Policy moving in the right direction, lots of achievements. But then if you look at the market reaction to all of this, and particularly the bond market reaction, it hasn't been helpful at all. In fact, over the last two to three months, both Spanish and Italian bond yields, the two big markets and the two big bond markets that are in focus here, sorry, bond yields in those two countries actually rose by around about a half percent. Now, a half percent isn't all that dramatic, but when you think that Spanish bond yields are now close to 7%, no country can really fund itself with low growth and an interest rate on its borrowings of 7%. Spain can manage at that kind of yield level for certainly for weeks, probably for months, but probably not much longer than that. A negative response at a policy, sorry, at a financial market level to a significantly positive background on the policy front. That leads to many questions. Which of them is wrong? Are the financial markets wrong to be quite negative about the outcome of these developments over the last few months? Are our policymakers, despite their successes in recent weeks, are they whistling in the wind, so to speak? Are they wasting their time because really the solution is so bad that it can't be solved? Our view is the former rather than the latter. We do think that the chances of a Eurozone breakup are very small. We're putting a nominal 5% probability on it, but even that might be generous. We think, and have thought for some time, that the probability of a sort of muddle through, where we get more of the same for the next number of months on the policy front without any major solution. The odds of that happening are about 50%. The odds of a much bigger crisis than anything we've seen so far, followed by a much more radical policy response, are about 45%, and as I mentioned already, a Eurozone breakup about 5%. Just to finish up with some comments on what it feels like to be in the Eurozone during this crisis. As I mentioned on one of these conference calls previously, actually life goes on in a relatively normal way. Restaurants and hotels are busy. Airports are full of people. It's summertime. There's nothing extraordinary happening in Europe. We don't have, in the main, people queuing up for soup kitchens, notwithstanding negative headlines you'll come across in the rest of the year. But naturally, consumers and business people are nervous. If you were a business person contemplating expanding your business, perhaps adding a wing to a factory, placing a major order, when you're not quite sure what's going on in this Eurozone fiscal crisis, you are inclined to defer that decision, to put it back, to not take large risks. Similarly, consumers are generally doing okay. Despite a very high rate of unemployment in the Eurozone at about 11%, that still leaves 89% of the workforce who are working, who do have an income and working. While they're not doing exceptionally well, they're keeping their head above water. But again, those consumers, when they read this constant stream of negative headlines all the time about the crisis and how serious it is and people speculating about the breakup of the Eurozone and the massive disruption that would have to the economy, those people are unlikely to go out and buy a house, buy a car, make any major items of expenditure. We're seeing the consumer sector being quite weak, and we're seeing the investment sector weak, and that's leading to, so far, a mild recession in the Eurozone with a concern that it might deepen. I'll conclude my remarks there, and obviously, if there are any questions, happy to deal with them later on. Thank you. Thanks very much, Eoin. Next we'll hear from Paul. All yours. Great. Thanks, Jane. It's always hard following on my colleague with an Irish accent because I tend to adopt it myself, but I'll try to avoid that. Anyway, from a Canadian perspective, as always, we're not masters of our own destiny, which makes Eoin's life difficult. Really the key from a Canadian perspective is how will things land from a Eurozone perspective, and I think Eoin clearly laid out that good progress has been made on the policy front, but there's still a lot of heavy lifting to be done. The other is the U.S. Jack will, I'm sure, comment more on this, and the third is China. It's how you triangulate between those three factors and see how it plays here north of the border to really get a sense for economic and capital market type perspective. But I thought what I'd do, just spend a couple of minutes on context and for BMO Harris Canada here to step back just a couple of years to comment on where we see the world kind of coming from. That is between 2009 and the end of Q1 2011, we were very deliberately overweight equities in our portfolio based on three things. The first is we felt that we were entering into a multi-year adjustment to the global debt super cycle, which would dull global economic growth and capital market returns. Secondly, specifically as it relates to the U.S., that we thought that an expansion would unfold on the back of significant policy stimulus. The third is that equities were extremely attractively priced, and you were paid, in fact, to add risk to your portfolio. That was a trade that worked very well in our portfolios, again, until the end of Q1 2011. In 2011, in Q1, Q2, we meaningfully reduced the risk profile in our accounts by moving equities from an extreme overweight position back to neutral. In fact, they dipped below neutral at some point in time in 2011. Our view and it was based on the fact that 2012 would be a critical year for the global economy and the U.S. economy specifically, and that is that stimulus, a primary monetary policy stimulus, would have largely played out, and either the U.S. and global economy would enter into a period of organic, sustainable economic recovery or not. That's really what we've been watching here from a Canadian perspective ever since. In that regard, the results thus far related to, for Canada, the all-important, I don't want to steal Jack's thunder too much here, but related to the U.S. economic recovery, I would argue is they're mixed. We obviously had very strong indicators in Q1 and a clear weakening of indicators in Q2. So, how does this all play out for Canada with respect to the economy? Expected GDP growth of about 2% in 2012 has been called into question more recently in specific because of weaker commodity prices. More specifically there, the importance of energy here in Canada cannot be overstated. In that regard, the fact that oil has moved from $110 to the mid-$80s, it'll create a challenging environment for Alberta and for the producers in Western Canada. As a result of that, full-year earnings per share expectations for the S&P/TSX companies are likely to fall into the range of CAD 865-CAD 890. That is an expansion from CAD 844 delivered by the S&P/TSX companies in 2011, but it certainly is below the earlier-in-the-year estimates of somewhere between CAD 900 and CAD 925. Going from CAD 844 to CAD 865 to CAD 890, you get a modest lift in earnings on a year-over-year basis as you go from full year 2012 versus 2011. Supporting the Canadian economy really is the consumer. The consumer has continued to participate meaningfully through housing, autos, and the energy sector until most recently. From a corporate perspective, we have seen good follow-through, but the Canadian expansion has certainly, as elsewhere, has not been aided by the public sector, where the federal government of Canada is scrambling to get their balance sheet in order so that by 2014, 2015, we will return to a surplus situation. I think we will be in a very enviable situation on a relative basis within the G7 if, in fact, we are able to achieve that. Notwithstanding, there are some concerns about our housing sector and its contribution. Thus far, fairly strong participation by the Canadian consumer, and that does support that 2% is probably a little bit optimistic, but certainly recession is not a likely outcome for the Canadian economy. Lastly, as it relates to the Canadian markets, again, assuming earnings for 2012 of CAD 880, the S&P/TSX trading at 11,500, today trades at a multiple of 13.1 times current earnings. That would have to be considered at the cheap side of the fair valuation range. In terms of sector leadership, we have seen positive leadership from those sectors that yield. In that regard, telecom, consumer staples, utilities, and those cyclical sectors have not provided leadership, and materials and energy have led on the downside. Broadly speaking, we want to see things settled in the Eurozone. We believe there will be a muddle through that occurs. Definitely the foot-dragging has had an effect on consumer behavior, consumer and corporate behavior, both in the U.S. and here in Canada. That will cause slightly more moderate economic growth, moderate earnings growth. It is a decent but not a stellar outlook for Canadian equities. Jane, I will pass it back to you. Thanks very much, Paul. Jack, over to you to give us your perspective. Thanks, Jane, and thank you everyone. We have a pretty good background on the world, Canada. Just to chip in a little bit from the U.S. Needless to say, we are seeing some slowing, most notably in the job growth. Over the last three months now, we've kicked in only, well, less than 100,000 jobs per month. That's a rate that's about half or so that we've seen over the previous three or four months. Most notably, at least the most common theme we're seeing is headwinds coming from abroad. Not a surprise that we're seeing slowing from Europe, slowing from China. What we did was we took a twist on our trade, and rather than look at net trade, net exports, which has been pretty consistent over several decades, we decided to take imports and exports and add them together to see what component of our economy really is trade altogether. We find that over the last several decades, trade as a component of our economy, in fact, the economies of the developed world in general, have been rising pretty steadily now to a point where imports and exports together account for more than 30% of our economy. At the same time, we have been very sensitive to changes in the economy. We realize that the global economy plays a very important factor in our local economy. However, on the good news for the U.S., bad news in Europe in some respects is good news in the U.S. Those labor costs that have risen pretty steadily particularly in Southern Europe, have made our European competitors less competitive to U.S. manufacturing. In fact, we've just learned over the last month or so that Airbus is planning to set up shop in the U.S., and that's largely due to the fact that our unit labor costs in the U.S. are now a full 30%-40% cheaper than they were, relative to their counterparts in Spain, Portugal, Greece, and Italy than they were, say, 10, 12 years ago. Our natural gas prices, which are here in the U.S. and Canada, are trading in the $2-$3 in MCF range versus, say, $9-$10 in MCF in Europe and closer to $15 in MCF in Japan. So put relatively cheap and productive labor in the U.S. with relatively cheap natural gas, and we are starting to see some U.S. manufacturing ramp up. The bad news, unfortunately, is you can generate a lot of output on the manufacturing side without a lot of jobs, unfortunately. But as we look out in the rest of the year, it is really a lot of event risk that we are looking at. Election risk with the debt ceiling debates and the fiscal cliff ahead of us, creating a lot of scenarios that could potentially be extremes. So there are risks out there for both the business owners, business decision-makers, and investors. And that is keeping a lot of cash on the sidelines, both in corporate America, but also in client portfolios as well. So from a valuation standpoint, I agree with Paul. I think we are probably slightly below fair value. But when you look at the diversity of scenarios out there, it gives me pause because I just don't have a table-pounding conviction on the direction of things, and that is somewhat disconcerting. So we did lower our S&P forecast from 1450 to 1410. But I will say it is really more of a whimper than a roar right now in terms of our conviction. We would like a little more clarity with some of these events that will likely transpire between here and year-end. So with that, let me turn it back over to Jane, who will take us through the rest of the call. Thanks very much, Jack. So now we are in a good position to have lots of questions from all of our participants. Jason, can you go ahead and provide us all with instructions? Thank you. Please press star 1 at this time if you have a question. There will be a brief pause while participants register, and we thank you for your patience. The first question is from Jennifer Crunden of Thomson Reuters. Please go ahead. Morning. Thanks for your time. First question is just a follow-up from some of the comments that Paul made on the earnings expectations. Just wondering if you could talk a little bit about what sectors and where you see the strengths and weaknesses on the earnings growth. Yeah. So Jennifer, in terms of earnings growth, clearly energy will be most negatively affected because of those year-over-year commodity price drops. That will be the most challenging area of the market. But beyond that, within the cyclicals, the base metals, we've had copper trail off a bit, a little firmer of late. So in energy and materials, they will be most negatively affected. On the positive front, those that should do best, it would be the more, again, the telecom. The banks are a bit of a wild card. They should have year-over-year positive earnings growth, but it is more likely to be in the mid to high single digits. But in the current environment, that is not such a bad thing on a relative basis. To answer your question, on the downside, it is definitely energy followed by materials. On the upside, it would be telecom, certain areas of industrials, and financials. Okay, thanks. If I can have a follow-up, obviously today there was the Bank of Canada announcement unchanged and also some of the commentary in the accompanying statement. To whoever can answer this, just wanting to get your view on some of the commentary and where you expect the Canadian dollar to trade. Okay. I will jump in here. Obviously, unchanged was-- if I were a betting man, I would obviously bet on that continuing for a while. The Bank of Canada does have to sit on their hands for quite some time because they've clearly expressed, both Mr. Carney and Finance Minister Flaherty, have expressed meaningful concern related to the Canadian consumer and their behavior, given that we have generationally low interest rates and wanted to get ahead of that behavior through the most recent changes to the mortgage regime here in Canada. So they'd like to normalize interest rates as soon as they see that the Canadian economy is, the recovery is firmly rooted, but we're just not there. On the flip side, for them to cut rates right now, we're not experiencing any sort of inflation issue or a meaningful growth scare. Policy will be on hold for quite some time. And then really the backdrop of the CAD is therefore commodities. Commodities are driven by how things will play out in the Eurozone and the pace of U.S. economic data as we go forward. We believe that we're kind of range bound on the Canadian US dollar. It will probably be somewhere between 97.5 and 97.5 cents in parity, for the foreseeable future until we get a better sense of the direction that Jack was looking for and that we're all looking for. Okay. Thank you. Thank you. Once again, do not hesitate to press star 1 at this time if you have a question. The next question is from Dan Ilika of the canadianmanufacturing.com. Please go ahead. Hey, my question's for Paul. What do Canadian manufacturers have to do to stay competitive with growing concerns and growing competitiveness between manufacturers in the U.S., Canada, Europe and around the world? Very simply, they need to significantly improve productivity. That is something that Finance Minister Flaherty has commented repeatedly on, is that we have just not seen the same productivity growth experienced out the border. Jack pointed out the Airbus situation where the competitive positioning of U.S. manufacturing has improved markedly over the last number of years. Partly that has come through currency. Another part, though, has come from keeping wages intact in an environment where outside the U.S., wages have risen significantly. Similarly, here in Canada, we need to spend money prudently to improve from a capital expenditure perspective on efficiency. As well, in terms of the labor productivity component, we need to ensure that we are as competitive as elsewhere in a very challenging global environment with the EUR falling relative to the Canadian U.S. dollar significantly. Thank you. The first follow-up question is from Jennifer Cron of Thomson Reuters. Please go ahead. Hi. I have a couple of questions around RIM. I am not sure if Jack or Paul may be able to answer them. Just wondering if you would support a move to make the BlackBerry network business independent of the handsets by offering BBM and other services to carriers for all devices. Yeah. Okay. I will jump in because certainly, it was a Canadian success story until about two years ago. Yeah, no, strategic changes at RIM are absolutely critical. They very well may need to split the company, the services side of the business and that may go one way that they may pursue themselves independently with either in connection with a partner. But they are at a point where the environment for smartphones is clearly aligned along the two operating system domains, the Google Android and the iOS operating systems. I think we would argue that there is still room for a third operating system. Strategically, we felt that RIM had a good shot at that. But with the delay of BB10, that looks increasingly less likely. So this definitely is a company that is in need of some meaningful strategic reboot, and all options need to be on the table. Okay. Just want to confirm that was Jack, correct? Oh, that is all right. That was Paul. Sorry. Okay. Just as a follow-up, would you push for RIM to spin off if you pushed patents into a licensing company? Jennifer, if you look at the company right now, it is really cash and patents that the company is trading on the value of just that. They would spin off the patents if, in fact, they were going through a strategic review that would involve a fundamental splitting of the company. But the patents really are at the core value of what the company has to offer. I would not see that as the odds on that unless there was a complete breakup of the company. Okay. Thank you. Thank you. There are no further questions registered at this time. I would like to return the meeting over to Ms. Maru. Great. Thanks very much, Jason. I'll put one into the mix that we maybe haven't focused on very much for maybe all of you to comment on. We've seen China slowing. Is this the result of the Eurozone crisis? Can you talk a bit about China, the emerging markets, and how they might fare over the coming months? Owen, would you like to start us off? Yes, indeed. I don't see the slowdown in China being as a result of what's going on in the Eurozone, although I don't doubt that it has some marginal impact through the banking system, financial system, availability of credit, and so on, even taking into account the fact that China is a closed capital system. But I think what's really gone on in China is much simpler. It's pretty simple that the economy overheated for a period due to a combination of overheating and a particular food price inflation, part of it due to factors not specific to food. Inflation got to a level that the authorities there saw as simply unacceptably high. They therefore changed the direction of policy to slow down the economy, but more importantly, to bring down inflation. And by and large, that's now been achieved. The latest rate of inflation down 2.2%, I think was the latest rate, way down from a peak of something around 7%. The Chinese authorities can now check that off as having been achieved and move on now to, in fact, stimulating the economy rather than trying to slow it down. That's pretty much what they're doing now. We've seen two rate cuts in a month. Those are the first rate cuts in many years. We've seen a whole range of other measures being taken to stimulate growth or to ease access to credit, to make it easier to buy a house and so on for residents, and obviously similar measures for corporates. The only complication, I think, is one, is it possible to engineer a soft landing like that without, for a period, growth getting to a very low level? I think China has achieved that before. I think it could probably do so again. The other complication is that the entire political leadership of China is changing over the next few months, which puts a certain degree of inertia. People are willing to take key decisions when the vital elections are, vital elections only in the internal communist sense, but elections and the nominations to new posts are coming. But on the whole, reasonably happy that China will manage this slowdown, but certainly watching it very carefully would have a big impact on the rest of the world if it was to go wrong there. Yeah. This is Jack. I'll just comment briefly. China's in the process of shifting its reliance on capital investment toward household consumption, and I think in that respect, it is independent of what's going on in Europe, and certainly, although Europe is one of China's biggest customers, I guess there is some relationship there. But I think the big theme there is this notion that anytime someone from rural China moved to urban China, authorities handed them a shovel and said, "Here, go help build this road. Go help build this high-speed rail. Help build this commercial real estate or residential real estate." Now they have all this extra capacity. So they are trying to shift back, and it would be natural that their growth will slow because they're not spenders. In fact, the household consumption only accounts for about a third of their GDP. That isn't to say they couldn't necessarily shift back toward capital expenditures if their economy slows too much or if joblessness rises too much. But they are still stimulating. They are lowering their reserves. But what we find fascinating is they are caught in this correlation trade with Europe even though they're trading at a valuation discount to the U.S. and they're net creditors. And they have quite a bit of capacity, both monetarily and fiscally, to stimulate. So we think that the emerging, at least on the equity side, we think there's an opportunity there, and at some point it'll get cheap enough and will be discovered, and we do think that that's the next play. Great. Thanks very much, Jack. Maybe another question for you, Jack, unless, Jason, are there any other questions on the line? Thank you. Once again, do not hesitate to press star one at this time if you have a question. The next question is from Gordon Pestel of The Financial Post. Please go ahead. Yes. Hi, everyone. Sorry, I must have punched in the wrong codes. I am playing catch up now. I was listening in earlier. Just wanted to perhaps, Paul, if you could comment on, again, the Bank of Canada's decision today. Their statement indicates that they are not going to go anywhere with rates at the current time, but still indicates that eventually they are going to be going up and not down, which sort of goes counterproductive from what other major central banks have been doing. What do you think about that? Well, they have been quite consistent in signaling that intent. You are right. For the Bank of Canada to be signaling a rate hike at some point in time, obviously it expresses their confidence that in fact the Canadian economic recovery is relatively firmly rooted. It does express, again, the concern that the behavior they are seeing in the marketplace is somewhat troubling to them. If anything, I would argue that this is a kind of moral suasion or a head fake on the part of the Bank of Canada to just at least provide the Canadian consumer with some caution as they go out and buy highly priced condos in Vancouver or Toronto, lest we end up in a situation that is unmanageable where we end up with a property bubble. They've been very consistent, both again, Mr. Carney and Mr. Flaherty have been singing from the same song sheet for quite some time in that regard. I'm not surprised to see that message still consistently provided. But I think we'd all be shocked if, in fact, that was followed up by an actual rate hike anytime in the near future. I see it as simply jawboning and nothing more. If I could have a follow-up, actually open to anyone. Mr. Bernanke is testifying today, of course, and he's made a couple of comments. One was that reiterating what the U.S. and Canada has said before is that Europe has resources to deal with its own crisis. I'm wondering if that perspective should change soon. Well, maybe I'll jump in here. I think that's absolutely true. Whether it has the willingness to use those resources is the matter, not whether it has the resources. I mean, the EUR 100 billion that Spain needs for its banking system is, one doesn't sneeze at EUR 100 billion lightly, but it's well within the capacity of an economy the size of Europe to finance that. Indeed, total financing needs over the next number of years for Spain, that includes financing its own deficit, financing all redemptions of bonds that would come through over the next, say, 2 to 3 years, plus EUR 100 billion odd for its banks and a number of other liabilities, probably comes to something between EUR 400 billion and EUR 500 billion. That's if Spain was unable to raise a penny starting tomorrow, which is a pretty extreme scenario. The various bailout, the existing and new bailout funds, called the EFSF and the ESM in Europe, do have the capacity, without much to spare, but they do have the capacity, even as they stand today, to finance that, just about. The bigger issue, perhaps, is if Italy was to come into question here. Italy is a far bigger economy, but even more importantly, it has far more debt and issuance. It would be difficult to find the resources to rescue Italy should that become necessary. It's at that stage that we move into a whole new ballgame. But within the current parameters where it's Spain, really, that the markets are looking at, it's Spain that the European authorities are looking to bail out right now and have the funds available. A better way of putting that is to say that they are looking to have the funds available and put in place in case a bailout is needed for Spain. It is pretty comfortable. That is only talking about the existing bailout fund. Future bailout funds could well be set up, provided the German, Dutch, Finnish, which are the AAA-rated countries in Europe, are willing to put their taxpayers' money at the disposal of the periphery. That is a political question. The money is there. Whether the will is there is quite a different matter. Good. Thank you very much. Thank you. There are no further questions registered at this time. Great. Thanks very much. I think that that will conclude our call for today. Thank you all for joining. So that you know, this call will be archived at www.bmoharrisprivatebanking.com. If you are interested in an audio recording or a transcript of the call, or if you would like to arrange a follow-up interview with any of our panelists, please contact Rachel McKay at 416-867-3996. I would like to thank Mr. Fahy, Mr. Taylor, and Mr. Ablin for providing us with their thoughts today, and thanks to all of you for joining us. We look forward to you joining us again in October when we have our next call. Thank you very much. Have a great day. Thank you. The conference has now ended. Please disconnect your lines at this time, and we thank you for your participation.