Financial Update January 9th,2009

Financials, energy boost TSX

· TSX +100.26pts (Reuters) aftera late-session burst with the materials group boosted by strength in gold-mining issues as bullion prices rose. Financials and energy were also higher
· DOW -27.24pts
· Dollar +1.31c to $.84.85US.
· Oil -$.93to $41.70US per barrel.
· Gold +$12.80 to $854.50US per ounce a rally sparked by a weaker greenback as the U.S. deficit is expected to balloon on proposed economic stimulus packages aimed at lifting the economy from recession. "Gold is a very good refuge and safe haven," said John Ing, president of Maison Placements Canada.

· www.bankofcanada.ca/en/rates/bond-look.html Canadian bond prices

v Banking regulator won't boost capital targets Doug Alexander, Bloomberg Canada's top banking regulator has no plans to raise the required levels of capital needed to be retained by the country's lenders, Superintendent Julie Dickson said.

"The Canadian banking system remains very well capitalized," Ms. Dickson, who heads the Office of the Superintendent of Financial Institutions, said during the conference hosted by RBC Capital Markets in Toronto. The regulator has no plans to raise its current targets, and "doing so now would also amplify the economic downturn," she said.

Canadian banks have raised about $6.7-billion (US$5.6-billion) in share sales in the past two months to bolster their balance sheets amid a global recession. Canadian lenders reported regulatory capital of 8.9% to 10.5% of assets at the end of October, above OSFI's 7% target. The so-called Tier 1 capital ratio is a measure of a bank's financial strength based on its equity as a percentage of risk-weighted assets. OSFI has a target for total capital ratio, which is 10%.
v TORONTO (Reuters) - The Bank of Canada hinted on Thursday that it would continue to lower interest rates this year but gave no indication of how deep the cuts would be as the global recession hits the Canadian economy. Deputy Governor Pierre Duguay said the bank continued to monitor developments in world markets to decide its next moves, amid market expectations of a rate cut on January 20.

v .Obama says drastic action needed to save U.S. economy Sheldon Alberts, Canwest News Washington Correspondent

WASHINGTON -- Appealing to an American public confronted daily with worsening economic news, U.S. president-elect Barack Obama warned Thursday the nation is headed for years of severe recession unless he wins approval for an unprecedented government stimulus package in the first weeks of his presidency.

Intensifying his campaign to build support for the economic rescue package, Mr. Obama said the U.S. government may soon be unable to prevent a long-lasting crisis without a huge injection of new spending and tax cuts to jolt the economy back to life.

"I don't believe it's too late to change course, but it will be, if we don't take dramatic action as soon as possible," Mr. Obama said at George Mason University in Fairfax, Va.

"If nothing is done, this recession could linger for years. The unemployment rate could reach double digits. Our economy could fall $1 trillion short of its full capacity. . . . In short, a bad situation could become dramatically worse."

It was the starkest language Obama has used to describe the deepening crisis, and was aimed at persuading Americans no entity other than the federal government is capable of restoring the country's economic health.

He was also hoping the dire message would increase pressure on Congress -- particularly Republicans and conservative Democrats - not to throw up roadblocks to block the passage of stimulus legislation by early February.

"For every day we wait or point fingers or drag our feet, more Americans will lose their jobs," he said. "And our nation will sink deeper into a crisis that, at some point, we may not be able to reverse."

Mr. Obama's speech comes a day after the Congressional Budget Office announced the 2009 U.S. budget deficit will soar to a record $1.2 trillion in 2009. And that's before the passage of the stimulus package, which is expected to cost close to $800 billion.

New U.S. unemployment statistics are due Friday, with predictions that another half million jobs were lost in December.

"There is no doubt that the cost of this plan will be considerable. It will certainly add to the budget deficit in the short term. But equally certain are the consequences of doing little or nothing at all, for that will lead to an even greater deficit of jobs, incomes and confidence in our economy," Mr. Obama said.

"Only government can break the vicious cycles that are crippling our economy -- where a lack of spending leads to lost jobs, which leads to even less spending, where an inability to lend and borrow stops growth and leads to even less credit."

Several polls have shown Americans, while deeply concerned about job safety and fearful of a potential depression, are also increasingly wary about the effectiveness of large-scale government stimulus plans.

There has been a widespread public perception that the $700-billion bailout of Wall Street last fall was unsuccessful, insofar as the nation's credit markets have remained exceedingly tight, and consumer loans remain difficult to obtain.

Mr. Obama pledged a "sweeping effort" to halt the nation's foreclosure crisis, and said he would use a "full arsenal of tools to get credit flowing again."

Mr. Obama offered no details about the precise cost of the stimulus package, though it's expected to include $300 billion in tax cuts. An initial proposal could be presented to Congress by week's end.

The initial reaction to Obama's plea from Republicans on Capitol Hill was mostly positive, although the co-operative tone was laced with expressions of caution about the size of the stimulus.

Senator Mitch McConnell, the Senate minority leader, said Obama must remain mindful of the "eye-popping" federal deficit.

"Given the deficit numbers, it really ought not to be a trillion-dollar spending bill. I think we can start by saying that," said Mr. McConnell.

Representative John Boehner, the GOP leader in the House of Representatives, said he was looking for Mr. Obama to find "the right balance" between jump-starting the economy and risking unending deficits.

"Yes, our economy needs help. But at the end of the day, how -- how much debt are we going to pile on future generations?" Boehner said.

Still, Mr. McConnell said he was encouraged with Obama's efforts to reach out to Republicans.
"It's clear to me from listening to the president, the new president, that he wants to include Republican ideas," he said.

Mr. Obama sought to allay fears his promised stimulus package will be hijacked by lawmakers eager to load up legislation with pork-barrel projects or wasteful spending.

"It is not just another public-works program," Mr. Obama said.

While some of the stimulus will be aimed at rebuilding crumbling transportation infrastructure, it will place heavy focus on modernizing the nation's health-care system and creating tens of thousands of "green jobs," he said.

The plan will include a goal to double the national output of alternative energy in three years, computerize medical records, and retrofit federal government buildings.
Most of the three million jobs the plan is designed to create will be in the private sector, Mr. Obama said.

"I understand that some might be skeptical of this plan. Our government has already spent a good deal of money, but we haven't yet seen that translate into more jobs or higher incomes or renewed confidence in our economy," he said. "We'll invest in what works."