Financial Update for March 12, 2009

· TSX+130.61 surged for a second day in another broad advance led by beaten-down Canadian banks and insurance companies.
· DOW +3.91New York traders turned cautious, after the previous session's furious buying which had been prompted by news that Citigroup Inc. earned an operating profit in first 2 mths
· Dollar -.06c to 77.75USD.
· Oil -$3.38 to $42.33US per barrel.
· Gold -14.80 to $910.10 USD per ounce
· Canadian 5 yr bond yields -.04bps to 1.87. Four weeks ago it was 2.12.
· http://www.financialpost.com/markets/market_data/money-yields-can_us.html


Conservatives remain rosy about economy rebound, blasts opposition gloom
Julian Beltrame, The Canadian Press OTTAWA - The Harper government continued to insist that Canada will be first out of the global economic crisis, while blasting opposition parties for talking the country down.

The economic boosterism began a day earlier with Prime Minister Stephen Harper's first major speech on the subject and was picked up by his finance minister Wednesday after an International Monetary Fund report provided a measure of cover.

"The report supports our budget, compliments our action plan," said Finance Minister Jim Flaherty after the global agency said Canada would weather the storm better than most.

And he said he would take the message to a weekend meeting of G20 countries in London, along with a call for the United States and the Europeans to get their houses in order.

"We're going to emphasize the need, the imperative of the United States to fix its banking system and the Europeans to fix their banking system, because we have to get the banking systems functional properly in order to have reasonable access to financing and credit," he explained.

Later in the day, Harper chided the Liberals as purveyors of doom and gloom, and Transport Minister John Baird built on the theme, saying the government is providing "a little bit of hope, a little bit of jobs, a little bit of opportunity."

The Conservative offensive appears designed to portray the opposition parties as economic Cassandras, while also accusing them of stalling the government's best efforts to stimulate the economy quickly.

For the second day, Harper and Flaherty charged the Liberal-dominated Senate is holding up the stimulus, although it only began hearings on the budget this week.

"The Senate is holding up nothing," said Liberal Leader Michael Ignatieff. "You can't spend the money 'till the first of April. This prime minister cannot live without creating artificial crises."
The IMF report appeared a mixed blessing for the government.

While lauding Ottawa's $40-billion stimulus over two years, it also predicts Canada's economy will worsen before it gets better and says little about Canada exiting the recession ahead of others.

"Real exports and output have fallen and are likely to decline further in coming months," it says. "Economic activity will likely decline further in the near term, before picking up on the back of the policy stimulus already in train."

And the IMF cautions: "Downside risks predominate, including negative spillovers if the global environment worsens more than expected."

As well, a new report from parliamentary budget officer Kevin Page suggests that Canada's economy may be weaker than previously reported and not much better than that of the United States.

Page pointed out in a report that Canada's gross domestic income, which measures Canadians' purchasing power, plunged 15.3 per cent in the fourth quarter over the previous three months, 10 times the U.S. contraction.

The sharp drop was primarily driven by tumbling in corporate profits as a result of the crash in world commodity prices, the report states. As a net importer of commodities, the United States generally prospers from falling raw material prices.

"When Canada was fine few people were paying attention to (domestic income) and now the tide has definitely turned," said economist Douglas Porter of BMO Capital Markets.

"Now that commodity prices have plunged, the pain that the economy is suffering might be somewhat understated by looking solely at gross domestic product."

Another study by DBRS said the government stimulus package is "unlikely to have a perceptible impact this year" to boost the economy.

Flaherty preferred to see the glass half full, however.

He said Canada's sound fundamentals and massive stimulus, if properly and swiftly implemented, will lead to a stronger and quicker rebound than the rest of the world.

"We have the strongest fiscal fundamentals in the G7, we have paid down debt, we're not creating a long-term permanent deficit... (and) that leads us late into the recession and early out of the recession," he said.

The forecast appears to derive from an analysis first outlined by Bank of Canada governor Mark Carney in January, when he projected the economy would bounce back strongly in 2010 to 3.8 per cent growth.

But Liberal MP Gerard Kennedy said the government hasn't gotten off to a particularly good start on its stimulus spending projections.

Kennedy said the government's own plans shows the green infrastructure fund will not begin until the fall and the $2 billion infrastructure stimulus fund will not start until July. Very little of the budget stimulus, he said, is slated to begin shortly after April 1, when it can legally start spending.

Flaherty said Canadians can judge how the government is doing in rolling out the stimulus through a new website - actionplan.gc.ca - that started up Wednesday morning.