Financial Update

· TSX +450.09pts (Reuters) Blue chips in Toronto jumped more than 5.5%-- led by a rise in mining stocks -- as investors welcomed President-elect Barack Obama's plan to create jobs and revive the economy, and reports that government help for the automakers is on the way.
· DOW +298.76pts Over the weekend, Obama outlined plans to create 2.5 million jobs by 2011 through repairing roads and bridges, modernizing schools and making public buildings more energy efficient, among other initiatives. Additionally, the White House said a deal to help the automakers is near. A roughly $15 billion loan package was finalized Monday.
· Dollar +1.06c to $79.74US. Canada’s dollar rose the most in 2 weeks as President-elect Barack Obama’s pledge to spend the most on infrastructure since the 1950s reduced the US currency’s haven appeal
· Oil +$2.90 to $43.71US per barrel. Dow Chemical said it will cut 5,000 full-time jobs, or around 11% of its workforce, close 20 plants and sell several businesses to cut back amid the recession. However, Dow shares gained 7%.
· Gold $16.90 to $767.400US per ounce
· www.bankofcanada.ca/en/rates/bond-look.html Canadian bond prices


Canadian housing starts fell to 172,000 at a seasonally adjusted annual rate last month, down from 211,800 in October, Canada Mortgage and Housing Corp. reported Monday. The rate of urban starts decreased 21.6% month-over-month to 144,800 in November, with declines in all parts of the country as volatile multiple starts tumbled 29.1% to 81,700 while single-family starts eased 9.0% to 63,100.

Real estate: Where to buy now

by Duncan Hood, Moneysense

Real estate agents like to tell you that what matters is location, location, location. They're partly right. But what also matters is timing, timing, timing. Every city moves to its own economic rhythms. Smart real estate investing is a matter of knowing when to jump into the market and when to stay out.How do you know when the time is ripe? Rather than relying upon gut feel, we decided to take a more scientific approach to the question. We compiled data on the 35 major markets tracked by Canada Mortgage and Housing Corp. We analyzed each market in three different ways — by Value, by Momentum, and by Economic Strength. We assigned each market a letter grade in each of the three categories, then combined all that info into one overall grade. We awarded an A to the top 20% of cities. Average prospects had to make do with a B, while lacklustre prospects were handed a C or worse.

Many individual factors went into each grade. To calculate Value, for instance, we began by comparing average rents to average home prices, since we figured that the most basic indicator of a home's value is how much rent it can put in your pocket. High rents indicate that, if you were hit by a financial crisis, you could rent out your home for a reasonable sum. Even if you never plan to rent out your home that is still a comforting thought.To help us gain an even better sense of a city's Value, we looked at local wages and figured out the number of years of average household income that it would take to purchase the typical local home. We downgraded communities where local residents couldn't afford to buy homes easily; we gave highest marks to cities where they could. Our reasoning was that places where homes are affordable are places where real estate prices are solidly rooted in economic fundamentals and are therefore unlikely to plunge. The differences between communities can be huge. In Regina, a typical family needs two-and-a-half years of income to buy a home; in Vancouver, a typical family needs nearly eight years of income. Talking strictly in terms of bang for buck, Regina is a much better place to buy.But, of course, Value isn't everything. Some cities have enjoyed surging real estate markets for reasons that have little to do with local rents or typical wages. Some of these red-hot markets are cities that have lured outsiders with their natural beauty (think Vancouver); others are communities that have enjoyed bonanzas because of skyrocketing oil prices (that's you, Calgary).To give these cities their due we rated each of our 35 cities on Momentum, a measure of how hot each market is. To gauge Momentum, we looked at home sales in comparison to new real estate listings — a high number of sales-to-listings indicate that homes are selling relatively quickly and market momentum is therefore high. We also looked at how much home prices in each city have gone up over the last year and over the last four years. To top things off, we considered how much rents have gone up over the past four years, since rapidly rising rents indicate a community with pent-up demand for housing. If you've been following the real estate news, it probably won't surprise you to learn that the runaway winners in our Momentum survey are Regina and Saskatoon.The problem is that the same forces that conspire to drive up prices in a city can also turn in the opposite direction. To avoid being taken in by cities with weakening economies, we devoted our final grade to Economic Strength. We looked at how fast each community grew between 2001 and 2006 (the most recent year for which figures are available). We also factored in unemployment rates (based on 2007 data) and discretionary income levels, as well as a forecast from Canada Mortgage and Housing for unemployment in each city in 2008. The Economic Strength grades that resulted from all this number crunching held some surprises: it turns out that mighty Toronto and bustling Calgary have weaker economic outlooks than Fredericton and Barrie, Ont.Finally, we rolled our grades for Value, Momentum and Economic Outlook into one overall grade for each community. We had no runaway winners, but we did find seven cities that deserve an A-. They're a diverse lot. At the top are three Prairie cities — Regina, Saskatoon and Winnipeg — with relatively low home prices, strong momentum and good economic prospects. Just behind is Barrie, where home prices are higher and momentum is weaker, but the economic outlook is outstanding. By comparison, Sudbury, another mid-sized Ontario city, offers better home prices and stronger momentum, but dimmer economic prospects. Finally, Fredericton and Moncton demonstrate that New Brunswick has a lot to offer bargain hunters, especially as the province’s economy shows signs of life.Our analysis suggests you can find decent prospects in each part of Canada. We caution you, though, to use our results with care. Nobody can gauge what a city's economy will be like in 10 years. Our research, though, can help you analyze each city's current strengths. And that's a good starting point for any investor.Go West, young investorThree Prairie cities top our list of best places to buy now

Financial Update

In their battle over who can best bring stability to the Canadian economy, politicians have added another element of instability to the Toronto stock market.

· TSX +59.21pts (Reuters) In Canada, December has been the best-performing month over the past decade, with the S&P/TSX Composite rising in every Dec, for an average gain of 3.1%.
· DOW +259.18pts
· Dollar +44c to $78.68US..
· Oil -$2.86 to $40.81US per barrel. after data revealed that the U.S. economy had lost more than half a million jobs in Nov. The commodity fell 23.3% over the week to end at its lowest closing price since Dec. 10, 2004.
· Gold -$13.30 to $750.50US per ounce amid the deepening recessionary outlook, which would result in lower demand.
· www.bankofcanada.ca/en/rates/bond-look.html Canadian bond prices

Bankruptcy totals up sharply compared to last year Bankruptcies in Canada numbered 9,468 in October, up 7.2 per cent from September and 21.1 per cent from October 2007, with the pain concentrated among individuals. Record news services

Deteriorating economic conditions expected to persuade BoC to cut interest rates Canadians can look forward to more interest rate relief this week with the Bank of Canada expected cut its key interest rate again. It is widely anticipated the central bank will cut the rate by at least half a point to 1.75 per cent to deal with rapidly deteriorating economic conditions. The Canadian Press
White House, Democrats agree to $15B auto aid

Kevin Drawbaugh and John Crawley, Reuters WASHINGTON -- U.S. Democratic leaders and the White House reached a deal to provide billions of dollars in relief to the ailing U.S. auto industry, a senior congressional aide told Reuters on Friday.

The package, which Democratic leaders hope to win passage of next week and send to President George W. Bush, totals between US$15-billion and $17-billion, the aide said, speaking on condition of anonymity.

The plan would tap an existing US$25-billion Energy Department fund for advanced technology, a source with knowledge of the discussions told Reuters on Friday.

A stalemate between the White House and Congress over the source of money to help Detroit ended when Democratic leaders agreed to use the Energy Department money, the source said, speaking on condition of anonymity. However, crucial details such as what specific conditions to impose on automakers in exchange for the money had yet to be worked out and would be discussed over the weekend, the source said.

The amount is far less than the $34-billion requested this week by General Motors, Ford Motor, and Chrysler, but Democratic leaders believe the money will keep them going until Barack Obama replaces Bush as president on Jan. 20 and a new effort can be made for a rescue plan.
Harper pressured to act fast regarding auto sector

Paul Vieira in Ottawa and Nicolas Van Praet in Toronto, Financial Post After averting certain defeat by getting Parliament shut down, Prime Minister Stephen Harper now faces the unenviable task of deciding how to help the near-bankrupt Detroit automakers, and figuring out where his government will find the money

The Detroit three automakers have turned to Ottawa and Ontario for emergency aid totalling an estimated $6-billion, saying in submissions to the two levels of government that they need immediate help to stabilize their operations in Canada and fund future manufacturing.

"Regretfully, North American economic conditions now make it necessary for us to seek government assistance to sustain our business and supply chain," Arturo Elias, General Motors Corp.'s top executive in Canada, said in a statement.

GM, Canada's largest automaker, confirmed it is seeking $2.4-billion in repayable loans from Ottawa and Queen's Park, including an immediate $800-million infusion

Financial Update

· TSX -239.14pts (Reuters) to its lowest close in 2 weeks as a slide in oil prices shook the resource-heavy market, while the suspension of Canada's Parliament weighed on sentiment. The drop in the financial index came after 3 of the 4 Canadian banks that reported reporting quarterly earnings on Thursday posted lower profits and offered little in the way of outlook for 2009.
· DOW -215.45pts
· Dollar -1.54c to $78.24US. after rising on news of the suspension of parliament it fell nearly 2% in less than 90 minutes after leaders of opposition parties said they still aim to oust the country's Conservative government from power.
· Oil -$3.12 to $43.67US per barrel. more than 6% to the lowest level in almost 4 years in response to further bleak economic data that could spell a deeper decline in global energy demand.
· Gold -$5.00 to $763.80US per ounce
· www.bankofcanada.ca/en/rates/bond-look.html Canadian bond prices

As central banks around the world injected historic interest rate cuts into a rapidly deteriorating global economy Thursday, the spotlight fell squarely on the Bank of Canada, which has the added challenge of having to craft monetary policy amid intense political and fiscal-policy intrigue on Parliament Hill.

The European Central Bank cut rates three-quarters of a percentage point to 2.50%, the biggest amount in its 10-year history, Sweden slashed by a record 1.75 percentage points to 2% and the Bank of England cut rates a full percentage point to 2%.

Central banks are racing to catch up to a dramatic slump in global demand in recent weeks as the credit crunch and collapse in consumer and business confidence slashes factory production, sales and jobs around the world.

Next week is the Bank of Canada's turn. Analysts expect the bank to announce a 50 basis point cut on Tuesday, taking the overnight rate down to 1.75%, though money markets were betting it could unleash a more aggressive 75-basis-point chop.

"That's the below the radar play that's gaining some credence," said Eric Lascelles, chief economics and rates strategist at TD Securities. "You have to admit when you see central banks around the world cutting by 75, 100, 175 [basis points] in some cases, it suddenly seems plausible the Bank of Canada could cut by 75."

But Mr. Lascelles was sticking with his half-point call as of Thursday, saying a jump from a quarter-point cut to three-quarters might signal the bank had made an error in judgement somewhere along the way.

Derek Holt, vice-president of economics at Scotiabank, also believes Mark Carney, the Bank of Canada governor, will side with a 50-basis-point cut.

"He's been reticent to make those big calls in the last little while," Mr. Holt said. "I think 50 would be a material step in the direction of keeping some powder dry for when he can see the data deteriorate further and in our forecast, it's early next year."

The Bank of Canada makes its decision on interest rates as the drama continues to unfold in Otttawa. Prime Minister Stephen Harper won his government some time yesterday when the Governor-General Michaelle Jean agreed to prorougue Parliament.

It is likely that when the government returns with a budget on Jan. 27 it will contain some bold fiscal measures such as heftier spending on infrastructure or new tax cuts in order to try and win over a furious Opposition. The Opposition could nevertheless vote the budget down and fiscal stimulus could be delayed if a new election is called.

While the Bank of Canada is fully independent from the government, it takes into account fiscal measures that affect growth and inflation.

"Of course fiscal policy and monetary policy need to work in unison to achieve a particular goal and conceivably if you were to get a new government that was more committed to fiscal stimulus, could that decrease the need for monetary stimulus?" Mr. Lascelles said. "I suppose it could."

He added that with the political and fiscal situation so uncertain the central bank will likely put those considerations on the back burner for this announcement.

Mr. Holt added the bank will likely take the view that any government stimulus will be slow to hit the economy.

"The lags on fiscal policy around the world even for [President-elect Barack] Obama's plans to hit the ground running in January -- by the time you put out the tenders, prioritize the projects, get the suppliers all lined up, do your environmental and regulatory approvals -- it's a year before this stuff really hits the economy," he said. "So for monetary policy that means in the short term, economies around the world are much more reliant on central bank cuts."

The bank's main focus will be on the underlying economy, which has held up better than most so far but yesterday issued some worrying signals: the value of building permits plummeted 15.7% in October from September; the Ivey Purchasing Managers index dropped to its lowest on record at 40.2 in November from 52.2 in October; and bankruptcies surged 21% year-over-year in October.