Financial Update

'Rainy day has arrived,' economist says

· TSX +40.28pts (Reuters) the gains weren't without a struggle - one that lasted late into the afternoon - as traders weighed dismal home building numbers, after the National Association of Home Builders/Wells Fargo housing market index tumbled to its weakest reading since it started in January 1985.
· DOW +151.17pts
· Dollar -.44c to $81.31US.
· Oil -$0.56 to $54.39US per barrel. analysts suggested prices might be bottoming out as they moved closer to the psychologically significant $50 mark.
· Gold -$9.30 to $732.60US per ounce

Gareth Watson, Canadian equity adviser at ScotiaMcLeod advises on guessing when markets will push off their lowest point:

"If you remain so focused on this magical bottom, I think you're losing sight of the bigger picture which is how you position yourself in this type of market."

'Rainy day has arrived,' economist says Chuck Howitt RECORD STAFF

A federal deficit of as much as $10 billion would not be out of the question to solve the daunting challenges facing the Canadian economy, Douglas Porter, deputy chief economist and managing director of BMO Capital Markets, told an economic forum in Waterloo last night.

The Canadian government has had 12 years of surpluses, Porter told Wilfrid Laurier University's 17th annual economic outlook forum. "We've been saving up for a rainy day and it's fair to say that rainy day has arrived."

The U.S. federal deficit could hit $750 billion this fiscal year and could go as high as $1 trillion next year after incoming president Barack Obama
"unleashes a fiscal spending package," said Porter, who has analyzed economic trends for more than 20 years.

Meanwhile, there's been some talk in the media that the Canadian federal deficit could hit $10 billion, he said.

"Ten billion dollars doesn't sound so bad stacked up against $1 trillion," Porter said.

The Canadian housing market has held up better than the U.S. market, but prices have begun to drop here, he said. The biggest declines, however, have occurred in the cities where prices went up the most, such as Calgary, Vancouver and Toronto.

Meanwhile, smaller communities such as Waterloo Region have weathered the storm much better because prices did not go up as much and won't slide as much either, he said.

The U.S. economy was in a mild recession even before the financial shocks of the past few months, Porter said. Now it is in a full recession, which he expects will last until the middle of 2009, when a mild recovery will begin.

He predicted a full recovery will occur in 2010 because politicians have been "incredibly aggressive" with interest rate cuts and fiscal stimulus packages. Lower oil prices will also help, he said.

Canada, which entered a recession in the fourth quarter of this year, will hold up better than the U.S. because our government, household and banking balance sheets are in better shape, he said.

The notion that when the U.S. sneezes, Canada gets a cold is a myth, he said. During recessions in the mid 1970s and early 2000s, Canada actually outperformed the U.S., he said.

Porter had good news for battered investors. Stock markets tend to drop sharply prior to a recession, then go through a period of bouncing around, "trying to find their bearings," he said. But the markets also tend to "sniff out" the recovery five to six months before it happens, he said.

"When some of the economic data is at its absolute worst, you'll see the equity markets going on an incredible uptick."

The dramatic slowdown in global growth, particularly in Asia, is the main reason why commodity prices, including oil, have plunged, sending the Canadian dollar down as well, he said.

Commodity prices could drop further, but will recover when the global economy begins to turn around, he said. "It's just going to take some time for the global economy to heal."

Against all odds, the U.S. dollar has risen but Porter said he's "not bullish" on that continuing because of high U.S. deficits.