Shortly after the budget was tabled, the independent Parliamentary Budget Office (PBO), predicted the budget would be CAD44 billion.

Needless to say, opposition leaders are crowing about Mr. Flaherty’s lack of facility for numbers, and it’s rumored that at least one critic will ask for his resignation as early as this afternoon. At the same time, however, Liberal Party and New Democratic Party leaders are calling for increased aid to unemployed workers, what’s known in Canada as Employment Insurance (EI), and further steps to increase Canada’s stimulus package.

A CAD50 billion deficit, though numerically bigger than past shortfalls and politically significant because of recent inaccurate predictions, is relatively smaller than the ones that plagued Ottawa in the 1980s and early ’90s. The Canadian economy has grown significantly since then, and Ottawa is better equipped to shoulder bigger deficits and debt. CAD50 billion equals more than 3 percent of Canada’s economy, but the PBO has noted that past shortfalls exceeded 8 percent of the economy in the mid-1980s and 5 percent in the early ’90s. The US deficit this year is expected to exceed 12 percent of its GDP.

The reasons for the deeper deficit are temporary: EI payouts that should fall as the economy rebounds; a tax revenue shortfall that should reverse once normal growth resumes; and the need to follow suit with Washington and offer auto sector bailouts to preserve what can be preserved of a significant share of Canadian manufacturing.

Last Friday, prior to Mr. Flaherty’s impromptu budget update, the International Monetary Fund actually nudged Canada to spend more to stimulate the economy.

“With debt low, Canada would be well-positioned to participate in a globally coordinated round of further stimulus,” the IMF said in its annual review of the country’s economy. “Further fiscal expansion would not put at risk debt sustainability, in view of the credible commitment to medium-term structural surpluses.”

According to IMF figures, Canada’s debt level is about 29 percent of GDP, by far the lowest among the Group of Seven economies. Germany is the second-lowest, at about 58 percent of GDP; the ratios in the UK and the US are about 67 percent and 70 percent, respectively.

The key for the Conservatives right now as far as avoiding structural deficits that would require tax hikes or serious spending cuts is to contain new spending. This is the basis of the “credible commitment to medium-term structural surpluses” the IMF so approvingly notes. The IMF’s suggestion is essentially that Canada build a new roof because a rotted oak branch hasn’t fallen on its house; but Canada secured its structure back in the mid-’90s when it began balancing its books and reducing its national debt. It also resisted calls to loosen regulatory oversight of its financial system.

Last year the World Economic Forum ranked Canada’s banking system the soundest on the planet. Conservative lending practices, strong capital ratios and relatively small writedown risks distinguished the Big Five from global peers.

Bank of Montreal (TSX: BMO, NYSE: BMO) provided fresh evidence of this relative strength when it kicked off banks’ fiscal second quarter reporting period on Tuesday. Not counting one-time items, Bank of Montreal reported earnings of CAD0.93 a share, beating consensus expectations of CAD0.87. While provision for credit losses rose to CAD372 million from CAD151 million, that, too, was better than analysts expected.

Net income at the bank’s core Canadian personal and commercial unit rose 9 percent on 8 percent revenue growth. Bank of Montreal’s Tier 1 capital ratio at the end of its second quarter was 10.7 percent.

Bank of Nova Scotia (TSX: BNS, NYSE: BNS), Canadian Imperial Bank of Commerce (TSX: CM, NYSE: DM) and Toronto-Dominion Bank (TSX: TD, NYSE: TD) will report on Thursday. Royal Bank of Canada (TSX: RY, NYSE: RY) will close out Big Five earnings announcements on Friday.

Potential credit deterioration remains a concern for all the banks. High unemployment, declining home values and elevated bankruptcy rates mean bills–credit cards, auto notes, home mortgages–won’t get paid. Banks are still setting aside money to cover non-performing loans (NPL). Loan pricing is increasing and funding costs have come down, but low interest rates continue to hurt margins.

But, with a return of risk appetite in the financial markets, income from trading and investment banking deals is likely to be higher than year-ago levels.

Abandon this credible commitment to surpluses and this prudent oversight of the critical means of getting credit to consumers and businesses, and the next time trouble comes the country may not be so well-positioned. The fact that the Big Five banks have stood on their own with no government capital injected into them and are still making money is significant. The fact that Canada can credibly forecast a return to budget surplus by 2013-14 is equally important.

The Return of Fast Times

Economist Avery Shenfeld of CIBC World Markets concludes in a May 25 “Occasional Report,” The Teenage Years: What the Coming Decade Holds, that in the period from 2010 to 2019, “Equities have plenty of room for a longer term rally, but investors will have to steer their portfolios to align with a very different mix of growth, both in North America and globally.”

Mr. Shenfeld suggests that excess leverage accumulated during this decade, by the US government and US and Canadian consumers, doesn’t mean growth will stagnate in the decade ahead. He presents compelling data that indicate consumption spending doesn’t necessarily die with an increased savings rate. However, consumers will have to reach a new, higher savings plateau before any spending gains will resume.

US households, in particular, will account for a smaller portion of the North American and global growth pie, but as we’ve noted on several occasions, the BRIC countries–Brazil, Russia, India, China–will pick up the slack. These countries and the oil exporters have in fact already begun to displace North America and Europe as global growth leaders.

Ultimately, “US dollar devaluation and higher US inflation will help boost commodity prices and Canada’s corporate bottom line, particularly given that economic development in the Far East tends to be more resource intensive than the more services-oriented economies of North America.”

Speaking Engagements

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Roger will discuss utilities, Canadian income and royalty trusts as well as his new service focused on exploiting the greatest spending boom in history, New World 3.0.

Elliott will detail the new direction for Personal Finance and provide his forecast on energy markets for 2009.

GS, a constant at PF for two decades, will be there to speak on emerging tech, nanotech and defense tech.

Click here or call 800-970-4355 and refer to priority code 014310 to register as a guest of MLM.

The Roundup

Oil & Gas

NAL Oil & Gas Trust (TSX: NAE-U, OTC: NOIGF) is selling 8.35 million units at CAD9 per to a syndicate of underwriters; proceeds from the offering, which will increase the number of NAL shares outstanding by 10 percent, will be used for “general corporate purposes.” The underwriters also have an option to buy an additional 1.25 million trust units at the same price for 30 days after the closing of the deal.

NAL’s first quarter production exceeded expectations, leading the company to increase its production and capital guidance for 2009. The trust said it produced the equivalent of 23,836 barrels of oil equivalent per day (boe/d) during the quarter, up from 23,601 boe/d a year earlier.

NAL is increasing its 2009 production target range to between 23,000 and 24,000 boe/d and now plans a CAD115 million capital program for 2009, up CAD20 million from the level projected in February. NAL Oil & Gas Trust is a buy up to USD10.

Provident Energy Trust (TSX: PVE-U, NYSE: PVX) has concluded a strategic review begun in February 2008 in response to the Tax Fairness Act. Provident will retain its trust structure “for the time being” and will continue to pay distributions.

The trust also completed an internal reorganization, which includes across-the-board staffing cuts. The reorganization is forecast to result in annual savings of CAD12 million, an 18 percent decrease in general and administrative costs.

The trust plans to allocate most capital spending to its long-term development programs. On the upstream side, Provident will continue with the Dixonville waterflood and the Pekisko oil play in northwest Alberta. Regarding its midstream operations, the trust will continue with the expansion of its Redwater facility, which handles condensate as used for diluent by bitumen producers in the Alberta oil sands. Provident Energy Trust is a buy up to USD6.

Electric Power

Macquarie Power & Infrastructure Income Fund (TSX: MPT-U, OTC: MCQPF) has refinanced and extended two credit facilities in the aggregate amount of CAD162.5 million.

The new credit facility, which matures in June 2012, is comprised of a CAD121.9 million term facility and a CAD40.6 million revolving facility. It also offers the fund the ability to increase the size of the facility up to an aggregate of CAD200 million. The fund is paying an “incrementally higher” interest rate because of credit market conditions but maintains the ability to pursue acquisitions.

Macquarie Power & Infrastructure anticipates maintaining annual distributions of CAD1.05 per unit “barring any significant events or growth initiatives.” The fund expects its 2009 payout ratio to slightly exceed 100 percent of distributable cash. Buy Macquarie Power & Infrastructure Income Fund up to USD8.

Gas/Propane

Superior Plus Corp (TSX: SPB, OTC: SUUIF) completed a CAD570 million extension of its syndicated credit facility to June 28, 2011. As of March 31, 2009, Superior had CAD314 million available under its facility. Superior Plus is a buy up to USD12.

Business Trusts

IBI Income Fund (TSX: IBG-U, OTC: IBIBF) closed a deal to align its profession practices with Gruzen Samton Architects, Planners and Interior Designers. Gruzen Samton will continue as a distinct entity within IBI.

Gruzen Samton traces its founding to 1936 and is a widely recognized and highly respected name in architecture, planning and interior design. The firm has extensive experience with office environments, education at university and school levels, justice and governmental facilities, affordable housing as well as luxury accommodation, hotels, and commercial and mixed use facilities. Its geographic concentrations are in the New York/New Jersey metropolitan area and in the Washington, DC region. With Gruzen Samton’s 120, IBI now includes approximately 2,220 professionals in 64 offices worldwide.

IBI is paying cash for goodwill and working capital and has issued 102,415 units in consideration of the arrangement, and will issue approximately 102,415 over the first and second anniversaries of the deal’s closing. IBI Income Fund is a buy up to USD15.

Natural Resources

SFK Pulp Income Fund (TSX: SFK-U, OTC: SFKUF) has lost a court bid to preserve its contract with bankrupt AbitibiBowater (NYSE: ABWTQ). In a decision released last Thursday, Quebec Superior Court confirmed the cancellation of the 20-year deal struck in 2002 when SFK was spun off from Abitibi.

The Abitibi contract provided SFK with about 80 percent of its wood fiber and bark requirements, about 612,000 tons; it gave SFK a CAD20 per ton discount from market prices. Abitibi has offered to supply at least 500,000 tons of wood chips and bark annually at market prices. Sell SFK Pulp Income Fund.

Information Technology

BCE (TSX: BCE, NYSE: BCE) has said goodbye to what was once an ardent suitor. The Ontario Teachers’ Pension Plan, which lead a consortium that attempted the biggest leveraged buyout ever, has sold most of its stake in BCE. The pension plan sold 30.6 million shares at CAD23 each to several fund managers in four trades. Ontario Teachers had offered CAD42.75 a share in a deal that fell victim to the credit crunch. BCE is a buy up to USD24.

Food & Hospitality

The Keg Royalties Income Fund (TSX: KEG-U, OTC: KRIUF) will maintain its trust structure up to when it will be forced to start paying entity-level taxes because “a better structure has yet to be unveiled.

“Our job frankly, primarily is to sell steaks, but there are a lot of really smart people out there whose jobs is primarily to figure out what structures like our income fund should morph into,” said CEO David Aisenstat. “We certainly aren’t ignorant in that regard but we also aren’t likely the guys to invent it.”

The Keg recently declared a May distribution of CAD0.1065 per unit, which it’s paid since March 2008. From inception until February 2008, the fund paid CAD0.1035 a unit.

The Keg reported first quarter sales growth of 10 percent to CAD122.7 million. The Keg Royalties Income Fund is a buy up to USD7.