Bank of Canada (BoC) Governor Mark Carney, who in July proclaimed the end of the recession, yesterday declared that “growth has resumed” north of the border.

Carney’s confidence is couched in cautious language, however, and there are obvious reasons to be wary, particularly after the 56 percent post-March 9 rally in the most widely followed benchmark of stock market performance in the world.

Fortunately, Canada’s relative strength entering the current crisis and the nature of its economy put it and the companies that call it home in great position for the next decade. The foundation of its economy sound, Canada will be able to profit as emerging markets such as China and India account for greater and greater shares of global growth and the US role in its fate recedes.

Statistics Canada will probably report a second consecutive month of expanding GDP Wednesday morning. Economists expect growth of about 0.4 percent for July, a faster pace than June’s 0.1 percent, which was the first positive month since July 2008.

In a speech to the Greater Victoria Chamber of Commerce, Carney once again emphasized the importance of the state in the present situation: In response to the crisis governments around the world put in place “war-time spending on a peaceful calamity” that likely averted a depression.

“The recovery is in its earliest stages and almost entirely driven by public policy. Over the medium term,” he noted, “a difficult hand-off from public- to private-led growth must occur.”

Acknowledging that the current facts continue to require an accommodative policy, Carney reiterated the BoC’s “conditional commitment” to keep rates at historic lows until June 2010; if the facts change, the BoC’s stance will change.

If inflation threatens to exceed the BoC’s target, rates will rise. If deflation remains the primary threat as the second quarter becomes the third quarter of 2010, rates will remain low.

It’s difficult to argue against the proposition that the hands of government lifted economies around the world during the summer of 2009. This fact, observed by many on both sides of the ideological divide, must be considered when we hear discussions of “exit strategies” by monetary and fiscal authorities.

What happens when there’s no more cash for clunkers and no more first-time homebuyer tax credit is a critical question because the US is still the most important consumer in the global economy.

Initial non-cash-for-clunkers auto sales aren’t encouraging. Edmunds.com reports that September sales are down to 8.8 million units at an annual rate, while JD Power indicates an annual rate closer to 7 million, or half the pace of August and 24 percent below already-depressed August 2008 numbers.

Ditto home sales; the first-time homebuyer tax credit in the US expires Nov. 30, 2009. This group has been responsible for a third of housing activity; the approach of the deadline could be a factor in last week’s below-consensus August sales figures.

Carney alluded to this future of a subdued US consumer and a rising Asian middle class: “Over the longer term, the economic environment will be challenging as the global economy undergoes a fundamental restructuring.”

Amid such uncertainty, selectivity is obviously important. To review: Canada’s regulatory structure and (small “c”) conservative practices meant the financial system avoided a subprime mortgage crisis; the federal government was in surplus for a decade before John Maynard Keyenes and ideas about countercyclical spending began to dominate economic debate in late 2007 and 2008; and it resource wealth are in high demand in places where rapid growth is likely to take a lot sooner than in the US.

No banks have failed in Canada, and none have had to be rescued by the federal government. In fact, none of the majors even cut its dividend. The minority Conservative government tabled a budget thick with spending measures that led to a new deficit, but total government debt as a percentage of GDP is miniscule compared to burdens piled up by other G7 nations.

While Canada enters this period of change with enviable strengths, Canadian businesses “will need to develop new markets as the traditional advantage of relatively open access to US markets becomes less valuable.”

The secular bull market in commodities that commenced early in the current decade remains intact, driven largely by one of the markets–the new sources of demand–Canada must engage, China. David Rosenberg of Gluskin Sheff recently noted that

…during the vicious selloff in commodities last year, the price of virtually every commodity bottomed at a higher price than during any other recession in the past. Oil, for example, bottomed this cycle at $39.20/bbl (using monthly averages). In the 2001 recession the oil price bottomed at $19.33/bbl; in 1990, it bottomed at $16.81/bbl; in 1982 at $28.48/bbl; and in 1975 at $10.11/bbl. We bottomed this cycle at levels that were peaks in prior cycles.   

The primary factor at work here is a change on the demand side; specifically, China, and India, are leading the way as what we call emerging markets regain the greater than 50 percent share of global GDP they claimed before the industrial revolution. Chin has proven during the Great Recession that it will go to great lengths to maintain 8 percent annual GDP growth. This quest explains why China has become and will continue to be the world’s marginal buyer of commodities.

The S&P/TSX Composite Index has outperformed the S&P 500 by more than 2,000 basis points this year because 45 percent of it is resource-related stocks, triple the rate for the broad US index. And 60 percent of Canada’s exports are related to commodities, double US exposure. What this adds up to is emerging market upside with developed market stability.

Still No Election

The Liberal Party delivered a motion of no confidence in the minority Conservative Party government on Monday. The motion could be voted on as soon as Thursday.

New Democratic Party Leader Jack Layton said the Liberals and Michael Ignatieff are putting CAD1 billion of help for thousands of unemployed Canadians at risk, and the only way to ensure speedy passage of the bill is to keep the government alive. The NDP is likely to support the Conservatives when the confidence motion does come up for a vote.

All three opposition parties have to vote against the Conservatives to force an election. That doesn’t seem likely for now because the NDP, for all its protestations of principle, is likely to lose seats in a fall vote.

Get Yer Ha-Ha’s Out

With thanks to Dilbert and The Big Picture:

Speaking Engagements

Roger Conrad is making the trip to the Great White North for The World MoneyShow Toronto, October 20-22 at the Metro Toronto Convention Centre.

Roger will, of course, discuss Canadian income trusts and high-yielding corporations as well as the utility universe. Click here to register and attend as his guest.

The Roundup

Electric Power

Canadian Hydro Developers (TSX: KHD, OTC: CHDVF) is buying a 4,400 megawatt (MW) offshore wind “prospect” in Ontario from privately held US-based renewable power company Wasatch Wind.

Upon completion the facility–to be located approximately five to 30 kilometers offshore in one of the Great Lakes bordering Ontario, near available transmission interconnection–will be the largest offshore operation in the world, supplying enough renewable energy to power more than two million homes.

The prospect is eligible for the Ontario Green Energy Act’s Feed-In-Tariff 20-year contract at a price of CAD190 per megawatt hour. Canadian Hydro anticipates that the first 400 to 500 MW of generation will come online by the fourth quarter of 2014.

In other news, TransAlta Corp (TSX: TA, NYSE: TAC) extended the deadline for acceptance of its CAD4.55 per share offer to Oct. 2. Meanwhile, Canadian Hydro said last week it has received a “number of proposals” from other suitors that top TransAlta’s CAD654 million hostile bid. “TransAlta no longer has the leading proposal,” said Canadian Hydro board chairman Dennis Erker. Canadian Hydro Developers is a buy up to USD5; TransAlta Corp is a hold.

Business Trusts

IBI Income Fund (TSX: IBG-U, OTC: IBIBF) is raising CAD40 million through the issue of convertible debentures on a bought-deal basis. Proceeds will be used to repay debt and for general corporate purposes.

The company said the unsecured debentures will mature on Dec. 31, 2014, and carry a coupon of 7 percent. Each CAD1,000 principal amount would be convertible into about 52.1648 IBI units at any time at the option of the holder, representing a conversion price of CAD19.17 per unit. IBI Income Fund is a buy up to USD15.

Real Estate Trusts

Artis REIT (TSX: AX-U, OTC: ARESF) is issuing 3.4 million trust units on a bought-deal basis at CAD9 per. Proceeds, about CAD30 million, will be used to fund acquisitions and for working capital purposes. Artis REIT is a buy up to USD10.

Chartwell Seniors Housing REIT (TSX: CSH-U, OTC: CWSRF) is selling 12.5 million units for CAD6 per for gross proceeds of about CAD75 million.

Chartwell will use the money raised “to enhance its financial strength and flexibility in order to take advantage of restructuring opportunities relating to certain existing mezzanine financing investments with third party borrowers.” Chartwell Seniors Housing REIT is a hold.

InnVest REIT (TSX: INN-U, OTC: IVRVF) has cut its distribution, effective with the September payment payable Oct. 15, 2009. The new annualized rate of CAD0.50 per unit is a 33 percent reduction from the prior level of CAD0.75 per unit per year.

InnVest is also selling 12.6 million units from its treasury at CAD3.95 per for gross proceeds of approximately CAD50 million. InnVest will use the net proceeds “to enhance its financial strength and flexibility and for general corporate purposes.” Sell InnVest REIT.

Primaris Retail REIT (TSX: PMZ-U, OTC: PMZFF) is issuing, on a bought-deal basis, CAD75 million aggregate principal amount of 6.3 percent convertible unsecured subordinated debentures due Sept. 30, 2015. The debentures are convertible at the option of the holder into units at CAD16.70 per trust unit. Proceeds will be used to fund future property acquisitions, the redevelopment of the REIT’s existing properties and for general trust purposes. Sell Primaris Retail REIT.

Energy Infrastructure

AltaGas Income Trust (TSX: ALA-U, OTC: ATGFF) and AltaGas Utility Group have amended the terms of their previously announced agreement such that AltaGas Income Trust will pay CAD10.05 per share for AltaGas Utility, up from CAD9.05 per share. The revised offer expires Oct. 7, 2009.

The 16 percent increase in the offer brings the premium to AltaGas Utility’s Aug. 14, 2009 price (the last trading day before the original offer) up to 68 percent. AltaGas Income Trust is a buy up to USD20.

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