Bank of Canada (BoC) Governor Mark Carney is more concerned about the strengthening Canadian dollar right now than he is about inflation: That’s the takeaway from this morning’s statement that the BoC would keep its target interest rate at 25 basis points rather than match the surprise October 6 hike by the Reserve Bank of Australia (RBA).

Speculators had been betting that Canada’s central bank would become the second G-20 nation to boost borrowing costs because its economy is similar to Australia’s. Like Australia, Canada is experiencing a hiring rebound (Statistics Canada reported an unexpected drop in the unemployment rate for September as employers added 30,600 jobs). Likewise, both countries are seeing rising home sales and prices, and prices for commodities that make up substantial portions of both countries’ exports have risen significantly this year.

But Australia is more tied to China, where orders are stronger, while Canada’s main customer is the US. Canada will benefit as much as Australia from rising commodity prices, but the BoC must also consider monetary policy moves in light of the condition of its largest trading partner. A hike now would have made Canadian manufacturers’ goods even less attractive to US buyers. “Heightened volatility and persistent strength in the Canadian dollar are working to slow growth and subdue inflation pressures. The current strength in the dollar is expected, over time, to more than fully offset the favourable developments since July,” said the BoC in its interest rate statement this morning.

A strengthening loonie makes the country’s shipments of automobiles, lumber and metals to the US more expensive and therefore less competitive and restrains inflation by making imports cheaper. On the other hand, consumer prices have been weaker than the BoC forecast in its July Monetary Policy Report, averaging an annual rate of negative 0.9 percent in the third quarter against a projection of negative 0.7 percent. In other words, the BoC has little to fear from inflation anytime soon.

The central bank not only left its target interest rate at an as-low-as-it-gets 0.25 percent, it also extended by three months, to the third quarter of 2010, its forecast for a return to target inflation of 2 percent.

The RBA focused on the wisdom of holding rates at emergency levels when it was no longer necessary and was afraid of the imbalances to the economy low rates can create instead of the ancillary impact of a stronger currency due to higher rates.

The BoC, in contrast, is worried that the strong loonie is impeding growth and believes that “the composition of aggregate demand will shift further towards final domestic demand and away from net exports.” The strong currency also provides some comfort in that it will tamp down inflation and allow them to keep rates low.

The Canadian dollar weakened against the buck following the BoC’s announcement, but the long-term trend toward parity and beyond remains intact.

 “Parity” in currency terms is an arbitrary benchmark with only psychological significance, much as is Dow 10,000. The trend is what matters, and long-term structural factors that argue for a stronger loonie–the relative fiscal and monetary position of the US, rising commodity demand from Asia, among others–aren’t going away anytime soon.

And, despite protestations by Canadian politicians and central bankers to the contrary, a strong loonie has its benefits. The loonie is a reflection of commodity prices and global economic fundamentals, and higher commodity prices and improving economic fundamentals are better than declining prices and deteriorating conditions.

The strong currency could also stimulate investment in productivity-enhancing equipment, as it did from 2003 to 2007. Furthermore, Canadian consumers can buy imported goods at cheaper prices, and as noted above, lower import prices should keep a lid on inflation, making it easier for the BoC to keep its key interest rate lower for longer.

Oil Sands Good for US

The American Petroleum Institute (API) has invoked Canada’s oil sands in its fight against US climate legislation. The API, through a new report from the Canadian Energy Research Institute (CERI) it commissioned, argues that “the large investment in the oil sands industry contributes to increased economic activity in the rest of North America by stimulating demand for goods and services across a wide range of industries.”

The oil sands represent one of the largest construction projects in North America, requiring USD379 billion of investment over the next 14 years, with benefits flowing on both sides of the border. The CERI report concludes that oil sands development would add USD40 billion to the US economy by 2020.

For purposes of its study, CERI assumed that oil sands production would climb from 1.2 million barrels per day to about 4 million barrels a day by 2020 and forecast that between now and 2025 the industry will invest between USD20 billion and USD30 billion annually to build the additional capacity.

According to CERI, oil sands projects comprise the largest surface mines in the world and have equipment needs to match. Companies buy steel products from Alberta, Ontario and the US as well as trucks, shovels, hopper cars, conveyor equipment, pumping equipment and some boilers and chemicals.

CERI is a non-profit Canadian energy and environmental research institute funded by the oil and gas industry as well as federal and provincial governments.

TBTF and CIC

Andrew Ross Sorkin of The New York Times is out with a moment-by-moment chronicle of Wall Street’s near-death experience, Too Big to Fail: The Inside Story of How Wall Street and Washington Fought to Save the Financial System—and Themselves. (If you click through, note that the low average score from reviewers reflects protests over Amazon.com’s (NSDQ: AMZN) Kindle-version pricing, not the content of the book.)

He discusses the book with Charlie Rose here, and Vanity Fair provides a lengthy excerpt here.

Sorkin, editor of the NYT’s DealBook blog and the Grey Lady’s mergers-and-acquisitions reporter, has a lot of sources on the Street. As you might expect, his book is full of interesting conversations and titillating gossip about the masters of the universe.

One interesting anecdote Sorkin relates involves “a great scene where Ben Bernanke and Hank Paulson go into the White House and President Bush tells them, at some point you’re going to have to tell me how this happened.” It’s unlikely Bernanke and Paulson will deliver, and Sorkin falls short, too, as far as answering the “why” and the “how.” Buried within the compelling story of the “who,” however, is the following window on the new world. During the most critical hours of the crisis, some of America’s top financial players were discussing with top US officials the potential for a China-based rescue:

John Mack was still at his office in Times Square when Tom Nides told him the good news: his sources at the S.E.C. had confirmed that the agency was preparing to finally put in place a ban on shorting financial stocks, affecting some 799 different companies.

Rumors of the pending action were already moving on the wires. James Chanos, perhaps the best known of the short-sellers, who had pulled his money from Morgan Stanley because of Mack’s support for the ban, was already on the warpath.

That day, Morgan Stanley’s stock had fallen 46 percent, only to turn around in the last hours of trading, ending up 3.7 percent, or 80 cents. Between word of the government’s intervention and the short-selling ban, Mack was hoping that he’d finally have some breathing room.

He knew, though, that beneath the surface the firm was hurting. Hedge funds continued to seek redemptions. What the firm needed most was an investor to step up and take a big stake in the company to shore it up. “I don’t know how this happened,” he confided in Nides.

Mack could think of only one investor that might be seriously interested in making a sizable investment in the firm: China Investment Corporation (C.I.C.), China’s first sovereign-wealth fund. Wei Sun Christianson, C.E.O. of Morgan Stanley China, a 51-year-old dynamo with close relationships throughout the Chinese government, had initiated discussions with Gao Xiqing, president of C.I.C., within the past 24 hours. She happened to be in Aspen at a conference with him hosted by Teddy Forstmann, the leveraged-buyout king. C.I.C. already held a 9.9 percent stake in Morgan Stanley, and Gao had indicated to Christianson that he’d be interested in buying up to 49 percent of the firm. Gao had a major incentive to keep Morgan Stanley alive: he had invested $5 billion in the firm in December 2007, which was now worth half that. If Morgan Stanley filed for bankruptcy, he might lose his job.

Mack and Nides discussed the deal, and while neither man was particularly interested, given their choices, they knew it might prove to be the only solution. Gao was planning to fly to New York Friday night to meet with them.

Earlier in the day, Mack had spoken with Hank Paulson, who prided himself on his extensive Chinese contacts, trying to persuade him to call the Chinese government and encourage them to pursue the deal. It was a tad unusual to ask the government to serve as a broker, but Mack was desperate. “The Chinese need to feel as if they are being invited in,” Mack explained. Paulson said he’d work on it and see if President Bush would be willing to call Chinese president Hu Jintao. “We need an independent Morgan Stanley,” Paulson affirmed.

The Roundup

Conservative Holdings

Colabor Group (TSX: CLB-U, OTC: COLAF) has reported results for the 84-day period ended Sept. 12, 2009, the company’s fiscal third quarter.

Despite a decline in sales Colabor reported a slight uptick in earnings to CAD4.7 million (CAD0.30 per share), up from CAD2.3 million (CAD0.16 per share) a year ago. Revenue was down 4 percent to CAD276.8 million from CD288.4 million last year. The wholesale segment generated organic growth of 2.6 percent, while the distribution segment experienced a 7.1 percent sales decline.

The most significant development during the quarter was Colabor’s conversion to a corporation without trimming its distribution level. Colabor will now make quarterly dividend payments based on an annual rate of CAD1.08 per share. The first quarterly dividend will be paid Jan. 15, 2010, to shareholders of record on Dec. 31, 2009.

In its third quarter discussion and analysis management noted that “cash flows from operating activities and the funds from operating credits are sufficient to support planned capital expenditures, working capital requirements, quarterly dividends of $0.27 per share and will comply with the banking syndicate’s ratio requirements.” Colabor Group is a buy up to USD12.

Here are tentative earnings announcement dates for CE Portfolio recommendations, followed by the Roundup of news from How They Rate companies.

Conservative Holdings

• AltaGas Income Trust (TSX: ALA-U, OTC: ATGFF)–November 5*
• Artis REIT (TSX: AX-U, OTC: ARESF)–November 11
• Atlantic Power Corp (TSX: ATP-U, OTC: ATPWF)–November 12*
• Bell Aliant Regional Communications Income Fund (TSX: BA-U, OTC: BLIAF)–November 10
• Bird Construction Income Fund (TSX: BDT-U, OTC: BIRDF)–November 11*
• Brookfield Renewable Power Fund (TSX: BRC-U, OTC: BRPFF)–November 3*
• Canadian Apartment Properties REIT (TSX: CAR-U, OTC: CDPYF)–November 13
• CML Healthcare Income Fund (TSX: CLC-U, OTC: CMHIF)–November 5*
• Consumers’ Waterheater Income Fund (TSX: CWI-U, OTC: CSUWF)–October 29
• Innergex Power Income Fund (TSX: IEF-U, OTC: INRGF)–November 5*
• Just Energy Income Fund (TSX: JE-U, OTC: JUSTF)–November 6*
• Keyera Facilities Income Fund (TSX: KEY-U, OTC: KEYUF)–November 3
• Macquarie Power & Infrastructure Income Fund (TSX: MPT-U, OTC: MCQPF)–November 4
• Northern Property REIT (TSX: NPR-U, OTC: NPRUF)–November 12
• Pembina Pipeline Income Fund (TSX: PIF-U, OTC: PMBIF)–October 29*
• RioCan REIT (TSX: REI-U, OTC: RIOCF)–October 26
• TransForce (TSX: TFI, OTC: TFIFF)–October 23
• Yellow Pages Income Fund (TSX: YLO-U, OTC: YLWPF)–November 5

*Bloomberg estimate

Aggressive Holdings

• Ag Growth International (TSX: AFN, OTC: AGGZF)–November 12
• ARC Energy Trust (TSX: AET-U, OTC: AETUF)–October 30*
• Chemtrade Logistics Income Fund (TSX: CHE-U, OTC: CGIFF)–November 4*
• Daylight Resources Trust (TSX: DAY-U, OTC: DAYYF)–November 5*
• Enerplus Resources (TSX: ERF-U, NYSE: ERF)–November 13
• Newalta (TSX: NAL, OTC: NWLTF)–November 5*
• Paramount Energy Trust (TSX: PMT-U, OTC: PMGYF)–November 6*
• Penn West Energy Trust (TSX: PWT-U, NYSE: PWE)–November 11*
• Peyto Energy Trust (TSX: PEY-U, OTC: PEYUF)–November 5*
• Provident Energy Trust (TSX: PVE-U, NYSE: PVX)–November 13*
• Trinidad Drilling (TSX: TDG, OTC: TDGCF)–November 4
• Vermilion Energy Trust (TSX: VET-U, OTC: VETMF)–November 10*

*Bloomberg estimate

Oil and Gas

Bonterra Oil & Gas (TSX: BNE, OTC: BNEUF) has sold approximately 200 barrels per day of oil production and 18.5 sections of land in southwestern Saskatchewan to Eagle Rock Exploration (TSX-V: ERX) for CAD24 million in cash and 30 million shares of Eagle Rock.

Bonterra will use the cash to fund its horizontal drilling efforts in the Cardium formation of the Western Canada Sedimentary Basin. Bonterra Oil & Gas is a buy up to USD28.

Crescent Point Energy (TSX: CPG, OTC: CSCTF) will sell 13.4 million shares at CAD37.25 per to a group of underwriters that includes RBC Capital Markets (Royal Bank of Canada, TSX: RY, NYSE: RY), Scotia Capital (Bank of Nova Scotia, TSX: BNS, NYSE: BNS) and Canadian Imperial Bank of Commerce (TSX: CM, NYSE: CM). The CAD500.3 million offering could rise to CAD575 million if underwriters exercise overallotment options. Crescent Point Energy Trust is a buy up to USD37.

Pengrowth Energy Trust (TSX: PGF-U, NYSE: PGH) is raising CAD275 million via bought-deal offering of 26 million units at CAD10.40 per. Proceeds will be used to pay down debt and for general corporate purposes. Pengrowth Energy Trust is a buy up to USD10.

Trilogy Energy Trust (TSX: TET-U, OTC: TETFF) is offering 10 million units at CAD8.65 per on a bought-deal basis; underwriters have the option to pick up 1.5 million more units, making the potential proceeds approximately CAD88 million. Trilogy will use the cash to reduce outstanding debt, ongoing capital expenditures and general corporate purposes. Hold Trilogy Energy Trust.

Vermilion Energy Trust (TSX: VET-U, OTC: VETMF) plans to sell through underwriters on a bought-deal basis 7.3 units at CAD30.90 per for gross proceeds of approximately CAD225 million; if underwriters’ overallotment options are exercised proceeds could approach CAD250 million.

Proceeds will be used to reduce outstanding debt, to fund development programs and for prospective acquisitions. Vermilion Energy Trust is a buy up to USD30.

Emera (TSX: EMA, OTC: EMRAF) raised CAD250 million through a five-year debt issue with a coupon of 4.1 percent. Emera sold the bonds at a yield of 4.108 percent, 122 basis points above the relevant Bank of Canada benchmark. Emera is a buy up to USD22.

Gas/Propane

Arctic Glacier Income Fund (TSX: AG-U, OTC: AGGRF) subsidiary Arctic Glacier International has reached a settlement with the US Dept of Justice on all charges related to the DoJ’s antitrust investigation of the US packaged ice industry. The agreement ends the DoJ’s investigation as it relates to Arctic Glacier after 18 months.

Arctic Glacier International Inc. agreed to plead guilty and to pay a fine of USD9 million, payable in installments over the next five years. Arctic Glacier has also agreed to cooperate with the DoJ’s ongoing investigation of other companies and individuals. The agreement remains subject to court approval. The resolution of this matter removes one barrier to restoration of Arctic Glacier’s distribution.

Superior Plus Corp (TSX: SPB, OTC: SUUIF) is issuing CAD150 million worth of 8.25 percent senior unsecured debentures with an Oct. 27, 2016, maturity date. Proceeds will be used to pay down existing credit facilities and for acquisitions, working capital and general corporate purposes. Superior Plus Corp is a buy up to USD12.

Business Trusts

Norbord’s (TSX: NBD, OTC: NBDFF) board of directors has authorized after shareholder approval a 1-for-10 consolidation of the company’s outstanding shares. The approximately 432 million shares currently outstanding will be reduced to approximately 43.2 million.

Norbord shares are expected to begin trading on a post-consolidation basis on the Toronto Stock Exchange when markets open on Oct. 21, 2009. Hold Norbord.

Somerset Entertainment Income Fund (TSX: SOM-U, OTC: SOEIF) has agreed to be acquired by Fluid Music Canada for consideration to be determined by the tendering unitholder. If you own Somerset units you can exchange them for either: CAD2.12 per unit in cash; 1.1 common shares of Fluid per unit; 0.003 of a CAD1,000 principal amount 8 percent convertible unsecure debenture due three years following the date such debentures are first issued.

Unitholders holding approximately 66 percent of the outstanding units have entered into agreements to tender their units to the offer, including Somerset’s top two executives. Sell Somerset Entertainment Income Fund.

Energy Services

Newalta (TSX: NAL, OTC: NWLTF) and its lending syndicate have agreed to an extension of the maturity of Newalta’s credit facility to Oct. 12, 2011. The amount available has been reduced, at Newalta’s request, to CAD350 million from CAD375 million. Newalta is a buy up to USD10.

Peak Energy Services Trust (TSX: PES-U, OTC: PKGFF) will grant rights to current unitholders to subscribe for up to CAD22 million in principal amount of 12 percent debentures with a maturity date of Sept. 30, 2012.

Each holder of trust units on the record date will receive one right for each trust unit held. For every 219.9914 rights held, the holder of such rights will be entitled to subscribe for CAD100 in principal amount of debentures.

Unitholders who fully exercise their basic subscription privilege will be entitled to subscribe for additional debentures (on a pro rata basis) not subscribed for by the holders of rights. Expected proceeds of CAD21.5 million will be used to reduce amounts outstanding on Peak’s credit facilities. Peak has also agreed with its existing lenders to amend certain financial covenants under its senior loan facilities and to reduce its amount available to CAD55 million. Peak Energy Services Trust is a hold.

Phoenix Technology Income Fund (TSX: PHX-U, OTC: PHXHF) held out longer than any energy services trust but finally succumbed to the reality its international growth strategy entails: The board of directors has cut the October distribution more than 50 percent to CAD0.04 per unit from CAD0.085. Phoenix will use the cash it saves to expand operations in new markets such as Albania and Peru and to pursue other opportunities in the respective regions.

Management also noted that it “has begun to explore the possibility of converting its trust structure to that of a corporation. Structures being considered include, without limitation, a dividend paying corporate model.” Phoenix Technology Income Fund is a buy up to USD8.

Energy Infrastructure

AltaGas Income Trust’s (TSX: ALA-U, OTC: ATGFF) credit rating has been raised by Dominion Bond Rating Service from BBB (low) with a Positive trend to BBB with a Stable trend. AltaGas Income Trust is a buy up to USD20.

Financial Services

Newport Partners Income Fund (TSX: NPF-U, OTC: NWPIF) will restate its annual report for 2008 and its quarterly reports for the first and second quarters of 2009. The company has determined that values used to record the exchange of exchangeable units of subsidiary Newport Private Yield LP into trust units of Newport Partners Income Fund had been incorrectly calculated in prior and current periods. Sell Newport Partners Income Fund.

Food and Hospitality

A&W Revenue Royalties Income Fund (TSX: AW-U, OTC: AWRRF) reported solid third quarter numbers, highlighted by a 2.1 percent increase in distributable cash. Distributable cash is up 3.2 percent year-to-date.

Same-store sales increased 0.3 in the third quarter from year-ago levels and are up 2.5 in 2009. A&W has reported rising same-store sales for 26 consecutive quarters. The fund’s trustees approved a CAD0.10 per unit special distribution payable November 30. A&W Revenue Royalties Income Fund is a buy up to USD14.

PDM Royalties (TSX: PDM-U, OTC: PDMRF) is now Imvescor Restaurant Group (TSX: IRG) following completion of its conversion transaction. PDM Royalties/Imvescor Restaurant Group is a sell.

Priszm Income Fund (TSX: QSR-U, OTC: PSZMF) reported same-store sales declined 0.5 percent from the same period of 2008 during the third quarter. Restaurant sales from continuing operations were up 0.1 percent to CAD113.7 million. Restaurant costs and expenses, cost of restaurant sales and restaurant operating expenses were all essentially flat with the third quarter of 2008. Income from restaurant operations decreased 1.6 percent to CAD12.4 million. General and administrative expenses were down 4 percent. Distributable cash declined 2.5 percent, and the payout ratio was 111 percent, up from 30 a year ago.

Priszm also announced it will buy back 10 percent of its 6.5 percent convertible unsecured subordinated debenture dated June 30, 2012. This follows a September move to buy back 10 percent of its outstanding units and indicates the fund is in a solid cash position. Priszm Income Fund is a hold.