Canada stands on the highest plateau these days, casting an impressive glow in the aftermath of the Winter Olympics. Equally impressive is the string of reports coming out of think-tanks, NGO research shops and global investment houses touting the story of the Great White North.

That commentators’ emphasis is on “the fervor and ebullience” and the “enthusiasm of Canadians…young and old alike” rather than the tragic death of Georgian luger Nodar Kumaritashvili or the lack of snow at one of the main alpine venues is testament to the fact that organizers carried off a fine show. Even those whose job it is to know how these things work inside and out came away most impressed with the Canadian people.

“Not since Sydney have I seen a city embrace the games the way they’ve been embraced here,” Coe told the Associated Press. “My gut instinct is that is what these games will be remembered for. I haven’t been anywhere where there’s been an empty seat in the house. And the people look like they want to be there.” By preparing well, innovating in some areas, going with what works in others, Canada was able to impress the world despite serious challenges. In other words, the fundamentals were in place, which allowed the people who had to the energy and the resources to adjust to unpredictable events.

The recently concluded Vancouver Games demonstrate a lesson that seems to have become a way of doing things in Canada in recent years–that is, our neighbors to the north are now reputed to be among the most prudent people on the planet. But this prudence obscures what could, too, be a potentially explosive upside in coming years–particularly for US-based investors who will get the added benefit of putting greenbacks to work in loonie terms.

Canada came into the Great Recession with a decade’s worth of balanced federal budgets. Canadian banking regulators wouldn’t allow subprime mortgages to infest the country’s housing market. Although Canada’s major financial institutions had exposure to exotic and toxic securities via foreign operations, the foundations of their businesses are in Canadian retail banking.

One proponent of the Canadian investment story, ScotiaCapital, perhaps betraying a little bit of pride in the homeland, is calling it the “Northern Tiger,” invoking a comparison we made exactly nine months ago that suggests Canada, as developed as it is and as much as it shares with the US, for example, and the UK, has many key factors in common with the economies that are now driving global growth.

Only if you prepare yourself to be in position can you benefit from good luck; similarly only if you prepare will you have the resources to adjust to adversity. Canada–compared to most similarly endowed countries around the world–has managed its abundant natural resources extremely well. At the same time, sound lending practices in the years prior to the global financial economic meltdown leave Canada in excellent position to extend its global influence, attract increasing amounts of foreign capital, and grow at a more durable rate than its developed-economy peers over the next 10 years. Canada is an example for the world and has a great deal of credibility on the global stage. One of the pillars of its new standing is its record of sound fiscal management, which left the government in better position than most to respond with public spending measures when private demand virtually evaporated in late 2008 and early 2009.

These efforts, however, left Canada with its first budget deficit in 10 years. The Harper government will follow through with another CAD19 billion in stimulus spending in fiscal 1010-11. Canada will still have the strongest balance sheet of any G-7 country. Some observers have questioned whether the government put forth a credible plan to balance Canada’s federal budget by 2014-15; Finance Minister Jim Flaherty’s numbers suggest the use of some rather rosy assumptions about rising federal revenue tied to growth that, at least as far as the rest of the world’s contribution to Canada’s is concerned, seems hard to imagine at this point.

And Flaherty has consistently fallen on the optimistic side of things during this recession; as late as November 2008, in fact, Flaherty forecast continued budget surpluses–not until the following winter’s budget season did he concede the necessity of picking up the slack for the private sector and providing a cushion for out-of-work Canadians. Nevertheless, the question of whether the balanced budget train arrives exactly on time does not obviate the fact that the car is on the rails, moving forward at a reasonable clip–which is a lot more than can be said about Canada’s developed-market peers.

More-rapid-than-forecast fourth-quarter growth and the broad-based nature of this expansion suggest the Bank of Canada (BoC) will begin to raise interest rates after June. This is more good news for US-based investors in Canadian-dollar assets. As the loonie appreciates against the buck–higher interest rates will boost demand for and strengthen Canadian assets–so too will the value of your units and shares in income trusts and high-yielding corporations. The Canadian dollar’s profile as a commodity currency may also rise and therefore become more attractive to international investors than the Australian because the Reserve Bank of Australia is widely felt to be nearing the end of its tightening cycle, while the BoC is yet to embark on its own.

What we’ve learned over the last six months is that a strong loonie doesn’t necessary spell the end of the Canadian economy; although manufacturing has been hurt, other parts of the economy have responded to new demand sources, from the US as well as other parts of the world. Not only have certain well-run Canadian businesses proven to be resilient in the face of historic challenges. So, too, has Canada’s entire economy. This is evidence of a strong labor base, with a highly educated populous feeding it.

One of the often-overlooked facts of the global economy–and this is easy to miss given the experience of Halloween Night 2006 and its aftermath–is that Canada, once its course of cuts is complete in a couple years, will have the best corporate tax system in the world.

What separates Canada is that no other developed country has the store of natural resources in relation to the size of the domestic economy that it does. But its leaders are doing things in a manner that will allow the Great White North to derive great benefits from those inherent gifts now and well into the future.

High Road to China

Andrew Willis of the Toronto Globe and Mail brings word that a couple of Canadian oil sands players–Athatbasca Oil Sands, which is in the planning stages of an initial public offering (IPO), and OPTI Canada (TSX: OPC, OTC: OPCDF), which holds minority stakes in projects run by Nexen Energy (TSX: NXY, NYSE: NXY)–are venturing to China to find capital.

Act Now

Are you serious about investing in the Canadian story? Join Roger Conrad in sunny San Diego, California, April 23-24 for the 2010 Wealth Society Member Summit. You’ll have a chance to sit down with Roger one-on-one to talk about where to find the best ideas to generate total returns as Canadian income trusts convert to high-yielding corporations and how to position your portfolio for the year ahead.

Join Roger and his colleagues GS Early, Elliott Gue, Yiannis Mostrous, and Benjamin Shepherd at the historic Hotel del Coronado–one of the top 10 resorts in the world according to USA Today, one of the top 20 hotel/spas in the world according to Travel + Leisure, and the No. 2 place in the world to get married, according to the Travel Channel.

And on April 23-24, Coronado Island will also be the best place in the world for relaxation and profit. We’re expecting 72 degrees, sun and fun. You may find all details at www.InvestingSummit.com.

Call 1-800-832-2330 (between 9:00 a.m. and 5:00 p.m. EST Monday through Friday) or go online now to reserve your seat at the table. Space is limited.

The Roundup

Since the March issue of Canadian Edge was published last Friday afternoon no more Portfolio companies have reported fourth-quarter and full-year 2009 earnings. The March Portfolio Update, however, includes as extensive a summary of results as has ever appeared in CE. And the March Feature takes as deep a look as has been taken into the phenomenon of income trust conversions and the abundant opportunities to profit now and establish income streams sustainable well into the future.

Below we detail results for Canada’s Big Five banks, which reported impressive results on the whole that offer more strong evidence that the Canadian economy is indeed recovering. We’ll continue to cover Portfolio earnings season in the space, and we’ll also have highlights from elsewhere around the CE How They Rate Universe during over the course of March.

Bank of Nova Scotia (TSX: BNS, NYSE: BNS), Canada’s third-largest lender, finished off reporting season for the Big Five in fine fashion this morning, exceeding analysts’ expectations with a fiscal first-quarter (ended January 31) profit of CAD988 million, a 17 percent increase from a year ago. Canadian domestic operations generated a CAD560 million profit, a 28 percent year-over-year increase.

The key forecast-beating metric was that for loan-loss provisions, which came in CAD100 million below what the Street said ahead of the report. During a conference call to discuss results CEO Rick Waugh described his bank’s bad-loan ratios “industry-leading.”

Waugh also noted that Scotiabank’s first-quarter return on equity (ROE) put it in the top 10 percent of its peer group. The bank generated record revenue in the period.

The numbers reflect the 5 percent growth in gross domestic product (GDP) Statistics Canada reported for the fourth quarter, the best number in almost a decade. Scotiabank, as did its fellow Big Five members, enjoyed the benefits of rising demand for mortgages as well as lines of credit in November and December. Personal deposits also surged, by 14 percent. Its Caribbean hotel exposure remains a weak spot, but bank executives claim to be “working with” borrowers whose businesses have suffered during the recession.

The bank is well positioned to make sensible acquisitions, though it will enjoy decent organic growth in its retail operations as the economy continues to recover. Waugh forecast ROE of 16 to 20 percent and earnings per share growth of 7 to 12 percent for 2010. Bank of Nova Scotia, undervalued relative to its peers and set for sustainable growth going forward, is a buy up to USD50.

Bank of Montreal (TSX: BMO, NYSE: BMO) reported quarterly revenue that beat CAD3 billion for the first time, net income that nearly tripled to CAD657 million (CAD1.12 per share), a decline in loan-loss provisions and ROE of 14.3 percent. On a cash basis earnings were CAD1.13 per share. Provisions for bad loans were CAD333 million. Revenue was up 24 percent year-over-year. Net interest income was up 15 percent.

As of the end of the quarter BMO had a Tier 1 capital ratio of 12.5 percent and a tangible common equity-to-risk weighted asset ratio of 9.5 percent, which should put it in better position relative to what are expected to be the new regulatory capital standards.

At the conclusion of his remarks prepared for BMO’s March 2 earnings call CEO William A. Downe expressed his support for new rules announced for government insured mortgages in Canada:

Given the prospect of higher interest rates and the recent run up in housing prices in some markets, we think these measures are prudent. In fact, late in 2008, BMO took early action in the management of our mortgage portfolio in view of the downturn. We proactively eliminated cross-selling of other lending products to insured mortgage applicants, and going into 2010 we also changed our qualification rules, which we continuously evaluate. This demonstrates a consistent lending discipline through the cycle and we continue to believe that credit management is a core strength at BMO.

Downe also noted that conditions in the US Midwest appear to be strengthening. Bank of Montreal is a buy up to USD55.

Canadian Imperial Bank of Commerce (TSX: CM, NYSE: CM) jump-started the Big Five’s first-quarter reporting season by beating analysts’ expectations with a CAD652 million (CAD1.65 per share) profit; a year ago CIBC earned CAD147 million, and the Street forecast CAD1.42 per share. Provisions for bad loans were up to CAD365 million from CAD278 because of large losses concentrated at FirstCaribbean International Bank.

CIBC turned a trading profit of CAD379 million, reversing a CAD617 million trading loss in the first quarter of fiscal 2009. In contrast to its Big Five peers, CIBC’s domestic operation isn’t growing; profit there fell 8.3 percent to CAD529 million. Canadian Imperial Bank of Commerce is a buy up to USD65.

Royal Bank of Canada (TSX: RY, NYSE: RY) was the only Big Five bank that failed to crush Street expectations for the fiscal first quarter. But even its numbers were solid. Profit rose 35 percent year over year on strong investment banking results and lower provisions for bad loans.

Revenue for the quarter was up 3.8 percent to CAD7.3 billion.

Profit from Canadian consumer banking rose 12 percent to CAD777 million on the rising mortgages, personal loans and deposits. Trading revenue rose 82 percent to CAD1.1 billion. International operations, headlined by North Carolina-based RBC Bank, trimmed a loss of CAD100 million a year ago to CAD57 million. Royal Bank is in the midst of reorganizing its US operation and incurred a CAD1 billion charge for these efforts last April

CEO Gordon Nixon noted that Royal Bank is “showing good improvement” across all its businesses that’s reflective of the recovery taking place in Canada. Royal Bank of Canada, biggest of the Big Five in terms of assets, is a buy up to USD55.

Toronto-Dominion Bank (TSX: TD, NYSE: TD) CEO Edmund Clark said his outfit’s fiscal 2010 first-quarter results surprised even its own executives but that he sees no signs of slowing in the Canadian domestic operations that were the basis of that pleasantness.

Earnings surged 31 percent to CAD1.3 billion, anchored by CAD1.1 billion in retail profit. TD reported record revenue, “stable” provisions for credit losses and flat expenses compared with year-ago results. The balance sheet remains strong, with a Tier 1 capital ratio of 11.5 percent, three quarters of that in tangible common equity.

Clark, however, sounded a note of caution: “Despite a quarter where many things went right for us, we have to tell you that we still don’t see that the world has changed a whole lot since the outlook we presented to you in the first quarter last year.” Clark noted that TD continues to see “a Canadian economy on a slow path to recovery” and “continued weakness” in the US.

Canadian retail operations posted record earnings of CAD720 million in the first quarter, up 23 percent from the same period last year; double-digit revenue growth more than offset an increase in provisions for credit losses. Wealth management net income was up 35 percent to CAD101 million in the quarter on higher client assets, solid fund sales and higher trading volumes in the online brokerage business. US retail generated USD172 million in reported net income in the quarter; on an adjusted basis, the segment earned USD216 million in the quarter, up 5 percent from the first quarter of last year. Revenue increased 10 percent. Wholesale banking reported very strong net income for the quarter of CAD372 million, up 40 percent from the same period last year. Toronto-Dominion Bank is a buy up to USD60.

Here are announcement dates for those Canadian Edge Portfolio Holdings that have yet to report fourth-quarter and full-year 2009 results. Note that Paramount Energy Trust (TSX: PMT-U, OTC: PMGYF) reported after the market’s close today; we’ll have a full report in next week’s Maple Leaf Memo.

Conservative Holdings

• Artis REIT (TSX: AX-U, OTC: ARESF)–March 16 (confirmed)
• Atlantic Power Corp (TSX: ATP, OTC: ATLIF)–March 29 (confirmed)
• Bird Construction Income Fund (TSX: BDT-U, OTC: BIRDF)–March 19
• IBI Income Fund (TSX: IBG-U, OTC: IBIBF)–March 17
• Innergex Power Income Fund (TSX: IEF-U, OTC: INRGF)–March 16
• Northern Property REIT (TSX: NPR-U, OTC: NPRUF)–March 17 (confirmed)

Aggressive Holdings

• Ag Growth International (TSX: AG-U, OTC: AGGZF)–March 11 (confirmed)
• Paramount Energy Trust (TSX: PMT-U, OTC: PMGYF)–March 9 (confirmed)
• Peyto Energy Trust (TSX: PEY-U, OTC: PEYUF)–March 10 (confirmed)
• Provident Energy Trust (TSX: PVE-U, NYSE: PVX)–March 11 (confirmed)