I think the best endorsement of Stephen Harper’s quest for majority Conservative Party rule in Canada came in this week’s interest rate policy statement by the Bank of Canada (BoC):

Although recent economic activity in Canada has been stronger than the Bank had anticipated, the profile is largely consistent with the underlying dynamics outlined in the January MPR. Aggregate demand is rebalancing toward business investment and net exports, and away from government and household expenditures. As in January, the Bank expects business investment to continue to rise rapidly and the growth of consumer spending to evolve broadly in line with that of personal disposable income, although higher terms of trade and wealth are likely to support a slightly stronger profile for household expenditures than previously projected.  In contrast, the improvement in net exports is expected to be further restrained by ongoing competitiveness challenges, which have been reinforced by the recent strength of the Canadian dollar.

Overall, the Bank projects that the economy will expand by 2.9 per cent in 2011 and 2.6 per cent in 2012. Growth in 2013 is expected to equal that of potential output, at 2.1 per cent. The Bank expects that the economy will return to capacity in the middle of 2012, two quarters earlier than had been projected in the January MPR.

“The persistent strength” of the Canadian dollar is one factor that could hem in Canada’s solid recovery. On the other hand, the overall wealth effect of high oil prices–the loonie moves, generally speaking, along with crude–is positive for Canada, as the terrific crew at Worthwhile Canadian Initiative explains here in a post dated Mar. 11, 2009, GDP, GDI, Terms of Trade and Why Canada Is in a Recession: It’s All about the Beer and Pizza. Spikes in the currency could upset business planning, but a slow, steady rise can be dealt with.

(Let’s get the ad hominem out of the way right now: BoC Governor Mark Carney, before he became the Great White North’s central banker, ran the income trust tax file at Jim Flaherty’s Finance Department. He provided the intellectual framework for the Halloween Massacre and in turn eventually he reached the pinnacle of his profession. For these sins he gets to float like a butterfly and sting like one, too, waiting for the US Federal Reserve’s extraordinary monetary policy to run its course. This means keeping the BoC’s target overnight rate historically low for an extended period simply because—and there are really no two ways about it—he can’t push the spread between the loonie and the greenback too far.)

As always, particularly when deciphering inherently political central bank interest rate policy statements, the merits, are what matter. And Canada’s, relatively speaking, are solid.

No. 1, the federal government is in a sound fiscal position, the aftermath of more than a decade’s worth of budget restraint and deficit reduction. The cool thing is, Americans, this was a multipartisan effort, right, center and left setting aside smarm, polish and demagoguery long enough to devise and execute a serious plan vital to the national interest. Other governments are looking to the Canadian model from the 1990s for help on dealing with their own debt crises.

But in the US the Show must go on, and on and on it does, on Fox, CNN and MSNBC, day after day after day. It absolutely is a laughing matter that Canada moved its scheduled French-language candidates’ debate up a night so as not to conflict with Game 1 of the National Hockey League Stanley Cup Playoff series between longtime and heated rivals the Montreal Canadiens and the Boston Bruins; it made for great headlines insinuating that Bob, Doug and everybody else north of the 49th parallel only cared about hockey. Actually, however, the point was that both were important, and Canada wanted as many people to see each event as possible.

Those who tuned in to Game 1 saw their beloved Les Habitants dump the Bruins, 2-0. Those who watched Stephen Harper, Liberal Party Leader Michael Ignatieff, the New Democratic Party’s Jack Layton and Gilles Duceppe of the Bloc Quebecois all on the same stage together seemed to score this more subjective exercise similarly, as Nanos Research recorded a nearly 28 point jump in the sitting prime minister’s “leadership” score among voters. His three opponents attacked his credibility, questioned his government’s handling of funds set aside for the 2010 Canada-hosted Group of Eight Summit and attacked him for trimming taxes for business.

These tax cuts, which will eventually bring Canada’s corporate down to the lowest in the developed world, were approved in the House of Commons four years ago. Canada grew faster than any of the Group of Seven (which excludes Russia) in the fourth quarter of 2010, its currency is stronger than its peers and government bonds have returned 4.6 percent over the trailing 12 months ended Apr. 11, compared to an average of 2.7 for the G7.

Canada, as Mr. Harper explained to voters as his opponents attacked, “is emerging from this recession stronger and faster than just about anyone.”

No. 2, Canada has a lot of the stuff the developing world needs to keep developing. And, over the course of many decades, Canadians have managed their resources well, achieving a fine balance between rewarding private exploiters and sharing the land’s bounty with the people who live on it. You tell me what you’re more worried about, the Canadian election or the Nigerian election. Now tell me why we shouldn’t be doing everything we can to provide the necessary infrastructure to support the development of the Canadian oil sands.

As the BoC noted Tuesday morning, “the global economic recovery is becoming more firmly entrenched and is expected to continue at a steady pace” and “[r]obust demand from emerging-market economies is driving the underlying strength in commodity prices,” which benefits Canada in the long run.

No. 3, the financial system is among a handful–a small one–that can claim to be “sound.” Yes, there are problems with the housing market. Yes, Canadians have debt loads comparable to Americans’. But authorities have already taken steps to restrain mortgage-loan growth—and in fact had already done so well before The Wall Street Journal warned of the end of Canada’s good times—and, believe it or not, incomes are climbing up north. The Big Six Canadian banks focus their operations on the retail level.

The system is concentrated, and there never was a Glass-Steagall-type wall separating retail and investment banking. The nature of the relationship between regulators and bankers in Canada is completely foreign to us, though. It’s just different, as in regulators regulate; they don’t facilitate. And the bankers, who never engaged in activity as risky as subprime lending on a grand scale, seem to actually appreciate the function regulators play in sustaining a healthy market.

The common thread connecting these three factors is simple competence. There seems to be no tendency to political extremes in the Great White North, which could be a function of the parliamentary system. Factors 2 and 3, though, suggest something about the Canadian character, a modesty, a sense that being a responsible steward or custodian is as fulfilling a human experience as exerting absolute, zero-sum dominance. Canada is the ultimate “straight and narrow” country and is therefore a natural destination for US income investors’ capital.

Mr. Harper was fortunate that predecessor governments made tough choices on spending and taxation. This preparation set the stage for him and his government to table a traditional Keynesian budget when one was absolutely necessary in 2009. That had to be a tough choice for him, as he made his political bones in hard-core conservative Alberta. With a majority he’s likely to provide the corollary response, which is a rapid return to budget balance, by mid-decade. One Canadian with whom I spoke at our recent Investing Daily Wealth Summit (at the lovely and quiet Mandarin Oriental Hotel in otherwise glitz-ridden and loud Las Vegas) includes the Tax Fairness Plan among the many other solid decisions Mr. Harper’s made during his tenure that have helped Canada ride out a storm that decimated many of its peers’ economies. And, as is clear by now, Canada is still home to the highest yields–backed by solid businesses–in the world.

The Roundup

Advantage Oil & Gas (TSX: AAV, NYSE: AAV), once an Aggressive Holding, is surging in Friday after CIBC World Markets maintained a “sector perform” rating on the stock but boosted its price target to CAD10 per share. Advantage closed Thursday at CAD8 but was changing hands at CAD8.29 by midday Friday. CIBC’s move follows FirstEnergy Capital’s Mar. 24 upgrade of Advantage to “top pick” with a CAD11 price target.

Advantage turned in impressive figures for the fourth quarter of 2010, including a 6 percent rise in net income despite depressed natural gas prices. The company furthered its orientation toward natural gas this month with the closing of the sale of oil-weighted assets in Alberta and Saskatchewan to its formerly wholly owned subsidiary Longview Oil Corp (TSX: LNV) for CAD224 million in cash, 29.5 million shares of Longview and a CAD21.2 million promissory note payable in cash or common shares of Longview at Longview’s discretion and according to terms related to its initial public offering. Longview just listed on the Toronto Stock Exchange this week. Advantage will use the cash to pay down debt.

Advantage’s production operations are now concentrated on the Glacier Montney project in British Columbia, which now accounts for 69 percent of output.

Production for the fourth quarter of 2010 averaged 24,308 barrels of oil equivalent per day, a year-over-year increase of 18 percent. Strong performance at Glacier allowed the company to exceed 2010 forecast exit production by approximately 1,000 barrels per day. Funds from operations for the fourth quarter increased 6 percent to CAD40.7 million (CAD0.25 per share). For the full year 2010 funds from operations were CAD170.1 million, down from CAD197.7 million on asset sales.

Operating costs for the year were down 12 percent, and this trend has carried into 2011. Costs per barrel of oil equivalent have come down significantly on the impact of the lo-cost Glacier project. The company also managed to shave 31 percent off its interest expense in 2010. Management devoted approximately 86 percent of its 2010 capital expenditure budget of CAD223 million on Glacier. Glacier production now exceeds 100 million cubic feet per day, and there’s an additional 100 million cubic feet of capacity.

When CEO Andy Mah announced the conversion of Advantage Energy Income Fund into Advantage Oil & Gas he said the company was focusing on growth. That’s why the distribution was hacked to zero. Results thus far indicate Mr. Mah and his team are executing their plan. Although natural gas prices are likely to remain depressed, the low-cost structure of the Glacier play set Advantage up well to capitalize on what’s now a volume-based market. Advantage Oil & Gas is a prime example of pure growth opportunities available in Canada; it’s a buy up to USD10.

Aggressive Holdings

• Acadian Timber Corp (TSX: ADN, OTC: ACAZF)–May 2 (confirmed)
• Ag Growth International (TSX: AFN, OTC: AGGZF)–May 13 (estimate)
• ARC Resources Ltd (TSX: ARX, OTC: AETUF)–May 5 (estimate)
• Chemtrade Logistics Income Fund (TSX: CHE-U, OTC: CGIFF)–May 10 (estimate)
• Daylight Energy Ltd (TSX: DAY, OTC: DAYYF)–May 6 (estimate)
• EnerCare Inc (TSX: ECI, OTC: CSUWF)–Apr. 29 (estimate)
• Enerplus Corp (TSX: ERF, NYSE: ERF)–May 13 (confirmed)
• Newalta Corp (TSX: NAL, OTC: NWLTF)–May 10 (estimate)
• Parkland Fuel Corp (TSX: PKI, OTC: PKIUF)–May 16 (estimate)
• Penn West Petroleum Ltd (TSX: PWT, NYSE: PWE)–May 5 (confirmed)
• Perpetual Energy (TSX: PMT, OTC: PMGYF)–May 10 (estimate)
• Peyto Exploration & Development Corp (TSX: PEY, OTC: PEYUF)–May 12 (estimate)
• PHX Energy Services Corp (TSX: PHX, OTC: PHXHF)–May 6 (estimate)
• Provident Energy Ltd (TSX: PVE, NYSE: PVX)–May 13 (estimate)
• Vermillion Energy Inc (TSX: VET, OTC: VEMTF)–May 6 (estimate)
• Yellow Media Inc (TSX: YLO, OTC: YLWPF)–May 5 (tentative)

Conservative Holdings

• AltaGas Ltd (TSX: ALA, OTC: ATGFF)–Apr. 29 (estimate)
• Artis REIT (TSX: AX-U, OTC: ARESF)–May 12 (estimate)
• Atlantic Power Corp (TSX: ATP, NYSE: AT)–May 13 (estimate)
• Bird Construction Inc (TSX: BDT, OTC: BIRDF)–May 10 (estimate)
• Brookfield Renewable Power Fund (TSX: BRC-U, OTC: BRPFF)–May 13 (estimate)
• Canadian Apartment Properties REIT (TSX: CAR-U, OTC: CDPYF)–May 11 (estimate)
• Cineplex Inc (TSX: CGX, OTC: CPXGF)–May 13 (estimate)
• CML Healthcare Inc (TSX: CLC, OTC: CMHIF)–May 5 (estimate)
• Colabor Group (TSX: GCL, OTC: COLFF)–Apr. 28 (estimate)
• Davis + Henderson Income Corp (TSX: DH, OTC: DHIFF)–May 4 (estimate)
• Extendicare REIT (TSX: EXE-U, OTC: EXETF)–May 6 (estimate)
• IBI Group Inc (TSX: IBG, OTC: IBIBF)–May 6 (estimate)
• Innergex Renewable Energy (TSX: INE, OTC: INGXF)–May 10 (estimate)
• Just Energy Group Inc (TSX: JE, OTC: JSTEF)–May 20 (estimate)
• Keyera Corp (TSX: KEY, OTC: KEYUF)–May 10 (confirmed)
• Macquarie Power & Infrastructure Corp (TSX: MPT, OTC: MCQPF)–May 11 (estimate)
• Northern Property REIT (TSX: NPR-U, OTC: NPRUF)–May 11 (estimate)
• Pembina Pipeline Corp (TSX: PPL, OTC: PBNPF)–May 6 (estimate)
• RioCan REIT (TSX: REI-U, OTC: RIOCF)–Apr. 29 (estimate)
• TransForce (TSX: TFI, OTC: TFIFF)–May 17 (confirmed)