“If anyone is wondering whether there is real-world impact to the budget impasse, US corporations are telling us that they will have to take defensive action that will only have a negative impact on the job market and the economy.” That’s according to Jim Kaitz, President and CEO of the Association for Financial Professionals (AFP), which represents more than 16,000 men and women who populate corporate finance departments in the US and Canada. Mr. Kaitz was summarizing the results of the AFP Survey on Raising the US Debt Ceiling, which was conducted Jul. 13 through Jul. 15.

It’s important to note that a deal to increase the debt ceiling remains the most likely outcome. As unpredictable as is the outcome of a first-ever default by the US government on financial markets and the global economy, equally hard to guess will be who the voting public blames for whatever might ensue. The smart money is still on the “chamber of commerce” wing of the GOP convincing the Tea Party faction to step back from the brink.

You should also bear in mind that the Obama administration’s urgency on the matter likely has as much to do with a negotiating strategy as it does with legitimate concerns about the potential consequences of failure to strike a deal by Aug. 2. While the President and his men present that as a virtual drop-dead date the more reasonable guess is that Treasury Secretary Timothy Geithner has made contingency plans that will prevent immediate events of default come Aug. 3.

Questions comprising the AFP Survey on Raising the US Debt Ceiling were limited to the subjects of possible impact on investment strategy and access to capital. There was nothing about balanced budgets, excessive spending and new taxation. The debt ceiling poll was conducted as an extension of the annual AFP Liquidity Survey, the sixth version of which was released in late June. The AFP Liquidity Survey covers short-term investing, cash management trends and investment policies as well as use of money fund trading portals among large companies. The most recent version found that financial executives are still using their cash conservatively.

The AFP’s specific effort to understand potential consequences of failure to raise the debt ceiling found that:

• over half of respondents would likely take one or more defensive actions, such as cutting capital spending, hiring freezes or reductions and lengthened payment cycles to vendors;
• nearly a quarter of organizations holding Treasury securities would liquidate some or all of these holdings. Treasury securities are one of the three investment vehicles (including money market funds and bank deposits) in which companies place most or all of their short-term investments, according to recent data from AFP members;
• and 52 percent of financial professionals anticipate negative effects on their organizations’ access to capital, including increased costs or decreased availability of debt bank financing and bank credit.

Failure to come to an agreement on either raising–or eliminating–the federal debt ceiling has implications beyond US borders. One likely consequence will be the re-pricing of all types of assets all over the world. “Risk” is relative; if the full faith and credit of the US government is seen as vulnerable, what does that mean for everything else? You’re toying here with the benchmark for the global bond market.

The pricing of risk-free rate-of-return securities–Treasury bills, Treasury notes and Treasury bonds–issued by the US government have formed the basis upon which many other securities are priced. If indeed the US Treasury is unable to meet an obligation–should it even “selectively default,” which is what will happen if Secretary Geithner, say, pays principal and interest to foreign holders of Treasuries while holding off domestic defense contractors and taxpayers awaiting refunds, S&P, Moody’s, Fitch and company will likely swing into action.

The US credit rating would be lowered, and the yield of those securities would increase, causing an unfavorable shift in the pricing of many other securities. Debt issued by government-sponsored entities, municipalities and less creditworthy corporations will become more expensive. This means higher borrowing costs in the US. And it likely means higher borrowing costs in Canada and other countries as well.

Foreign holders of US government debt are unlikely to dump Treasuries en masse should the two major parties fail to reach a debt-ceiling compromise in time to prevent the first default in our history. It’s questionable whether information on events of default would even be made publicly available. Again, Secretary Geithner, if he’s up to the job, is making arrangements with key investors that will buy some time.

In fact Speaker of the House John Boehner (R-OH) is likely to use the “urgency” hard place carved out by the administration and corner President Obama into a two-step, all-spending-cuts-no-new-revenue plan that keeps the question of long-run US solvency alive. But absent a grand bargain that includes budgetary sacrifices by both parties and the realization of new revenue by many means, the major ratings agencies will still have sufficient grounds to downgrade US debt.

Analysts are discussing the ins and outs of potential grace periods–three days seems to be the consensus among those who conclude that one can be interpreted from the many sources of applicable law–in the event Treasury is unable to undertake new borrowings to meet existing obligations. It’s really rare that you get to use the phrase “literally unprecedented” without committing hyperbole.

Whether the kids in Washington can strike a debt-ceiling deal this week is no longer really the operative question. What does seem relevant to ponder is how long the preeminent first-world power will suffer the burdens of its third-world politics.

All this does, however, make Canada and the loonie look that much stronger.

The Roundup

At least one Bay Street analyst expects Canadian Oil Sands Ltd (TSX: COS, OTC: COSWF) to announce a second dividend increase in as many tries when it reports second-quarter earnings on Tuesday.

Canadian Oil Sands, the trading vehicle for the Syncrude venture, of which it owns 36.74 percent, boosted its quarterly payout to CAD0.30 per share in May from the CAD0.20 it paid in February. Its ownership stake makes it one of the biggest pure plays on the oil sands; functionally it owns a big piece of Canadian Oil Sands 350,000 barrel per day productive capacity. All of that crude is of the high-value, easily processed light sweet variety, and Canadian Oil Sands’ production is entirely un-hedged, meaning it benefits as much as possible from per-barrel price spikes. It gets hurt on the downside, too, of course. Management, however, is up front with investors about the relative volatility of its payout: “COS has a variable dividend strategy; dividend amounts will vary over time depending largely on crude oil prices and the investment cycle of Syncrude’s capital projects.”

The crude-oil benchmark the company uses in its official filings, West Texas Intermediate (WTI), averaged USD94.55 during the three months ended Mar. 31, 2011, after which management boosted the dividend 50 percent from the previous payment.

WTI averaged USD102.41 during the second quarter, which means the important variables are production and production costs. The former data is available on the Syncrude website, and it suggests, even with management’s crude-price-based flexibility, overall cash flow in the quarter may not support an increase. Production is well off first-quarter levels, which had carried solid momentum from late 2010 into the New Year. The second quarter, however, was plagued by several unplanned maintenance outages as well as severe Alberta wild fires. The latter is out of management’s control. The former again raises questions about the Syncrude venture’s ability to sustain production at or near its 350,000 barrel per day capacity. Canadian Oil Sands remains a buy up to USD33.

Canadian National Railway (TSX: CNR, NYSE: CNI) also had to cope with the elements, as fire, floods and mudslides threatened its lines during the second quarter. But CN pulled off a 4 percent increase in net income to CAD538 million (CAD1.18 per share) from CAD534 million (CAD1.13 per share) a year ago. Revenue rose 8 percent to CAD2.26 billion on higher freight volumes–a positive sign for the global economy–and the positive impact of higher fuel surcharges and freight rate increases.

Excluding the impact of a CAD40 million tax charge earnings per share were a consensus-beating CAD1.26, up 12 percent from a year ago. Management reported an operating ratio (total expenses as a percentage of total revenue) of 61.3 percent for the quarter, flat with the year-earlier period. Carload originations–a measure of traffic volume that counts the contents of one rail freight car when it is first moved by its original transporter–were up 4 percent year over year.

CN reported double-digit revenue increases from transporting metals and minerals and grains and fertilizers. Intermodal freight–goods moved in standardized containers by trains, trucks and ships, was a particular bright spot, as imports poured into the British Columbia ports of Vancouver and Prince Rupert. Management maintained guidance of double-digit earnings per share growth of up to 15 percent for 2011. The company expects free cash flow for 2011 of about CAD1.2 billion. Canadian National Railway–which has generated a total return of 20.8 percent in 2011–is a hold at current levels.

Here are estimated (in most cases) and confirmed (for a handful) second-quarter reporting dates for the CE Portfolio. We’ll update the list as official dates are announced.

Conservative Holdings

• AltaGas Ltd (TSX: ALA, OTC: ATGFF)–Jul. 28 (confirmed)
• Artis REIT (TSX: AX-U, OTC: ARESF)–Aug. 10 (confirmed)
• Atlantic Power Corp (TSX: ATP, NYSE: AT)–Aug. 12 (confirmed)
• Bird Construction Inc (TSX: BDT, OTC: BIRDF)–Aug. 5 (estimate)
• Brookfield Renewable Power Fund (TSX: BRC-U, OTC: BRPUF)–Aug. 5 (confirmed)
• Canadian Apartment Properties REIT (TSX: CAR-U, OTC: CDPYF)–Aug. 9 (confirmed)
• Capstone Infrastructure Corp (TSX: CSE, OTC: MCQPF)–Aug. 12 (confirmed)
• Cineplex Inc (TSX: CGX, OTC: CPXGF)–Aug. 11 (confirmed)
• Colabor Group Inc (TSX: GCL, OTC: COLFF)–Jul. 20 (confirmed)
• Davis + Henderson Income Corp (TSX: DH, OTC: DHIFF)–Aug. 9 (confirmed)
• Extendicare REIT (TSX: EXE-U, OTC: EXETF)–Aug. 9 (confirmed)
• IBI Group Inc (TSX: IBG, OTC: IBIBF)–Aug. 12 (confirmed)
• Innergex Renewable Energy Inc (TSX: INE, OTC: INGXF)–Aug. 10 (confirmed)
• Just Energy Group Inc (TSX: JE, OTC: JUSTF)–Aug. 12 (estimate)
• Keyera Corp (TSX: KEY, OTC: KEYUF)–Aug. 3 (confirmed)
• Northern Property REIT (TSX: NPR-U, OTC: NPRUF)–Aug. 9 (confirmed)
• Pembina Pipeline Corp (TSX: PPL, OTC: PBNPF)–Aug. 3 (confirmed)
• Provident Energy Ltd (TSX: PVE, NYSE: PVX)–Aug. 11 (estimate)
• RioCan REIT (TSX: REI-U, OTC: RIOCF)–Aug. 5 (confirmed)
• TransForce Inc (TSX: TFI, OTC: TFIFF)–Aug. 1 (confirmed)

Aggressive Holdings

• Acadian Timber Corp (TSX: ADN, OTC: ACAZF)–Jul. 27 (confirmed)
• Ag Growth International Inc (TSX: AFN, OTC: AGGZF)–Aug. 12 (confirmed)
• ARC Resources Ltd (TSX: ARX, OTC: AETUF)–Aug. 4 (estimate)
• Chemtrade Logistics Income Fund (TSX: CHE-U, OTC: CGIFF)–Aug. 4 (confirmed)
• Daylight Energy Ltd (TSX: DAY, OTC: DAYYF)–Aug. 3 (estimate)
• EnerCare Inc (TSX: ECI, OTC: CSUWF)–Aug. 8 (confirmed)
• Enerplus Corp (TSX: ERF, NYSE: ERF)–Aug. 5 (confirmed)
• Newalta Corp (TSX: NAL, OTC: NWLTF)–Aug. 5 (estimate)
• Parkland Fuel Corp (TSX: PKI, OTC: PKIUF)–Aug. 12 (estimate)
• Penn West Petroleum Ltd (TSX: PWT, NYSE: PWE)–Aug. 10 (confirmed)
• Perpetual Energy Inc (TSX: PMT, OTC: PMGYF)–Aug. 10 (estimate)
• Peyto Exploration & Development Corp (TSX: PEY, OTC: PEYUF)–Aug. 11 (estimate)
• PHX Energy Services Corp (TSX: PHX, OTC: PHXHF)–Aug. 5 (estimate)
• Vermilion Energy Inc (TSX: VET, OTC: VEMTF)–Aug. 9 (estimate)
• Yellow Media Inc (TSX: YLO, OTC: YLWPF)–Aug. 5 (estimate)