Back to Afghanistan

Members of Parliament returned to Ottawa last week to begin their next session amid a rising sense that the minority Conservative government had lost control of the agenda.

And Prime Minister Stephen Harper is sitting down today with Liberal Party and official opposition leader Stephane Dion to discuss Canada’s mission in Afghanistan.

We first raised the question of whether Afghanistan would spell Harper’s doom in December 2006. In the immediate aftermath of Finance Minister Jim Flaherty’s announcement that income trusts would be taxed like traditional corporations beginning in 2011, we welcomed any sign of weakness that could lead to the fall of Harper’s minority government. The trust tax raised the ire of a relatively small but vocal swath of Canadian voters, but the Tax Fairness Plan became law with last June’s passage of Canada’s 2007-08 federal budget. 

The country’s involvement in Central Asia, however, has made its way back to the headlines. This time, Canadians are also concerned about the direction of the economy as growth slows in the US. It’s a blueprint–domestic economic anxiety coupled with a deadly foreign engagement–for some politician’s or party’s downfall.

The Economy, Stupid

A recent Ipsos-Reid poll for Canwest News Service and Global National indicates Canadians have become more nervous about the state of the country’s economy and its impact on their jobs and financial portfolios as recessionary fears mount in the US. But the numbers also suggest Canadians are confident about their country’s ability to withstand a slowdown south of the border; 86 percent are of that mind. Thirty-five percent of Canadians believe the domestic economy will get worse in 2008, up from 24 percent two weeks prior.

The polls says 17 percent believe the Canadian economy will “slip into a recession” in 2008, up from 11 percent. Two-thirds believe the economy “will slow but continue to have some growth.” Only 15 percent think the economy will “continue to grow as strongly as it has in recent years,” down from 24 percent the last survey.

The Casualties, Stupid

Canada’s 2,500 troops are fighting Taliban insurgents in Kandahar, one of Afghanistan’s roughest regions. The casualty rate among the Canadians, which has reached 78 killed, is disproportionately high because Kandahar is a hotbed of Islamic militants. The troops were first deployed by the former Liberal government in 2002, but the Conservatives are taking the heat for the ongoing engagement.

There are significant NATO forces in Afghanistan: The US has 15,000 troops, soon to be enforced by 3,500 Marines; the British and the Danes have 7,700; the Dutch have 1,500; and the Germans have 3,500. But the Canadians, stationed in one of the most dangerous sectors, need backup.

Harper wants to extend the mission by two years to February 2011, but the Bloc Quebecois and the New Democratic Party (NDP) have already said they’ll oppose any extension of Canada’s commitment beyond the scheduled February 2009 departure. And polls show half of Canadians want their troops to leave next year.

Harper has promised a parliamentary vote on whatever decision the government takes on the mission. The Liberals will, therefore, be the deciding bloc on Canada’s future role in Afghanistan. Dion told reporters Monday he’s firm in his position that Canada’s combat mission in Kandahar should conclude according the already agreed upon date.

NDP Leader Jack Layton tried to persuade Dion to adopt his party’s position for an immediate withdrawal of Canadian troops, but the Liberal leader said troops should remain for non-combat work. The Liberal government that preceded the current minority Conservative regime committed Canadian aid through 2011.

There’s probably room for compromise on the extension of the Afghanistan mission. The Liberals may be convinced to vote to extend the mission if they can get some concessions from the Tories on the goals of the mission and, perhaps, if they receive a commitment for a firm end date.

The question for Dion and his party is: Do the Liberals want to be held responsible for leaving a mission that they themselves had such a substantial hand in promoting?

Minority governments in Canada typically last about 18 months, but Harper is entering his third year as prime minister and insists he wants to stay in power until October 2009, the scheduled date for the next election. A vote on Afghanistan will probably come before the House of Commons ahead of an April NATO meeting.

If it’s put forward as a matter of confidence, Harper could fall. Having called for immediate withdrawal, the NDP and the Bloc Quebecois are certain to vote against the Conservative government, leaving the Liberals with the deciding vote.

Speaking Engagements

If you aren’t able to escape the winter chill to The World Money Show at Orlando’s Gaylord Palms Resort, Feb. 6-9, 2008, register now for exclusive live Webcasts of my presentations, The Best Stocks Money Can Buy and Scoring the World’s Highest Yields with Canadian Trusts. Refer to priority codes 0103468 and 010348, respectively.

And it’s time: Vegas, baby! Neil, Roger and Elliott will head to the desert paradise May 12-15, 2008, for the Las Vegas Money Show at Mandalay Bay. Go to http://www.lasvegasmoneyshow.com or call 800-970-4355 and refer to priority code 010583 to do the “what happens here stays here” thing as Roger’s guest.

The Roundup

We’re on the brink of an important reporting period for Canadian trusts specifically and the global economy in general. If Canadian Oils Sands Trust’s report is any indication, the fourth quarter numbers for energy producers should be impressive.

Here’s the roundup of news from the CE coverage universe, and below, please note we’ve compiled reporting dates for Portfolio recommendations. 

Oil & Gas

Canadian Oil Sands Trust (TSX: COS-U, OTC: COSWF), the largest stakeholder in the Syncrude oil sands venture, quadrupled its profit in the fourth quarter on higher oil prices and increased volumes. The trust also boosted its quarterly cash payout by 36 percent to 75 cents Canadian per unit.

Canadian Oil Sands reported earnings of CAD15 million (CAD1.07 per unit), up from CAD128 million (27 cents Canadian per unit) a year ago. Cash flow fell 11 percent to CAD367 million (77 cents Canadian per unit) from CAD412 million (88 cents Canadian per unit). Revenue was up 36 percent to CAD1.01 billion.

Canadian Oil Sands’ share of Syncrude’s production averaged 116,386 barrels a day in the quarter, up 5.6 percent from 110,185 in the fourth quarter of 2006. It sold its oil for an average price of CAD88.73 a barrel, up 37 percent from CAD63.71 a year earlier.

Canadian Oil Sands owns 37 percent of Syncrude, which can produce 350,000 barrels of synthetic crude per day. Canadian Oil Sands Trust is a buy up to USD40.

Electric Power

Macquarie Power & Infrastructure Income Fund (TSX: MPT-U, OTC: MCQPF) reported that Leisureworld Senior Care LP, of which the fund owns 45 percent, has signed an agreement to acquire the Good Samaritan Seniors Complex, a 64-bed, long-term care (LTC) home and an attached 24-bed retirement home in Ontario, for approximately CAD11.1 million plus transaction costs. The deal is subject to regulatory approval.

Good Samaritan was fully occupied at Dec. 31, 2007; the attached retirement home reported average occupancy of 95.8 percent. Leisureworld has established a credit facility to fund the Good Samaritan acquisition.

Upon completion of the transaction, Leisureworld will own or manage 27 LTC homes, representing 4,378 beds, and two retirement homes, representing 53 beds, and one independent living facility with 53 beds. Buy Macquarie Power & Infrastructure Income Fund up to USD12.

Gas/Propane

Essential Energy Services Trust (TSX: ESN-U, OTC: EEYUF) and Builders Services Trust (TSX: BET-U) have agreed to merge via a stock-swap deal into an oilfield services company worth more than CAD300 million. The arrangement values Builders at about CAD67.3 million.

The merged trusts will keep the Essential Energy Services Trust name. The combination is expected to result in annual saving from synergies of about CAD6 million. Builders’ unitholders will receive 1.25 units of Essential for each unit of Builders held, which represents about a 20 percent premium.

The boards of both trusts have unanimously approved the deal; Builders officers and directors, holding about 5 percent of its outstanding units, have agreed to vote in favor. Two-thirds of Builders unitholders must vote in favor of the deal at a meeting to be held in late March or early April. Sell Essential Energy Services Trust.

Business Trusts

Cinram International Income Fund (TSX: CRW-U, OTC: CRWFF) unit Cinram International had its corporate credit and bank loan ratings cut by Standard & Poor’s to B+ from BB- with a stable outlook based on the DVD maker’s financial performance for the nine months ended Sept. 30, 2007. S&P removed the company’s ratings from negative watch.

S&P said the ratings reflect Cinram’s limited financial flexibility and vulnerable business risk profile, which is based on customer and product concentration, seasonality, and the commodity-like nature of the media replication industry. S&P is concerned about long-term industry fundamentals because it expects digital distribution to become a larger source of studio revenues. Sell Cinram International Income Fund.

Consumers’ Waterheater Income Fund (TSX: CWI-U, OTC: CSUWF) and Consumers’ Waterheater Operating Trust announced that the trust has drawn CAD310 million on a previously announced senior secured bridge loan facility with The Toronto-Dominion Bank.

The trust used the proceeds to refinance its CAD275 million outstanding 4.7 Percent Series 2003-1 A-1 Secured Notes, which were due to be repaid on Jan. 28, 2008, and to repay the drawings under the trust’s CAD35 million revolving credit facility. Consumers’ Waterheater Income Fund is a buy up to USD18.

New Flyer Industries (TSX: NFI-U, OTC: NFYIF) will restate its third quarter and year-to-date financial statements to show a fair value adjustment to its assets and liabilities. The adjustment is expected to “materially reduce” the previously reported net income for the third quarter and the first nine months of 2007 because of an anticipated increase in the value of net assets as of July 12, 2007.

The adjustment is being made to reflect the fair value of the repurchase of class C shares of its New Flyer Holdings subsidiary in connection with a public offering completed July 12, 2007. New Flyer’s statements had been based on the book value of its assets rather than the fair value as required by accounting guidelines.

New Flyer will restate the 13-week period and 39-week period ended Sept. 30, 2007. The company doesn’t expect that cash flow from operating, financing and investing activities will require restatement. Hold New Flyer Industries.

Conservative Portfolio

Algonquin Power Income Fund (TSX: APF-U, OTC: AGQNF) March 7

AltaGas Income Trust (TSX: ALA-U, OTC: ATGFF) Feb. 27

Arctic Glacier Income Fund (TSX: AG-U, OTC: AGUNF) March 20

Artis REIT (TSX: AX-U, OTC: ARESF) March 27

Atlantic Power Corp (TSX: ATP-U, OTC: ATPWF) March 26

Bell Aliant Regional Communications Income Fund (TSX: BA-U, OTC: BLIAF) Feb. 5

Canadian Apartment Properties REIT (TSX: CAR-U, OTC: CDPYF) Feb. 19

Energy Savings Income Trust (TSX: SIF-U, OTC: ESIUF) Feb. 11

GMP Capital Trust (TSX: GMP-U, OTC: GMCPF) Feb. 28

Keyera Facilities (TSX: KEY-U, OTC: KEYUF) Feb. 26

Macquarie Power & Infrastructure Income Fund (TSX: MPT-U, OTC: MCQPF) Feb. 19

Northern Property REIT (TSX: NPR-U, OTC: NPRUF) March 11

Pembina Pipeline Income Fund (TSX: PIF-U, OTC: PMBIF) March 7

RioCan REIT (TSX: REI-U, OTC: ROICF) Feb. 11

Yellow Pages Income Fund (TSX: YLO-U, OTC: YLWPF) Feb. 13

Aggressive Portfolio

Advantage Energy Income Fund (TSX: AVN-U, NYSE: AAV) March 20

ARC Energy Trust (TSX: AET-U, OTC: AETUF) Feb. 15

Boralex Power Income Fund (TSX: BPT-U, OTC: BLXJF) Feb. 22

Enerplus Resources (TSX: ERF-U, NYSE: ERF) Feb. 28

Newalta Income Fund (TSX: NAL-U, OTC: NALUF) March 7

Paramount Energy Trust (TSX: PMT-U, OTC: PMGYF) March 11

Penn West Energy Trust (TSX: PWT-U, NYSE: PWE) Feb. 25

Peyto Energy Trust (TSX: PEY-U, OTC: PEYUF) March 5

Provident Energy Trust (TSX: PVE-U, NYSE: PVX) March 19

TransForce Income Fund (TSX: TIF-U, OTC: TIFUF) Feb. 26

Trinidad Energy Services Income Trust (TSX: TDG-U, OTC: TDGNF) Feb. 28

Vermilion Energy Trust (TSX: VET-U, OTC: VETMF) March 3