Canada elected another minority Conservative government yesterday, giving Stephen Harper another run in the top slot but denying him the mandate he’s angled for since his first win in January 2006.

With most ridings reporting results, Elections Canada reported that the Conservatives had won 143 of Parliament’s 308 seats, an improvement over the 127 seats the party had in the previous Parliament. The Conservative Party needed to win 155 seats to govern on its own. The Liberal Party dropped to 76 seats from 95 in the previous Parliament. Bloc Quebecois won 50 seats, the New Democrats 37 and independent candidates two.

The Conservatives will have to rely on opposition support to pass budgets and legislation, a position Harper and his government understand well. Harper’s attention now turns to navigating Canada’s way through the global financial crisis and the serious recession that’s soon to follow. His Wednesday morning rhetoric was inviting to the opposition: “We hold out a hand to all members of all parties asking them to join together to protect the economy and weather this world financial crisis.”

Liberal Party leader Stephane Dion, in his concession to Harper, offered his “full cooperation in these difficult economic times.”

Harper is the first among the G-7 leaders to face his electorate, having announced an early election 11 days before Lehman Brothers’ fall signaled the global financial crisis of 2008. But a commanding lead in the polls and an honorable yet uncharismatic opposition leader set Harper well on a course to win. The only outstanding issue was whether he’d win 155 seats and have enough votes to pursue his agenda without resorting to support from an opposition party or two.

Our interest in who holds how much power in the Canadian parliamentary system is all about income trusts. The Liberal Party held out some hope that major changes to the Tax Fairness Plan, which imposes an entity-level tax on trusts’ cash flow as of Jan. 1, 2011, would be forthcoming should it take power.

At this stage of the global market game, limiting uncertainty is the best strategy. That’s a sentiment expressed by CI Financial Income Fund (TSX: CIX.UN, OTC: CIXUF) chief executive Bill Holland, who described what he deemed as “terrible” Liberal campaign talk regarding revisiting the trust tax issue. “I would like income trusts to be taken off the table once and for all,” said Holland to an investor conference Sept. 23.

When focusing on companies, it’s about how much cash they have on hand, how much debt they’re carrying and how operations survive during broad economic slowdowns. It’s enough to understand all the variables that plug into those equations without having to rebalance for a new approach to the “trust problem.” The Sonny Corleone in us wants to hit back. But it’s not personal; it’s business.

We’ll be following the same people and similar plots on the political side of things. But relative stasis strikes us as a happy circumstance where such financial and economic questions linger.

A little continuity is welcome right now, at a time crumbling sounds from global financial markets and ominous warnings on the world economy have reverberated across stock-ticker boards around the globe.

As for what to expect for the balance of 2008 and well into 2009, we’re dealing with two major problems: the shutdown of the interbank lending market and the recession. The longer credit remains tight, the more business will have to be scaled back. The recession will be longer and deeper.

Monday’s snapback was as emotion-driven to the high side as last week’s crash was to the low, the buying almost as indiscriminate as the selling that preceded it. Investors let the good times roll after G-7 governments agreed to coordinate efforts to combat the financial crisis. The common objectives and principles include:

• Preventing systematically important banks and broker-dealers from failing.
• Recapitalization of banks and broker-dealers via public injections of capital through preferred-share purchases.
• Temporary guarantees of all bank deposits.
• Unlimited provision of liquidity to the banking system and to parts of the shadow banking system to restore interbank lending to the real economy.
• Provision of credit to the corporate sector via purchases of commercial paper.
• Purchases of toxic assets to restore liquidity to the mortgage backed securities market.

All the green flashing on Monday and Tuesday reflects the market’s optimistic response to the coordinated steps taken to address the financial problem. The deleveraging process will take time, and the steps taken to this point may only reduce the depth and breadth of the US and global recession.

The rate on three-month London Interbank Offered Rate (LIBOR) has fallen 27 basis points over the last two days, the biggest drop since March, and the TED spread has also fallen over the last four sessions. The recapitalization efforts of US and European governments haven’t had a more immediate, more profound impact because both supply and demand for interbank lending will be light as long as banks are worried about runs. Holding cash is still the primary concern, but over time the equity measures should prove the first heat on the frozen capital markets.

The World’s Soundest Banking System

According to the World Economic Forum, Canada has the world’s soundest banking system.

The World Economic Forum’s Global Competitiveness Report based its findings on opinions of executives, giving scores between 1.0 (insolvent, possibly requiring government bailout) and 7.0 (healthy, with sound balance sheets. Canada scored a 6.8, followed by Sweden (6.7), Luxembourg (6.7), Australia (6.7) and Denmark (6.7). US banks scored 6.1 and rated No. 40 in the survey, just ahead of the UK (6.0).

We’ve often discussed the fact that Canada steered clear of the lending practices and loose approach to regulation that have combined to sink the US banking system. Here’s to Canada’s prudent, risk-averse national character.

Fall is the perfect time to enjoy Washington, DC’s outdoor treasures and catch a glimpse of nature’s splendor. And this year you can enjoy the immediate aftermath of the Presidential election in the seat of the federal government.

Join me and my colleagues Neil George and Elliott Gue for the DC Money Show, Nov. 6-8, 2008, at The Wardman Park Marriott.

Go to www.moneyshow.com or call 800-970-4355 and refer to priority code 011362 to register as our guest.

We also have a special invitation for our readers. KCI Communications, Inc., is organizing an exciting 11-day investment cruise Dec. 1-12 through the Caribbean and Panama Canal. Participants will have the opportunity to meet and chat with me and my colleagues Gregg Early, Neil George and Elliott Gue.

This will be a unique opportunity to step away from your daily routines, relax in one of the most beautiful parts of the world and share analysts’ knowledge and passion for the markets. During the sail, you’ll not only explore the cerulean splendor of the Caribbean, but you’ll also delve deep into current markets in search of the most profitable opportunities for your portfolios. You’ll also have the rare chance to sail through one of the world’s engineering marvels, the Panama Canal.

It’s always a special treat to meet and talk with subscribers in person, and we couldn’t have picked a better setting than aboard the six-star Crystal Serenity. This is sure to be an especially memorable experience. We hope you’ll join us.

For more information, please click here or call 877-238-1270.

TransAlta Corp (TSX: TA, NYSE: TAC) stalker LS Power Equity Partners has nixed plans for a CAD7.8 billion takeover after TransAlta’s share price dipped further below its offer price of CAD39. LS Power said in a regulatory filing last week that it reserved the right to make another takeover proposal in the future if market conditions support such a move.

TransAlta has fallen 41 percent since LS Power’s announced its original offer in June. “It’s business as usual for TransAlta,” spokesman Michael Lawrence said in response to the bid withdrawal. “We’ll continue to execute our plan on which we believe will deliver near- and long-term value to our shareholders.” Also last week, TransAlta closed the CAD303.5 million sale of two Mexican power plants to a generation firm owned by Ontario Teachers’ Pension Plan and an arm of American International Group (NYSE: AIG). TransAlta will use CAD200 million of the proceeds to pay off purchases of its own shares. TransAlta Corp is a buy up to USD30.

Keyera Facilities Income Fund (TSX: KEY.UN, OTC: KEYUF) is buying an additional 40 percent stake in the Keyera Brazeau River gas plant and a 100 percent stake in the Nevis gas plant in Alberta for a total cost of CAD129 million. The fund is also acquiring extensive gathering pipeline systems and compression at both facilities, and it plans to integrate the natural gas liquids (NGL) fractionation and logistics infrastructure with its existing NGL facilities and marketing business at the Nevis gas plant to enhance operational flexibility and expand product supply. Keyera has committed credit facilities in place sufficient to fund the transaction. Keyera Facilities Income Fund is a buy up to USD23.

Information Technology

Telus Corp (TSX: T, NYSE: TU) is partnering with BCE (TSX: BCE, NYSE: BCE) to build a next-generation wireless network. The two giants are locked in battle with Rogers Communications (TSX: RCI.B, NYSE: RCI) for wireless market share. The upgrade to high-speed packet access (HSPA) technology is forecast to be completed in 2010 and should allow Telus and BCE’s Bell Canada unit to offer services on a wider range of cellphones and smartphones. Partnering with ostensible rival BCE will lower the costs of the network deployment. Telus Corp is a buy up to USD40, Rogers Communications up to USD38.  

Newport Partners Income Fund (TSX: NPF.UN, OTC: NWPIF) will suspend distributions to unitholders after it makes good on the scheduled Oct. 15, 2008, payment. The fund is hoarding cash “in the face of unstable capital markets and the prospect that the current economic slowdown could be prolonged and widespread.” Cash retained will be used to strengthen the balance sheet by paying down debt and increasing cash reserves, and when appropriate, repurchasing units. Newport Partners said in a statement announcing the suspension that each of the 17 businesses in its portfolio is profitable and that it’s in compliance with all covenants under its credit facility. Newport Partners Income Fund is a hold.

Royal Bank of Canada (TSX: RY, NYSE: RY, RBC) reached a settlement with US federal and state regulators to resolve claims it misled investor about its auction rate securities (ARS). RBC will buy back USD850 million f ARS and pay a USD9.8 million fine. The bank has also agreed to make “best efforts” to restore liquidity to others, including institutional investors. RBC also agreed to compensate investors who sold ARS at a loss and consent to a public arbitration process to resolve claims. Royal Bank of Canada is a hold.

Clearwater Seafoods Income Fund’s (TSX: CLR.UN, OTC: CWFOF) privatization has been delayed because an Icelandic bank that agreed to help finance the takeover is now in receivership. Clearwater agreed in August to be bought for CAD4.50 a unit in cash; Glitnir Bank, Iceland’s third-largest lender, was to provide about 10 percent of the financing. Clearwater is working with the buyer and banks including Glitnir to close the buyout by Oct. 31, the fund said in the statement. Sell Clearwater Seafoods Income Fund.