Canada’s tighter regulatory system and more cautious approach to banking distinguish it from the US and the rest of the Anglo-Saxon financial system, but that doesn’t mean the crisis gripping the global economy won’t have a serious impact on its domestic economy. It’s important to understand that Canada entered this volatile period from a stronger position than other developed nations and that steps taken by its responsible authorities have been focused on mitigating the impact of external problems and maintaining competitive advantages its long-term conservative practices have made possible.

Canada is “entirely different,” as Bank of Canada Governor Mark Carney expressed it last week in response to former US Federal Reserve Chairman Alan Greenspan’s observation that the US faces a “once-in-a-century credit tsunami.” Canadian banks, insulated by consistently stringent lending standards and less leveraged, are well capitalized and may allow the domestic economy to avoid recession.

Banks in the US, the UK and Europe are getting huge infusions of public capital–measures that will bring capital ratios up to Canadian levels. And steps taken by central banks and governments abroad have forced Canadian authorities to react to maintain Canadian banks’ global competitiveness.

Last week, Finance Minister Jim Flaherty announced the creation of the Canadian Lenders Assurance Facility, which will provide insurance on the wholesale term borrowing of federally regulated, deposit-taking institutions and is intended to ease their access to international credit markets for longer-term funds. One goal is to facilitate lending to consumers, homebuyers and businesses.

The move is also designed to ensure Canadian banks aren’t put at a competitive disadvantage because of guarantees on interbank borrowing that have been extended by the governments of more than a dozen other countries. Banks may find it difficult to secure money abroad if lenders do business with banks backed by their government’s treasuries.

The insurance will be offered to Canadian lenders on commercial terms; lenders will decide if they want to pay a premium to insure their borrowing. The maximum amount of insurance available to an institution will be the greater of 125 percent of the contractual maturities of wholesale debt instruments during the six-month period beginning Nov. 1, 2008, or 20 percent of deposits as of Oct. 1, 2008.

Banks were confident they could compete when it was only European governments that had made the commitment, but were concerned about getting elbowed out of North American borrowing markets once US banks had similar backing as of Oct. 13. In a news conference announcing the move, Flaherty stressed that it’s a temporary measure and that banks taking up the offer would accept commercial terms–meaning the insurance will be expensive.

The move isn’t necessary given Canadian banks’ substantially stronger, more conservative balance sheets. Prudent risk management and underwriting practices have helped them maintain better credit quality relative to many of their international counterparts. Canadian banks have also benefited from business line diversification and strong consumer deposit platforms. There were already in place government guarantees for conventional mortgage, farm and small business loans, and consumer credit is still relatively strong up north.

Canada didn’t cause the problems affecting the US and the global economy but will certainly feel some pain.

The Bank of Canada’s October Monetary Policy Report forecast a 0.4 percent decline in GDP in the fourth quarter of 2008, positive growth of 0.4 percent in the first half of 2009 and a return to health with 2.2 percent growth in the second half of the year. The BoC noted that tighter credit conditions, weaker demand for Canada’s exports and falling commodity prices have tempered the outlook for Canadian growth and inflation since its July Monetary Policy Report Update.

Coordinated action by global governments and central banks have reduced the risks of a significantly worse outcome for the economy, but “the deleveraging of the global financial system will take some time to complete, and will involve a larger and more persistent tightening of credit conditions than was assumed in July.”

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.

The Rebound: Investors are now desperately scouring the headlines and the Internet daily for any sign of a bounce. We can save you the trouble. My fellow KCI Communications editors and I will present a breaking news conference Nov. 6, 2008 at 1 pm ET. Join us for “Election Results, Recession Fears and What Investors Should Do Next” by registering here or calling 800-832-2330.

In the meantime, please check out our latest insights into the markets on our blog, At These Levels.

Primary Energy Recycling Corp (TSX: PRI.UN, OTC: PYGYF) reported third quarter distributable cash of CAD8.1 million (CAD0.22 per unit), up from CAD6.4 million (CAD0.17 per unit) a year ago. The payout ratio of 91.7 percent was down from 92.2 percent in the third quarter of 2007. Primary Energy’s board of directors has initiated a process intended to result in the sale of the company. Hold Primary Energy Recycling Corp.

Consumers Waterheater Income Fund (TSX: CWI.UN, OTC: CWIUF) saw immediate benefits from its August purchase of “smart” submetering company Stratacon, as the acquisition accounted for 37 percent of a total 7.9 percent increase in third quarter revenue to CAD45.4 million. Distributable cash for the period was up 4.4 percent to CAD17.3 million due to higher cash from operating activities offset partially by higher capital expenditures. The fund’s payout ratio came down to 92.3 percent from 96.3 percent a year ago. Of critical importance amid the global lending freeze, Consumers announced that it has amended its existing CAD310 million bridge financing facility to extend its maturity to coincide with the repayment date of its Series A-2 Secured Notes in January 2010. That Consumers was able to extend its financing at reasonable rates in such an environment is a good sign of faith in its operational strength. Consumers Waterheater Income Fund is a buy up to USD12.

Fording Canadian Coal Trust (TSX: FDG.UN, NYSE: FDG) and acquirer Teck Cominco (TSX: TCK.B, NYSE: TCK) sent word Oct. 23 to the Toronto Stock Exchange that their merger would be completed Oct. 30. Sell Fording Canadian Coal Trust.

Labrador Iron Ore Royalty Fund (TSX: LIF.UN, OTC: LBRYF) reported CAD43.2 million in third quarter royalty income, up 120 percent from CAD19.6 million a year ago. Equity earnings from Iron Ore Company of Canada were CAD34.2 million (CAD1.07 per unit), up from CAD10.7 million (CAD0.33 per unit) in 2007. The increases in royalty and equity earnings were based on 86.67 percent and 68.75 percent price increases for pellets and concentrates, respectively, slightly higher sales and the lower value of the Canadian dollar against the US dollar. Cash flow from operating activities was CAD104.1 million (CAD3.25 per unit), up from CAD30.8 million (CAD0.96 per unit) a year ago. Net income was CAD65.64 million (CAD2.05 per unit), up from CAD22.9 million (CAD0.72 per unit). Labrador Iron Ore Royalty Fund is a buy up to USD45.

Precision Drilling Trust’s (TSX: PD.UN, NYSE: PDS) third quarter numbers were driven by expansion in the US and a rebound in Canadian activity. The trust reported earnings of CAD82 million (CAD0.65 per unit), up from CAD73 million (CAD0.58 per unit) a year ago. Operating earnings increased 34.4 percent to CAD98.7 million, primarily on strong margins in the US contract drilling division. Revenue increased 25 percent to CAD286 million. The revenue contribution from the contract drilling segment was up 32.8 percent, while the completion and production services segment increased by 7.2 percent. Average drilling operating day rates in Canada remained almost unchanged at CAD17,062 from the same quarter of 2007. In the US, contract drilling operating rates continued to be strong because all drilling rigs are working under term or payout contracts. Precision Drilling Trust is a buy up to USD20.

Information Technology

FP Newspapers Income Fund (TSX: FP.UN, OTC: ) announced a suspension of distributions pending the resolution of the work stoppage by unionized employees and newspaper carriers at the Winnipeg Free Press and Canstar Community Newspapers. Workers at the daily Winnipeg Free Press and other community newspapers went on strike on Oct. 13 over pay, benefits and severance packages. The fund said it will still pay its September distribution of CAD0.1075 per unit on Oct. 30. Hold FP Newspapers Income Fund.

GMP Capital Trust (TSX: GMP.UN, OTC: GMCPF) cut its monthly payout to CAD0.05 per unit from CAD0.104 beginning this month. “The severity of prevailing volatile market conditions is the worst seen in several decades in the Canadian capital markets and has been more prolonged than we and most industry participants have expected,” said CEO Kevin Sullivan in a statement announcing the distribution cut as well as job and salary cuts. According to Bloomberg, Canadian companies have raised CAD729 million in initial public offerings this year, compared with CAD1.8 billion in the same period a year ago. GMP Capital Trust remains a buy up to USD12.

TransForce (TSX: TFI, OTC: TFIFF) has acquired garbage hauler Roland Thibault and increased its stake in Lafleche Environmental’s landfill in Moose Creek, Ontario, from 37.5 percent to 50 percent. TransForce didn’t disclose financial terms for the deals. Quebec-based Roland Thibault recently completed the permitting process for the construction of a 6.8 million cubic meter expansion of its landfill site. At current annual volumes, the site will satisfy local business and municipal waste disposal needs for at least 40 years. Buy TransForce up to USD8.