GOLD TOPS $1000 per ounce
· TSX-235.36(Reuters)
· DOW -100.28
· Dollar +.63c to 80.04USD
· Oil -$.54 to $38.94US per barrel.
· Gold +$25.70 to $1,001.80 USD per ounce
· Canadian 5 yr bond yields -.04bps to 2.05
· http://www.financialpost.com/markets/market_data/money-yields-can_us.html
Canadian bank profits down but not out, for now (Reuters) - It's a problem most of the world's bankers would love to have in 2009.
Canadian banks are expected to post weaker quarterly results when they kick off their reporting season on February 25. Yet unlike many U.S. and European lenders -- ravaged by the global financial crisis, forced to beg for government aid and dogged by rumors of nationalization -- Canada's banks are actually expected to turn a profit.
The country's banking system was ranked last year as the world's soundest by the World Economic Forum. Analysts said the Canadian industry's conservative lending practices, which helped it avoid the writedowns and losses seen at firms like Bank of America Corp and UBS AG , should ensure a profitable first quarter.
Some predicting a brighter economy
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Despite the glut of bad news, some experts are seeing early positive signs
Julian Beltrame The Canadian Press
The economic picture across Canada keeps darkening, but at least some economists see a faint ray of light on the horizon.
Conference Board chief economist Glen Hodgson has joined an exclusive club of forecasters who see the Canadian and the U.S. economies approaching a recovery.
"To be sure, these are still early days in the search for recovery -- the bottom has not been reached,'' he cautions in an article. "(But) if you look hard enough, there are some early positive signs that the recession is approaching bottom.''
Hodgson believes the bears are missing the sunshine peeking through the black clouds, particularly in America, where President Barack Obama is moving aggressively to hike government spending, rescue cash-strapped homeowners and shore up the banking sector.
Even before the "exceptional'' government measures have had time to take effect, he said encouraging signs were starting to appear.
U.S. housing sales and prices rose six per cent in December after falling off a cliff for most of 2008, mortgage rates have fallen one percentage point, and the risk factors of financial markets and spreads are down from October.
This analysis is certainly one favoured by only a minority, although it largely tracks that of the Bank of Canada and University of Toronto economists.
These three groups see the economy hitting bottom during the first half of 2009 and starting a slow recovery in the latter half before picking up steam to a near four-per-cent advance in 2010.
Last month, Bank of Canada governor Mark Carney defended his rosy outlook by pointing out that past recoveries from deep recessions in the early 1980s and 1990s have been quicker than he was predicting.
"When recoveries come, they come sharply,'' Carney said at the time, while admitting that economic forecasting is as much art as science.
Hodgson agreed -- he breaks with most economists in seeing the current crisis as not that unusual.
"The trigger for the recession was exceptional, being credit markets, but if you compare the cycle in terms of quarterly impact to the last (few) recessions, it's not that different,'' he explained.
"I'm not an optimist, I'm simply looking for a real-world balance. At some point we are going to hit bottom and have a recovery."
Despite that, some of the news keeps getting worse.
Yesterday, Statistics Canada reported the annual inflation rate edged one-tenth of a point lower to 1.1 per cent in January bringing the rate to the lowest in two years. But measured on a month-to-month basis, prices actually fell 0.3 per cent from December, the fourth straight month in which prices have dropped.
Bank of Montreal economists also see conditions worsening and this week cut their forecast for the Canadian economy in 2009 by half a point to negative two per cent.
Analysis: Can bankers meet the financing needs of corporate Canada?
Eoin Callan, Financial Post
The country's top bankers are deeply sceptical about the ability of markets to meet the financing needs of corporate Canada as economic headwinds push companies' backs against the wall.
Executives warn that pressures will continue to build in the financial system and that banks will increasingly struggle to fill funding gaps left by the retreat of more fickle investors from capital markets.
Solving this impasse will require further action by Ottawa to restore confidence in credit markets and stem the flow of bankruptcies and job losses, according to bankers.
"The number one recommendation I would give to our government, and to others, is we have to get the capital markets growing," said Rick Waugh, chief executive of Bank of Nova Scotia.
"The problem now is the bond market and equity market are largely closed, and of course that puts on pressure [that] comes back to banking system," he said.
Addressing this will require new extraordinary short term interventions to restore confidence as well as structural reforms to make it easier for companies to raise money through credit markets, bankers say.
Yet executives are anxious not to strike an alarmist tone or be seen to criticise Ottawa, lest they provoke a political confrontation or rattle investor confidence.
Bill Downe, chief executive of BMO, acknowledged that in order to bring about a fresh round of action to stimulate markets and the economy, "the government of Canada will need to be pressured to do it".
But he said there was a risk a process like this would conjure up the kind of apocalyptic imagery that was invoked in the United States to get a $800-billion fiscal stimulus and $700-billion bank bail out package passed by Capitol Hill.
"In order to get the political will to get the economic stimulus package in place it was necessary to create a very high level of anxiety about what happens if [it is not passed]" said the executive.
"The impact of the rhetoric that was necessary has probably come back into our own mind set," said Mr. Downe, adding existing measures should be given time to take effect.
Instead of clamouring for immediate action, bankers are taking a long view and using private discussions with Ottawa to advocate more radical state intervention, while lobbyists work behind the scenes.
"I understand that there is a good amount of co-operation and discussion both between our institutions and government, but also internationally," said Nancy Hughes-Anthony, head of the Canadian Bankers' Association.
Bank lobbyists also see an opening to advance their agenda when the Conservative government is forced to report on implementing the recent budget as a condition of the ongoing support of Michael Igantieff, the Liberal leader.
The first of three "accountability" reports is due on March 26, and is adding urgency to bureaucrats' efforts to implement the full $200-billion of "extraordinary" support pledged to the financial sector.
"All of a sudden the blood pressure has gone up," said one bank lobbyist.
The willingness of bank lobbyists to use Mr. Ignatieff's ability to bring down the government as leverage represents a significant change of tack now that the opposition has abandoned plans for a coalition government.
The bank lobby had previously rallied around the Conservatives and recoiled at the unpredictable prospect of a coalition supported by the Bloc Quebecois and New Democratic Party.
But while the political wheels grind in Ottawa, companies across the country are likely to bump up against ceilings on the amount banks will lend and face prohibitive costs to tap public markets.
Standard& Poors identified over-exposure to struggling companies as one of the main risks facing the country's banks, in a recent report.
"The Canadian economy we believe has significant concentration issues because many industries are dominated by a few very large players, a situation that makes it difficult for Canadian banks to avoid excessive loan concentrations," said the otherwise-glowing assessment by the ratings agency.
The head of Scotia said this creates a Catch 22 for banks that want to remain "disciplined" about limiting risk "yet still feel obligated in meeting the needs of our customers."
"There is a dilemma there," he said.
Mr. Waugh said this "has been somewhat addressed in the budget, but is an issue going forward".
He said "the policies and incentives that the government can provide would be very important" in getting "capital markets functioning again".
Not all market participants and observers are as pessimistic about the state of the country's capital markets.
People in the industry who track sales of corporate bonds – and who didn't have a lot to do in the fall of 2008 – tend to get pretty excited about the handful of companies have been able to raise money in debt markets.
Altaf Nanji, a credit analyst at RBC Capital Markets, said the Canadian corporate bond market is "not vibrant, but there are signs of life."
But bankers' concern also relates to the hidden market for corporate credit, the shadow capital market where banks bundle loans to companies too small to go directly to markets, and pass them on to investors in a process called securitisation.
This market has been moribund since credit markets seized in August 2007, leaving banks with tens of billions of outstanding securitised credit to carry and limited ability to sell on new loans.
Research by Michael Gregory, an economist at BMO, suggests this has led to a significant shift from investor-backed financing for companies to direct bank lending through so-called Bankers' Acceptances.
"Will securitisation come back as a vehicle for people to access finance? Yeah, I think it will eventually come back. In what form it will come back is still to be determined," said Lindsay Gordon, chief executive at HSBC, the foreign bank with the biggest footprint in Canada.
It is unclear how much concern this substitution of bank lending for market financing is causing at the Bank of Canada at this juncture.
But warnings from bankers that it will become increasingly unsustainable amid a prolonged recession have been heard in government.
The recent budget included $12-billion for the government to buy securitised credit off banks, but only if backed by auto loans and equipment leases, in a bid to get credit flowing to car buyers.
One of the things bankers are looking for is essentially a much larger and far-reaching version of this program that would use public funds to create more demand for repackaged debt and bonds, essentially making taxpayers a lender of last resort to corporate Canada dur
Monday, February 23, 2009
Friday, February 20, 2009
Financial Update for Feb. 20, 2009
· TSX+9.40 (Reuters) as energy issues strengthened on higher oil prices, managing to offset weaker gold miners, which retreated along with the price of gold.
· DOW -89.68 little response to Tuesday's passing of the U.S. government's massive $787-billion stimulus bill and Wednesday's announcement by president Barack Obama of a US$75-billion program aimed at throwing a lifeline to millions of Americans on the brink of foreclosure.
· Dollar -.07c to 79.41USD
· Oil +$4.86to $39.48US per barrel.
· Gold -$1.70 to $976.50 USD per ounce
· Canadian 5 yr bond yields +.02bps to 2.09
· http://www.financialpost.com/markets/market_data/money-yields-can_us.html
In economic news, Canada Mortgage and Housing Corp. reported housing starts fell 7.5 per cent to about 211,056 units in 2008 from 2007. But the agency forecast sharply lower levels of starts for the next two years and sliding home sales as the recession further discourages consumer confidence, with starts expected to be about 160,250 for 2009 and about 163,350 for 2010 followed by some improvement.
CMHC also said that existing home sales, as measured by the Multiple Listing Service, are expected to decline 14.6 per cent during 2009 while the average price will slide 5.2 per cent.
. Obama commits to growing trade between Canada and the United StatesJulian Beltrame, The Canadian Press
OTTAWA - U.S. President Barack Obama strongly pledged sweeping co-operation on a wide range of economic issues Thursday in what appeared to be a designed effort to reassure Canadian insecurities about growing protectionism in his country.
The first visit from the new president appeared to be an unqualified success for Prime Minister Stephen Harper as Obama not only checked off each of his stated concerns - from the border, to autos, to free trade - but offered a rosy view of future relations.
"I expect four years from now the U.S.-Canada relationship will be even stronger than it is today," he said after the leaders' meeting in the prime minister's office. "I expect increased trade, I think we'll see increased integration of efforts on energy and various industry, and I think that's to be welcomed."
Specifically, Obama said he does not believe the controversial "buy America" clause in his stimulus package will significantly discriminate against Canada. Rather, he said he and Harper discussed using some of the spending earmarked by both countries for infrastructure projects to improve traffic flow at clogged border crossings.
And, he said it would be possible to include labour and environmental side agreements into the North American free trade deal without disrupting the agreement, a major concern with both Canada and Mexico.
Obama said he had no interest in doing something that would shrink trade.
On autos, Obama made clear he considered the battered industry one that is shared between Canada and the U.S. and said there would be co-operation in government rescue efforts.
The soothing words from the smooth-talking president was welcomed by Canada's business community, which had been awaiting any signal from Obama on where the relationship was headed.
"In my view the meeting was as good as it could get," said Thomas d'Aquino of the Canadian Council of Chief Executives. But d'Aquino and others cautioned that "the devil is in the details" and that in the U.S. system, the president shares power with Congress on most economic matters.
Jayson Myers of the Canadian Manufacturers and Exporters called it a "a good basis for moving forward" but added that "we've seen good starts before."
"We'll see as time goes on how buy America provisions are interpreted, we'll see how the administration balances border security with efficiency, and we'll certainly see (the impact) of this plethora of regulations coming out of the departments of the U.S. governments," he said.
Business leaders believe the stickiness at the border is probably the most serious and most difficult challenge facing Canada because the Americans see it primarily as a security issue, while Canada sees it as an impediment to trade.
Chamber of Commerce president Perrin Beatty points out that on average a North American automobile involves six or seven crossings of parts and supplies, estimating new regulations have added several hundreds of dollars to the cost.
Harper confronted the issue at his joint news conference with Obama, trying to make the case that Canada is equally concerned with security.
"The view of this government is unequivocal," he said. "Threats to the U.S. are threats to Canada. There is no such thing as a threat to the national security of the United States that does not represent a direct threat to this country."
D'Aquino said he was encouraged that Obama's response was to talk about common security concerns.
"If he had said, 'We are deeply concerned about security in Canada, I would have been worried,' " he said, although he cautioned much work remains to be done before the border problem is resolved.
The same could be said about how the Barack administration will implement the buy America clause in the new stimulus package, said Brenda Swick, a trade lawyer with McCarthy Tetrault.
Although Obama said the U.S. will abide by its trade obligations, those obligations do not extend to states and local governments. Still, she said Obama could wave the protectionist provisions for U.S. trading partners, particularly Canada, Mexico and Europe, by declaring it in the "public interest."
"So if there's a will, there's a way," she said. "I got it more from Harper that there was a will, (but) Obama wasn't as clear."
· DOW -89.68 little response to Tuesday's passing of the U.S. government's massive $787-billion stimulus bill and Wednesday's announcement by president Barack Obama of a US$75-billion program aimed at throwing a lifeline to millions of Americans on the brink of foreclosure.
· Dollar -.07c to 79.41USD
· Oil +$4.86to $39.48US per barrel.
· Gold -$1.70 to $976.50 USD per ounce
· Canadian 5 yr bond yields +.02bps to 2.09
· http://www.financialpost.com/markets/market_data/money-yields-can_us.html
In economic news, Canada Mortgage and Housing Corp. reported housing starts fell 7.5 per cent to about 211,056 units in 2008 from 2007. But the agency forecast sharply lower levels of starts for the next two years and sliding home sales as the recession further discourages consumer confidence, with starts expected to be about 160,250 for 2009 and about 163,350 for 2010 followed by some improvement.
CMHC also said that existing home sales, as measured by the Multiple Listing Service, are expected to decline 14.6 per cent during 2009 while the average price will slide 5.2 per cent.
. Obama commits to growing trade between Canada and the United StatesJulian Beltrame, The Canadian Press
OTTAWA - U.S. President Barack Obama strongly pledged sweeping co-operation on a wide range of economic issues Thursday in what appeared to be a designed effort to reassure Canadian insecurities about growing protectionism in his country.
The first visit from the new president appeared to be an unqualified success for Prime Minister Stephen Harper as Obama not only checked off each of his stated concerns - from the border, to autos, to free trade - but offered a rosy view of future relations.
"I expect four years from now the U.S.-Canada relationship will be even stronger than it is today," he said after the leaders' meeting in the prime minister's office. "I expect increased trade, I think we'll see increased integration of efforts on energy and various industry, and I think that's to be welcomed."
Specifically, Obama said he does not believe the controversial "buy America" clause in his stimulus package will significantly discriminate against Canada. Rather, he said he and Harper discussed using some of the spending earmarked by both countries for infrastructure projects to improve traffic flow at clogged border crossings.
And, he said it would be possible to include labour and environmental side agreements into the North American free trade deal without disrupting the agreement, a major concern with both Canada and Mexico.
Obama said he had no interest in doing something that would shrink trade.
On autos, Obama made clear he considered the battered industry one that is shared between Canada and the U.S. and said there would be co-operation in government rescue efforts.
The soothing words from the smooth-talking president was welcomed by Canada's business community, which had been awaiting any signal from Obama on where the relationship was headed.
"In my view the meeting was as good as it could get," said Thomas d'Aquino of the Canadian Council of Chief Executives. But d'Aquino and others cautioned that "the devil is in the details" and that in the U.S. system, the president shares power with Congress on most economic matters.
Jayson Myers of the Canadian Manufacturers and Exporters called it a "a good basis for moving forward" but added that "we've seen good starts before."
"We'll see as time goes on how buy America provisions are interpreted, we'll see how the administration balances border security with efficiency, and we'll certainly see (the impact) of this plethora of regulations coming out of the departments of the U.S. governments," he said.
Business leaders believe the stickiness at the border is probably the most serious and most difficult challenge facing Canada because the Americans see it primarily as a security issue, while Canada sees it as an impediment to trade.
Chamber of Commerce president Perrin Beatty points out that on average a North American automobile involves six or seven crossings of parts and supplies, estimating new regulations have added several hundreds of dollars to the cost.
Harper confronted the issue at his joint news conference with Obama, trying to make the case that Canada is equally concerned with security.
"The view of this government is unequivocal," he said. "Threats to the U.S. are threats to Canada. There is no such thing as a threat to the national security of the United States that does not represent a direct threat to this country."
D'Aquino said he was encouraged that Obama's response was to talk about common security concerns.
"If he had said, 'We are deeply concerned about security in Canada, I would have been worried,' " he said, although he cautioned much work remains to be done before the border problem is resolved.
The same could be said about how the Barack administration will implement the buy America clause in the new stimulus package, said Brenda Swick, a trade lawyer with McCarthy Tetrault.
Although Obama said the U.S. will abide by its trade obligations, those obligations do not extend to states and local governments. Still, she said Obama could wave the protectionist provisions for U.S. trading partners, particularly Canada, Mexico and Europe, by declaring it in the "public interest."
"So if there's a will, there's a way," she said. "I got it more from Harper that there was a will, (but) Obama wasn't as clear."
Thursday, February 19, 2009
Financial Update for Feb. 19, 2009
· TSX-202.75(Reuters) for a third straight session, touching a 2009 low, pressured by weak energy and financial issues and a slide by Rogers Communications Inc.
· DOW +3.03 New York markets were little changed despite the announcement of a plan from U.S. President Barack Obama to deal with the home foreclosure crisis
· Dollar +.35c to 79.48USD
· Oil -$.31to $34.62US per barrel. as another dose of bad economic news only raised concerns about the global downturn's impact on energy demand.
· Gold +$10.70 to $977.70 USD per ounce The lone sector in positive territory was the resource-laden materials group, as gold prices got a boost as investors sought refuge from economic gloom.
· Canadian 5 yr bond yields +.07bps to 2.07
· http://www.financialpost.com/markets/market_data/money-yields-can_us.html
Five issues Harper, Obama are likely to tackle
Craig Offman, National Post
As excitement builds for Barack Obama's first state visit to Canada on Thursday, so does the pressure on its frantic schedule.
At home, Mr. Obama is being pushed to address the environmental fallout from Alberta's oil sands or the injustices of our softwood lumber exports. Stephen Harper, on the other hand, faces calls to bring up the status of 22-year-old accused terrorist Omar Khadr or U.S. designs on oil deposits in the Arctic.
But a clenched-fist approach will not benefit Canada, diplomats say, especially when a profound economic crisis trumps all other issues.
"The stakes are too big to worry about the price of eggs in Quebec," said James Blanchard. A former U.S. ambassador to Canada during the Clinton administration, Mr. Blanchard predicts this will be a broad, big-picture, meeting in which new objectives supersede old resentments.
"I think that previous meetings have often been unsuccessful because Canada focused on the trees and the weeds, rather than the forest," he added.
"Over the years, our State Department has been quite amused that Canada avoids the big issues and focuses on the small ones.
"We'll typically leave those details and issues to the Cabinet, or frankly, the sub-Cabinet," Mr. Blanchard said.
Echoing other former ambassadors from both countries - including Canada's Allan Gotlieb and Paul Cellucci of the United States - Mr. Blanchard, foresees five concerns: protectionism, the effects of the bailout, the environment and energy and Afghanistan.
Given that the two sides have an hour on average to cover each topic during this speed-bonding session, lower-level diplomats will likely be left to sweat over the smaller stuff. "It needs to be big picture, and Stephen Harper knows that," Mr. Blanchard said. "It's not going to be nitpicking over wheat and lumber."
The Rise of Protectionism
"I'd expect the Prime Minister to point out the damage from protectionist activity," said Mr. Gotlieb, Canada's former ambassador to the United States during the Mulroney years. Reacting to an alarming rise in "Buy American" rhetoric, Mr. Harper will likely echo a message his ambassador, Michael Wilson, sent to the U.S. Senate recently: Canada is your largest-single customer, and if either of us throws up walls, it will hurt us both. The costs of doing business will actually increase. Delay and disruptions would ensue at our borders. Competitiveness would suffer, and in the end, both nations risk losing jobs, not creating them. Mr. Obama, who has spent a lot of political capital arguing the same point, would likely agree. "I'd also expect Mr. Obama to say that it's up to the United States to honour its international obligations," Mr. Gotlieb said.
Thickening of Borders
In an effort to protect the homeland from potential acts of terror, the United States has tightened security along the 49th parallel. But these chokepoints are literally costing both countries money: The thickening of the borders is damaging our respective economies.
In the past two decades, we have become joint producers on everything from films to auto parts - and the more goods, services and labour are held up at checkpoints, the less productive we become.
"We have to make sure the border is secure and facilitating," said Mr. Cellucci, who was U.S. ambassador to Canada during the first Bush administration.
Mr. Cellucci argued that the "smart border" program - which calls for "facilitating the free flow of people and commerce" - is working; other diplomats would say that Canada's greatest advantage, proximity, has turned against us in the post 9/11 era.
"The thickening of our border has become our comparative disadvantage," said Mr. Gotlieb, reversing the gains made by the free-trade agreement signed by his former boss and Ronald Reagan in 1988. This is a major weakness at a time when we compete with one-stop exporters such as the European Union and China. Look for the two leaders to announce efforts to initiate research into a smarter border program.
Marrying the Environment with the Economy
In a telling encounter with reporters last week, Canada's Environment Minister, Jim Prentice, described his new responsibility as balancing energy security, the economy and environment.
This widened purview perhaps reflects Mr. Harper's own micro green shift as he tries to engage the new President.
"It's important for the Prime Minister to talk about how we can work together to combat climate change while continuing to make sure that oil flows from the sands," said Mr. Cellucci, alluding to U.S. reliance on Canadian oil, which can run as high as 2.5 million barrels a day, making us its largest supplier.
As much as conservationists on both sides of the border criticize the oil sands, Mr. Harper will likely advance the argument that so-called "Dirty Oil" is no dirtier than coal or nuclear power.
Charles Doran, director of the Center of Canadian Studies at the Paul H. Nitze School of Advanced International Studies, said the two leaders would be shrewd to announce some kind of joint research and development project that would look for cleaner ways to extract oil from Northern Alberta. "That's something looks good, that is good, that is new – and that they could do together."
Bailouts
Even if Canada is emerging from this economic storm in better shape than the United States, a frenetic flow of goods and people inextricably links the two countries. In the course of one day alone, the equivalent of $1.5-billion in commerce and 300,000 people cross their common borders, an interdependence that also binds their financial health.
"These are not the conditions they wanted for the first meetings, but the reality is that everything will be focused on the bailouts," Mr. Doran said.
"They'll be discussing the efforts to recover from this recession or depression and the impact the policies will have on each other's countries." Mr. Doran points out, for example, that the trillion-dollar bailout in the United States might trigger massive inflation on both sides of the border.
Mr. Gotlieb, who was in Washington, D.C. during the Mulroney and Reagan years, suggested Mr. Harper could bolster the economic relationship by suggesting that the two meet each year around the same day to review policies, a top-down way of bonding and breaking down barriers.
"How else do you translate the recognition that we're most important trading partners and neighbours?" he asked. "By improving the relationship."
Canada's new role in Afghanistan
As recent as Tuesday, Mr. Obama did not overtly suggest that troops Canadian troops should stay beyond its 2011 deadline for withdrawal, but the omission might have been strategic: He still might want our soldiers to remain in a non-combative capacity.
Once in Ottawa, a very sensitive Mr. Obama will likely reiterate his gratitude to Canada for its sacrifice but will also reinforce his predicament: He has identified the region as the principal front in the war on terror, and the United States requires greater manpower there. So where does that leave Canada? While both leaders would probably agree that the re-emergence of the Taliban is an international concern, and that NATO should make a greater commitment to the imploding region, Mr. Obama might gently suggest Mr. Harper prolong Canada's mission beyond its 2011 deadline for withdrawal, offering its talents in a different capacity.
"I think there will be a discussion about what other things Canada can do to help," said Paul Cellucci. "Whether it be rebuilding the infrastructural needs, civil needs, the things Canadians are quite good at."
· DOW +3.03 New York markets were little changed despite the announcement of a plan from U.S. President Barack Obama to deal with the home foreclosure crisis
· Dollar +.35c to 79.48USD
· Oil -$.31to $34.62US per barrel. as another dose of bad economic news only raised concerns about the global downturn's impact on energy demand.
· Gold +$10.70 to $977.70 USD per ounce The lone sector in positive territory was the resource-laden materials group, as gold prices got a boost as investors sought refuge from economic gloom.
· Canadian 5 yr bond yields +.07bps to 2.07
· http://www.financialpost.com/markets/market_data/money-yields-can_us.html
Five issues Harper, Obama are likely to tackle
Craig Offman, National Post
As excitement builds for Barack Obama's first state visit to Canada on Thursday, so does the pressure on its frantic schedule.
At home, Mr. Obama is being pushed to address the environmental fallout from Alberta's oil sands or the injustices of our softwood lumber exports. Stephen Harper, on the other hand, faces calls to bring up the status of 22-year-old accused terrorist Omar Khadr or U.S. designs on oil deposits in the Arctic.
But a clenched-fist approach will not benefit Canada, diplomats say, especially when a profound economic crisis trumps all other issues.
"The stakes are too big to worry about the price of eggs in Quebec," said James Blanchard. A former U.S. ambassador to Canada during the Clinton administration, Mr. Blanchard predicts this will be a broad, big-picture, meeting in which new objectives supersede old resentments.
"I think that previous meetings have often been unsuccessful because Canada focused on the trees and the weeds, rather than the forest," he added.
"Over the years, our State Department has been quite amused that Canada avoids the big issues and focuses on the small ones.
"We'll typically leave those details and issues to the Cabinet, or frankly, the sub-Cabinet," Mr. Blanchard said.
Echoing other former ambassadors from both countries - including Canada's Allan Gotlieb and Paul Cellucci of the United States - Mr. Blanchard, foresees five concerns: protectionism, the effects of the bailout, the environment and energy and Afghanistan.
Given that the two sides have an hour on average to cover each topic during this speed-bonding session, lower-level diplomats will likely be left to sweat over the smaller stuff. "It needs to be big picture, and Stephen Harper knows that," Mr. Blanchard said. "It's not going to be nitpicking over wheat and lumber."
The Rise of Protectionism
"I'd expect the Prime Minister to point out the damage from protectionist activity," said Mr. Gotlieb, Canada's former ambassador to the United States during the Mulroney years. Reacting to an alarming rise in "Buy American" rhetoric, Mr. Harper will likely echo a message his ambassador, Michael Wilson, sent to the U.S. Senate recently: Canada is your largest-single customer, and if either of us throws up walls, it will hurt us both. The costs of doing business will actually increase. Delay and disruptions would ensue at our borders. Competitiveness would suffer, and in the end, both nations risk losing jobs, not creating them. Mr. Obama, who has spent a lot of political capital arguing the same point, would likely agree. "I'd also expect Mr. Obama to say that it's up to the United States to honour its international obligations," Mr. Gotlieb said.
Thickening of Borders
In an effort to protect the homeland from potential acts of terror, the United States has tightened security along the 49th parallel. But these chokepoints are literally costing both countries money: The thickening of the borders is damaging our respective economies.
In the past two decades, we have become joint producers on everything from films to auto parts - and the more goods, services and labour are held up at checkpoints, the less productive we become.
"We have to make sure the border is secure and facilitating," said Mr. Cellucci, who was U.S. ambassador to Canada during the first Bush administration.
Mr. Cellucci argued that the "smart border" program - which calls for "facilitating the free flow of people and commerce" - is working; other diplomats would say that Canada's greatest advantage, proximity, has turned against us in the post 9/11 era.
"The thickening of our border has become our comparative disadvantage," said Mr. Gotlieb, reversing the gains made by the free-trade agreement signed by his former boss and Ronald Reagan in 1988. This is a major weakness at a time when we compete with one-stop exporters such as the European Union and China. Look for the two leaders to announce efforts to initiate research into a smarter border program.
Marrying the Environment with the Economy
In a telling encounter with reporters last week, Canada's Environment Minister, Jim Prentice, described his new responsibility as balancing energy security, the economy and environment.
This widened purview perhaps reflects Mr. Harper's own micro green shift as he tries to engage the new President.
"It's important for the Prime Minister to talk about how we can work together to combat climate change while continuing to make sure that oil flows from the sands," said Mr. Cellucci, alluding to U.S. reliance on Canadian oil, which can run as high as 2.5 million barrels a day, making us its largest supplier.
As much as conservationists on both sides of the border criticize the oil sands, Mr. Harper will likely advance the argument that so-called "Dirty Oil" is no dirtier than coal or nuclear power.
Charles Doran, director of the Center of Canadian Studies at the Paul H. Nitze School of Advanced International Studies, said the two leaders would be shrewd to announce some kind of joint research and development project that would look for cleaner ways to extract oil from Northern Alberta. "That's something looks good, that is good, that is new – and that they could do together."
Bailouts
Even if Canada is emerging from this economic storm in better shape than the United States, a frenetic flow of goods and people inextricably links the two countries. In the course of one day alone, the equivalent of $1.5-billion in commerce and 300,000 people cross their common borders, an interdependence that also binds their financial health.
"These are not the conditions they wanted for the first meetings, but the reality is that everything will be focused on the bailouts," Mr. Doran said.
"They'll be discussing the efforts to recover from this recession or depression and the impact the policies will have on each other's countries." Mr. Doran points out, for example, that the trillion-dollar bailout in the United States might trigger massive inflation on both sides of the border.
Mr. Gotlieb, who was in Washington, D.C. during the Mulroney and Reagan years, suggested Mr. Harper could bolster the economic relationship by suggesting that the two meet each year around the same day to review policies, a top-down way of bonding and breaking down barriers.
"How else do you translate the recognition that we're most important trading partners and neighbours?" he asked. "By improving the relationship."
Canada's new role in Afghanistan
As recent as Tuesday, Mr. Obama did not overtly suggest that troops Canadian troops should stay beyond its 2011 deadline for withdrawal, but the omission might have been strategic: He still might want our soldiers to remain in a non-combative capacity.
Once in Ottawa, a very sensitive Mr. Obama will likely reiterate his gratitude to Canada for its sacrifice but will also reinforce his predicament: He has identified the region as the principal front in the war on terror, and the United States requires greater manpower there. So where does that leave Canada? While both leaders would probably agree that the re-emergence of the Taliban is an international concern, and that NATO should make a greater commitment to the imploding region, Mr. Obama might gently suggest Mr. Harper prolong Canada's mission beyond its 2011 deadline for withdrawal, offering its talents in a different capacity.
"I think there will be a discussion about what other things Canada can do to help," said Paul Cellucci. "Whether it be rebuilding the infrastructural needs, civil needs, the things Canadians are quite good at."
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