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Do You Have a Crush On Canada?

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With a solid financial system, our frigid neighbor to the north is starting to look, well, cool.

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I can't count all the reasons I was in such a hurry to leave Canada, the place where I spent 26 years growing up, getting educated and road-testing a career in whatever it is that I do.

I loathed its shrinking importance on the world stage, but more so its willingness to accept this fate. I despised the way so many of my fellow citizens sought to define themselves not by what they were, but by what they weren't - Americans.

Being from Montreal -- site of Expo 67 and the 1976 Olympics -- I despised the French Canadian nationalism that, through Gestapoish language laws, prevented it from becoming an important world city.

But most of all I hated being close enough to smell the action -- the American experience is piped in by cable feeds and sheer proximity -- while being limited to a spectator, rather than a participatory, role.
For most Americans, save for hockey fans and comedians, Canada is scarcely on the radar. But the country's stock is quietly rising, as financiers and the media extol the solvency of its banking system - a tidy little fact that stands in sharp contrast to, well, just about everywhere else.

In 2008, Canada's banking system was ranked the healthiest in the world by the World Economic Forum (the US ranked fortieth). For years, while American institutions leveraged themselves, on average, 26 to 1, Canadian financial-services firms used leverage more conservatively, at a rate of 18 to 1.

In the fall, as Washington haphazardly tried to arrange mergers, fire sales and bailouts of its faltering banks, Canada's stood resolute amid the chaos. Although there's talk of the government buying up $75 billion worth of mortgages from Canadian financial institutions to loosen credit markets, which have tightened north of the border as well, so far no capital injections have been necessary.

In fact, you might say it's a pretty great time to be a Canadian bank. Toronto Dominion (TD) just bought Commerce Bank - and the annoying Regis Philbin and Kelly Ripa commercials that came with it. But it's not the bank's increased US footprint alone that transformed it into the sixth largest in North America. No, as Newsweek scribe Fareed Zakaria points out, that accolade owes a debt of gratitude to the withered assets of so many American institutions.

The fifth, seventh and eigth largest banks in North America? That would be Royal Bank of Canada (RY), Bank of Nova Scotia (BNS) and Bank of Montreal (BMO).

And while the adage "when America sneezes, the rest of the world catches a cold" is certainly at play in Canada -- January job losses were a whopping 129,000 (remember, its total population is about the same as California) -- the passage of a forthcoming stimulus package will result in the government's first deficit in a decade.

That's right: its first deficit in a decade. I'll let that sink in.

I'm not here to sell you a false bill of goods: Canada's no Shangri-La. It exports too much of its show-business talent while trying in vain to sex up life as a Toronto prosecutor or Saskatchewan gas-station attendant on its own airwaves.

More critical is the fact that the country's economy is largely commodity-driven, and worldwide demand for everything from lumber to oil has slowed. Oil- and natural gas-rich Alberta is feeling this last point more acutely than other provinces after a boom that made its largest city, Calgary, feel strangely akin to the romanticized Dallas that J.R. Ewing made famous.

Finally, unemployment in Canada's neediest province, Newfoundland, sits at 13.7% - over 3% higher than Michigan, the hardest hit US state.

Currently, the Conservative Party government is trying to get a stimulus package passed. It will allocate roughly $40 billion over 2 years for things like infrastructure spending and tax cuts. In the interim, the country's banks remain steady, and Canada is hoping the world will take note of its risk aversion and the litany of prudent practices that helped insulate its financial system from American-style calamity.

I've read stories of alarmists buying guns and building remote cabins, fearing further collapse of the financial system could lead to social unrest. Might I suggest a far more civilized solution: Canada. One of the other things I never liked about the place was its free-for-all immigration policy.

Safe travels.

No positions in stocks mentioned.
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