Put the leaders on a cruise ship in the middle of the Atlantic. Don't shut down Canada's largest city!

I'm normally a pretty quiet guy. I don't recall ever taking part in a demonstration in my life but right now I feel like going out and protesting against the upcoming G20 meeting in Toronto.

Don't get me wrong. I have nothing against the world leaders getting together to talk over problems. But they should be doing it on a cruise ship in the middle of some ocean where they won't inconvenience millions of people and invite the crazies to smash windows and overturn cars. That would make a lot more sense than shutting down a major city.

If anyone is looking for a reason to be angry at Stephen Harper, here it is. Apparently it was his bright idea to host the G20 meeting and to plunk it down in the middle of the country's largest city. Having the G8 in Huntsville was fine  Deerhurst Lodge is Muskoka's equivalent to a cruise ship surrounded by trees.

But the Prime Minister never should have gone that extra mile and offered to host the G20 as well. That meeting was originally supposed to be in South Korea. It should have stayed there.

It will showcase Toronto and Canada to the world, we were told. Some showcase! What the world will see is Toronto as an armed camp with a fenced-off no-go zone and hundreds of police in riot gear. Theatres, stores, restaurants, museums, and offices are closing. The Blue Jays have moved three home games originally scheduled to be played at the Rogers Centre to Philadelphia. Trains won't be stopping at Union Station. It looks as if the heart of Canada's financial district is about to become a ghost town, inhabited only by police, demonstrators, and the cosseted G20 leaders and staff. The U.S. State Department is so nervous about the potential for violence that it is telling its citizens to visit somewhere else next week.

Meantime, the lunatic fringe is promising to make its presence felt and representatives of various groups seem reluctant to condemn violence when interviewed on TV. Even the fire-bombing of a bank in Ottawa is met with a shrug of the shoulders. This does not bode well for Toronto's downtown. It's a safe bet there will be a lot more media coverage of street clashes with police than there will be of the conference itself.

None of this is to suggest these talks aren't important. In fact, they're more critical than usual because we're seeing signs that the global recovery is faltering and that we may be sliding back towards recession. If that should happen, it could be worse than 2008-09 because governments won't be able to provide the economic stimulus that helped us get through that mess. In fact, given the austerity programs that many countries have been forced to implement, reduced government spending will be a drag on growth for the next few years. There is no more money for trillion-dollar bail-outs.

Bank of Canada Governor Mark Carney zeroed in on this point in a speech last week in Charlottetown. "The coming age of austerity carries its own risks," he said. "Fiscal policy that is tighter, sooner for all could create deficient demand in the global economy. To recoup this enormous sum ($7 trillion), both the public and private sectors must be bold."

All this adds up to the fact that we are in an extremely vulnerable position and there are already indications that there is serious trouble ahead. Global trade appears to be slowing, according to the little-known barometer known as the Baltic Dry Index. The European sovereign debt crisis is spreading and it's not limited to Greece and Spain. Even major countries like Great Britain are in trouble. The U.S. economic recovery is weaker than expected and the fiscal mess in that country continues with no fix in sight. Meantime, China stubbornly refuses to even talk about revaluing its currency, adopting the kind of classic beggar-thy-neighbour policy that exacerbated the Great Depression.

So yes, world leaders have a lot to talk about in the next few days. It's just too bad they couldn't have picked somewhere else to do it.

As for investors, this is a time for extreme caution. The markets did well last week and as a result the S&P/TSX Composite Index is back in the black for 2010. But the widespread assumption that the recovery would continue to gather momentum through the fall and into 2011 is looking increasingly dubious. If the pace slackens significantly, the reaction of stock markets will not be good. Bonds, however, continue to do much better than anyone expected. As of the close on June 17, the DEX Universe Bond Index was up 2.78% year-to-date. If you are underweight bonds and overweight stocks, it's time to revisit your portfolio and make some adjustments.