On Monday, the Bank of Canada released the results of two quarterly surveys it uses to gauge the mood of business and lending decision-makers, the Business Outlook Survey (BOS) and the Senior Loan Officer Survey (SLOS).

Both measures of sentiment showed improvement from the respective January surveys, but we’re talking about rebounds off historic lows. As is the case with much of the economic data we’re seeing these days, the story is all about the second derivative–the nature of the change–rather than the absolute numbers.

Regarding the Business Outlook Survey, senior managers in Canada are still pessimistic, but the view isn’t as grim as it was in January. The BOS, a summary of interviews conducted with top people at 100 firms selected to reflect the composition of Canada’s GDP, revealed that managers still anticipate weak sales and will put off major capital expansion and new hiring for the foreseeable future.

In resource-rich Western Canada, late to the malaise, efforts to reduce spending are gaining intensity, and hiring intentions are now weaker than in the country at large.

Firms across Canada still report tighter terms and conditions for obtaining credit–the costs are higher, and they have to answer more questions before loans will be made.

Those perceptions are reinforced by the data revealed in the Senior Loan Officer Survey, which collects information about the business lending practices of major Canadian financial institutions.

It’s important to note that the statistical value of both surveys is limited by the fact that each comprises a small sample size. As well, the BOS was conducted February 23 to March 20, well before what’s become a significant rally off equity index lows had time to invade the consciousness of respondents. The SLOS data was gathered March 17 through March 24.

Source: Bloomberg

The incremental progress we see in the BOS and the SLOS seems at odds with the 25 percent rallies we’ve seen in the S&P/Toronto Stock Exchange Income Trust Index, the S&P/TSX Composite as well as the S&P 500. But it’s important to note that the market is often disconnected from on-the-ground economic conditions. Financial markets are forward-looking mechanisms, and the fact that deterioration has slowed–not even reversing, in the case of many indicators–is good enough to let slip at least some of the animal spirits.

After all, it’s gotta slow down before it turns around.

The most significant single factor in the global economic meltdown is the rapid and violent demolition of the US financial system brought about by Lehman Brothers’ Sept. 15, 2008 bankruptcy filing. It’s widely accepted among economists, policymakers and investors that until we see signs of health in US banking, the global situation is dodgy. And we know, because more than 70 percent of its trade is conducted with its neighbor to the south, that Canada is more concerned than most with what becomes of Citigroup (NYSE: C), Bank of America (NYSE: BAC), Wells Fargo (NYSE: WFC) and Goldman Sachs (NYSE: GS), for example.

The latter two firms issued rosy announcements in recent days, Wells Fargo trouncing Street expectations with USD3 billion in first quarter earnings, Goldman manufacturing a USD3.39 per share profit and raising USD5 billion to start paying back the US government. (Set aside for present purposes questions about the impact on both sets of books of the Financial Accounting Standards Board’s cave-in to Congressional pressure on mark-to-market rules, and ignore the fact that Goldman basically disappeared December 2008 as far as it was concerned.)

Let’s take a look at a broader indication of the state of the US financial system, the HSBC Financial Clog Index. It measures the aggregate level of stress in the system based on four factors: interbank stress, measured by the TED Spread and the LIBOR-OIS Spread; financial institution default risk, measured by US financial credit-default swap spreads; mortgage agency credit spreads, measured by credit spreads for Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE); and equity volatility, measured by the Chicago Board Options Exchange Volatility Index, or VIX.

Source: Bloomberg

The ridiculous spike you see on the chart above is the Lehman Effect, the near-implosion brought about by the systemic stress exerted when it went under in mid-September last year. Note we’re still at well-above-normal levels–but conditions are improving. Again, we’re concerned with the nature of the change, and the nature of this change is “less stress.” Hopefully, soon, increased lending activity will translate into more aggressive capital expenditure decisions and more hiring, and then we won’t be concerned with government efforts to stimulate aggregate demand anymore because people will have jobs to fund goods purchases and mortgage payments.

A top-of-mind question for most investors on a mid-spring Tuesday is whether we’re entering a new bull run or merely suffering a bear tease. For value-focused, income-oriented investors, the question remains one of distribution sustainability. In Canadian Edge, operational performance has always been the primary concern, and, though we’ve experienced our fair share of price deterioration with many Portfolio recommendations, in the main the companies we recommend have withstood the many stress tests this financial crisis/recession hath wrought.

That’s not to say, however, that in times such as these discipline isn’t important. During bull runs it’s easy to buy and hold. Amid the kind of uncertainty we’re still mired in, though, we have to be more active about booking profits on winners and cutting loose losers. We made such moves back in the summer of 2008, recommending that CE readers take some money off the energy table. But we also found a couple solid trusts with demonstrated business success trading at cheap valuations during the late-2008 maelstrom.

It’s good to understand the many pieces of information that impact equity prices and the value of your portfolio. It’s also possible to get overwhelmed by data. The most important discipline, however, is emotional: Don’t get too high on the upside (i.e., don’t get addicted to your winners; take profits) and don’t double down on losers (i.e., don’t get addicted to your losers; doubling down is good money after bad).

A little equanimity goes a long way.

Speaking Engagements

There are few better places to combine work and play than Sin City: Join Canadian Edge, Editor Roger Conrad and The Energy Strategist Editor Elliott Gue for The Money Show Las Vegas, May 11-14, 2009, at The Mandalay Bay Resort & Casino.

With Elliott’s and Roger’s sage advice, this is one trip to Vegas that won’t make a wreck out of you.

To attend as Roger’s guest, click here or call 800-970-4355 and refer to promotion code 012649.

And make plans to join Roger, Elliott, Gregg Early and Benjamin Shepherd at the 18th Atlanta Investment Conference. Sponsored by Friends for Autism, the conference is held in a mountain setting north of Atlanta from Thursday, April 23, to Saturday, April 25.

Roger, a steady hand through many market events such as the one we’re dealing with now, will talk about Canadian income and royalty trusts as well as his new service focused on exploiting the greatest spending boom in history, New World 3.0.

Elliott will detail the new direction for Personal Finance and provide insight into his approach to stock selection and portfolio management. What’s required now amid these difficult times are clarity and focus, qualities Elliott has demonstrated in these pages and through The Energy Strategist for years.

Gregg, a constant at PF for nearly two decades, will be there to address recent developments with the publication. He’ll also discuss the Smart Grid, an endeavor he’s exploring as part of his role with New World 3.0.

Ben, editor of Louis Rukeyser’s Mutual Funds and Louis Rukeyser’s Wall Street, the in-house mutual fund expert, will discuss efficient, cost effective ways to simplify the investing process.

Be sure to bring your questions. These guys love to talk markets and everything that impacts them.

Attendance is limited to 175 of the most enlightened, savvy individual investors. Go to http://www.aicatchota.com/ for more information. Meals are included for the Maple Leaf Memo discounted price of $459 for a single and $599 for couples. Call 770-952-7861 or e-mail altinvestconf@mindspring.com to register.

The Roundup

Oil & Gas

Bonterra Oil & Gas (TSX: BNE, OTC: BNEFF) has reached an agreement to buy Cobalt Energy (TSXV: CB-A, CB-B) in an all-stock deal valued at CAD5.5 million, including assumption by Bonterra of Cobalt debt.

Cobalt is a small energy company currently producing the equivalent of about 100 barrels of oil equivalent per day (boe/d), primarily in the Pembina region of Alberta. Bonterra Oil & Gas is a buy up to USD15.

Daylight Resources Trust (TSX: DAY-U, OTC: DAYYF) has boosted its 2009 production guidance upward to 22,500 to 23,500 boe/d and expanded its forecast capital expenditure range to CAD125 million to CAD140 million. Based on the current natural gas price environment, the potential CAD15 million increase will be funded through funds from operations as well as expected savings based on adjustments to Alberta’s royalty scheme.

Daylight also recently renewed its CAD350 million credit facility with an expanded syndicate that includes seven holdovers and two new banks. The next renewal date is April 30, 2010. The trust will maintain its distribution at CAD0.08 per unit per month through the second quarter. Daylight Resources Trust is a buy up to USD11.

Pengrowth Energy Trust (TSX: PGF-U, NYSE: PGH) announced that the Sable Offshore Energy Project has been temporarily shut down due to an “operational incident,” cutting off approximately 400 million cubic feet per day of gas production. Pengrowth holds an 8.4 percent non-operating interest in the project, which is run by ExxonMobil (NYSE: XOM).

The impact on Pengrowth’s interest is equivalent to between 3,800 and 5,800 boe/d; at normal operation Pengrowth sees about 6,800 boe/d. Hold Pengrowth Energy Trust.

Penn West Energy Trust (TSX: PWT-U, NYSE: PWE) has priced a private placement of CAD250 million of unsecured notes in the US.

The private placement consists of various terms ranging from five years to 10 years with an average rate of approximately 8.9 percent. The notes will be unsecured and rank equally with Penn West’s bank facilities and its outstanding senior notes issued in May 2007, May 2008 and July 2008 with an aggregate principal amount of USD955 million, CAD30 million and GBp57 million, respectively.

Penn West will repay a portion of the outstanding balance under its existing syndicated bank facilities with the proceeds. Penn West Energy Trust is a buy up to USD15.

Gas/Propane

Energy Savings Income Fund (TSX: SIF-U, OTC: ESIUF) has made a CAD255 million offer for Universal Energy Group (TSX: UEG, OTC: UEEGF), which markets natural gas to customers in Ontario, British Columbia and Michigan and owns an ethanol production facility in Saskatchewan.

The two companies have signed a non-binding letter of intent on an all-stock offer that values Universal at CAD7.05 a share and will negotiate exclusively through April 19.

Analyst reaction to the Energy Savings offer included the observation that the takeover price values Universal customers at 73 percent of the value of Energy Savings’ existing customers; completion of a deal would immediately pay off for unitholders. A combined company would also realize significant cost savings because administrative and marketing functions could be combined.

Energy Savings recently guided higher for 2009, saying gross profit margin and distributable cash would both rise by more than 10 percent, up from previous forecasts of 5 to 10 percent growth. Energy Savings Income Fund is a buy up to USD10.

Business Trusts

Cineplex Galaxy Income Fund (TSX: CGX-U, OTC: CPXGF) is expanding the advertising aspect of its business with the CAD1.7 million acquisition of Onsite Media Network.

Adding Alberta-based Onsite, which broadcasts advertising and custom content to office towers and sports stadiums across Canada, allows Cineplex to expand its advertising reach beyond theaters into other high-traffic areas. Onsite owns a sports stadium network with 1,000 screens located at GM Place in Vancouver, Pengrowth Saddledome in Calgary, Rexall Place in Edmonton and Scotiabank Place in Ottawa. Its office tower network has 200 screens in public concourses and food courts in Toronto, Calgary and Ottawa. Cineplex Galaxy Income Fund is a buy up to USD18.