Canadians have been told by the mainstream media that economic recovery is here and growth is around the corner.
Business lending tells us a different story. Since small business is the backbone of any economy, watching trends in business lending gives us early indications of the direction of employment and measures the strength of economic recovery.
When viewing these charts, we see Canada's drop in lending lags the United States by a period of 5 or 6 months.
It appears that business lending volumes started to drop significantly in April 2009 and continues to decline.
Our conclusion is that Canada likely has some time to go before lending is revived. In particular, we are concerned that some recent data coming out of the US and Asia is giving us a false positive signal as highly accommodative monetary policy is causing market distortions.
We see the present trend is restrictive and bearish, indeed, we see substantial risk to a further downswing in lending as interest rates rise prompted by rising bond yields.
The risk, in our view, will be greatest in the May-June time-frame, as Greece has large bond sales to complete its sovereign financing, and the UK election will also take place. A poor Greek bond sale or hung parliament in the UK may cause some serious ripples in the bond market forcing yields higher.