Economic analysis


A weekly scorecard on the state of the economy in North America and beyond

The EconoGaugeDid Suncor and Petro-Canada just make a huge mistake? After all, when they announced their all-stock $19-billion deal to merge earlier this week, it looked like they were just taking one struggling oil company and hitching it to another one. It’s hard not to conclude the end result will simply be a really big struggling oil company.

The problem is, the planned merger doesn’t fix the underlying problems at both companies: oil is still trading at less than half of last year’s $147 high. Separating oil from mucky grit is still so expensive that many oil sands operations are becoming unfeasible. Worse, TD Economics has just issued a report saying we likely won’t see a sustained rally in oil for a couple of years yet. So you can’t blame some observers for calling this merger misguided.

But the truth is, this was probably the most rational merger we’ve seen in a while. For starters, studies have shown that such unions are actually more likely to succeed when times are tough. That’s because when the market is soaring, companies tend to have more cash than sense, and they pay too much for their acquisitions. This deal, you can be sure, wasn’t swept into being on a wave of euphoria, so it’s more likely there really is an economy of scale to be gained.

It also helps that the companies genuinely seem to be a good fit. Suncor has many holdings in the oil sands but is burdened by high leverage, whereas Petro-Canada, which played it safe and largely missed out on the oil boom, has a stronger balance sheet. Since the two companies operate competing gas stations and compete for resources in developments, it’s easy to see how they could cut costs by co-operating.

But perhaps the main reason this deal makes sense is because right now merging is the most cost-efficient way for oil companies to expand. Oil companies are trading so cheaply these days that if you want to increase your output, it actually costs less to snap up another oil company than to develop a new project. Because of that, many think this will be the first oil merger of many. Whatever happens, it sure was nice to see a couple of big companies get all gussied up for a wedding. These days, we can use all the good news we can get.

GRAPH OF THE WEEK: Dow back to 1966

How much has the Dow fallen? Believe it or not, we’re all the way back to its level in 1966. Once you adjust for inflation, you find that if yuo had bought the index in 1966, and sold it at the end of this February, you wouldn’t have made a penny (not counting dividends). It’s also fascinatinf to see just how spectacular the rise was back in the late 1990s.

(Source:, Original data from Robert Shiller)
GRAPH OF THE WEEK: Dow back to 1966


Everyone loves Bailout 3.0

The White House’s third attempt to wipe the sludge off the ledger sheets of America’s banks sent the S&P 500 soaring by 7.1 per cent in a single day—its biggest one-day rally since October. Rather than buying up toxic-asset-backed investments directly, Treasury Secretary Timothy Geithner’s “cash for trash” plan hopes to enlist private investors to do the dirty work for him.

Hope for U.S. housing?

The median price for existing homes in the U.S. fell a stunning 15 per cent last month, to a very modest $165,400. But there is some good news: prices are now so low that sales volume seems to be picking up. Home resales rose 5.1 per cent in January, and there was an unexpected 22 per cent surge in U.S. housing starts in February. The market’s still soft though, and prices could keep falling for a while yet.

Cut our bonuses?! Never mind.

The list of small and mid-size U.S. banks refusing cash from the Troubled Asset Relief Plan is on the rise, as more say “thanks, but no thanks.” It’s partly because of the optics of feeding at the trough, and partly due to concerns that the strings attached to that money are developing into chains.

Why it’s good to be dull

A recent UBS report looking at the relative financial risk levels of countries around the world shows that Canada’s not doing so badly—at least when you compare us to everyone else. The analysis finds that Canada rates right in the middle of the pack. We’re less at risk than the U.K. and the U.S., but we’re more at risk than Japan, Russia or Mexico. Add that to the World Economic Forum’s recent conclusion that our banks are tops, and we have a lot to be proud of—in a relative kind of way.


That light? It’s an oncoming train.

The Canadian Composite Leading Indicator is Statistics Canada’s attempt to see where our GDP is headed, and it’s not looking good. The index fell by 1.1 per cent in February, the biggest drop since the market meltdown. Of the 10 indicators making up the index, which include everything from durable goods sales to the stock market, the biggest tumble was in housing—which fell a full eight per cent from the month before.

China takes a shot at the dollar

This week, China’s central bank went on the offensive with a proposal to replace the U.S. dollar as the world’s standard with a new independent global currency. The move was partly a symptom of China’s growing concern over its massive holdings in U.S. government debt.

Yep, the deficit’s growing already

Back-of-the-envelope calculations by TD Economics show that Canada is heading for an all-time-high deficit of $39.2 billion in fiscal 2009-’10, followed by an even bigger $42.3-billion deficit in 2010-’11. Still, when you look at the debt-to-GDP ratio, things still aren’t as bad as they were in the mid-1990s.

World trade shrivels up

Just a few months ago, the International Monetary Fund said we could see a 2.8 per cent drop in world trade in 2009, and that was bad enough. Now the World Trade Organization says we’ll see a nine per cent contraction, the strongest annual pullback since the Second World War.



  • For three centuries Swiss banks have opened their vaults to the world’s super-rich, allowing them to hide their lucre away from prying eyes. No more. Under intense international pressure, Swiss officials have recently decided to join Liechtenstein and Luxembourg in granting investigators access to some accounts when requested.
  • With California’s finances in shambles, some see the solution in a toker tax. A new proposed bill would legalize marijuana and let the state tax its sales. Pot generates US$14 billion a year in revenue in California—twice as much as the largest legal agricultural commodity—and could generate US$1.3 billion a year in tax revenue.
  • Does U.S. protectionism mean buying U.S. protection? The Agency for International Development has distributed more than 10 billion American-made condoms to poor countries over the years. But after experiencing production problems at the plant in Alabama, the agency is going offshore to China for its condom supply, as it can make the prophylactics at a fraction of the cost. Critics are up in arms over the move, which could cause the loss of 300 jobs.
  • Citing tough economic times, Finland has announced that it will sell its 32 per cent holding in Santa’s home on the Arctic Circle. Santa’s Holding Oy, a Lapland-based company, will become the new majority owner of struggling Santapark, billed as Santa’s hometown. The new owner will attempt to rekindle attendance at the theme park with investment in sales and marketing while keeping “tight control of costs.”


There has been a lot of debate during the past week over negative financial forecasts, and whether they can actually depress consumers, and thus become self-fulfilling prophecies. But now it looks like economists are trying a new strategy: violently conflicting forecasts that will confuse consumers into a stupor and hopefully send them scrambling to the malls to clear their heads.

Stephen Harper“Canada was the last advanced country to fall into this recession. We will make sure its effects here are the least severe, and we will come out of this faster than anyone.”—Stephen Harper, Prime Minister of Canada (and a trained economist)

“I think anybody would be dreaming in Technicolor to think that you’re going to get through this by the third quarter of this year.” —David Dodge, former governor of the Bank of Canada

“This is the bottom forming.”—Glen Hodgson, chief economist, Conference Board of Canada

Douglas Porter“Amid all the well-deserved back-patting is the rather uncomfortable fact that Canada’s economic indicators are now deteriorating nearly as quickly as their U.S. counterparts.”—Douglas Porter, BMO Nesbitt Burns deputy chief economist

“We have never seen a period, in my time in public life, where forecasts have been so all over the map and individuals have changed their own forecasts so quickly.” —Stephen Harper, Prime Minister of Canada

“Economists, I think, have lost a lot of credibility this past year.” —Jack Mintz, chair, University of Calgary School of Public Policy


Friday: U.S. personal income and spending data for February will be released, with most economists predicting incomes to shrink 0.2 per cent. Spending is expected to rise by a meager 0.3 per cent.

Tuesday: The S&P/Case-Shiller home-price index will be updated for January. Most analysts expect another grim report, with house prices predicted to be down 19 per cent from a year earlier.

Wednesday: Auto sales figures for March will be released. Most forecast another month of record-low sales.

–With Jason Kirby

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