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Canada’s Debt Addiction

debt

 

Chris Worby a Trusted Regina Financial Advisor talks about the largest issue facing the Canadian Economy today.

If I told you the price of oil was the biggest problem facing Canada, especially the Prairie Provinces, you’d probably agree with me. It seems pretty obvious that our major export going from $105/barrel to $50/barrel would majorly stall our economy; I mean, they call it a ‘petro-loonie’ for a reason, right?

But I’m not incredibly worried about oil. Don’t get me wrong, it isn’t great and doesn’t make it easy for us but these types of price changes have happened before and they’ll happen again.

What does worry me about our economy is not this though. It’s debt – plain and simple. And specifically it’s household debt.

According to this article from the Globe and Mail from March 11, 2016, we have hit our record high debt to income ratio at 165.4 meaning, for every dollar of income, the average Canadian owes $1.65. To put that in perspective, the US level at their peak was 163% in 2008 and we all know how that ended.

Again, in retrospect, we all know the US was in a housing bubble and that most of that debt was attached to mortgages so we’re in a different position here in Canada because we aren’t in a bubble, right?

According to this BNN Video a Vancouver Credit Union sees some issues and according to this article the bubble is alive and well in Vancouver and Toronto, but the rest of the country is in a different situation. As I see it, we all know that the US as a whole really hit the skids in 2008 but some areas were more affected than others. This leads me to think that rapidly rising debt levels across Canada are the problem, not the real estate in the first place.

So what does this mean? Time to batten down the hatches. To my mind, if we are staring down the barrel of the US 2008/2009 situation, it makes sense to me to move portfolios to safer positions, consider getting rid of real estate holdings you use for investment purposes and get ready for the storm.

The problem with bubbles is that they only look like bubbles after they pop. The truth is that anything that over performs a long run average is likely getting sketchier the longer it lasts. And if you’re holding assets hoping for that one last sucker to take it off your hands, well, that hot potato can burn if the music stops at the wrong time.

My investing philosophy is simple: you’ve got to save it before you can make it.

Save against the downside.

Don’t take crazy risks.

Don’t ride it down to ride it up again.

On the other side lies opportunity.

July 14, 2016

Chris Worby is a Trusted Regina based financial advisor and Wealth Management services provider servicing local Regina households and businesses since 2001.