Canadian households added to their debt burden in the third quarter of 2017. Household debt to disposable income is up to $1.71 for each dollar of income earned (a new high). Importantly, while debt is rising, the value of household assets (savings, investments and house prices) remained the same, which can be a dangerous situation if this uptick (chart above) continues (if the value of assets turns lower). Definitely a concern for the Bank of Canada as it weighs the outlook for interest rates in Canada. The two 1/4% increases in Q3 does not appear to have had much of an impact on Canadian's desire for debt. In the short-term, rising debt levels are good as increased household spending helps economic growth. However, that debt can be a longer-term problem, especially if the economy slows and the ability to service the debt forces asset sales (and asset prices fall, see 2008).
Meanwhile, south of the border, The US Federal Reserve raised rates by 1/4% for the third time this year and appear to be prepared for another three 1/4% increases in 2018:
Should the Bank of Canada follow the Fed's example (and they are never really that far behind), that might also create debt servicing issues for Canadians.
Our work (at High Rock) is to look beyond the current hype / noise built into "record setting" equity markets at those things (not necessarily good) that are not being given appropriate consideration in the current determination of value.
Our work is intended to find opportunities for growth while remaining aware of all the underlying risks and making prudent investment decisions for ourselves and our clients within the context of the goals that we have set for ourselves.
Scott Tomenson,CIM Managing Partner, Chief Investment Strategist