Sustainability; just a fancy new word for “common sense”

A few years ago, BC Comfort Air Conditioning, a B.C.-based company with over 45 years experience in mechanical HVAC services, noted employees were leaving the doors wide open in the chilly season for convenience.

One simple change—asking workers to keep that bay door closed—helped cut natural gas use by 65%, saving the company $7,000 a year and reducing carbon emissions by the same amount as planting 500 trees.

The company appears as one of 12 case studies in a new report, 200 Million Tonnes of Opportunity: How small and medium-sized businesses are driving Canadian clean growth, a report from Climate Smart Businesses. 200 Million Tonnes features stories from 800 SMEs in 13 sectors Climate Smart has worked with, offering real-world examples on how to cut costs by reducing emissions through actions like route optimization, paperless operations, heat recovery, employee engagement and more.

In another example, a company saved $65,000 in hauling costs by diverting 35% of its waste from the local landfill, reducing emissions by an amount equivalent to three tanker trucks of gasoline. A hotel chain in the Yukon was able to save $180,000 a year by upgrading its incandescent light bulbs to LEDs. Sometimes the company’s return on investment was not in savings but in happier employees or improved reputation.

Many small businesses, however, are short on resources but long on to-dos. When it comes to considering the sustainability of business operations, it can be intimidating to figure out that first step.

Luckily, there are tools to help. The World Wildlife Fund’s Living Planet @Work program provides a list of activities and programs people can use to start the conversation in their workplaces. The WWF’s Smart Office Challenge focuses on IT, which as a part of almost every business and a significant energy consumer, is a natural starting point for sustainability newbies. The tool offers a check list of simple actions that can have a big impact. For example, cutting energy consumption from PCs by half can be as simple as getting employees to turn them off at night. More information is available in this interview with the Canadian Chamber.

The Canadian Chamber is also partnering with Climate Smart to help share its training program across the chamber network. The Victoria Chamber of Commerce and the Mississauga and St. John’s boards of trade will pilot the outreach program, offering their members a $1,000 discount. SMEs that belong to other member chamber of commerce are also able to access the discount on a first come-first served basis. Contact Christine VanDerwill at to learn more.

Flashy new innovations or clean technology start ups are exciting stories that make headlines and it can sometimes seem that is what sustainability is all about, but much of the time, going green can simply mean finding ways to use resources more efficiently.

When a business reduces its environmental impact by making better choices about how it uses energy and materials, some call it sustainability, but the practice has an older name: common sense.


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Uuuum…Alberta We Have a Problem….

According to a recent by RBC report focusing on Canada’s Household Debt Albertans would be hardest hit by further interest rate hikes.   Mortgage debt in Alberta rose almost 30 per cent on average from 2010 to 2016. Households in Alberta will feel the most pressure from rising interest rates because residents in the province carry the highest debt loads in the country. “Alberta residents would see the biggest increase in debt-service payments in Canada of more than $1,200 a year on average if interest rates rose by one percentage point”, Robert Hogue, a senior economist at RBC Economic Research, said in the report released April 3, 2018. “That’s the amount of money needed to make payments on the principal and interest on outstanding loans.” The Bank of Canada has already hiked interest rates three times since the middle of last year, raising the key lending rate by a total of 75 basis points to 1.25 per cent.

“Households in B.C. and Ontario are also more indebted than the national average, but Albertans carry the heaviest debt loads,” Hogue said. “A booming provincial economy and strong income gains between 2011 and 2014 emboldened households in Alberta to buy homes (sales growth averaged over 10 per cent per year in that period) and accumulate significant debt, leaving them with high debt loads when incomes dropped following the plunge in global oil prices.” Hogue added that Alberta residents are also holding more shorter-term mortgage debt than other Canadian households, but higher-than-average incomes offer them “some breathing room.” Higher incomes in the province are a “mitigating” factor, Hogue said as debt service payments accounted for over 15 per cent of disposable income in 2016, which is just a bit more than in B.C.

But on average, household debt in the province rose from $164,000 in 2010 to $192,000 in 2016, according to the report. “These numbers include households who are debt-free, so actual outstanding balances for those carrying debt are even higher,” Hogue said. Mortgages accounted for the majority of debt that Alberta households carried, with the average going up to $124,000 in 2016 from $96,000 six years earlier. That’s a nearly 30 per cent jump. Meanwhile, debt-service payments in the province are already the highest among all Canadians at an average of $15,300 per household in 2016. That compares to $13,700 paid by B.C. residents, and $12,600 paid by Ontario households on average. The overall average for Canadians in 2016 was $11,600. “These amounts aren’t pocket change.

“In Alberta, for example, the $1,200 no longer available for spending on everyday goods and services or saved for future consumption. It would exceed what households spend on entertainment ($1,000) or furniture ($800) each year,” said Hogue. “Their debt-service bills will get bigger, and possibly sooner than elsewhere in the country, when interest rates rise. It’s bound to cause many households to spend more cautiously on other goods and services.” This could potentially hold back economic growth more in Alberta, B.C. and Ontario than in other provinces, Hogue said. Meanwhile, markets are pricing in a nearly 70 per cent chance that the Bank of Canada will raise interest rates again in July.

Read the full report from RBC Economic Research by clicking here: householddebt_apr2018.pdf (8 downloads)

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Canadian Debt Dogpile

Our Federal government recently admitted that they will never eliminate the deficit. In fact, Finance Canada now projects deficits for another 25 years, totaling almost a half-a-trillion-dollars!

The fiscal victory being claimed by the federal government however is that the debt will grow ‘slower’ than the economy’ – lowering the debt-to-GDP ratio with program spending growing at only 1.6% for the next 5 years. Keep in mind however that program spending growth over the last 2 years has been 5.6%; during a time that the Canadian economy was performing reasonably well!  So much for keeping some powder dry for tougher days ahead.  Furthermore, that would mean GDP growth in excess of 1.6% per year.  In our regulatory environment?   Anyone try building a pipeline or try getting grain shipped to market lately?…and that’s before any new gender and identity provisions for environmental impact assessments come into play (whatever those are).   But it sure as hell sounds expensive and will be guaranteed to be a further drain on productivity, that’s for sure!

Who’s going to pay for all this?

Provincially Alberta ran a $9 billion deficit in 2017/18, almost 1/5th of the total budget, while the Wynne Liberals in Ontario have more than doubled their debt in just over 10 years.  Furthermore the Atlantic provinces have their own liability concerns along with an aging population that will pay less taxes overall while requiring more costly heath care services post retirement.

Who’s going to pay for all this?

We’ll tell you who’s going to pay for that…the same Canadian taxpayer whose households are carrying a record $1.74 of debt for every dollar of income. As interest rates rise over the next three years, debt payments will consume a larger share of household income than at any time in the last 30 years, costing a family with $100,000 in net income approximately $2000.00 more than they were paying last year to service their debt.  While households deal with higher interest rates on credit cards and mortgages, their taxes will naturally also need to rise to pay a one-third or $8 billion increase in federal debt interest payments.  It’s either that or cut program spending.  Cut program spending? Never…that’s sacrosanct!

Canada’s combined personal, business and government debt is now three times the size of the entire Canadian economy. This is a higher total debt-to-GDP ratio than even European fiscal basket cases like Italy, Spain and Greece…and our weather generally sucks in comparison to theirs!

We are truly doomed.

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Pending Credit Market Dumpster Fire?

Moody’s Investors Services joined the Bank of International Settlements (BIS) and S&P Global Ratings this month warning that Canada’s banking system, dominated by the Big 5, is facing a growing threat of souring consumer loans amid rising interest rates.  Canada’s ratio of household debt to disposable income reached a record 171 percent in Q3 of 2017. The proportion of uninsured mortgages has also increased 60 percent from 50 percent five years ago.  The credit quality of Canada’s biggest lenders is under a triple threat of unsecured credit card portfolios, longer tem car loans and the fact that more than half of Canadian mortgages will see their interest rates increase this year.

Canadian Mortgage and Housing Corp (CMHC), a government agency (or in other words something the taxpayers are on the hook for), insures the bulk of mortgages in Canada. Almost half of these outstanding mortgages, many of them on fixed-rate terms, will be subject to an interest-rate reset within the next year, increasing the strain on households’ debt-servicing capacity.

After a series of new rules over the last couple of years aimed at tightening the housing market, the majority of Canadian mortgages are now uninsured, which means lenders alone are on the hook for them if they turn bad and borrowers default.

While delinquency rates on mortgages are still at record lows (less than three out of every 1,000 borrowers are currently more than three months past due) the possibility of that number increasing in the current rate environment means the banks need to be aware of the risk. Higher interest rates could be a trigger for that admittedly unlikely event. The Bank of Canada has hiked its benchmark interest rate three times since the start of 2017 with expectations for at least two more this year.

Further aggravating the current risk faced by Canadian banks are auto loans which are being offered at terms as long as 68 months! With these longer terms, the car’s market value will most often drop below the amount owed on the loan before it’s paid off.  If it’s ever paid off!

We see first-hand the egregious number of sub-prime borrowers already over indebted and unable to meet previous obligations and in collections qualifying for high interest, long term auto loans that we know, they stand no chance of honouring the terms and completion except in the event of a major lottery win.

Add on top of the above unsecured credit-card portfolios, which will be the first to feel the pinch as their repayment tends to have lower priority for financially strapped borrowers, and we have the perfect recipe for a major dumpster fire in Canadian credit markets.




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The 1.8 Trillion Dollar Millstone

Canadians’ collective household debt has climbed to $1.8 trillion as the Bank of International Settlements (BIS) sounded an early warning that the country’s banking system is at risk from rising debt levels.

China, Canada and Hong Kong are among the economies deemed most at risk of a banking crisis.  Yes, you read that right.  Not Greece, Italy or Spain but Canada!  It was less than 10 years ago, during the 2008-2009 global credit crisis, that Canada was lauded as the global ‘poster-person’ of sound banking.

Earlier this week Equifax Canada reported that consumers now owe $1.821 trillion including mortgages as of the fourth-quarter of 2017, marking a six per cent increase from a year earlier.

Although nearly half of Canadians reduced their personal liabilities, roughly 37 per cent added to their debt to push the average amount up 3.3 per cent to $22,837 per person, not including mortgages.

The fresh numbers come as the BIS indicated Canada’s credit-to-gross-domestic-product and debt-service ratios show early warning signs of potential risk to the banking system in the coming years.

The latest report by the Bank for International Settlements says Canada’s credit-to-GDP gap and debt-service ratios have surpassed critical thresholds and are signalling red, pointing to vulnerabilities.

The BIS however, with their typical politically correct mannerisms, cautioned that these indicators should not be treated as a formal stress test, but as a first step in a broader analysis. Broader analysis?  Wait, what?  Here’s an idea: instead of feeling we are entitled to whatever our heart desires how about simply spending less than we make?

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Alberta Economic Outlook 2018

All signs point to growth for Alberta’s economy in 2018 with non-energy sectors poised to perform well, particularly agriculture, agri-foods, tourism and technology. Still, challenges continue, with the unemployment rate stubbornly high and some businesses in the province struggling.

Late last month ATB Financial released its first  Alberta Economic Outlook of 2018, providing insight into what has happened so far this year and what may happen in the months ahead. The key findings are:

  • US oil prices have been stronger this year.
  • The price for Alberta’s heavy crude has not enjoyed the same increase, which has widened the differential.
  • Alberta will continue to see job creation in 2018, but the unemployment rate will come down only gradually.
  • Housing prices will improve modestly over last year; housing starts will be unchanged or slightly lower.
  • Net inter-provincial migration should return to positive in 2018.

When it comes to oil, North American benchmark oil prices have increased, yet Western Canadian prices have barely budged, and our heavy oil producers have not enjoyed the same lift in price. This is due mostly to pipeline bottlenecks and constraints. In the current price environment, Alberta’s energy sector is positioned for only modest expansion in capital spending.

There are threats beyond our control that add uncertainty to our economy including NAFTA negotiations and the opposition to pipeline expansion. Household debt levels are also at record levels, and borrowing costs are rising. As well, the global economy may be shifting into another period of financial and market volatility.”

ATB Financial’s Economics and Research team is forecasting real GDP growth of 2.8 per cent this year, followed by 2.2 per cent in 2019.

Read the complete ATB Financial Alberta Economic Outlook (February 2018) and watch ATB’s Chief Economist Todd Hirsch summarize the report.

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Time almost up at the all-you-can-eat buffet?

Canada’s current debt binge has some sounding the alarm on rate hikes. According to Macquarie Capital the unprecedented rise in consumer debt means the Bank of Canada’s (BoC) rate-hiking cycle is already the most severe in 20 years and further increases will have far graver consequences than conventional analysis shows. Assuming just one further rate rise, the impact would be 65 percent to 80 percent as severe as the 1987 to 1990 cycle, which took into account five-year bond yields, household debt and home buying. Canada’s housing market slumped in the early 1990s after that rate-hike cycle and a recession.

“The Canadian economy has experienced an unprecedented period of hyper-leveraging,” analysts David Doyle wrote in the note released in January. According to Macquarie, this is underlined by the fact that:

  • About 30 percent of nominal GDP growth has come from residential investment and auto sales over the past three years. This is about 50 percent greater than what has been experienced in similar prior periods.
  • The wealth effect from rising home prices has driven nearly 40 percent of nominal growth in gross domestic product over the past three years, about two to four times the amount experienced previously when the BoC was hiking rates.
  • Even as this has occurred, fixed business investment and exports have struggled, limiting the ability for a virtuous domestic growth cycle to unfold. This again is in sharp contrast to similar periods in the past when these were accelerating.Governor Stephen Poloz has indicated high household debt could make the slowing impact of rate hikes harsher, and that the impact of 2017’s increases will not be fully clear for 18 months, Doyle said. “When taken together, these observations mean the Bank of Canada is proceeding with hikes despite uncertainty surrounding the severity of tightening performed so far,” Macquarie writes. “This elevates the risk of policy error.” Macquarie expects only one more rate hike in either April or July.
  • New mortgage stress-test rules will also have a larger impact than estimated, Macquarie said. The new rules in isolation are expected to reduce buyers’ maximum purchasing power by as much as 17 percent. That jumps to about 23 percent after incorporating the rise in mortgage rates since mid-2017, according to the note.

New mortgage stress-test rules will also have a larger impact than estimated, Macquarie said. The new rules in isolation are expected to reduce buyers’ maximum purchasing power by as much as 17 percent. That jumps to about 23 percent after incorporating the rise in mortgage rates since mid-2017, according to the note.

Governor Stephen Poloz has indicated high household debt could make the slowing impact of rate hikes harsher, and that the impact of 2017’s increases will not be fully clear for 18 months, Doyle said. “When taken together, these observations mean the Bank of Canada is proceeding with hikes despite uncertainty surrounding the severity of tightening performed so far,” Macquarie writes. “This elevates the risk of policy error.” Macquarie expects only one more rate hike in either April or July.

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The End of the Canadian Housing Bonanza?

Canadian home sales rose to a record in December just before tougher mortgage rules took effect, helping make 2017 the second strongest market ever. Transactions climbed 4.5 percent from November to 45,976, according to a report in early January by the Canadian Real Estate Association. The national benchmark price index was little changed on the month and was up 9.1 percent from 12 months earlier. Clearly it is apparent that home buyers were racing to get ahead of more stringent mortgage eligibility rules that took effect on Jan. 1, 2018 potentially distorting year-end sales figures.

2017 was the second strongest year for sales on record, and included strong gains in prices. It will be interesting to see if monthly sales activity continues to rise despite tighter mortgage regulations that took effect on January 1st.

Sales in December rose in about 60 percent of markets led by Toronto, Calgary and the Vancouver area. The December surge brings the streak of gains to five months. Sales for all of 2017 fell by 4 percent from 2016’s record. The Canadian Real Estate Association forecasts that sales will have another down year in 2018 as demand gets weighed down by rising mortgage rates and a new federal rule requiring borrowers show they can afford payments that are much higher than current market rates.

While national home prices have come down since peaking in May 2017 it still proved to be a strong year. The 9.1 percent year-over-year price gain in December is the second largest appreciation for that month in the past decade.







Deteriorating Housing Affordability

Meanwhile, RBC Economics in a report published in December 2017 says housing affordability in Canada is at its worst level since 1990. No surprise there, nor is there any surprise to see Vancouver, Toronto and Victoria as the least affordable markets (where it will take 87.9 per cent, 78.4 per cent and 61.5 per cent, respectively, of household income to cover the cost of mortgages). Looking for relief? Saint John is Canada’s most affordable market (where 24.5 per cent of household income goes toward mortgage servicing costs).

Read more here:

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Worry = Higher Interest Rates + Covering Monthly Bills

According to a recent Ipsos poll conducted by MNP LTD., Canadians are increasingly worried about their ability to repay their debts. Since interest rates first rose in July, households across the country have noticed their budgets tightening as they struggle to keep up with expenses and manage other rising costs. Jumping eight percent since September, a full one-third (33%) of Canadians now say they are unable to cover their monthly bills and debt repayments. At the same time, almost half (48%) say they are $200 or less from not being able to meet their monthly financial obligations.

In light of the above and a little closer to home, it should come to no one’s surprise, that the recent numbers released for the Office of the Superintendent of Bankruptcy Canada reported Alberta bankruptcies increased 11.4% to 450 up from 404 the month prior. Compared to 12 months earlier personal bankruptcies in Alberta are up 2.3%. As is visible in the graph below, bankruptcies had been falling throughout 2017 until they picked up again in August and October. We suspect the Bank of Canada’s decision to increase key interest rates by 0.25% in July and again in September has been a contributing factor. With the additional hike earlier this month of an additional 0.25% we suspect bankruptcies to continue at elevated levels.


As with Newton’s third law: For every action, there is an equal and opposite reaction.



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You’re not as rich as you think

With Canadian policy makers led by Governor Stephen Poloz increasing the benchmark overnight rate to 1.25 percent last week, marking the highest level since the global recession and their third hike since July Canada also became the first major central bank to move ahead with a rate increase in 2018.

However central bank officials also repeated their dovish language about moving ahead cautiously and warned they expect the economy will require continued stimulus to remain at capacity. In an official statement from Ottawa they indicated that;

“While the economic outlook is expected to warrant higher interest rates over time, some continued monetary policy accommodation will likely be needed to keep the economy operating close to potential and inflation on target.”

“Governing Council will remain cautious in considering future policy adjustments.”

These actions and statements seem paradoxical, but at the same time we can understand why.

Pain now, or pain later is the question. Consider interest rate policy, in its base form, is simply an encourager or discourager for us on Main Street to ‘steal from our future consumption’. Once considering our ever increasing debt levels a lot of future consumption has been stolen over the last number of years!

Increasing rates inevitably makes further borrowing more difficult. The inability to steal from our future consumption will naturally create a consumption void (recession or worse) at some point.

Our proxy for Main Street sentiment from our post last week confirms our doubts in what truly has been gained from almost a decade of low rate policy.

Even those of us who have stewardly avoided debt accumulation are not immune.  With the inflationary effect of asset prices being the only real benefit of low rates now disappearing, along with aggregate demand supporting current values becoming tested, we will soon come to realize that we were never really as wealthy as we thought we were.  In other words, in the future, people will be prepared to pay much less for something we own now in comparison to what we think it’s worth today.

Because of this, both borrowers and accumulators will feel the impacts of this cyclical change. Any believers in such a thing as an engineered ‘soft landings’ being possible will be disappointed. Sentiment change is a funny thing on the way down and historically, doesn’t seem to be engineerable. Down crashes happen frequently, up crashes never. Even the slope of a parabolic rise doesn’t quite qualify as an ‘up crash’.

In conclusion we are left to conclude, contrary to Scotiabanks “You’re richer than you think” marketing campaign, you’ll soon come to recognize that “You’re not as rich as you think”

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