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The Canadian household debt/disposable income ratio is currently (December, 2010) at a record of 1.48.

Reference: The Globe and Mail - Household debt ratio hits record.

What are some investment products, ideas, or strategies which would allow one to take advantage of such a situation?

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Some ideas:

  1. You could begin shorting Canadian bank stocks that are issuing all the debt that may not be paid back. You have to be careful here. If things implode like they did in the US then the Canadian central bank (Bank of Canada) will bail out the "too big to fail" banks by printing money to cover their losses. You may want to stay away from the Big 5 - Royal Bank of Canada, Toronto-Dominion Bank, Bank of Nova Scotia, Bank of Montreal, and Cannadian Imperial Bank of Commerce and short stock of smaller banks. Money was still made, however, shorting even the big banks: alt text
  2. You could short construction companies that are currently benefiting from the artifically low interest rates. I don't know of the major construction companies in Canada.
  3. If things were to crash, where are people going to put their money? This would be a good area to go long. In the US many piled into US treasuries. You could buy some Canadian treasuries and if the crash occurs, sell your treasuries when everyone is looking to buy.
  4. Buy stock in retail companies that offer very cheap goods. When the correction happens people become very frugal with their money: alt text
  5. Buy stock in companies that produce goods that are desired in countries where economies are growing (think China and Brazil). Canada is very fortunate in this regard with lots of mining and other natural resource companies (e.g. Potash, Barrick Gold, etc.).

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