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The Next Big Short

With rising oil prices contributing positively to the economy in western Canada, and many companies with a presence in the province enjoying the upside, investors who have been patient are finally seeing their patience pay off. On the flip side, however, higher oil prices will not be contributing positively to the personal balance sheets of a very large number of Canadians.

For the average Canadian who drives a car and fills the tank with gas, the cost of each fill-up will now be a few extra dollars, as higher oil prices will translate to a higher cost for each litre of gasoline. After paying for the fill-up, consumers may then be left with fewer dollars to spend inside the gas station or on other things.

Alimentation Couche Tard Inc. (TSX:ATD.B) has enjoyed tremendous revenue growth over the past three years. Consumers with less money to spend after taking care of necessities may be more hesitant to spend on things that are nice to have, such as a chocolate bar or a canned drink. An alternative would be to skip the snack and bring their own drink from home.

Consumers will also have to cut back at places like Tim Hortons, which is owned by Restaurant Brands International Inc. (TSX:QSR)(NYSE:QSR). Although a fresh cup of coffee made and served by someone else is always good, consumers can easily reduce their spending (or potentially eliminate it altogether) at places like these.

The need for consumers to cut costs will have a significantly detrimental effect on a number of companies. Looking back three years, when the price of oil declined, consumers were the ones who benefited from lower oil prices, which gave them more disposable income. With higher oil prices and higher interest rates, Canadians may once again be in a pinch.

South of the border, a potentially fantastic opportunity to make money from a declining security is with Carnival Corp. (NYSE:CCL). Although consumers may have less disposable income to take a cruise, the real catalyst will come from the company itself. With revenues which have only increased at a rate approximately 2% over the past four years (keeping up with inflation), the company has still managed to increase the operating income at a rate of 32% as the expenses have declined substantially.

For any cruise line, one of the biggest expenses is the price of oil, which is what moves the ship from one place to the next. Should oil continue its upward trajectory, shares of this cruise line may decline along with it.

Although investors have a number of opportunities to make profitable trades by buying and holding or shorting the stock, it is important to recognize just how detrimental rising oil prices can be when added to already increasing interest rates.

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Fool contributor Ryan Goldsman has no position in the companies mentioned. The Motley Fool owns shares of RESTAURANT BRANDS INTERNATIONAL INC. Alimentation Couche Tard is a recommendation of Stock Advisor Canada.

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