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Five reasons ‘extreme early retirement’ might not be so great

A roundup of what The Globe and Mail's market strategist Scott Barlow is reading today on the Web

In a perfect world, all Canadians worried about the housing market and financial system would read "The secret history of the banking crisis" by economist Adam Tooze in which he details the mechanics of how the financial crisis occurred with a U.K. perspective.

The takeaway for Canadians is that to believe in a domestic housing bust-led financial crisis is to forecast that the country's major banks will stop lending short-term funds to each other. This is never, ever going to happen. In the highly unlikely event that the "co-operating" major banks fail to prevent a lending freeze-up, the Bank of Canada will print any sum of money, guarantee any amount of asset values to make sure the money keeps flowing. Governor Stephen Poloz is well aware that a seizure of short-term bank credit markets is a doomsday scenario.

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This is not to say the back side of a housing bubble won't hurt the banks, and that earnings growth might be scarce or non-existent for a while, but a major banking crisis is not in the cards in my opinion.

"The secret history of the banking crisis" – Tooze, Prospect Magazine

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U.S. portfolio manager Ben Carlson provides seven reasons why 'extreme early retirement' might not be all that great. Mr. Carlson admits a bias – he likes working which is a luxury many people don't have – and the first downside of early retirement, health insurance doesn't apply to Canadians. Still, he makes some good points. Here are the five most relevant problems with extreme early retirement,

"Your money has to last you a very long time, most of your funds need to be in taxable accounts, expenses tend to rise as you age, investment management becomes much more important, sequence of return risk can be massive."

"Some Thoughts on the Extreme Early Retirement Movement" – Carlson, A Wealth of Common Sense

"Retirement at 65 becomes a reach for some, as seniors stay in the workforce" – CNBC

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The swathes of speculative investors who took a hellacious beating shorting the loonie have apparently thrown in the towel, according to Credit Suisse,

"The largest underlying move [last week] came in CAD, where specs net short was cut from 38 per cent [of open interest] to -6 per cent, the smallest net short since mid-March."

"@SBarlow_ROB CS: CAD shorts take their medicine" – (research excerpt) Twitter

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A terrific post (in a series of them) by Morgan Housel illustrates how deceptively easy investing looks in hindsight,

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"Take Warren Buffett's 2008 investments in several banks. Looks easy in hindsight – cheap! Good companies! But Buffett made his offers the same week PIMCO CEO Mohamed El-Erian told his wife to take out as much cash from the ATM as she could because the odds were so high that the banking system would collapse. You are kidding yourself if you think being greedy when others are fearful is as easy as saying it during a bull market."

"Every Great Investment Hurts" – Collaborative Fund

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Tweet of the Day: " @interfluidity so much of the glorious future is cleverly marketed dystopia. curbed.com/2017/7/14/1597…" – Twitter

Diversion: "The best TV show of every year since 2000, according to critics" – Business Insider

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About the Author
Market Strategist

Scott Barlow is The Globe's in-house market strategist. He is a 20-year veteran of Canadian investment banks, including Merrill Lynch Canada, CIBC Wood Gundy and Macquarie Private Wealth (MPW). He was a highly ranked mutual fund analyst for 10 years and then, most recently, the head of a financial adviser support team at MPW. More

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