Strong in these padawan, recency bias is

Thus quoth ZXSpectrum48k, over on Monevator. From a fellow who does this as a day job, looking at the legions of wannabe escapees from the office

Dunning-Kruger…

Socrates was the counterfactual, though he defined the Dunning-Kruger problem in his first sentence.

for he knows nothing, and thinks that he knows. I neither know nor think that I know

Socrates.
Or Plato talking about Socrates.
whatever, there still be truth in it

It is part of the way of the world – the young fellow must be ignorant to his faults to make his way in the world and try and put his ding in the universe. ZX was also talking of the younger ermine, and probably even of me now, after all, how would I know 😉

You don’t often get away with thinking that you know, when you don’t. Particularly in the markets. Somehow TA’s article showed that in a harsh light. Let us look at the thrust of his article Should you use cash to bridge the gap between your ISAs and your pension?

In it, TA postulates saving ten years worth of cash, to bridge your spending over 10 years between retiring early (the RE part of FIRE), and reaching 57, the earliest point the Agglomerator, hero of his journey, gets to access their tax-privileged pension savings (SIPP). I confess I haven’t studied his derivation of that requirement, but I was only a little bit older than his putative future Millennial when I packed in work, I was very early fifties whereas Agglomerator wants to clear the workforce at 46.

Let’s just zoom out a little and put that into perspective, the Agglomerator enters the workforce at 21 on leaving university, and clears it at 46, so he works for 25 years. In that 25 years, somehow he saves 10 years of spending as cash and about twice that much in tax-privileged accounts to see him out. That looks like a massive ask to me, saving effectively 30 years of essential spend¹ along with buying a house outright and establishing himself.

Today’s FIRE community is very different from that 10 years ago

For a start, fat FIRE is a much bigger thing than it was in the past. When I started it was about frugality first

UK Personal Finance Blogosphere, Source: http://www.moneysavingchallenge.com

there are only 5/13 left standing (I haven’t counted those that haven’t been updated for over a year). It shows how different the world is now that it was just over ten years ago when I started down the FI/RE track. It was about saving and frugality.

Why was this – it was just after the GFC, people didn’t really believe the stock market would come good. Apart from Monevator, who sounded the clarion call into the low-water mark – git your ass into this market- NOW. However, valuations were such that you could get a decent return on shovelling money into that market. Although you were never going to retire early making minimum wage, you didn’t need the fancy City finance pay packet.

Today’s FIRE community is much, much richer than that of ten years ago. Some of that reflects these high valuations – if you want to accumulate enough to retire early now it’s a much tougher job. A safe withdrawal rate of 5% was conceivable in 2009, it’s much lower now, simply because valuations are higher. You need to be working in finance to get enough. There’s much more emphasis on fat FIRE now – starting off with a lot more, and spending at much higher levels. The frugalistas have been run out of town.

If you’re starting out, that’s not so bad, I have the suspicion that valuations will become more reasonable² in the not too distant future, you need to keep buying into it. You have three decades.

But if you need to make it all happen in five years starting yesterday, then it’s going to be tough sledding. And I would imagine that a lot of getting-on-for-fifty-somethings are going to find themselves heading towards early retirement this year and next.

Talking of padawan, bless my younger self’s cotton socks, I thought I would have edge in sectors. Then I chased the HYP, is some ways because after a GFC yield was easy to find. Dunning and Kruger would be proud of me. I did do well. But not for the reasons I believed. I have no particular edge is stockpicking. But I was next to an open goal. Truth be told it didn’t really matter what you bought at that time. Valuations were in the dumps. My big win was to buy anything. I would probably have done better buying VWRL, except it didn’t exist in 2009 and before the RDR there were all sorts of dodgy practices to do with funds and backhanders. I was weak on the US market, which has been on a tear for most of that time. But I bought in at a low, and while I would have been better off buying a broad index, getting the timing right trumped sector allocation.

It’s not what I bought, it was when I bought – at low valuations. The rest of the journey was slowly coming to the conclusion that I am still a padawan, though not hopelessly so. I did OK, such that now, marked to market at high valuations (now) I have more capital than market to market at low valuations (the GFC) despite living off investment return over the last 8 years.

TA’s article says I was nuts. I agree, if I were starting now being balls-deep in equities other than three years’ essential spend would be crazy. It was less nuts starting from low valuations, because it is the truth that passivistas never allow to be heard – valuation matters, and the other name for that is market timing  😉 . But Dunning-Kruger probably would have the last laugh, because if TA went back in time to the younger Ermine and said ‘my crystal ball tells me you have to have enough cash to carry you for the next 8 years, what do you know that I don’t?‘ I am not sure that the younger ermine would have puffed up his furry chest and say ‘traveller from the future, valuations are historically low now, so the risk is much lower than it will be in your time.‘ TA wasn’t there, though Monevator said pretty much that at the time in his if not now, when?

A tale of desperation against logic

We are all, of course, the hero of our own narrative. Using the flight  analogy from a few weeks ago, I ready myself for the eight lean years in a flimsy craft, refuelling and seeing fire streaking across the runway behind. I am faced with the choice of wealth or health, and choose health. TA would not have cleared me for take-off, I did not have eight years cash saved, I did not have enough to bridge the gap. But enough to be prepared to take the chance. Against the backdrop of the GFC, the increasing value of the shareholdings stiffened the spine enough that I felt I could make it, though I did have to experience the lean years, particularly at the beginning. But in the years after the GFC, many people were skint. The ask is much, much higher now.

The Ermine cast a cynical eye at the Bank of England’s UK’s implied inflation forward curve (H/T Monevator’s should you use cash to bridge gap between your ISA and pension) and thought to myself flipping ‘eck, you lot must think we are born yesterday.

Look at the sedate trajectory On the one hand they’re expecting to write lots of letters to the Chancellor on how they cocked up bringing inflation down to 2%, indeed this will be a regular event for the rest of my lifetime. The Bank of England has a lot of finance bods much smarter than me, and I am sure that they will say well, hey, this is what is implied by the yield curves, it’s not our opinion. Sort of like a variant on guns don’t kill people, people do. Nothing to do with us, guv, it’s wot the market numbers say.

All over the decadent demise of the Western world there is this refusal to take responsibility for the consequences of our actions in favour of magical thinking. I’m all for magical thinking, but in that case let’s have some magic back, eh, rather than pretending we’re all materialist rationalists. Smells and bells, please. At least some of the ride will be more fun. Meanwhile

You’re having a larf, guys

In an exceptionally paranoid moment the ermine looked at what I expect coronavirus to do to the economy, followed by a quick one-two of Brexit, and figured that I see inflation in my future. In the BofE’s favour, if we take a look at the UK inflation rate history

UK historical inflation (CPI) Macrotrends

it looks not so different from the B of E’s prognostications, if we stick to the last 40 years. We have to go back nearly 30 years to the last time it was over 5%. Case proven, m’lud. Along with history, inflation has ended. Obviously you need some inflation, else capital will sit back on its lardy butt rather than get out into the world making good stuff happen in theory, but we’re sorted as far as inflation taking off. Hmm. In other news

We seem to be suffering a general competence deficit

We seem to be suffering a major competence deficit these days. In the battle between ability and craftiness, everyone seems to be losing their grip. The malefic Dominic Cummings seems to losing his mojo – starry-eyed for Big Data, his feet of clay show when it comes to hiring people to do anything with it. Obviously you ask your mates first, because, well, corrupt bastards are like that. He’s of the view that leadership in politics requires a science degree, but his own ancient and modern history degree from Oxford clearly failed him in his/our hour of need. He’s unable to find competence in handling data.

If the answer to your data processing job is Excel, the question is wrong

Back in the day, the Ermine was chatting to the guy at the next desk, who was tasked with keeping records of set-top boxes. Now I had an electronics, not software background, but he was planning on keeping this in Microsoft Excel. “Your problem there,” opined the Ermine, “is that you can’t do ‘owt with the data. What you need is a database”. This guy was going to try and search for repeating faults and that sort of jazz. Now you can do that is Excel, but it’s a bit like Samuel Johnson’s quip about a dog waking on its hind legs, it’s not so much that it’s done well, it is that it’s possible at all. It grinds to ever slower after about a thousand records – I discovered this the hard way when running the records of a club that had about 1500 members at its high water point. I switched to Access³ after about 500 members.

The trouble is everybody can understand Excel, whereas getting your data into a database is a different level of abstraction. Even in DOS days, dBaseIV had the edge on Lotus 123, though wrangling the forms to make it work was a nightmare.

Excel just isn’t designed to handle huge amounts of data – wrong tool, wrong job. This fellow might have had a hundred thousand set-top box ids, and Excel was only good for 65535 rows back then. You don’t use Excel for massive lots of data. I’d get off that wagon at more than 5000 data points, so you don’t use Excel for tracking your set-top boxes. Or your coronavirus victims…

Now in fairness to our Dom, he’s busy getting his mates to do his data munging, falling for the old saw of anonymised data. The trouble with AI and Big Data in particular is that the aim is to de-anonymise everything.  AI looks intelligent because it cross-correlates everything, at scale. The public data Dom’s giving his buddies may well be anonymised on its own, but when combined with other data the keys to the kingdom often show up.

Now is the winter of our discontent[…]
I am determined to prove a villain
And hate the idle pleasures of these days.
Plots have I laid, inductions dangerous,
By drunken prophecies, libels and dreams,

This lot seem to have skipped a few lines of Richard III, and gone straight on to the doing evil. The thing that’s saving the rest of us is the competence deficit – in driving out Brexit non-believers, they seem to also have driven out anybody who can spot a bad idea miles away. Or indeed anybody who’s got a clue. Funny old thing, that… Correlation is not causation, eh, Dom?

Brexit zealotry doesn’t seem to correlate with competence

Perhaps driving out those who had a clue was the point – disaster capitalism unfolding before our eyes. Never let a good crisis go to waste and all that. Perhaps it has to be the way- you need moronic slavishness to the Brexit Ideal to Get Brexit Done, and perhaps afterwards we can engage people who understand the art of compromise. A little bit of that on t’other side wouldn’t go amiss, either, but we have to stick with what we can change…

I’m sure we will trade with other people after Brexit. But let’s get some people who can talk in a civilised manner to others, eh, rather than yelling we have the sovereign right to do exactly as we damn well please, and thanks for all the fish. That’s an awful long way towards the Juche doctrine of North Korea, and I suggest Brits are a little bit too soft and used to their creature comforts to want to pay that sort of price for absolute sovereignty, regardless of what Jacob Rees-Mogg and his disaster capitalism compadres in the European Research Group have to say about vassal states.

I am old enough to just remember 1973. Britain was a lot more self-sufficient in many things then, like food and cars for instance, than it is now. We weren’t that good at a lot of this, which was roughly why we signed up to the Common Market as it was then  – we were the sick man of Europe, economically speaking. However, the issues raised by James Goldsmith of the Referendum Party weren’t ever addressed with Maastricht. Brexit will definitely fix those. A little bit like burning the house down fixes bad wallpaper, but some non-ERG eyes can probably make Brexit work right after a few years. Britain’s economy did sort of work before 1973, and hopefully we have all learned something in the intervening 47 years. Just for God’s sake keep the British Eton-educated whazzocks away from leadership of our companies, particularly any that make cars, it took foreign management to make Britain’s car factories make cars that were worth buying…

work is not the route out of poverty for the ability-challenged or those with more children than skill

I confess I will struggle to drum up sympathy for the Red Wall if they find they are vassals to British plutocrats rather than EU technocrats. True, they weren’t to know of the coronavirus pandemic, but the deep compassion for those who fall on hard times of the crew that they voted in to Get Brexit Done has been hidden in plain sight for a very long time.

I still remember the relatively benign version of that looking for my first job nearly 40 years ago, it scared the hell enough out of me to never take any time between jobs until I packed work in for the last time. The experience of being unemployed in Britain doesn’t seem to have improved between Margaret Thatcher and the punitive and nasty Universal Credit.

Let’s take a look at the latest tweets by the bell-ends at the DWP about Job Entry Targeted Support.

Translated: People on the scheme which get a personal DWP goon on minimum wage who is incentivised to make your life a misery and get you to apply for endless jobs for which your skills and personal circumstances don’t fit you

Personalised, like the red dot from a rifle. The personal adviser will be targeted to make your life miserable. If you want to cop a feel of the quality of the personalised advice, knock yourself out on the gov.uk careers advice beta to gauge the accuracy.In the case of the Ermine, that’ll be

ORLY? The last time I had anything to do with sports was the very last time i packed my PE kit away at school, in the late 1970s…

Because there is a fundamental truth here. Britain is a rich, First World country. That means the cost of living is higher here than in many other places.

Sadly, Brits are not, on average, cleverer than other people. We’re average. Quelle surprise, eh? As a result, the sort of jobs available in the UK that pay enough to live on need to demand a higher level of skill than the global average, and the bar is increasing all the time⁴. Because: globalisation. If you thought Brexit is going to fix globalisation, then you should have been more careful about the people you gave the keys to.

Elementary logic shows that the result of increasing skill requirements is that fewer and fewer people will be able to earn enough for the average cost of living. Some of them won’t be bright enough. Some of them will have had children too early in life, or split up with the other party involved. That means you won’t have enough time to get a full-time job. As a society while we mouth platitudes about wanting to make up the difference, by our actions we clearly don’t care that much to be prepared to carry your choices for years and years.

We have hidden this in the past by increasing the number of shit jobs in the economy, things that should have been done by machine or not done at all, and priced these at minimum wage. It is one of the reasons why productivity has gone down the toilet in the UK since the credit crunch. For contrast, I started work when this was about 55 on that scale, and left when it was about 95. Britain got better off while I was at work – not due to me I hasten to add. You need an increase in productivity to address poverty. There has to be more shit to go around per head for the country as a whole to get better off – it is a necessary but not sufficient condition.

UK per capita productivity, it’s less than it was in 2016, and pretty flat since the GFC. Source: ONS

There’s only so far this can go. Another way we are hiding this is to create a punitive DWP system for the un(der)employed called Universal Credit, employ young graduates who can read and write to be mean to people who perhaps have literacy issues or generally can’t stand filling in forms. We incentivise the graduates to disenfrachise as many of their ‘clients’ as possible so that they keep their sort-of middle-class jobs, while making it all look like the clients’ fault that they don’t have the natural ability to get/hold a job that pays enough to live on.

Let’s not even start on what we do to the physically and mentally ill, eh? We just don’t care. Oh and then we wring our hands about the amount of homelessness.

Now I’m not saying I am clever enough to know the solution to this problem, but I have learned over several decades is that whistling a tune and repeating inappropriate platitudes like ‘work is the route out of poverty’ isn’t the way to fix the problem. It would be more honest simply to tell some of the people with insufficient skills or chaotic lifestyle choices that there is nothing we are prepared to do for you. Work is not the route out of poverty, for the simple reason that the cost of living is too high in Britain to keep a roof over your head on anything less than the full-time minimum wage, and there are too many people in the UK who don’t have enough aptitude to add enough value to something to even justify the minimum wage.

Some people are seriously short of basic life skills, like recognising food 😉

Ceci n’est pas food

Microsoft offered me this picture of a field of Halloween pumpkins in some American field. It’s a little bit weird, a tad Magritte, IMO. How do I know it’s American – there are no trees, hedgerows, we don’t have one-armed pylons unless there’s a really good reason and we don’t run our railway tracks with no guarding, and I don’t think I’ve seen boxcars like that.

However, it’s in keeping – Halloween never used to be a retail-fest or even A Big Thing until about 30 years ago, and it’s been pushed like hell, imported from Over There. It’s still rather disturbing that a significant proportion of British parents were presumably raised by wolves themselves in being unaware that you can eat what’s inside pumpkins⁵. Although I had no idea how they grew, I was aware of this by the time I left home, though it wasn’t particularly useful information as Halloween wasn’t a big thing, and I am child-free anyway 😉

However, I am with hubbub – eat your damn pumpkins FFS 😉 Tossing 90% of the pumpkins we grow is just plain rude. Mrs Ermine grows these smaller ones which look the part but taste better. We don’t need to carve them, but with cucurbits size does not correlate with flavour IMO.

It’s not so much that the big supermarket ones will taste horrible, the main failure mode is to taste of nothing much at all. Think marrows as opposed to courgettes. Having said that, if it tastes bitter, then toss it out. Pretty much a rule of everything to do with eating really, but according the the RHS bitter squash can give you bellyache if it doesn’t breed true. So don’t seed save curcubits unless you know what you are doing.

Last year I was in Morrissons and they actually labelled their Halloween pumpkins as ‘not for human consumption’, which makes me wonder what the hell they spray the buggers with. And quite frankly, parents, maybe you want to ask yourselves, if you buy this sort of contaminated shit for your kids, then what sort of world you are encouraging capitalism to build for them?

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1. I know, he doesn’t keep it all in cash and gets some return on his money. But the maths works out at enough for 30 years essential spend, even if it isn’t deployed in that way. ↩
2. Valuations becoming more reasonable is otherwise known as a bear market ↩
3. Before all the DBAs take the piss, Microsoft Access was the right solution for a club database, easy enough to a tyro to make it work. If it didn’t, the result was going to be embarrassment rather than death. I’m not saying PHE should have used Access ;) ↩
4. I took my O levels in the mid 1970s. The typical class sizes of my grammar school was 31, but after the O levels class sizes were about half, because half the kids had gone into the world of work. They were fixing cars, helping in businesses, all without A levels or a degree. I saw far more people as a child building the Goldsmith’s College halls of residence than I saw on the entire Olympic Athlete’s Village building site in 2012. You wouldn’t need to be able to read and write as a hod carrier in the 1970s, I saw nobody carrying bricks onto the scaffolding up a ladder in 2012, there were mechanacal aids t do that. ↩
5. While I despise Halloween for being a jumped up capitalist consumerism-fest, rather than an honourable celebration of the turning of the seasons/harvest festival/thinning of the veil, the truth is that parents who eat their pumpkins with their kids and then carve jack o’lanterns out of them use more of the fruit than I do. Upcycling writ large and they should be applauded! ↩