Coiled spring and missing Claw

Andy Haldane, Bank of England chief economist at the time, said that the economy was like a coiled spring, ready to leap into action after the Covid crisis. He’s now off to head up the RSA after 32 years.

An Ermine is left scratching his head and wondering what the backstory is here. Did Haldane always have a hankering for the arts, and his mastery of the metaphor made him wonder if the grey garb of the professional economist was beginning to chafe? Did he pitch for a promotion and get blanked? There’s also the admiration for a fellow up to working for more than three decades, clearly the FI/RE mantra speaks less to him that say one of the mustelid species, or Monevator’s TA.

Coiled Spring

When they reopen, pubs and restaurants could see a boom because of the Joni Mitchell effect: you don’t know what you’ve got till it’s gone.

Investor’s Chronicle

Fish and chips

It’s a fair cop, guv. Kicked off early last week with a full English Breakfast at one place which was mighty fine, and we repeated the exercise today, apparently they are overbooked for Sunday lunch so we needed to clear off by 11:20, which was fine, it doesn’t take an hour to eat breakfast! They’ve had to ring round to drum up staff, with the added incentive of free drinks at the end of the shift. However, it helps that the weather is reminiscent of that in lockdown 1 last year, a light breeze and sunshine. Their problem is that it’s all up to the vagaries of the weather – people aren’t going to want to sit outside in the rain, more typical of April weather in the UK.

Missing Claw

A couple of days after the first breakfast we sought out lobster on the beach, now that it’s open season on them.

We were out of luck, perhaps the cafe doesn’t want to carry the capital risk to having too much of a wasting asset. I can see their point, so we slummed it with fish and chips instead.

Fish and chips

However, we did see evidence of lobster being eaten by one of the other patrons. After such hedonism a wander up to the top of the hill and look out over the surprisingly blue sea. It is still a surprise to me. I am used to the coastline of East Anglia bordering on the North Sea, where the sea is shallow and easily churned up so it always looks like dirty dishwater.

Dorset coast

In some parts of the Dorset coast it’s clear enough you can see your feet in the water, though I leave that sort of thing to Mrs Ermine. I’d always thought blue seas are a Mediterranean sort of thing.

Eating out is a slightly odd experience. Many people find it difficult being around others now, I am not sure I noticed a change. Perhaps I never melded with the mosh-pit in the first place. However, here’s a sound I haven’t heard for an awful long time, humanity in its garrulous exuberance.

As I was waiting for the bill I was trying to work out exactly what it was that disturbed me about the King Charles spaniel at another table. Obviously that a dog was in an eatery, but after a while I sussed it. This craven mutt had no lower canines. Not a gap where the original ones had been, just no pointy eyeteeth in the lower jaw, all incisors. No damn self-respect.

The markets are not the economy

Despite the Joni Mitchell effect, the coiled spring may not have much substance behind it in the medium term. Unless you’re in your twenties you shouldn’t really eat something and chips more than once a week, so you’re not going to eat a year’s worth of missed meals out in three months. As that Investor’s Chronicle article observed, much is in suspended animation at the moment, and jobs will be lost as the rubble hits the ground.  On the flipside, capitalism turned out a lot more resilient in the face of the challenge than we expected this time last year. As evidenced in the markets. After settling down the frenzy of the first part of last year, I’ve been buying FTSE250 since mid last year, because sometimes you have to stake a claim on what you don’t believe in.

That has done well, but I suspect that some of the hurt is being felt more in the unlisted small firms, the tiddlers. Oddly enough I was looking out for this on the drive down to the south coast, and I didn’t really see much that was shuttered, more was shouting that it was open than usual1. Most of the pubs looked okay, it’s not like the drive through Dorset was like driving through the Welsh valleys, where the mark of Thatcher still blights the land three generations on. The worst part was coming back through Yeovil, but that’s a town that always looks like hope came to die. Enough boarded up shops, but I couldn’t remember if these were places that had been boarded up two years ago. Yeovil is that sort of place…

It’s hard to see where the markets are now. However, after the last post where the sentiment seemed to be that I am not representing the bond value of my DB pension adequately using the HMRC scale factor of ~20, perhaps I am overly defensive at the mo. It did lead me to ask the question of whether I really should hold getting on for twice my erstwhile salary as cash. I am not at the widows and orphans end of the risk profile scale. This mustelid fears inflation. It doesn’t have to be in equities, but it shouldn’t be so much in cash…

Hard to know what to use this year’s ISA allowance for, though. Perhaps a little more gold, and then there’s the Lars doctrine, nobody ever got fired for buying VWRL. Indeed, Lars’ latest has an indirect bollocking for those in cash because they fear the stock markets

If you feel the minimal-risk asset’s interest rate does not give you enough return in your simple two-product portfolio – and you’re willing to take more risk – I’d say maybe take that risk in the equity markets. At least that keeps things simple.

The non-equity part of the portfolio is bonds, which in my case is the DB pension. If I am undervaluing the bond component by using the HMRC multiplier of 20, then perhaps I can shift some into equities. Shame they are up in the sky… I missed this point about the State Pension shifting the needle on the dial in the more bonds department.

Since it appears that Vanguard’s ISA is a flexible ISA, I can ground my Charles Stanley and move it to Vanguard. What I will do is first open Vanguard with this year’s ISA allowance, and buy VWRL or the fund equivalent on the same day as selling out the similar fund in Charles Stanley. Which will reduce market risk. I haven’t yet worked out if Vanguard’s ISA will only hold Vanguard’s products. I normally transfer ISAs in specie which gets round that problem.

Perhaps the markets are expecting a massive post-pandemic boom. Personally I wouldn’t be surprised to see another lockdown as Autumn turns to Winter – yes vaccination is giving us breathing space, but the enemy is adapting too. Maybe capitalism has the resilience to adapt and profit from the new normal, though it seems to be doing so by throwing an increasing part of the workforce under the bus. That tends to have undesirable side-effects. There are cheerleaders for the concept of the Roaring Twenties, let’s hope that Kondratieff was wrong, because that didn’t end well on the last turn of the arc 100 years ago. Now is the winter of the fifth Kondratieff wave, let us hope that winter holds a spring…

  1. There’s sample bias here, since if you’re the Abbotsbury Swannery you have 20 billboards advertising for the masses to bring their ickle children for a perfect family day out, whereas if your eatery is closed you can get away with a single ‘closed’ sign on the door. However, I was looking out for the latter 

21 thoughts on “Coiled spring and missing Claw”

  1. Looks nice!
    I got a dozen oyster at a farmers market at the weekend. Lobster will have to wait I think, finding somewhere both open and not fully booked or prone to disappointment through huge queues isn’t easy.

    And on the DB calculation, you might have a few years on my but I’m 22 from getting my DB and firmly value ×20. Given the risks to everything, exaggeration of asset values only serves to flatter yourself but doesn’t ultimately change he value of anything unless you sell, and I don’t want to (it’s my income floor for retirement)


    1. Trouble with doing that, is that if I make this calculation on similar terms using that best buy table, I get a result of getting on for 80% of what I estimate I earned at The Firm over all time. Which is barking mad.

      Annuities were not always this dear, I suspect some of that is the results of the GFC and ZIRP. If I believed the result I get, I should return to balls-deep in equities. I don’t want to go anywhere near as far as that. The gold can stay, but maybe twice my erstwhile gross salary in cash is a shade OTT


      1. > Which is barking mad.
        I know what you mean – but this is the best market price today. Maybe the way to think about this figure is not so much the cost but rather the worth to you and yours.

        See my comment below re my take on the usefulness (or otherwise) of overall allocation in de-accumulation.


  2. Two separate points:

    1: Vanguard ISA is indeed Vanguard products only.

    2: in search of crab… you’d need to book ahead for sure as you needed to do that pre-lockdown, but the Crab Shack Cafe is one to head to. It’s on the road leading out to Chesil Beach on the right just before you head onto the Chesil Beach road itself. They even have their own Oyster beds.

    A friend took a trip to Durdle Door yesterday, and the water looked beautiful (& certainly very clear in the shallows).

    Great post as always.

    Liked by 1 person

  3. Grrr.. that is the second time in a row you are advertising “fish & chips at the seaside”
    And here i am, imprisoned in land-locked Switzerland. Stop it, I’m getting hungry !

    Liked by 1 person

    1. Ah, but you have fine dining too. I still recall a treat, over a space of four decades, Forellen mit Mandeln at the Blausee, anda couple of decades later, fine dining at Luzern looking over the waters. Trying to beat the spadgers to coffee and pastries in the morning as the sun was rising, near that old covered bridge 😉


  4. I don’t think Lars Kroijer was encouraging investors out of cash and into equities. Rather he was making the point that if the minimal risk asset in your portfolio (ideally gilts or cash for UK investors) does not give you enough return for your liking in the current climate, you should not mess around dialling up the risk on this, e.g. into corporate bonds or emerging market government bonds. Better to increase risk, and hopefully return, in your portfolio by increasing the proportion of equities and keeping the minimal risk asset at minimal risk.


    1. David V
      Agree 100%.
      I do wonder if you [Ermine] are just trying to talk yourself out of your “conversion” to preservation described in your previous post.
      IMO, overall asset allocation is a useful idea in accumulation; but is not really so helpful in de-accumulation.
      The de-accumulation problem might be better framed in a different way.
      FWIW, I would bifurcate your assets into Floor holdings and Other holdings and strive to take zero (or at least as near zero as practicable) risk with the Floor. Other holdings I would then view as “the amount of dry powder that you have for creating upside, funding impulse purchases, or absorbing negative uninsured shocks” and treat accordingly. For example, hold some cash for those impulse/emergencies/shocks when only cash will work; hold some form of longevity insurance if required (possibly not necessary for you – but it is worth checking out pension survivor issues/scenarios) and invest the rest to generate upside in a diversified portfolio with an asset allocation to suit your risk appetite.
      Just my view of course!

      Liked by 1 person

    2. Difficult one for me.

      > if the minimal risk asset in your portfolio (ideally gilts or cash for UK investors) does not give you enough return for your liking in the current climate, you should not mess around dialling up the risk on this, e.g. into corporate bonds or emerging market government bonds. Better to increase risk, and hopefully return, in your portfolio by increasing the proportion of equities and keeping the minimal risk asset at minimal risk.

      I think that’s sort of what I am doing. Cash, to the extent of twice my erstwhile gross salary, can only really be expected to go down in real terms. I am a retiree with no mortgage, it will practically take me well over five years to use this, even eating more lobster than I should 😉 At the same time I have an income in terms of the pension, and an income in terms of earnings at the moment. As a fellow with an anticipation of inflation, that cash isn’t going to be giving me the return I want – ie staying the same. In some ways I would be better off with gold, though I take volatility there, though probably not secular erosion. And I have a fair amount of gold…

      The 20x scale factor for the annuity/bond like asset is perhaps overly conservative, so I can balance a bit towards risk. Not hugely all-in, but I can probably use my ISA allowance this year into equities without destabilising the aggregate balance.


      1. I suspect our comments above crossed in time. In any case – and at the real risk of being terribly boring & repetitive – IMO overall asset allocation is not terribly helpful in de-accumulation.

        Liked by 1 person

      2. My last comment wasn’t questioning your thoughts on your own asset allocation, but your interpretation of what Lars Kroijer had said in his Monevator article. I was merely attempting to summarise my own interpretation of his views.

        On another point, I’m not sure it is helpful to look for a bond value equivalent for your secure income. If this is substantial, even with conservative multipliers it is likely to suggest you take more risk with your investment portfolio than you might be comfortable with. Why not just recognise that you need less income from your portfolio than you would without the secure income, and then set the asset allocation in line with your risk tolerance and investment aims? I think this approach was advocated by William Bernstein in one of his books. (BTW I find it easy to have view on other people’s investment dilemmas while still wrestling with my own!)


      3. @DavidV
        Seems we are singing from the same hymn sheet (both about Lars and “On another point ….”).
        I also recognise your BTW point too!


  5. I started looking at accommodation for a potential summer road trip last week and baulked at the cost. I think the much predicted rebound will be slightly tempered by the K shape of the recovery. Homeowners, bitcoiners and the wfh crowd will get after it – the other half not so much.

    Liked by 1 person

    1. > will be slightly tempered by the K shape of the recovery

      ISTR reading somewhere that getting money into poorer people’s hands gets into the economy at a much higher rate, so the old K shaped economy isn’t going to work there. So I doubt the spring will pack that much of a punch. But the resilience of capitalism has surprised me!


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