The Coming Gilded Age and Vanguard’s mustelid indigestion

Diversification is  a decent principle with bank accounts and the like, particularly given the tendency of financial organisations to freeze people’s accounts without due process due to the money laundering regulations. Then there’s the Madoff risk of the unknown unknowns cratering a business. So much to worry about.

1+1 redundancy is a good principle in many things-when I did a parachute jump there was a main and standby. Whether I’d have had the presence of mind to pull the standby¹ before becoming a grease spot is another thing, but main and standby is A Good Thing.

To that end I have a second ISA with Charles Stanley as well as the main one with iWeb. The aim here is damage limitation, and you get most of the win with the first standby system you introduce. In theory I could get better security against providers going titsup by balkanising my ISA to try and stay under the FSCS compensation limit. Life is too short for that. Main and standby – and stop there.

My main ISA with iWeb is pretty spit-and-sawdust. Their win is not charging me annual fees, provided I hold no funds (shares and ETFs are fine) and don’t trade. I am OK to pay them transaction fees, the aim here is not to churn. They have no monthly investing facility, and you can’t borrow from the ISA – it isn’t a Flexible ISA.

Flexibility is valuable to people with no income

The financially independent are despised by the banking system, who won’t lend them money because without a salary income they can’t qualify the risk. So it’s handy to be able to borrow from your ISA, though you should never aim to use it. I hung onto my Charles Stanley account for its flexibility, but what with one thing and another it tended to grow, and CS jacked up their fees a while back. This begins to irk me. According to the Great God Monevator, CS rocks in at 0.35% where Vanguard are 0.15%. The difference in that makes it slightly worth while to shift as the account gets larger. As an old git I don’t need to flay costs as if they were the tattooed agents of darkness is the same way as TA, because I am a decumulator, and there aren’t as many decades to accumulate as for a 20-something. On the other hand I carry a lot of gold in the iWeb ISA and have shifted my risk balance lower, so maybe I do need to up the ante on the equity part. I was pointed toward the behemoth Vanguard as a lower-cost supplier with a flexible facility via a comment on Monevator. Although flexible access tends not to be a bargain basement offering, Vanguard do indeed offer it. To wit

The Vanguard ISA is a “flexible” ISA, meaning that money you withdraw may generally be paid back in during the same tax year without counting towards your annual allowance

Don’t transfer your old ISA as your first act. Because: AML theatre/freezes

Vanguard then demands my driving licence and bank statements before it will give me any of my money back, because they can’t verify my identity with credit reference agencies. Well yes, of course you bloody well can’t, That’s because I don’t borrow money you twits. I have no mobile phone account, my credit cards were opened years ago and I pay them off, I don’t have car loans and I loath subscriptions like they were the tattooed agents of darkness. Until then I can’t draw money out. Now you have to put £500 into Vanguard as a minimum, and there’s a strong argument to be made that you shouldn’t be anywhere near Vanguard if losing £500 for a year would raise your heart rate, but nevertheless, shouldn’t there be a teeny wealth warning

due to the odious and ineffective money laundering regulations in the UK, bear in mind that you are going to lose this deposit until we can verify your name, rank and serial number.

Anyway, let battle commence. I’d say the recommendation here is open your Vanguard account with £500, and go through the name rank and serial number rigmarole rather than transfer your entire ISA that provides your total income and represents all your earthly wealth, because you might be dischuffed to have it held to ransom if something goes titsup. You have absolutely zero recourse with a money-laundering freeze – they are judge, jury and executioner, and they won’t tell you the charge. I know the rule of law begins to fray under populist governments like our current crew, but this specific rollback of the principles of habeas corpus started in the 1990s so it can’t be blamed on them. Which is why I battle-tested this in this way

It’s quite a bizarre process. Some years ago some Yanks demanded some government ID for some service or other which I didn’t deem worthy of the demand. The asker was a private firm, a web host ISTR. So I found someone’s driving licence on the Web and set to with Photoshop, making sure the DOB was different, so when some ne’rdowell hacks their company they have duff gen². You want government ID – stick that in your pipe and smoke it.

Similarly in my short foray into the selling of my time for far too little money that is otherwise known as matched betting I had to create some documentation that matched a variant of my name that I had a bank account in, back in those innocent days of the 1990s when I would wander over to the bank near The Firm’s campus, show my company pass card and wander out with a new bank account. So my trusty original version of Photoshop 5 was used to amend it appropriately. Hell, if it’s good enough for Martin Bashir it’s good enough for me, except that I DIY rather than hire a graphic designer because I am a cheapskate. Exactly what the point of this exercise is beats me. FWIW I don’t do this for things that matter, like this ISA application, but it’s not hard, guys. And for people who don’t need to know in my view I always feed false personal data into their sticky beaks. The point being that uploaded photos of documents aren’t worth a jot. Because: Photoshop

But Vanguard has now decided that while the photo does look a little bit unusual

it may accept mustelids³ after all.

So I thought I’d throw that one out as a warning. Don’t transfer your whole ISA to a new provider before establish that your new provider will clear you through the AML⁴ process. And the best way to do that is to open the account with the minimum cash deposit. Which also locks you in to using that provider for your ISA contributions in this tax year, because you aren’t permitted to have two ISAs of the same type active at the same time.

Some nice options with Vanguard

I have a poke around in what I can do. I was already caught on the hop by their minimum deposit requirement of £500 – I expected know your customer aggravation so I initially wanted to sport £50, and computer said no.  They seem to run funds and ETFs. I am generally an ETF sort of guy, mainly because iWeb charge to hold funds but not shares. They don’t any more. See comments. And I like to have market pricing. And interesting wrinkle with Vanguard is you can avoid the £7.50 transaction cost on ETFs if you run it as a batch buy rather than quote and deal. For ETFs that’s pretty neat

Place your buy order now and it will go through at the next trade point. This is usually twice a day for ETFs or can take 2 to 3 business days for mutual funds. The fund’s unit or share price may change between now and then.

Twice a day is good enough for me if it saves me £7.50. Beats me why anyone would use mutual funds given the extra latency, I already have an anti OEIC prejudice from iWeb’s fee structure. But perhaps there are some that are only available as funds.

Switching out of Charles Stanley

You can only hold Vanguard funds and ETFs in Vanguard’s ISA. In Charles Stanley I had specifically avoided Vanguard, because I hold a large slug of Vanguard’s VWRL in iWeb. Vanguard has to be a major prize for state sponsored hackers. Let’s hope they run their nightly backups onto WORM media and then send a couple of guys in sneakers, each watching over the other, to take two copies and stick the media into a fire safe. Or whatever the modern equivalent of that is, but if it’s connected to the Internet without an airgap all bets are off. Even airgapped systems aren’t safe. I am pretty sure that somewhere there is someone trying to work out how to hack Vanguard, purely because of it’s sheer size. Which makes me uncomfortable about having too much in their funds. But not as uncomfortable as paying the Charles Stanley extra fee tax. I won’t sell my VWRL in iWeb, but I will look for alternatives to add. Monevator tells me that HSBC FTSE All-World Index Fund C (GB00BMJJJF91) is a worthy non-Vanguard replacement.

All my stuff in CS is in funds, because their fee structure favours that. It’s also in things like Dev World ex UK, because: Brexit at the time. So I told them to sell the lot. In theory I could lob this years ISA allowance into Vanguard and give them the buy order at the same time as CS the sell, and the fund selling time latency would cancel out, sort of. But I’m not that stressed in being out of a sky-high market for a few weeks, and CS has a lot more than 20k in it anyway. So this will be a straight cash ISA transfer, and then I will drop the anti-UK bias, because the UK is less overvalued than the US. VWRL will probably do. I will use VMID for the FTSE250 I was doing in CS.

A chance to invest more intentionally

It’s an opportunity to think about whether my aims should be different. I have moved significantly towards a safer spread of asset classes – gold and Premium Bonds as non equity asset classes. I still don’t do bonds.

How about Bitcoin? All the rage these days, I hear. Nah. It’s fundamentally the greater fool theory, not a productive asset. OK so I violate the what would Warren Buffett say doctrine with the gold, but at least that has some track record. HODLing BTC isn’t my bag, I don’t care if it could make me filthy rich in some meta-universe. It’s fast fashion IMO. Having said that, I do hold RICA and they seem to have benefited from BTC – and actually crystallised their benefit. I’m no passive believer and I’m all for market timing but BTC is strong food indeed, I just don’t have the balls. As Warren said, you don’t have to swing for every pitch.

Wiser heads than me are already scratching their noggin and going WTAF is with the markets? Fortune has this breathless take on how the kids are doing all right, with their Robinhood accounts, and crypto, and smartphones. And leverage.

Robinhood and crypto and phones are new, but the fuel is leverage, and Warren Buffett sits in his empty lecture hall looking scared, and Fortune tells us your father’s stock market is never coming back. What’s a mustelid to go? Throw caution to the winds and go get me some BTC to HODL with a side order of NFTs and dogecoin all washed down with ethereum, as approved by Elon Musk?

Leverage and a Gilded Age

If you’re Joe Soap and you need leverage to make your fortune then you’re in a Ponzi scheme, some make it big and many get hosed. Fortune’s breathless article is a fun read, but there is a stench of decadence and decay reeking across the land. We don’t know what we stand for in the West any more. The threads of the rule of law are fraying. Sociopaths like Elon Musk and Jeff Bezos are worshipped, because we know the price of everything and the value of nothing.

Welcome, dear fellow travellers, to the Belle Époque 2.0. I hope it will see me out, though I will be too old to be called up for the ensuing war⁵, as the checks and balances fail one after the other for a lack of maintenance, or perhaps because we have forgotten what they are for. I differ slightly from ZXSpectrum48k’s call in that I see the Gilded Age as starting, but perhaps that’s wishful thinking because I’d rather not live through the war.

The froth that shows now are the morbid forms that Gramsci described appearing between the fall of the West and the rise of whatever is yet to come. I see the tiredness and senescence that Oswald Spengler called out long ago – see if you recognise any of these portents from Die Niedergang des Abendlandes

“The press today is an army with carefully organized weapons, the journalists its officers, the readers its soldiers. The reader neither knows nor is supposed to know the purposes for which he is used and the role he is to play.”

“Through money, democracy becomes its own destroyer, after money has destroyed intellect.”

“Long ago the country bore the country-town and nourished it with her best blood. Now the giant city [ed: London?] sucks the country dry, insatiably and incessantly demanding and devouring fresh streams of men, till it wearies and dies in the midst of an almost uninhabited waste of country.”

“At the beginning a man was wealthy because he was powerful — now he is powerful because he has money. Intellect reaches the throne only when money puts it there. Democracy is the completed equating of money with political power.”

In movies the decline and fall is portrayed as catastrophic, because the narrative needs a thrust-plate for the hero’s journey. Where the fall is caused by external forces that may be the case, but when the mainspring of culture unwinds, the interregnum can be be a long decline.

Leaving that aside, when da yoof convince old gits at Fortune to write breathless articles that it’s all different now, we know that it’s the beginning of the end. We’ve seen this particular movie before. I was (sort of) da yoof in 1998. I set up an internal company share discussion board on an old machine under a desk ⁶, and opened batting with this first transmission.

“The aim: to make us rich. Very very rich”

That’s the whole point of being a young cock – to be so damn dead certain sure that this time it’s different

Bliss was it in that dawn to be alive,
But to be young was very Heaven!

How did that work out? The Ermine got away lightly, spaffing a few grand in tuition fees at the University of Stock Market Investing, while one fellow got to remortgage his house

I’m not clever enough to know whether ZXSpectrum48k’s withering riposte on redditors’ smarts makes sense analytically. But I concur with the likely outcome

A small few of you (both retail investors and hedge funds) will make huge sums and strut around the media. A few will also lose huge sums and achieve a different type of attention. The bulk of you will lose small sums and will be never heard of again. Overall though, the net P&L will be a loss.

Not because I know what the hell he’s talking about. But because leverage at the top of a frothy market always ends that way. Small guys borrowing money to invest in a bull market is the the bugler sounding the Last Post for that market.

This is why I hold a shitload of gold, and my ill-gotten gains from shorting last year are partly in gold in the ISA and partly with NS&I in the form of premium bonds. It’s why I’m not troubled sitting in cash for that ISA transfer. My ISA estate is still mostly equities, but I feel the crash is survivable now. When will it come? God knows, but I hope it comes soon, because the higher and higher it climbs, the worse the fall, and I am not so sure that the tired economies of the West can take that sort of Great Depression fall, it’s not like there aren’t signs of social tension now.

Sure, your father’s stock market isn’t coming back. You grandfather couldn’t buy the index – or AMZN. But a lot of the sci-fi market is wind and piss, born of decadence and too much borrowing. Meme stocks, BTC, NFT, it’s all froth, dot-com boom 2.0, and we have seen this movie before. The giveaway is that little word leverage. If you thought you were buying productive assets that deliver a steady income stream then you wouldn’t need leverage. If you need leverage to make a buck because the share price is king and income is dust since everything is overvalued you’re in big danger territory. And if you’re a little guy that needs leverage at the top then you are upcoming roadkill.

The great win the young Ermine achieved in the dotcom bust was not using leverage. That’s why I didn’t get to remortgage my house. You can pay a lot more than I lost there for training into how to be a shit-hot trader using leverage, but you never hear from the guys that crash and burn. Funny old thing that.

Success has many fathers but failure is a bastard.

Otherwise known as sample bias. Coming to a Redditor near you, or pretty much any of Fortune magazine’s cast of characters. Avoid leverage. It never ends well. Don’t. Use. Leverage. If you’re a little guy that is. If you’re a hedgie then knock yourself out, because what’s the worst that could happen? You blow your account up and get to look for another job, rather than remortgage your house.

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1. it has been a while but I think main was launched by a breakaway cable from the aircraft, so it didn’t need presence of mind ↩
2. It staggers me how many folk tell Facebook their birthday, all for the rush of having 300 ‘friends’ wish them happy returns. Don’t. Do. That. ↩
3. That’s a pine marten, beautiful creatures. I’ve only ever seen them in Scotland, though perhaps one day I can see one in Wales. And just for the record, no, I didn’t replace the photo on my DL with this handsome fellow, it was sent to Vanguard SOC ↩
4. Anti money laundering ↩
5. The war will be fought with screens, not men, until the fragility of the networks that were built over decades and never black-started as a whole shatter into islands or go dark for decades. The Internet of today is not your grandfather’s ARPAnet and has concentrated pinch points and single points of failure ↩
6. using Matt’s Perl Scripts WWWboard, lethally hackable code that I was amazed to still find on t’internet – for the love of all that is holy don’t ever even think about putting this on a real site. At least my site was on the intranet. ↩