There be a rumbling and a sound of clucking chickens in the air

Or should that be Turkeys? It’s not looking good for citizens of nowhere these days. Although I don’t have their wanderlust, as a rentier I’m now probably part of the managerial aristocracy that’s been doing okay out of the TINA world order up to now. Said world order pretty much destroyed my job by first deskilling it and then exporting it to India, but I was lucky enough to be old enough to escape the rat race by sneaking under the falling portcullis.

I was never convinced by the theory of the lump of labour fallacy, and figured unrestricted low-wage immigration was going to lower wages for the poorer end of First World workers, a fair number of these voted for Brexit. Lo and behold, we seem to be getting evidence of the inverse effect of lower wages from the CIPD once the firehose of low-skilled workers is throttled back a smidgen – to wit

The Chartered Institute of Personnel and Development (CIPD) said the number of applicants per vacancy had fallen since last summer across all levels of skilled jobs, and said shortages were forcing many companies to raise wages.

The number of people applying for the average low-skilled vacancy has fallen from 24 to 20 in the past year and from 19 to 10 for medium-skilled posts.

Well I’ll be flippin’ damned. Who’d a thunk it, eh? At least some Brexit voters may get some of what they wanted. The fall in low-end applicants is 20% compared to the 10% fall in higher-end applicants, highlighting who has been taking the sharp end of that shaft. It’s an ill wind…

Perhaps if our welfare and unemployment system hadn’t turned quite so vile and nasty in peddling the chimera that work is the way out of poverty for the unskilled and make them feel so shit about themselves, then we could have come to a better way of divvying up of the spoils of war. And of course these guys will have to spend some of their slightly increased wages on paying a lot more for imported goods and services on WTO terms if they are lucky, our man Jacob Rees-Mogg and the vile shit-stirrer Boris Johnson will see to that. Let’s look on the bright side, though. At least BoJo is no longer in the Foreign Office. British diplomacy used to be envied, while often suspected of perfidy. We will probably need friends in future, the great BJ never was an asset in that line of work. Continue reading “There be a rumbling and a sound of clucking chickens in the air”

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Battening down the hatches and exploring the opportunities of Brexit

Regardless of your views on Brexit’s ultimate desirability or not, it’s likely to bring choppy waters to the UK in the near future. You’ve heard quite enough of Remainers saying that, but the view is shared by some Brexiters. Take a random look at LeaveHQ’s contentAfter all, Britain is about to set up a new startup called UK PLC in the world, and we have good people like Liam Fox and Boris Johnson at the helm, what on earth could go wrong…?  In my youth the British elite seemed to be able to screen for competence and eliminate buffoons like BoJo and fops like Fox, but clearly this process has broken down. There’s nothing wrong with saying that Brexit is a tough job with notable risks, let’s spit on our hands and get to work to maximise the utility and minimise the costs. But that’s not what’s being done. The ruling party is a house divided, and so it doesn’t know what Brexit means. Other than Brexit, and I think we all got that over a year ago.

What we do know is that Brexit will be a point of change, the nature and type of change is uncertain, but in the short term will not be increased trade, the date is reasonably set though subject to late-stage fudging. There will be threats and opportunities to be had. It’s worth considering these ahead of time. I’ve already done an investing for Brexit post, but the inflation of the stock market since then makes the stock market more dangerous.

The boy scouts bit

It’s reasonable to expect shit to go down on the transition. There are some obvious things to do – stockpile water, bogroll, tins, dry carbs and motor fuel (outside the house and in approved fuel cans, people!). The Ermine is fortunate enough not to consume medication, but if you need this then having some advance supply would be wise, and do all this before Christmas, because the history of the world shows that if you are going to panic, then panic early or not at all.

I would hope Brexit would be a transient supply chain disturbance issue, but let’s face it, the government seems to be ill-prepared for some of the obvious interruptions to local trade. If you want to get more into this then UK Preppers are your friend. I’m not sure I want to live in their world for more than a couple of weeks…

Personal Finance – threats and opportunities

One of the great things about Brexit is that it is a planned and a local shitstorm. You don’t normally get advance warning about financial challenges, and nor do you usually get a massive store of assets that are definitely not involved with the crisis. Brexit isn’t going to threaten the world economy. The Brexiter Peter North was offering us a ten-year recession.

Britain is about to become a much more expensive pace to live. It will cause a spike in crime. […] Basically it will wipe out the cosseted lower middle class and remind them that they are just as dispensable as the rest of us.

The Ermine has already dealt with some of the threats, before the vote, by shifting into global assets and gold. There are other aspects of derisking:

I owe nobody any money, other than the credit card which is paid off each month. This is a big win in times of trouble, and I am probably not exposed to the jobs market1

I have ramped down my allocation to equity markets over the last year, not to do with Brexit, but to do with overvaluation. Tragically that increases my exposure to Brexit induced devaluation.

I was going to draw my DB pension early, but I can’t think of anything I really want to invest in at the moment, so I run down cash, indirectly buying more annuity. Everyone else lucky enough to have a DB pension seems to be asking how much the CETV is. I wish I knew what asset class promising a good future income stream they were going to invest it in!2

I made several mistakes shortly after the vote, and several wins around it too, but overall I experienced a very significant numerical win from Brexit in my equity holdings. One of the problems now is that stocks are on very high valuations worldwide, buying equities anew is not so attractive. Monevator made a good move with the Brexit dividend, buying his flat with it, so he is less exposed to the overvalued stock market to the tune of one London flat3

the threats are more important to me than the gains

If Brexit is an economic success and I adopted a brace for impact position, then I look a bit stupid, but I get to live in a country that is doing well, though I’ve lost money on my ISA I have gained it in the future income stream of my pension. That’s a win as far as I am concerned, apart from the hurt to my pride in being wrong. I’ve had a lifetime of practice in being wrong, it’s no big deal. You Brexiters can have a jolly good laugh at my expense. I’m big enough to take the ribbing for my lack of faith in Bulldog Blighty.

If Brexit leads to a 10 year recession, that’s at least a third of my life blighted by that from now on, and my globalised ISA becomes a larger proportion of my future assets/income stream. Just to add spice to the mix, the stock market is at very high valuations. I hold two years worth of cash expenses because that’s how long I have to reach the age to draw my pension without penalty.

I hold most of last year’s ISA contribution in cash in my ISA, and may do the same with this year, because there may be opportunities in Brexit to buy UK assets cheaply in the turmoil. This is hard to execute because you never catch the low-water mark, so you buy stuff, then see it plunge 20% and have to be prepared to take the chance of buying similar assets and holding the trash you already have. While all the time you have this horrible screaming noise in your ears from the media telling you all is lost. What I need is for Monevator to do this again, at a suitable point, to stiffen the spine in April 2019. Let’s look on the bright side, it’ll be a new ISA year…

I already hold a lot of gold in ETF form. Rather foolishly I hold it in my ISA. In general you should hold gold outside an ISA, since it pays no dividend. Should the price appreciate to approach the capital gains limit, then sell the ETF and buy another gold etf. I hold SGLP, I could sell that and buy say PHGP at the same time, crystallise the capital gain but stay exposed to the same asset class. As long as there’s not a flash hike in the gold price in the 10 minutes between transactions I am OK. However, given it is in the ISA, the gold gives me some more working capital, if I have the balls to sell it and buy pounded-down UK stock indices.

Repositioning myself for Brexit

Cash and gold represent about 12% and 9% of my ISA. A lot of the shares part is sky-high, and fortunately a lot was bought before this time two years ago. The cash, however, is bad news, it’s GBP.

What can I do with it to get it out of the country?

  1. Buy foreign currency
  2. Spreadbet foreign currency
  3. buy global government bonds
  4. buy gold
  5. buy world equities
  6. buy world equities hedged to GBP

5 and 6 aren’t attractive, because I feel equities are overvalued now. I already hold a lot of VWRL and IGWD anyway. 4 isn’t that attractive either, because I hold a lot of gold ETFs from the first round of this Brexit aggravation in 2016.

1 and 2 are difficult for me because I want to do this in my ISA, the cash is already in the ISA. I could take it out and try and put it back in, unfortunately the Brexit date 29th March 2019 is very awkwardly close to the turn of the tax year (5th April), it’s possible that the financial system will seize up. It did after the original Brexit vote so it is likely to do so again4. They’re a possibility for next year’s ISA contribution, I guess.

For this year’s ISA, one obvious thing to do is to buy bonds. They are supposed to be the yin of the equity yang. Not so much corporate bonds, which seem to vary with equities these days. I’m already jumpy that the stock market is overvalued, so it’s government bonds I want. I know absolutely nothing about bonds, never been interested because my defined benefit pension has always been more fixed income than I would ever need for a notional 60:40 equities:bonds balanced portfolio for someone of my age and risk tolerance. There was an interesting thread on Monevator about bonds, but I am not sure I understand it well enough. The pointers seems to be to use currency hedged bond funds, which make great sense except for a guy who is explicitly looking for safety against the pound going down the toilet, I don’t want to hedge to the GBP. I read youngFIGuy’s piece on how he invests but it’s for the long term, and I am trynig to forestall a particular short term adversity. Here’s Lars Kroijer on Monevator taling about government bonds. He says:

If your base currency has government bonds of the highest credit quality (£, $, €) then those should be your choice as the minimal risk asset.

Err, no, Lars. With all due respect, not £. The last UK government took the piss having the referendum to alleviate a cat-fight in the Tory party. Not only did that shit on my future to feed tossers like Jacob Rees-Mogg, but the entire prosecution of the process of leaving the EU has been dominated by internecine fighting and precious little effective progress. I’d rather live in the UK than say Uganda, but I don’t view the £ as having the highest stability at all. So the last thing I want is UK government bonds for this particular job. That’s a no to YoungFiGuy’s VGOV, although that is fine for his purposes. Given that premise that UK government bonds may be risk-free in one way, but track the fail I am trying to hedge, Lars carries on

If your base currency does not offer minimal risk alternatives, you have the choice of lower-rated domestic bonds where you take a credit risk, or higher-rated foreign ones where you take a currency risk. Keep in mind that any domestic default would probably happen at the same time as other problems in your portfolio, and your domestic currency would probably devalue. That would render foreign currency denominated bonds worth more in local currency terms.

Exactly. in his next paragraph, it’s basically short-term foreign bonds i want. But looking at, say this US bond, I see shocking volatility.  And given it’s only a year, I am chuffed to discover currency ETFs – a class of thing I didn’t even know existed. Let’s take a look at SGBB

The ETFS Bearish GBP vs G10 Currency Basket (SGBB) is designed to provide investors with a short exposure to the British Pound relative to a basket of G10 currencies by tracking the Diversified GBP Short Basket Index (GBP) (TR) (the “Index”).
That’s about right, what did it do over the referendum?
Pretty much what you’d expect. It’s a bit dear, at 0.5% p.a, and of course I eat buy and sell costs plus the spread at iWeb. So I put it into iWeb to see how much it would cost and what the spread was, and couldn’t find it. I asked them on web chat if they offered it and it seemed to be frowned upon:
Thank you for waiting, it looks like the company may be a derivative and if that is the case we won’t be able to offer it. We will need to do some further checks for the company which can take up to 2 working days.

Blimey. Well that’s pissed on that idea then. I didn’t think ETFS securities was such a bunch of dodgy geezers, but it seems they are viewed with suspicion5. Hargreaves Lansdown do this one but disturbingly they say the ongoing charge is 1.24%. I suppose I could do it in my SIPP with them. I pay £24 on the turn, couldn’t work out if I get to pay the 0.5% Stamp duty on this.

Surely the market has priced Brexit in

and will do a great big meh on the day? I’m not sure the market has priced the stupendous incompetence that could be displayed, the danger of a no deal Brexit seems to be mounting. Some of the trend to no deal comes from the bad faith of the likes of Rees-Mogg and the shadowy European Research Group, the quality of whose thought is to be seen here. These are cakeists6, and I’m not personally convinced that Britain has such a compelling offer. Leo Varadkar has a point when he said

“We are two years telling people that it can’t be cherry-picking, it can’t be cake and eat it, so it [the white paper] needs to understand we are a union of 27 member states, 500 million people.

We have laws and rules and principles and they can’t be changed for any one country, even a country like Britain. Any relationship in the future between the EU and UK isn’t going to be one of absolute equals.”

The ERG hasn’t got that yet, to wit:

Which is why we are writing to reassure you of our continued, strong backing for the clear vision of an internationally-engaged, free-trading, global Britain which you laid out at Lancaster House.

That’s the internationally-engaged Britain that has just told the 450 million strong nearest trading partners to f*ck right off.  I’m not convinced a no deal Brexit is priced in by the market at all. I’m prepared to lose money if we do better than that and there’s a stonking rise in the £.

Obviously it may all be a grand game of chicken, but I’d say that the EU can do without the UK better than t’other way round, and it’s pretty obvious that there will be less UK trade with the EU when we are outside the EU than before. That’s fine, may be a price well worth paying to cut ourselves adrift from these moribund losers as some would see it. We don’t have to be members of the EU to trade with it, other countries seem to manage. But there does have to be some sort of agreement. At the moment it’s we want to have our cake and eat it, or we’ll walk away. Looks like walk away it is, then. That’s not in the price at all, IMO.

 


  1. probably is because at the moment my deferred DB pension is easily enough to live on, so my ISA holdings and residual SIPP give some buffer. But it is possible to imagine inflation and taxes rising so I struggle, in which case I am stuffed. I am not going to do engineering again after five years out of the field, I am not entrepreneurial by nature and I am too old. 
  2. OK, I know the answer. The asset class is BTL residential property, FTW! 
  3. He’s of course now exposed to a differently overvalued asset class, London property, but given it’s his first purchase and he wants to live in London, the utility value is high, and if it’s the Brexit dividend then it’s free money anyway… 
  4. that could mean that for all this fine talk I will be unable to take advantage of any Brexit opportunities, squeezed out by all the shares selling going on in the market jamming retail websites. 
  5. iWeb has since rung me up to confirm, this is considered a derivative and therefore not available to retail investors on their platform. It is news to be that not all listed shares are considered tradable. Need to sit down and think about this, because perhaps this red flag is there for a reason and ETFS really are dodgy geezers. 
  6. they want to have their cake and eat it 

The concept of financial freedom is an unattainable chimera

according to Gerd Kommer, H/T MeineFinanzielleFreiheit (My Financial Freedom) from Germany Austria – in both of these I sadly discovered that my German has degraded through disuse to below a sufficient standard to comprehend them freely1, so Google Translate was my friend. I am looking at financial independence from the other end of the telescope from My Financial Freedom (Google Translate version of MeineFinanzielleFreiheit). MFF is under 40, and assumes most readers are of a similar age, perhaps I do not have the optimism of youth and our Gerd is no spring chicken either, cynical old gits that we are.

Gerd had an interesting taxonomy of routes to financial freedom. I presume from the website that Gerd is what we would call an IFA, though my rotten German may mean I am missing some subtleties. Let us count the ways to financial freedom, with the soundtrack of Paul Simon’s Fifty ways to leave your lover (in this case The Man):

Financial Freedom method 1 – clever investing

Hmm, BTDT. This is the dream of every day-trader and spread-better, and while I avoided those particular pathologies, I was a get-rich-quicker in the halcyon days of the dot-com boom. Dividends, I don’t need no steenking dividends2, the aim was to buy and flip to a greater fool

what not to do – contract notes from my dotcom days. Do. Not. Churn.

Yup. Didn’t end well, because in the end I was that greater fool and ended up holding the baby. The existence of Warren Buffett probably proves that some people have hot hands and are good stockpickers, this is not widely spread in the population. If you want to make money from spread betting and trading, buy shares in IG Index. Most of us don’t have hot hands, and the odds are tough. Some of us have lukewarm hands, but the fat-tailed statistics of stock-market investing can be dangerous in that case. Those with lukewarm hands can do well to consolidate some of their gains into passive investments frequently, fiddling around the edges. The challenge is to recognise the presence of some ability but also of some mediocrity, and humans just aren’t wired to do that. I am sadly still at the stage where more knowledge seems to degrade confidence, the confidence high-water mark for me was in 1998…

Socrates said that “the more I know, the more I know that I know nothing” but the absence of that sort of self-awareness is widespread enough to have a special name

FWIW I don’t believe markets are totally efficient, and if you have a long enough time horizon than I would consider valuations and CAPE a possible route to market timing, but most of us are in too much of a hurry at the start. Making money in the stock market is deeply rate-limited most of the time and depends on opportunities arising that you can’t control, so doing more is not a recipe for success, unlike in many other fields of endeavour. You don’t have to be condemned to the returns of passive investing. FireVLondon3and TEA show it can be done. I would suspect Monevator does better too. I have been happy with my own performance though it is poorer than theirs and it is shifting closer to passive because I am getting more lazy and passive, when you have enough you have enough. The gains in my AVCs/SIPP were enough to carry me the eight years to normal retirement age because I started in 20094, when the market was in a deep hole.

Round one to Gerd. He’s got a point. By all means try, with money you can afford to lose, to see if you’re the one with hot hands. It’s very unlikely to be you…

Financial Freedom method 2 – downshift

Took me a while to boil down Gerd’s incredulous take on the sort of whazzocks that say

regain control of your life – don’t exchange five days of work for two days of free time. In the books and financial blogs, a curious recipe mix is ​​propagated to “breaking out of the hamster wheel”, “ending the treadmill of employee life”

I guess that’s me, Gerd. Oops, I even used this image on this post.

It’s a fair cop, Gerd – “micromanaging jobs and people in a never-ending treadmill”

I checked out of the middle class in 2009 to escape the workplace 8 years early. It’s going fine, thanks for asking, bud. But I do have to acknowledge a lot of luck on my side, holding a decent job for 23 years and being close enough to normal retirement age for my savings and gains to bridge the gap to company pension, plus investing into a stock market that was flat on its back cheered me on. You can’t design for that sort of luck when you’re 20. So let’s call that a draw, Gerd.

Financial Freedom method 3 – start your own business

This is the classic way – the business owner captures a lot more of the value the business adds to the inputs than, say, shareholders. That’s why the long-term average returns on a diversified passive portfolio of stocks are at best around 5% p.a., which isn’t enough to live or die with unless you start off with a decent amount of capital5, which you usually save from working at your job for somebody else, in most cases. Run your own business and you can do a hell of a lot better than that, capturing the entire added value, less taxes and then selling the business as a going concern.

The downside, of course, is that the odds against you being one of the successes are terrible. It’s the same hot hands problem as method#1 but in a different dimension – few have the hot hands for business success, and a decent helping of luck helps too.

Advantage Gerd

Financial Freedom method 4 – Frugalism

Originally popularised by Jacob from Early Retirement Extreme, although the current poster-child is Mr Money Mustache. It’s a variant of downshift, but usually adopted by those in the flush of youth and earning above average. When you are young and preferably single, you can screw your consumption down and put up with privations many can’t. But you will get older, and some of the ultra-frugal lifestyle may pall. Lock yourself into an ultra-frugal lifestyle too early and take advantage of that fact by not having to earn too much, and you may find your style cramped in mid and later life.

Both ERE and MMM worked high paying jobs, and frugality let them drive their savings rate up. If you can stick this for long enough you can retire early. A lot of personal finance blogs run along these lines (eg The Escape Artist), but if the writer is working in the City, then they have an income that is probably more than five times the average British wage. If you earn five times the average Brit but can run on the average outgoings, then you can probably get to early retirement in ten years6 rather than 35. There is more incentive to do that, because these jobs tend to be punishingly stressful.

Gerd is right in that most people don’t earn enough, but if you earn well over the norm then Gerd is wrong, this is a perfectly sensible way to do it. I had some of these advantages – I earned reasonably well and lived outside London so my costs were lower, and my employer contributed more to my pension than is usual now, so effectively my pay was worth more.

That’s a draw, Gerd.

Gerd is right for most people, you can’t get there from here

Whatever the drivers for FI, regrettably I am with Gerd that financial independence is an unattainable chimera for people earning average incomes. They’re unlikely to be able to reach FI/RE except in edge cases. It’s perfectly possible for MeineFinazielleFreiheit because he is a freelancer for an international service company, which puts him on a well above average wage I would imagine. I’d initially jumped to the conclusion that Dienstleistungsunternehmen meant a management consultancy rather than service industry, which is another sort of job like finance where going for FI/RE is almost mandatory because the stressful nature of the job burns people out early. Dictionaries and Wikipedia don’t support that interpretation, although oddly the sort of pictures Google Images comes up with do lean that way.

Gerd then goes on to ask an interesting question –

What makes some people value financial independence whereas it is generally a minority pursuit?

He refered to Holger Grethe’s article about financial freedom (Google Translate). He references Steven Reiss’s book  Who am I?: 16 Basic Desires that Motivate Our Actions And  Define Our Personalities which offered some insight, his taxonomy of 16 values of motivation is as follows:

  1. Acceptance, the desire for positive self-regard
  2. Curiosity, the desire for understanding
  3. Eating, the desire for food
  4. Family, the desire to raise children and spend time with siblings
  5. Honor, the desire for upright character
  6. Idealism, the desire for social justice
  7. Independence, the desire for self-reliance
  8. Order, the desire for structure
  9. Physical Activity, the desire for muscle exercise
  10. Power, the desire for influence or leadership
  11. Romance, the desire for beauty and sex
  12. Saving, the desire to collect
  13. Social Contact, the desire for peer companionship
  14. Status, the desire for respect based on social standing
  15. Tranquility, the desire for safety
  16. Vengeance, the desire to confront those who offend

I’d lump some of these under the same class of thing – 4 and 13 and possibly 14 look the same class of thing to me, 10 and 16 look related. Reiss excludes traits that he does not find some hint of in all the respondents, I wonder if excluding the tails of the distribution makes this limiting. But heck, a hypothesis doesn’t have to be perfect to be useful. Reiss’s thesis is that there is a different balance between these motivations across people, but those motivations are fairly immutable in any specific case. The curious child becomes a curious adult who becomes a curious old man. Satisfying these desires is transient, you have to keep on doing something to sate them. Holger Grethe riffs on this –

“Anyone seeking financial freedom or “early retirement” is very likely to save an above-average need for independence in connection with the urge to save money.”

Conversely, other needs are more important for most people

For some, the quest for power may play a bigger role:

“Power motivates to willpower, the need for achievement and how much you want to work on it … Power influences your propensity to be a leader and to give guidance to others.”

For others, it may be status thinking that outweighs the need for independence:

“Status is the need for social prestige because of wealth, titles, social class or good origin. The satisfaction of this need evokes feelings of self-importance and superiority, while non-gratification leads to feelings of insignificance and inferiority. “

Those who retire from working life to enjoy their financial freedom can neither give commands to others nor bask in the glow of their professional position.

This helped me understand some of the observations I couldn’t really make sense of. Monevator has an extended and insightful blog about the things you need to do to become financially independent, and he served me very well, yet he has no desire to retire, even though he could

I’m pretty much financially independent these days, by my own terms. I once wanted to retire early. But I tried doing no work and discovered it wasn’t for me – or at least not yet.

My expectation now is I’ll earn at least some money for the next 30 years.

I’m incapable of understanding that, other than in a theoretical and intellectual way. I think that if I’d been rich enough to avoid working when I left university I would have done just that. Let’s hear it from Reiss on power

Power is the basic desire for influence or leadership. It motivates willpower, the need for achievement, and hard work. It motivates us to seek to influence people, events, or the environment. Power motivates the desire to lead and to give advice. It has been said of some powerful personalities that they cannot stand to see somebody go in one direction without urging the person to go in a different direction.

I got on okay with work for 30 years, it was just something you did. I’ve led teams, given presentations at international meetings, that sort of thing, but it was a means to an end, it didn’t feed a deep desire within me. In Reiss’s nomenclature I have a weak basic desire for power. I would challenge his claim that these are immutable, however, earlier in life I probably had a stronger or at least normal desire for this7.

Until I grew sick of the way work was going – all the management bullshit, the performance management targets, the needing to justify one’s existence every quarter, began to really piss me off, and then something snapped.

Yesterday was not soon enough to get out of the workplace and I never, ever, wanted someone to be able to hold that gun to my head ever again. It took three years and much slog, but I made it in the end. I have never worked since. I have earned some money, generally hit and run jobs with no ongoing commitment. I have never needed that money, and I have not changed my lifestyle as a result of it, and in some cases I have given it away to people who needed it more. The above average need for independence is writ large in all that. And yet that did not apply for 30 years of my working life – I had no burning urge to retire earlier than the normal retirement age of my company pension.

Clearly the quest for power and the status thinking were either weak in me or they were destroyed in the split second that I realised that a manager was trying to improve his numbers at the expense of my future and realised I had no power. Or perhaps it was the quest for power, but in its inverted image. Reiss presents power from the subject’s perspective – Power, the desire for influence or leadership. Making people do your bidding gives a guy a rush. But there is a corollary for the object of that exerted power. I never wanted to be the underdog again.

I can therefore never use money I would earn from employment, because as soon as I build it into my lifestyle I become a prisoner of The Man again.  No consumer shit tastes as good as financial freedom feels. It’s not like I live like an ascetic monk – I did buy the Naim 272 mentioned in that post, and I have been to Malta and the Orkneys this year in search of megalithic wonders. I could afford to go on more vacations. But I can do that from existing reserves, rather than new earnings, which would link me to The Man and his blasted hamster wheel again.

Not everyone who is financially independent can retire early

Skewed by my own experiences I assumed most people who reached financial independence would retire early, and this was supported by the common FI/RE8 acronym. Sure, five decades of living have taught me that there is much variation among individuals, but it puzzles me why somebody would go through all the privations of achieving financial independence if not to retire early, as TEA said, don’t just load the gun, pull the trigger.

Those who value influence and leadership (10), and those who get status from the work they do (14), and perhaps, in the case of men, the desire for peer companionship (13) may reach financial independence, but should reflect on whether they get something non-financial out of work that they might miss. The poster child for this is Jim SHMD, who appears to be working a job that bores him but delivers valuable side effects:

I really wasn’t looking forward to returning to the actual work that I do – but I was looking forward to catching up with the people there, both my co-workers and my customers.

I personally would be saddened if the best thing I felt I could do with my time was going to work, but that is because other motivations are higher – the curiosity (2) and independence (7). For me, independence and power are related – independence is the absence of people with power over me. However, that didn’t bother me for most of my working life, while I had enough bosses I thought were tossers I probably had more that I had some respect for. As management changed from values to processes I came to despise some later bosses and box-tickers rather than leaders, but that’s what metrics and performance management do to people, they turn good and mediocre people bad.

The boss that convinced me I needed to get out of that place  was intelligent and an expert in his own field but while fine in calm waters became a psycho under pressure. You don’t hire engineers for their great way with people, I suppose. I would challenge Reiss’s immutability theory. Power and status (10 and 14) mattered more to me earlier in my career, but independence (7) became more important than these as I grew older. Drawing on Carl Jung’s observation that what is true in the morning of life doesn’t hold in the afternoon, my self-respect shifted from what I did more towards what I am.

Reiss’s positive description of 10, Power, the desire for influence or leadership, isn’t totally absent in me – I do take on things where I have skills that aren’t in other people, and therefore indirectly lead or at least define. I don’t generally volunteer in the pure form, I always want the ‘customer’ of the work to pay something, because this world has an endless supply of wouldn’t it be nice if requirements when the cost is zero. But if the project is interesting enough or I like the people enough, then the job doesn’t have to break even, that is a different expression of financial independence.

Reiss’s book is a fascinating read

It was available on Amazon Kindle Unlimited for cheaper 9 than on Kindle and it was an interesting read – Reiss considers his 16-point taxonomy a deconstruction of Maslow’s hierarchy of needs, which is often cited in the PF scene.  I didn’t really expect to come across a reference to chakras, to wit:

Maslow’s pyramid is similar to Hindu scripture, specifically the Rig Veda, which refers to the chakras. This is a seven level energy system that maps to specific psychological characteristics.

Gosh… He makes some big claims

People are more or less motivated by the same basic desires throughout their adult life. Maslow’s idea of human development — that values and motives change as we mature — is mostly an invalid, romantic myth.

Well, that’s the idea of individual human progress through the lifecycle done for, then. Nevertheless the art of reading is to open the mind to new ideas that don’t necessarily square with one’s own. On this point, he found a 19th century Oxford professor of philosophy, George Ramsey, who delivered  this wisdom in 1843:

“The same difference of feeling and dullness of imagination in men explain what often has been observed, that one half of mankind pass their lives in wondering at the pursuits of the other. Not being able either to feel or to fancy the pleasure derived from the other sources than their own, they consider the rest of the world as little better than fools, who follow empty baubles. They hug themselves as the only wise, while in truth they are only narrow-minded.”

That’s me ranting on about Calvinism then 😉 As a working hypothesis the quest for power and the status thinking isn’t a bad way of comprehending that working satisfies deep innate non-financial needs in some people, and it is likely that these people will appear ambitious, earn more than the average and be more likely to be in a position to get to financial independence.

They just shouldn’t retire early, in fact perhaps they shouldn’t retire at all. FI still improves the power balance with employers – I have never had the experience of not being a supplicant when applying for a job, and I stopped applying for jobs when I didn’t need the money. But it never harms your negotiating position when you can walk away without fear.


  1. Oddly enough after reviewing this and working through the Google translation which was a bit rough around the edges I was able to understand other articles in German reasonably freely, like this one wondering whether all PF blogs and their readers were under 40, not me guv ;) 
  2. These days if I add up all the dividends I have received since re-entering the stock market in 2009 they are about 14% of the current market valuation of my ISAs, dividends matter. The older Ermine is a very different animal to the youthful exuberant one. Dotcom flippers relied purely on the greater fool to buy the shares at a higher price, typical dotcom companies didn’t pay dividends, because they generally didn’t make any money. At least I didn’t buy boo.com or lastminute.com 
  3. FireVLondon is in Gerd’s category 3 not 4, his achievement in keeping a positive portfolio return is even more impressive given he didn’t work in finance
  4. I would really love to be able to say that I started in March 2009 because I am a frickin’ genius that monsters the market. In fact the reason was that it took that long for the financial crisis to crush The Firm’s bottom line that they introduced psycho management and ridiculous performance management metrics. I was desperate enough at the right time. I will claim being bright enough to read this and turn the sentiment into action. That was probably easier for me because I had no equity holdings that had plunged in value, so it seemed worth a punt. Success bred success, I learned to run towards fire and be fearful at times like now. If you want to learn what to do in the stock market, then start when it is down the toilet, not when it is high as a kite and everybody is saying how great it is. That’s a general rule for any asset class – equities, gold, bitcoin, housing. tulip bulbs. If it’s in the papers as a sure win, short it. 
  5. Let’s try the thought experiment. Using Monevator’s compound interest calculator and imagine our young fellow starting off saving a whole year’s worth of UK average wage at £20k that he somehow manages to not need to live off. After a 30 year working life of compounding at 5% in real terms without any platform costs or taxes he ends up with about £90k. A worthwhile improvement, but it’s not going to make you rich doing that as a one-off at the beginning of your working life, and subsequent savings have less time to compound. A successful business will compound much faster than 5%, and under certain circumstances can use other people’s money to scale up quicker. 
  6. 35÷5 is 7, but you are probably paying more tax earning >5x average salary than the average grunt 
  7. You don’t normally get to earn significantly more than the average with the traits of a weak desire for power, Reiss characterises that sort of individual After graduation from school, these individuals may continue to avoid hard work. They may have a tendency to underachieve their entire lives, not because they are incapable, but because they are motivated in different directions. 
  8. Financial Independence/Retire Early. Early retirement is in the name
  9. Kindle unlimited is best tackled on a hit and run basis – sign up and then immediately unsign up (so you don’t forget to unsubscribe). You are then a member of KU for a month for about £8, hit it for all that it’s worth. 

Shares beat housing, even in Blighty

You’re a lone voice in the wilderness if you favor shares over property in the UK. UKVI calls out  five family members who are of the ‘property is my pension’  school of thought with him being the odd one out. Me too – BTLers to the left of me, housing rampers to the right of me – a cynical Ermine feels stuck in the middle with Stealer’s Wheel

on the subject of property, specifically residential property. It’s an asset class I loathe, and yet everybody else in Britain is in love with it. There is, apparently, no more sure-fire route for an ordinary middle-class Brit to financial Nirvana than a nice li’l buy-to-let or two, preferably bought with the magic of other people’s money.

In the limiting case, we will have everybody over 45 ‘owning’ two houses renting one of them to people under 45. Britain’s factories and service industries can lie shuttered, and we will have a perpetual motion machine when all the old ‘uns can retire at 50 and throw parties where they moan about their children not being able to afford to buy a house. Presumably the proceeds of their BTL will be handed down to their children when they reach the allotted hour, hopefully when said children get to around 451, and so the circle turns again.

So I was pleased to see on Monevator’s 10’th anniversary post  a copy of this chart from This is Money

Where it appears that shares beat residential property by about 30%. With shares at very high valuations at the moment that is comforting – if we have an average sort of crash2 soon then that 30% differential could easily be given up at the low water mark, but UK house prices are also at all time highs. It is not entirely clear to me on what basis This is Money computed the TR data for housing – by rights they should include rents, less maintenance and less mortgage servicing costs, conveyancing, SDLT and agency fees for the average BTL hold period whatever that is.

Perhaps the BTL boosters were right, provided they could raise the capital to go all-in in June 1995. That’s a yes for Fergus Wilson but perhaps a no for pretty much everyone else, because of the lumpiness of property you need to time your entry into the market very, very carefully, and the slow cycles mean entry points are few and far between. If ever there was a call for an investment trust3, residential property would be an obvious asset class, presumably the reason there isn’t anything like this says something about the aggregate returns on offer.

UK real house prices – 1995 was a barnstorming year to start your property-owning journey. The downturn at the end has tipped up again – KPMG have a report from 2017 for those wanting more

Stock market cycles are shorter than housing cycles, and 1995, the datum reference, was an absolutely great time to buy UK property, as twits like me who had bought property in 1989 started to capitulate and actually pay down the excess rather than hoping that it would ever come good again in any useful period of time. KPMG tell us 2009 was the second time house prices crashed since the second world war, while there have been 15 stock market crashes and bear markets since the war, counting US and UK ones, the sort that would bother somebody holding VGLS100 in the UK if it had been available in Macmillan’s time.

Ever the contrarian, Merryn Somerset-Webb tells us that these days houses are cheap in terms of gold, and I didn’t do so badly compared to people who bought between 1997 and about 2003.

All I can say is that she didn’t live the decade when my mortgage was higher than the value of the house or pay the difference down from earnings… KPMG have a chart of mortgage interest versus income which highlights that I drew a particularly short straw in 1989

Mortgage interest as a proportion of wages

Although the recent highlighting of mortgage plus repayment shows servicing costs are at historic highs relative to the early 1990s. Presumably KPMG is of the opinion that previous generations paid down their mortgages with fairy dust rather than real money.

I am all for buying the house you live in – pretty much for the converse of the reasons Joe Public gives for landlordism. Renting is evil in the UK and residential tenants have very little security of tenure. This is what makes landlords rich. You want to free yourself from the ministrations of Britain’s army of amateur landlords, because what’s good for them is not good for you. After that’s done, residential property is a shockingly illiquid lumpy asset class compared to the average Brit’s net worth, with serious costs of carry and transaction costs, because a house is a physical object subject to entropy; it’s always trying to fall down. As an asset class it stinks on the convenience front because of its indivisibility and illiquidity.

Unlike gold, it is at least productive, inasmuch as it provides a service that tenants will pay for. It’s not tremendously scalable, you’ve got to save up a lot of rental profits before the deposit on the next place, unless you are a Fergus Wilson, who happened to start in the early 1990s of knockdown house prices.

Stocks you can buy bit by bit at average prices. Houses, not so much

There are other shockingly toxic issues to do with residential property. You can invest regularly into the stock market, it’s called pound cost averaging. I do this still now – I think the stock market is ridiculously overvalued, and I hate myself for buying into it regularly. But it is remotely possible that it will go up for a couple of years, in which case I will lose out by diddling on the sidelines even after the inevitable crash, although I am reducing my contributions and holding more cash than is probably good for me.

You just don’t get to do that with residential property, you go all in with borrowed money when you buy your first house, somewhere in your thirties is the place in the normal human lifecycle. Vendors will laugh you out the door if you ask to buy that house over the next ten years in instalments with it marked to market each time.

Since you can’t raise the money you buy with a mortgage. That works like gangbusters when the housing market is going up, but it’s total misery when it’s going down. Because housing cycles are slower the misery persists longer, too. So not only do you not get to ramp your way into this market in a measured way, you get to do it at a time not particularly of your choosing – the time you need to engage with it was determined by la petite mort nine months before you were born, although it only comes to fruition after three decades pass.

My experience matches the chart. For sure, I was whacked around the chops with a wet fish by the stock market in the dotcom boom and bust as I learned the ropes, particularly in what not to do.

what not to do – contract notes from my dotcom days. Do. Not. Churn.

But it served me far better since then, and most of the gains I have made were from a combination of saving hard and the stock market. The hit I took was all money I had earned and could afford to lose, whereas with the house I hadn’t earned the money that I lost and could only just afford the loss. If I scale the money I stupidly paid for that house in 1989 and adjust it for inflation then it is only 20% less than my share of my current house, perhaps 40% less if I allow for the amount of equity I released along the way, which went into the stock market. I’d have been better off with gold, although the utility of a house in defending myself against the depredations of BTL landlords has great value of its own.

So it’s good to feel vindicated, despite all the property clowns to the left of me, joker landlords to the right of me. Those results have integrated several stock market cycles including one near death experience in 2008, but perhaps two housing market cycles and no catastrophic events like the early 1990s housing price crash. Reversion to the mean, clowns and jokers… In your favour, the illiquidity of your assets mean you escape some pathologies of the stock market investor, as UKVI went on to say, but you don’t have to be a stock market muppet!


  1. the implication is that they have these kids no earlier than when they are about 35, else the kids will be too old by the time the parents cark it 
  2. The credit crunch was a non-average crash – from the UKX high of 6732 in Jun ’07 to a low of 3800 is a suckout of 44%, it took to July 2009 to recover to only a fall of a third. But then unlike you do with a house, you’re a bit dippy to save up in cash for years and make a single humongous share purchase, so your average purchase price is unlikely to capture only the peak 
  3. You get plenty of investment trusts in commercial property in the form of REITs but despite the generally believed sure-fire one-way money-tree nature of UK residential property I know of no residential property REIT. You get oddball companies like Grainger PLC, and Castle Trust bastardised their Housa index product into bonds, presumably because they couldn’t turn a profit on it. Such a product would greatly help first-time buyers by allowing their deposits to track house prices. The closest I could find to a res property REIT is Hearthstone, but another problem for buyers is they need to track prices in the region they want to buy, since nobody buys the average UK house in reality. IG Index used to have regional house price indices, but the problem with spread betting is that the cost of carry is high for periods longer than about six months. 

Trending now – automate your spending with subscription shopping

A few years ago1, a young-adult daughter of some friends posted on Facebook about one of the delights of her office routine that made the experience of work bearable – “Look at all these yummy treats in my Grazebox, oh my,” with obligatory pic of the contents. I remember thinking at the time that this was wrong on so many levels, starting with the fact that sedentary office workers don’t really need to ‘reimagine snacking’.

“Imagine having taste experts on hand to select snacks for you! With a graze subscription you’ll do exactly that, all you had to do is tell us what you like and we’ll tailor the flavours of each box to suit you.” It’s a packed lunch, FFS. Just say no to mindless shopping and consumption. If you want office snacks, go get em, but make the effort

You sign up with Graze, they mail you snack-sized boxes weekly at £4 a box, so you are paying £20 a week for your packs of mixed nuts. Tesco will sell you a 250g bag of mixed nuts for £1.50. Estimating your graze box is about 100g, you’re paying £17 a week for the privilege of not having to think about the office snacks aspects of your shopping 😉 That’s about £900 a year, a sizable chunk of a typical starter wage.

The Grauniad tells me that this is a special case of subscription shopping – a new up-and-coming trend

Welcome to the shopless shop, where customers pay for decisions to be taken out of their hands. Since 2014 the number of visitors to subscription shopping websites has grown by 800%. Customers receive a “curated box” of items of beauty products, clothes for work, even toys for their pets.

This sort of thing should really come with a whacking great link to MSE’s Demotivator tool, to help you compute just how many extra hours you are working to save yourself the effort of thinking about what you’re about to shovel into your piehole on a workday. It’s getting on for 4% of your take-home pay if you are on the average UK full-time wage of ~£27k. Let’s hear it from the Demotivator2

At least with the latte factor 3652days took us to task for being miserable gits you can’t forget it at home, with the graze box you still get to brown-bag your lunch.

We do not need more mindless consumption

I did my fair share of mindless consumption, the purchase of this that and the other that would make me better at something.

Continue reading “Trending now – automate your spending with subscription shopping”

BofE’s Ben Broadbent inserts hoof in gob, message gets tossed in can

Poor old Ben Broadbent, second in command to the suave Canadian fellow Mark Carney at the Bank of England. Mark’s a chap who can fall out of a boat without making waves, unlike his deputy.  In the hoopla about Ben’s  perhaps unwise choice of words – did you know climacteric1 was a thing? his message got lost. but it’s pretty straight between the eyes. In an article for the Torygraph in the guise of Edgar Allen Poe’s Raven, the harbinger of doom says

compared the current slowdown in growth and wages to a lull at the end of the 19th century, when the height of the steam era was over but the age of electricity was yet to begin.

Today’s economy could be experiencing a similar trough as it passes the boom of the digital era and awaits the next big breakthrough, possibly with artificial intelligence.

Ben Broadbent to British economy – you’re over the hill, every which way is down from here for at least a generation

Oy vey. And among other things it’s good to know that the ermine is doing his bit2 for this incoming doom:

something similar happened in the late Victorian era. Towards the end of the 19th century, British productivity “slowed pretty much to a halt” after peaking, as it entered what he labelled a “climacteric” period.

The word “climacteric” is, according to Mr Broadbent, a term that economists have borrowed from biology and means “you’ve passed your productive peak”. It has the same Latin roots as “climax” and means “menopausal but it applies to both genders”, he said.

Mr Broadbent added: “I once got an economist to explain the origins of the word ‘climacteric’. As soon as he started talking to all these middle-aged men – about [how] it means you’re past your peak and you’re no longer so potent – they all said: ‘We understand’.”

Hehe. I understand that climacteric bit, after all I am no longer a productive member of society. For those lucky enough to have the choice, it comes from the age-old arc of a human life, poetically summed up by Carl Jung thusly: Continue reading “BofE’s Ben Broadbent inserts hoof in gob, message gets tossed in can”

Retired accountant fails to understand interest only mortgage, loses house

It must have been so simple when he was a nipper. You buy a house with a mortgage, and you got to pay back a shedload of interest and a teensy bit of the capital. 25 long years later and this happens

how a traditional mortgage builds equity

as the dynamic balance between interest and capital repaid shifts in your favour. The downside, of course, is that you have to pay off the capital. You pay roughly twice as much1 for your house if you buy it with a mortgage than with cash, due to paying interest for 25 years. Which is why some bright spark dreamed up the interest-only mortage.

Although we now think of them as ways to enable the BTL brigade to shaft everyone younger than themselves, the IO mortgage was originally dreamed up to make houses more affordable by halving the mortgage payments. Easy peasy. What actually happened for a while was house prices went up2, because every time you make the existing price more affordable the price adjusts so it becomes only-just-about-affordable, because that’s where premium scarce goods reach equilibrium in a market economy. It’s only the punters that can’t afford the prices and fall out of the market that puts a brake on house prices, but UK governments have never acted on this because most voters want high house prices. Governments will change that when the increasing age people buy their first property means there are as many non homeowners as there are homeowners of voting age.

Enter stage left, an accountant, age 77, mithering about his IO mortgage being called in

who didn’t realise you had a pay off an interest-only mortgage in this lifetime, rather than the next. Len, this post is for you. There’s pathos in this story on so many levels, I mean, FFS, this dude worked as an accountant for a living. It’s fair enough for the interest-only mortgage to catch out young whippersnappers like Joe and Josephine in the hands of Mr big Bad Wolf, but grizzled greybeards of 77 who have only just wised up to the fact that they have aught to pay off the capital have no excuse. These guys had the temerity to complain to the Financial Ombudsman and then when they got the finger from the FOS because of the pickle they got themselves into through overspending in retirement, bleat to their local MP. The MP spins this as a tale of dreadful ageism by Santander. No, they’d just like to get their fricking money back before you die. I’ve done this story too many times before, WTF is it with the British and housing?

I know it’s impolite to mention the Grim reaper but it’s a fact that every 24 hours you live you get a day closer to death. I am nearly three decades closer to death than when I took out that mortgage, which is why I paid the bugger down, and that’s even without the benefit of a life of accounting to see the problem rushing up to meet me. The MP puts this spin on it

Lloyd called on Santander to either increase its age limit for mortgage borrowers or abolish it, and said: “Without such a move, Mr and Mrs  Fitzgerald will lose their home. Is that really what the bank wants to see happen? I will also be raising this vital issue in parliament. I am sure there are tens of thousands of other families potentially facing the same, desperate situation in the coming years, which is unacceptable.”

No. It’s a situation that has been developing over decades, and they can’t say they weren’t warned. The Fitzgeralds chose to stick their heads firmly in the sand, and that’s why they are in the shit. It also shows the folly of another innovation in mortgage finance, the short-term fix. These guys remortgaged in 2007 for 8 years. It’s fair enough, when the 8 years are up, you need to ask again if you can stay in that house if you don’t have the money to redeem it.

You have the option to borrow from someone else I guess, but nearing 80 you just aren’t a good prospect, because you have zero human capital left. If you financial capital isn’t enough to keep you in your house, then you don’t get to stay in that house, and you can’t earn any more financial capital. You are stuffed. The moral of the story is pay your bloody mortgage off in your early retirement, or be prepared to move or rent.

This is not a sob story of somebody who was taken out by events beyond their control. This was wilful overspending on a big scale for decades. I could have had many fine holidays with the money I used to pay down my mortgage. The fact this guy plied his trade as an accountant takes the biscuit. Continue reading “Retired accountant fails to understand interest only mortgage, loses house”