it’s not the rise in interest rates you need to fear, it’s negative equity bringing up the rear

Some are screaming blue murder about the ‘unforeseen’ rise in interest rates. So I thought it might be worth a look back at what it felt like the last time I saw this movie. Many, many, years ago in 1989, I was that guy. I was paying 7% on a low-start¹ IO mortgage with an endowment set against the capital. Unlike, it appears, many new mortgagees now, I had the temerity to ask how much will it be if interest rates double that?

The question shows I failed to understand how this method of paying back a mortgage works, but quick as a flash the mortgage arrangement flack said “your repayments will double, but it’s historically unprecedented that rates double”

I figured I could pay that if I sucked my gut in, so I signed on the dotted line, and wham – biggest financial mistake of my life. It’s not just me – Vicky Spratt is still in negative equity after 2017, and reprises the ‘worst financial decision I have ever made’ quote. And now I hear the fast-rewind chipmunks of the Revox A77s I was working with in the 1980s as we cue the tape up to replay October 1989 interest rates shocks all over again, and I see headlines like The Mortgage Crisis has Changed Our Lives. Back then it took less than a year for the Bank Rate to go up to 14.88% and the unprecedented doubling to actually happen to me.

In itself that doubling wasn’t such a big deal. It is what happened next that has given me a visceral hatred of Britain’s favourite asset class, residential real estate. The lesson history offers y’all is a harsh one, and one that very few people will take, because it runs against the narrative of a dearly-loved asset class.

That history, dear reader, is that if you are struggling with your mortgage now and you only took it out in the last couple of years, then ask yourself what you would think if your house fell in nominal price by 10%. With inflation running closer to 10% than 5%, that is a real-terms fall of 20% in a couple of years, but this is where today’s high inflation rates works for you, because the depreciation of Other People’s Money means the real value of what you have to pay back falls sharply as time goes by.

In that respect you are better off than I was, inflation was ~2.5% in 1992, and 2% p.a. 1992 up to 1999 when I had sort of cleared the negative equity. You could do better, provided inflation stays high for a few years, you stay employed in the teeth of the higher interest-rate induced recession, and that your wages sort of keep up with inflation. And you last that long… Inflation of 8-10% for five years would do you no end of good. If you believe that they will get inflation down to say 4-5% in a couple of years then you need to watch for the second shoe to drop – negative equity.

It took me ten years to break even after negative equity  clobbered the value of that house. The right answer would have been to GTFO ASAP while people were still bitching about interest rates, and rent. Sadly your only opportunity to do that is in the phony war part of the fight, when the papers are full of stories about high interest rates. When they start featuring sob stories about negative equity, you have lost the battle. Negative equity is a crafty stealth killer, you only find out how little people will offer for your house when you try and sell it, whereas higher interest rates lollop into your life tooting their horn on the daily news.

History doesn’t repeat, but it rhymes

On the face of it 6% is less than 15%, which Jeremy Warner uses to say it’s not so bad this time. The Bank of England deconstructed some of the 1980s problems in this 1995 report.

I was one of far too many punters in prime first time housebuying age bracket, as it was then

One of them was demographic, there were 1.2 million extra stupid 20-29 year old twits like me coming to the start of their housebuying years, and then Nigel Lawson gave the market a fillip by saying ahead of time that he would restrict MIRAS to one person per household. Which was perhaps my cue to say quite frankly, I don’t give a damn because as a single man I was a household of one, and could wait. But I missed that trick.

It’s not as if people didn’t warn me, but eight years at the tender ministrations of Britain’s evil amateur landlord scumbags gave me tunnel vision, must must must HAVE NOW. Which is why I still hate Britain’s amateur landlords with a vengeance. No, not you, dear BTL landlord. You are a special BTL landlord. It’s all them other lot, the bad guys over there. 99% of BTL landlords are self-identifying paragons of virtue not inspired by Peter Rachman, all I can say is that the other 1% sure as hell punch above their weight in misery generation in this septic isle.

The Telegraph’s Jezza W is right that some things were worse back then. If we take a look at the 2021 population pyramid, there’s a little bit of a hump in the 25-35 mark, but not a 15% heft. The attitude to repossessions was more robust, I saw it happen to both neighbours. But it took time – it’s a lot of aggravation, legal fees and bad press to repossess a house, so lenders don’t reach for that as first choice. Contrast that with the current government brokered extend and pretend grace period which by pure coincidence lasts very likely until just after the next election. I am shocked, shocked I tell you, to observe such synchronicity.

A war’s never over by Christmas

It took over ten years to make headway. One year ain’t gonna help you, particularly if the downturn cans your job. If you can’t afford it, then there’s a strong argument to GTFO now, like James in this article, before negative equity traps you for years. At today’s high income multiples, there may be a rational case for declaring bankruptcy if negative equity gets serious.

I did consider skipping the country and doing the Auf Wiedersehen Pet routine, but the trouble is that Germany went through a tough period then, as a result of taking over the moribund East Germany. It was easier to get away with leaving it all behind in those analogue days, but as it was I paid down the negative equity for years, and you, dear readers, have graciously put up with me hissing and spitting about it for a decade now.

I paid a bonkers 4.5 times my gross income for a house in 1989, but I had a 20% deposit, which brought the actual mortgage closer to the then prevailing norm of ~3.5 times gross.

People borrow a much higher percentage of their income nowadays. The trend is to pay about five times joint income, about 10x individual. Both employment and relationships are more fragile now, making the downside risk profile much worse. The Torygraph’s Ruby has some case that this is worse than the 1990s crisis, I guess the editor is on the beach so Torygraph editorial consistency has gone to pot. Bozza’s obviously got to his alma mater what with writing his pro Leave and pro Remain articles. Where he scored in an uncharacteristic display of competence was not publishing both of them on the same day in the same paper. You just can’t get the staff in this tight labour market…

Inequality was lower than it is now, it seems that the wage inflation the Bank of England is fighting is that of the better off City types, so expect everybody else to be on strike soon, if they aren’t already.

It’s a one-two punch – surviving high interest rates doesn’t mean you are out of the woods, negative equity is the slow, silent killer.

I had the experience of high interest rates and negative equity, but I was fortunate enough to be earning enough to be able to afford the higher interest rates, and retain my job through the interest-rate induced recession. It is the experience of ten years of paying down negative equity that was the real killer. Sure, paying higher interest rates is the immediate and present problem, but it’s the second punch that actually floors you. Particularly if you hang on to a marginal situation and the costs overwhelm you and you become a forced seller. The hazard of negative equity is much higher now than it was for the simple reason that income multiples are higher. Interest rates really aren’t the biggest danger

Buyers always get hurt when the government intervenes in the housing market, because in general government favours higher house prices, which shits on people wanting to buy a house. Some of the poor devils that bought a couple of years ago have a serious grievance to press on the government’s stamp-duty holiday, which has some similarities, in a history rhyming way, with the abolition of MIRAS for couples what was the gap I failed to mind in 1989.

A recession coming to somewhere near you

In a delightfully honest account, Karen Ward tells us how it works

The difficulty for the Bank of England — I mean, no-one envies them their job at the moment — is they have to therefore create a recession. “They have to create uncertainty and frailty, because it’s only when companies feel nervous about the future that they will think ‘Well, maybe I won’t put through that price rise’, or workers, when they’re a little bit less confident about their job, think ‘Oh, I won’t push my boss for that higher pay’. “It’s that weakness in activity which eventually gets rid of inflation.

I paid my dues in 1992. The Rt-Hon Norman Lamont delivered himself of this little gem, and indeed that Hansard piece is worth reading if you want to know how it will play out, the tape is cued and ready to roll, SOSDD.

Mr. Lamont : Rising unemployment and the recession have been the price that we have had to pay to get inflation down. That price is well worth paying.

The 2007 GFC was never paid down. It was bought off, and the historically low interest rates since then jammed the workings of capitalism, and a generation have grown up thinking this is the norm. There be much wittering about low growth in Britain, well, the deadwood hasn’t been cleared out for 15 years now.

I personally am grateful for that, I got the three years to run out of my decaying job and save enough to get FI. Perhaps I was the deadwood capitalism and globalisation would have cleared out ASAP had it been left to get on with the job. That is the point of having interest rates greater than inflation – borrowed capital has to be put to work generating real value, rather than chasing its own tail inflating asset prices, particularly unproductive assets like zombie companies. And housing…

I also benefited from the lift in asset prices, but not all of it is real, and those asset prices will fall in real terms over the next few years as the zombies are flushed out. That includes your stock market investments as well as mine, and it includes housing. Ten years plus of historically low interest rates have allowed monsters to grow in the dark. I have the feeling the next few years are payback time.

I paid more than the 6% current interest rates for the entirety of my 20-odd year mortgage term. But I paid that on a smaller capital amount, because having to pay interest on capital is what stops house prices from growing into the sky. No first-time buyer ever asks themselves ‘is this house worth this much money?’, because the backdrop is hateful BTLers screwing them shitless for rent, while occasionally trying to kill them to save a few bob on maintenance. That gives them tunnel vision of ‘anywhere but a BTL landlord’. What they actually ask themselves is ‘can I afford to pay the mortgage on it?’. If you have £500 a month to put toward a mortgage, at 10% interest rates that’s £60k you can pay for a house. At 1% that’s 600k. ²

The early 1990s interest rate peak was a result of the Bank of England losing the bet against George Soros to keep the pound in the ERM, and the bank rate dropped to < 7% by late 1992. It’s likely that interest rates will stay elevated for longer now, because fighting inflation is a marathon, not a sprint if we look back in time, and there is a decade of excessively low-interest rate excess to flush out of the system. The poster child for fighting inflation with interest rates is Paul Volcker, and Britain suffered those recessions too – I graduated into Thatcher’s second recession, it took me six months to find my first job, and the recession ground on for several years. The rhymes of history are there too, an energy shock, high inflation, low growth rising interest rates, an economy in coffin corner. There’s just not that many useful degrees of freedom.

It doesn’t matter who is in charge for the next few years, you will hear the basic sentiment of Norman Lamont delivered, because the only thing that fights inflation like a pro is a recession, as Karen Ward told us. Perhaps Labour will tax more heavily to raise benefits or snow parents with money like they did last time. But you’ll hear the words of John Major again, just like I did in October 1989

I understand the difficulties that many face with high interest and mortgage rates. But they – and the resulting slowing of the economy that we must see – are the means by which we will cure the problem. They are not the problem. […] So inflation must go. Ending it cannot be painless. The harsh truth is that if the policy isn’t hurting, it isn’t working.”

Young mortgage holders, like I was then, are particularly ill-placed for that because leverage is highest at the start of their mortgage journey, which amplifies the adverse impact of interest rates and negative equity. Nowadays renters in general, not particularly the young, are also exposed to the interest rates because so many ‘landlords’ are nothing of the sort. Back in the day, landlords actually owned their shitty hovels outright, because BTL mortgages weren’t a thing. Leveraged BTL exposes today’s renters to interest rates by proxy. Today’s amateur landlords don’t own their properties, they rented the money from a bank for less than the tenants could.

I do feel sorry for the people jumped into taking out a mortgage two years ago, against a background of an existential threat and a government desperate to keep house prices high, because their voters tend to be the sellers to these punters. The death of BTL – not so much. That’s investment for you, doesn’t always work out, particularly on margin.

Don’t fear the interest rates. Fear negative equity

In the meantime, remember that it isn’t high interest rates that kill you. It’s negative equity caused by higher interest rates. At the moment that hazard is lower because of high inflation, which writes off your mortgage for you in real terms without you doing a thing. But if inflation falls and those higher interest rates return to their long-term average, which is about where they are now, according to this mortgage broker, and my memory, then the ghost of negative equity will stalk the land again. If a third falls off the value of your house and inflation doesn’t help you out, that’s the equivalent of eight years of the four percent rise in interest rates we have had so far. I got to pay that down, year on sodding year for ten years, and that’s what gets you down. Oh and you can’t move until you have paid it off, else you now have a large debt following you around like a lost dog.

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1. although low start/adjustable rate mortgages (ARM) are nowadays associated with the liar loans of the GFC this was a rational choice for me given I had taken the insane step to buy a house then. It gave me a chance to pay off the £10,000 MBNA cheque that formed a good part of my deposit, within the interest-free period, and I cleared the probationary period and my expected salary rose. So I was smart about the micro, and majorly stupid about the macro. Well done me. ↩
2. I have cavalierly ignored compounding and the necessity to pay down the capital by the time you retire, though people seem to be moving away from that quaint custom anyway. ↩

ISA transfer weirdness again, and the tribulations of property

I use a Vanguard ISA for buying ISA shares these days, and have a large ISA with iWeb with most of what I accumulated since the GFC. Since Vanguard are a percentage-fee platform at 0.15% for small fry, every year I transfer the Vanguard ISA out to Hargreaves Lansdown (HL). They are also a percentage-fee shop at 0.45%, but if you eschew OEICs/funds, the percentage fee is capped at £45 p.a. Vanguard’s fee is £30 for one year’s 20k ISA, two years of that and they would overtake the cost of HL despite HL’s higher headline rate. HL has had this anomaly for many years, It will be a source of sadness to me if they change that cap on shares.

I like iWeb. No platform fees and £5 dealing charge. I have far too much with them, I would take a serious haircut if they went down particularly as I have my GIA with them. Which is why I use HL rather than iWeb to transfer to, so I get 1+1 redundancy and two lots of FSCS protection. HL has just crossed the FSCS limit, but they are reasonably big fish, the Boomers’ share platform of choice by the styling of their marketing.

With HL’s £45 cap,  hold 10k or more with them and they are flat-fee as long as you avoid funds. I am an ETF guy for index stuff. So I hold ETFs in HL. HL’s £12 dealing fee compares poorly with iWeb’s £5 and particularly badly with Vanguard’s £0 if you accept a daily batch purchase. I buy the index ETFs in Vanguard, I don’t mind the daily batch in exchange for being able to buy itty-bitty amounts often.

Last year HL cocked up the transfer of VWRL, turning it into VWRD. They repeated the very same error this year. They fixed it fast enough and at no cost to me when I pointed out this had happened again. Seems a rum operation for a UK platform to convert the SEDOL to a USD variant that they don’t allow their UK customers to buy.

Vanguard worked OK, and since I told them I was making this transfer beforehand they didn’t close the account.

Britannia Unchained – Welcome to your Future

Reader, I sucked it up so you don’t have to. After diligently searching the library for a copy of Britannia Unchained, the 2012 tract authored by Kwasi, our Dear Leader, Chris Skidmore and a couple of also-rans, I failed to find it. So I sucked up the Amazon price of £16. I don’t suggest you do the same 😉 I am tempted to list it as an investment expense. After all, you need to know what Liz Truss is thinking, and since she didn’t have to put any of it in a manifesto, this is as good as it gets.

I expected to hate it, but though I found it somewhat studenty and one-dimensional in places, I found much to agree with. My main philosophical charge against the tract was the strong tendency to infer the general from the particular, heavy on anecdote and light on tested principle. You could, however, level that charge against most of the dismal science of economics. What theoretical principles I have seen in economics often doesn’t come out well in the testing, or there is a replication issue where it works in some circumstances but not others. This is not terribly surprising for something attempting to make sense of a multivariate system rammed full of independent and resourceful actors with varying degrees of knowledge and emotion.

But I’ll run with it, because for better or worse, this philosophy is guiding the country for the next up to two years. So far, what’s appeared has been consistent with the book, but I can promise you, dear readers, you ain’t seen nuffink yet. About 90% of the idea hasn’t been voiced yet. So let’s set the scene from Britannia Unchained itself, in the intro.

All five authors grew up in a period where Britain was improving its performance relative to the rest of the world. The 1980s, contrary to the beliefs of many on the left, were a successful decade for Britain. They were a time when, after the industrial chaos of the 1970s, business and enterprise began to flourish once more.

I’m not really going to dispute that. I saw the 1970s and started work in the 1980s. I saw a gradually improving economy, such that it blinded me to the single worst financial mistake of my entire life to date, buying a house in 1988. Because I inferred the general from the particular. The only defence was I was in my twenties and a greenhorn, but it’s not like wiser heads, both my parents and colleagues in the office, hadn’t suggested prices were high and there might be value in not acting right now. It is the nature of the world that young folk and believe themselves all-wise and invincible. It is the job of the world to disabuse them of that belief.

These authors ascribe this successful decade to Margaret Thatcher. She had something to do with it, for sure, but I would say that North Sea oil might also have had something to do with it. Outcomes are not always due to a single cause. But Thatcher did seize the opportunity, and did fix some deep problems that did need fixing. Seeing Arthur Scargill, or any union baron in general, still makes me want to throw things at the telly, because Art and his flying pickets and secondary action was running the country in the 1970s. Where Thatcher failed was not in taking the miners down IMO, but in leaving the twisted wreckage of those communities to rot – you can still feel it passing through some of the Welsh valleys. However, in the round, I’ll give the point.

They observe that in 1950 the UK was still richer than France of Germany, but lost its mojo and did not benefit from les trente gloriouses in the same way. We know the litany of 1970s decline. The surprising difference in belief comes with

a comparison of social mobility puts Britain near the bottom in the Western world. Yet the suggested cures to this disease — abolishing grammar schools or redistributing wealth — have been, if anything, counterproductive. This is not just a problem of the left, however. Right-wing commentators are apt to argue about natural ability and talent, as if success is solely a result of destiny rather than persistence.

Much of the following discussion is about the decline in educational attainment of Brits relative to our developed world peers according to the OECD PISA scores. And I’m surprised by Kwasi, Liz et al.

All the experience I have had in my decades on Earth is that intellect is innate, slightly inherited, and broadly immutable. Some people are brighter than others. Intelligence isn’t necessarily an indicator of success, particularly in the past, because there are many other skills – intelligence is broadly reflected in academic prowess, but doesn’t make you a better human being. It wasn’t even particularly advantageous in times past.

I formed this viewpoint in primary school, . In 1960s London, they were short of teachers, and some of the kids who had mastered spelling and some aspects of arithmetic were set to try and teach the slower ones. I was one of the child tutors, not electively, and found the experience frustrating, because I could not see why others could not see what I had learned/derived. Although I am probably to the right of the bell curve I am not MENSA bright, but the range of pupils at this school was wide. In a later repeat performance I saw a quarter of the class lose the plot when they introduced fractions in arithmetic.  Many never really mastered spelling. I was not the brightest in the school, however, and even at that age could see that, though I was in the upper reaches. At secondary school O level maths, calculus¹ in the form of differentiation did the same again.

But I could see that some people were slower, and no effort seemed to redeem the problem. My valedictory primary school report had the phrase doesn’t tolerate fools gladly, and the succeeding decades has still not shown me why this was such a bad thing, fools should be kept well away from things they are foolish in 😉 I am foolish at all sorts of things, that house purchase was something I should have been kept away from! I have never, ever, considered teaching as a profession – not as a child, not as a young adult and I wouldn’t entertain the idea now.

In my grammar school, about half the class cleared off at 16, to go to work. These were the less academic, but the employment world of the 1970s was not the same as the employment world today. They could start earning – some of them worked in garages fixing cars or apprenticed to trades. The world of work presented opportunities for a much wider range of aptitudes than it does now, where analytic skills are much more to the fore, particularly if you want to earn well, and that roughly correlates to academic ability, and often to STEM areas, due to some of the analysis being mathematical, or at least arithmetical. Th 1960s and 70s had good earning positions for people without academic qualifications who could learn a skilled trade.

A lot of Britannia Unchained laments the poor academic and specifically STEM aptitudes of the output of Britain’s schools, and the tendency to favour arts and humanities because it is easier to get decent grades in these.

Instead of hard choices, students apply for a degree in media or business, which will often allow for the study of easier A Levels. As with US college courses, science A Levels are more harshly marked than those in media and sociology, the difference being up to a grade. In a culture of equivalence, where all subjects are deemed equal, students make the seemingly rational choice of going for the easier option.

Kwasi and Liz are of the belief that perseverance, hard work and application can compensation of a lack of innate ability. That may be true in many areas, but academic ability I am not so sure, although I have not darkened the threshold of a school for 40 years. Perhaps it’s all different now. This matters, because if an increasing number of jobs require academic ability, then the flipside of that is that the proportion of the workforce who are employable for anything other than national minimum wage will fall – the polarisation into some lovely jobs and lots of lousy jobs², which seems to be what we are seeing. I am one of those commentators that are apt to argue about natural ability and talent, as if success is solely a result of destiny rather than persistence.

Success in some areas of life may well involve persistence, but academic ability is more innate IMO than persistence. Sure, it needs teaching to focus it, I am not saying teaching is irrelevant, but it won’t improve the material. It’s the same as indeedably’s tale of the second-rate athlete.

For whatever reason, often through no fault of their own, they just don’t have what it takes

The difference is important, because of the implication that the academically challenged can raise their game by putting in a lot of hard work. In which case, Kwasi and Liz are of the view that the problem is a lack of grit and determination of Britons to raise their game.

In Britain, there has been a massive rise in welfare dependency. The generosity of income support has risen sharply since the war. In today’s money, the taxpayer now spends ten times more on social security than in 1950 — with a fivefold rise in the number of people claiming unemployment benefits. The number of people claiming sickness and disability benefits has increased thirteenfold.
[…] The British state has made it too easy for too many people to take the easy option.

We know what’s coming. Massive cuts in benefits. So far very little has been said about this, but the authors of Britannia Unchained do not stint in their admiration for the American model of unemployment benefits, which have a time limit of about half a year. I believe that there is also a 99 week lifetime restriction. We will see Hoovervilles in the UK ³ in the coming recession and destitution if Lasi Trussteng have their way, because trailer parks and people sleeping in cars is how the US solves this conundrum, although to be fair that US is large enough that is some areas the climate makes this more possible, and it has a much lower population density, so the strife with the settled population is probably lower.

Before you FI/RE sorts get all complacent here, Lasi Trussteng would like a word about all that early retirement, you lazy bastards.

Our baby boomer can look forward to a long retirement, based on estimates of life expectancy nearly a century out of date. Most of his universal benefits remain ringfenced by the government, while his defined benefit pension is unlikely to ever be experienced by his children.

One has the feeling that your State Pension is going to be means tested at some stage 😉 The clue is in universal benefits, although it is possible that their position has changed on this – the recent rolling back of the child benefit withdrawal for higher-rate taxpayers goes against the grain.
The move towards an insurance based NHS is also lauded, thankfully more admiration for the European (French and German) way of doing that than the obnoxious US model. Supporting evidence is the pulling of the health inequality white paper by Therese Coffey. Although once you’ve done the work I’d be in favour of publishing it, it is going to be a statement of the bleedin’ obvious.

The rich are bound to live longer in general because they have more control of their lives. As a child I used to get bronchitis, because it was cold and damp in 1960s London before central heating. I never had it after my mid 20s – because I didn’t live in exceptionally damp and cold houses.
If you are poor you will fill yourself and your kids up with cheap carbs. That won’t be that varied, it will be ultra processed foods with all the problems that go with that, and that will not do you any good in the long run. There are whole supermarket aisles that I don’t recognize as food – nobody needs family packs of crisps or tins of noodles in alphabet shapes. Michael Pollan was right – eat foods your grandmother would recognize. But it’s all more time and aggravation. There is very little that can be done about this unless we decide that poverty is not allowed to happen.

Redistribution is very much a no-no in the Truss-Kwasi-verse. It is at the root of what has gone wrong with Britain, arguably redistribution and the everyone’s a winner approach are the Chains that bind Britannia, and This. Will. Not. Do. Any. More.

You know what to do to get out of the firing line.

• Be rich
• don’t be disabled
• don’t be stupid.
• If you are young enough to have the option, study maths and science at school.
• If you are shit for brains then simply Work Harder, you’ll get there in the end.
• Best not have bought a house in the last couple of years, if you have a mortgage, that is. You may be in for some interesting times

Although it’s easy to satirise because of its simplistic approach, there is a lot of truth in Britannia Unchained. Some of their examples haven’t aged well – the admiration for Brazil would hopefully be muted, because while Jair Bolsonaro may well appeal as a strong leader, but de Gaulle’s epithet that Brazil is the country of the future and always will be is ringing more true in the second clause than the first.

I agree with Lasi Trussteng that thirty or forty years the work ethic was stronger in Britain – working class people disliked going on the dole, and there was some sense of pride in not doing so. But there were more jobs right across the ability range 30 or 40 years ago, and the culture was more homogeneous, there was more commonality of media consumption (no talking heads TV and social media thriving on fomenting outrage, for example). People’s expectations were much lower, and they tended to raise their children themselves, rather than going to work and paying others for large amounts of childcare. Everyone was poorer, and there was less wealth disparity. Britannia Unchained will struggle to recreate those times nowadays.

You could make a much better case in the past that work was the path out of poverty. I just don’t think that’s true any more, because a larger and larger proportion of the working-age workforce can’t really add enough value to raise themselves out of poverty.

There is some argument that if people didn’t have children they couldn’t feed ⁴ they might be better off, and it staggers me that so many people bring up children in poverty, but every technocratic solution to that vector of poverty has ended up creating serious evil if it is coercive, so either everyone else gets bailed in to pay for the fecundity or the progeny have to suffer as a lesser evil.

Even without the problem of children they can’t afford, a life on the minimum wage is probably not going to rich in experiences. The privately educated journalist Polly Toynbee wrote a book about that called Hard Work, and it really doesn’t sound like the greatest amount of fun you can have, and ISTR she got to take some time off, possibly weekends, in her leafy middle-class home.

Liz and Kwasi haven’t gotten off to a good start with their attempt to implement the principles of Britannia Unchained, largely because the markets asked to fund the interim shortfall have taken one look at the project and thought to themselves ‘Nah, not gonna work, not a prayer, guys’ and raised the premium they want to lend against the collateral. The markets would have been a lot more convinced if Lasi Trussteng had first outlined the cost-cutting part of their project:

• Massive cuts to benefits >10%
• immiserate the poor in Hoovervilles. Much admiration for US tough love.
• Public spending cuts – Think 10%. There is admiration for the Canadian cuts a few years before the 2012 publication of Britannia Unchained
• Privatise the NHS (along the European model, in fairness to them)
• Raise interest rates closer to the 5-7% long run average for the UK, crushing house prices, which would genuinely improve affordability for the young and transfer capital from the economically inactive oldies. How that will go down with the core Tory constituency remains to be seen
• Make planning and zoning more like the US, pretty much build anything anywhere
• Do something about the State Pension to reduce its cost – reduce eligibility, make it payable later, whatever.
• A smaller State in general, as a matter of principle

Unfortunately they chose to major on the expensive revenue-losing aims first. It’s like going to the bank and talking all about the des res you want to buy on their dime or the flash car, without telling them about the promotion you are going for to be able to afford it. I’m not necessarily of the view that tax cuts are bad in and of themselves, but it would have been a lot better for the market’s ability to digest the great scheme if Lasi Trussteng had got off on the front foot with their savings first.

The problem is that the solutions outlined in Britannia Unchained are going to be unpopular with the voters or the funders. The unique talents of the Liz and Kwasi double act is that they’ve managed to make them unpopular with both. Well done them. Not only that, but they look decidedly shifty in telling the Office of Budget Responsibility to deliver their report six weeks after the October budget. That just looks shifty.

It is theoretically possible to improve the balance of payments by increasing growth, and undoubtedly some of the proposals in Britannia Unchained might increase growth. The trouble with increasing growth in developed economies is twofold. One is that economic growth means working harder, which is a decline in lifestyle for those of us who want to do something other than working with our allotted three-score years and ten. That includes you lot, dear readers, with your reckless FIRE fantasies, just as much as potential candidates for Benefits Street. Britannia Unchained shows a secular decline in working hours in nearly all economies, good luck with turning that round.

The second is represented by all those keen emerging economies and hard-working Asian students that are lauded in the book. There’s a hell of a lot more competition these days. It will be harder to shift the needle on the dial.
As the Torygraph fulminated, most of the self-inflicted wound Liz Truss and her sidekick made was because they didn’t have confidence in their working. There’s something studenty about the whole project, and particularly ill-suited to a crew who spend a fair part of their book spitting bricks about the lack of analytical skills and STEM smarts in the feckless British workers, students and school-leavers.

To get ahead in the new type of jobs you need to be able to reason and think logically.

[…]

While improving these skills helps growth, they can’t be restricted to the few. The biggest effect happens when on top of a large number of people with high-level skills almost everyone has the basic and mid-level skills. On the latter measure Britain needs radical measures.

Yup. I would say start with Dear Leader and Crazy Kwasi. Sticking “and then a miracle occurs” in the middle of your working has been disapproved of in the sciences for a very long time.

I saw a copy of this Sidney Harris cartoon, in Felix, the Imperial College student newspaper in the 1980s, and it’s still true forty years later

Show your working Kwasi, and having independent workers replicating it and getting roughly the same answer is even better. Independent workers like the OBR.

There’s a price to pay for unchaining Britain, which is deconstructing many of the things voters have been used to having. The NHS, benefits and pensions cost a hell of a lot of money, and that offer plenty of savings enough to make it all work. It’ll be a tough sell at election time, but if you have to borrow the money to make all the tax cuts eye candy work, you’re going to have to show your working to the bank manager, and show your plan to the voters.

I’ll leave you with what Liz and Kwasi of you, the voting public, as they open Chapter 4, Work Ethic

Once they enter the workplace, the British are among the worst idlers in the world. We work among the lowest hours, we retire early and our productivity is poor. Whereas Indian children aspire to be doctors or businessmen, the British are more interested in football and pop music.

Just as well they didn’t have to sell this project at an election 😉

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1. I was shocked to learn that these days  calculus is deferred to A level maths these days, so perhaps this is a wider problem and Kwasi et all are right. ↩
2. Lousy and Lovely Jobs: The Rising Polarization of Work in Britain, Goos and Manning, 2007. ↩
3. For you metropolitan city mice that say you haven’t seen anything like that, I have seen unauthorised camping by the poor in some parts of Somerset. This isn’t wild camping or elective #vanlife ↩
4. I’m perfectly aware of the social justice warrior argument that having a child is a 16-20 year project and a lot of ruin and misadventure can happen over two decades in a life, particularly with the increasing precarity of work. I have some sympathy for these unfortunates, but they aren’t the majority IMO. Contraception is free on the NHS. This one grates because I recall paying an awful lot of tax and NI towards New Labour’s largesse snowing parents with public money, to such an extent that there’s a hypothesis that Tony Blair was the daddy of the baby boom. At least Truss and Kwarteng approve of this baby boom for giving the bulge of young people now. They don’t give the daddy due credit for his redistributing ways, but they lambast New Labour for driving up public spending in the last couple of years of their tenure. You can’t have it both ways, guys ↩

Truss mines magic money tree, mithering multitudes marvel at the munificence

Blighty has a new Dear Leader, under what has been an excessive interregnum to feed the ego of a small part of the Tory party. A four-month delay to collect their prognostications is fair enough for a party in opposition, but is far too long to replace an incumbent PM. Would we have had to wait four months in the depths of the pandemic if Bozza had been pasted by Covid? Or if Putin novichoked him or nukes London?

New! Dear Leader says shes is going to fix energy bills, after people have been working themselves up trying to find a way to pay a doubling of rates up to 51p a unit from October, while working minimum wage. After spending four months hollering from the rooftops that she is not in favour of handouts the likely solution looks very like handouts to me 😉 Indeed it looks tremendously Third World to me, subsidising the price of something. La Truss delivered herself of some pithy statements in her former life as a candidate:

On the eve of the price cap announcement, Ms Truss acknowledged that soaring energy bills were a “massive issue”.

But she said the government couldn’t “just bung more money into the system”.

Ms Truss told the hustings in Norwich: “What we need is to fix the supply of energy.

“If people think this problem is going to be over in six months they’re not right.”

I happen to agree with the sentiments, although not for the same reasons. Arguably fixing the supply of energy is a great idea. But to get there you wouldn’t start from here, but perhaps many years ago, although a hat tip should be given to the significant progress that has been made, particularly with offshore wind which is a resource Britain has a lot of, comparatively.

I also agree with Dear Leader that this won’t be over in six months. The well-repeated narrative is that it’s Putin wot done it by turning off the gas pipeline, indeed what surprises me is he didn’t do that earlier, General Winter is an old friend Russia knows well. See Napoleon, Hitler and Monty’s rule one on page one of the book of war. I don’t believe the narrative. Putin supplied the shock, but the response of the market prices shows there is very little spare capacity. I am of the view that this is what the foothills of peak oil looks like. It’s not a sudden bang and turn off all the things. It is increasing scarcity, and scarcity=high prices at first, and then shortages if the prices don’t depress demand enough.

That’s not going to be over in six months, and it may not be over, ever. This doesn’t mean we will be living in caves in five years’ time, but I agree with the former La Truss that the government can’t fix this by just bunging more money into the system. That’s because this money is for rising operating expenses, and while it’s sometimes reasonable to borrow money for capex, it is never a good idea to borrow money for opex.

Net zero is not about saving the planet

It may be politic to give the handout to bills to soften the transition, but it’s an ongoing drain if energy prices are going up because supply is running out of spare capacity. If you think the need for a bung is just as long as it take for Putin to prevail in Ukraine enough to get something he can walk away with, then yes, perhaps it’s a price impulse. The trouble is that the world consumption of fossil fuels shows a steady increase, because population is still increasing, and everyone would like to have an American lifestyle in terms of energy use.

can you see the falling fossil fuel consumption? Me neither

So even if Putin changes his mind, soon rising demand will consume the amount we have lost, and spare capacity is in short supply. For all the hullabaloo about CO2 emissions, humanity ain’t giving up using fossil fuels any time soon. Just look at that chart. There was a Covid retrenchment, but it’s roared back on track.

If you want to reduce CO2 emissions, then carbon capture and storage, which has never been demonstrated at scale, and tends to use a lot of energy itself, is the only way that’s going to happen. The good things about having loads of energy at hand are just so good than nobody is going to think of the  grandchildren. Sure, the West might get to net zero in penance for having been the first out of the block, and that penance will be making the fossil-fuelled air conditioning of a burgeoning Asia and Africa that little bit less expensive by taking some demand off the table.

For a declining part of the world less able to fight its way to the top in 50 years time increasing renewables is arguably not a bad allocation of capital, because electricity is not very storable and not very transmissible at transcontinental scale, so while it can displace some fossil fuel demand it can’t easily be sold to richer bidders. As a way of reducing global CO2 output? Fuhgeddaboutit, that consumption chart will be limited by supply, not going green IMO. You can feel good about the UK dropping its per capita fossil fuel usage from 46MWh per year in 1973 to about 22 in 2021.

You have Thatcher to thank there for destroying heavy industry, and the Arab-Israeli war in 1973 to thank for improving efficiency. There are echoes of 1973 now as well – in general if you do things that piss off your energy suppliers like yelling in their lugholes they are scumbags or supporting their enemies, the price goes up. Our product, our rules was the word in ‘73 too. Sometimes you have to put up with that privation, but pretending it isn’t going to happen won’t take you anywhere good.

The problem with energy is that all the alternative options suck. For an economy in secular decline, they suck bigly. You are likely to have less energy available in future, because it’s dearer, and that’s not something the government can fight. They could try and increase renewables, and they could do something about not tying the price of renewables to the price of gas – perhaps some industrial customers could live with the intermittency of renewables for a cheaper rate. There has been a historic correlation of energy-hungry industries colocating with sources of energy, from the cotton mills oop north with the abundant water power, to aluminium refining occurring near hydropower.

But for y’all at home, it’s gonna get dearer. There’s only so much money Dear Leader can magick up from taxation and borrowing because that’s the trouble with depending on the kindness of strangers It should be noted that some at the Bank of England dispute the former guv’nor’s pithy warning. Apparently Britain has foreign assets worth 4xGDP and is flogging these off at 6% of GDP to fund living above its means. So that’s all tickety-boo then, 66 years until the high-water mark reaches the low-water mark. Should see me out, that’s a SWR of 1.5% so it might even be sustainable, ceteris paribus… The trouble with life is that all things stay equal only in the grave.

We have lived with less energy before, we can do so again. We have some advantages – efficiency is better and control systems are smarter. Against that, energy is used in a lot more places quite diffusely than before the digital revolution of say the 1990s onwards. I started chasing power in the face of future energy rates of £1 for 2kWh. Saving energy at home showed that most commenters had the edge on me in the art of saving energy 😉 Despite that I hit two power hogs and continued chasing, as well as investing in renewables. And oil…

Now that La Truss has declared that the Ofgem increase isn’t going to happen for two years until the next election some of that is perhaps a misallocation of capital, and I am not going to increase my investment in renewables over and above what I have already. I am cheered not to be paying for other people’s heat pumps, solar panels and insulation, though 😉 I know it’s petty, but I don’t want to pay for your green crap through my power bill. I don’t mind too much paying for some green crap, even if it’s the same amount, through taxation¹, because CEOs will hopefully get to pay more. There’s a hint of the poll tax in the everyone pays the same amount for the green crap so we don’t have to call it taxation.

Now the magic money tree has been located, well, that’s all fine then. Inquiring mustelid minds are intrigued as to how tens of billions of pounds are going to be magicked up ongoing, the obvious solution is to make those pounds worth a bit less so the job is easier to do. Still, it will reduce near term inflation, which gives me a little bit more time to think. On the other hand, if you look at a chart of the Great British Pound against a basket of other currencies, IMF special drawing rights, I’d say

How many IMF SDRs can 1 GBP buy

going down the toilet is perhaps being charitable. Not as bad as Covid, pretty much the same level as after Brexit. Looks like night has fallen on them sunny uplands, and Putin has knocked about 15% off the value.

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1. FWIW the Ermine is and probably always will be an income tax payer, despite the non particularly economically active status ↩

Ten years of leisure wrested from The Man

I stopped working for The Man ten years ago, at the end of June. I spent my last working day in the Athlete’s Village in the 2012 Olympics. It was a little bit odd to end my career working off-site, but I had a little bit of annual leave to use up. I did return the The Firm at lunchtime at the end of June for a valedictory round of drinks at a local pub and a send-off, and that was it, three decades of working life came to an end. It was a good way to finish off, on a high as the last manager said. I look at the pictures and they are good, though I see the signs of three years of the stress and the effects of drinking too much to dull the pain.

Not many FI/RE people are still writing after a decade, so here are a few takeaways from the ride. It has been against the background of a long bull run that is only just fading, as the firehose of central bank interventions begins to surrender to the irresistible force of the accumulated pathologies stoked with it.

I did not get bored

Honestly, I still can’t understand why bright young fellows like Monevator still link to cruft like this. Seriously, if work is the best thing you can think of to do with your limited time on Earth, then you need to get out more and get some hinterland in your life. Preferably half a lifetime ago, but now is better than never. I am sure that for 1 or 2% of people their profession is their one true passion. They tend to be outliers, often psychopaths like Elon Musk, or Mark Zuckerberg, and that passion tends to be unbalanced. That leaves over 90% of us who can probably do more congenial things with our time than working, if only we could solve the conundrum of dreadful things happening in our lives if the flow of income from our jobs were to stop. You know, like losing your home or your kids starving, that’s the sort of thing that keeps most of us working past the point that the Do What You Love, Love What You do meme has transmogrified into Suck it Up, Our Way or the Highway. Solving that is what financial independence is about, but too many people end up with Stockholm syndrome with work. The Escape Artist summed up the problem. Don’t just load the gun. Pull the trigger.

The world is plenty interesting enough to reward an inquiring mind and an inquisitive snout. Learning new stuff has never been cheaper or easier, though it pays to remain critical as there is also much more misinformation about. In many areas of factual learning, favour books over online, and I personally almost always favour the written word over video¹.

I got less hard-line about working than my younger self, who was running away from a crap situation. But the key takeaway is still the same. Don’t rely on income from work after you have become FI. Save it, spend it on champagne and caviar, but never, ever, set up your life so you depend upon it again. Otherwise you are no longer financially independent. This severely limits what the financially independent can safely do with the proceeds of work.

Spending FI/RE earnings on  lobster is OK. You can live well without lobster, but perhaps better with.

Breaking that rule is fair enough if you opted for thin-FI/RE and came to the conclusion you don’t want to live that way – financial independence is not worth more than anything else, and if you want to live high on the hog, or live in London, or send your kids to private school, then you are probably not going to be financially independent as early as someone who can eschew some of that and drink prosecco rather than Dom Perignon.

Fear and loathing in the markets again

The Ermine household decamped to Wales for a few days, near Saundersfoot. Over a decade ago I was halfway through my three-year plan to gain manumission from The Man. The halfway point of any drawn out goal like that is really tough – you have lost the comfort of the port of departure, and are on the stormy uncertain seas without sight of the distant friendly shores.

I was living on roughly the national minimum wage, in order to maximize the benefits of salary sacrifice. This was greatly softened by the fact we owned a house outright and several acres of farmland which Mrs Ermine grew a fair amount of our food. But it was tough, and for a holiday in that period we took two weeks out, touring south Wales in our campervan, staying on campsites. Mrs Ermine has a penchant for spas, and while we stayed at Trevayne Farm campsite one afternoon she sampled the spa, and in the evening I walked down from the campsite and we had dinner at St Brides Spa Hotel. It wasn’t cheap, but not having gone out to a restaurant for a long time the experience was great. Hedonic adaptation means eating out every week gets ho hum, but if you go big once in a while it really hits the spot.

This time we stayed in a flat in Saundersfoot itself, which is a better experience than having to walk back three-quarters of a mile uphill to the campsite, and I got to see more of the strange heritage of the place.

It used to be a coal harbour, and the train ran along the now rather pleasant promenade along to Wiseman’s Bridge going through some tunnels carved through the dark rock, some of them long enough to be a struggle to see your way in the middle.

King’s Quoit, Manorbier

The Wales coast path had some remarkable prehistoric monuments, and we encountered these bad boys with curved crimson bills. I have never seen choughs before.

Chough, Manorbier Bay, Pembrokeshire

One downside of Saundersfoot beach and walk is it is dog-infested. Despite the council’s fond belief that dog owners can read, my experience is they don’t give a shit about signs, and assume everybody is as delighted to come across their precious pooch as they are. “Oh he won’t bite” they exclaim lamely when two barking rows of drooling teeth jump up at you.

Dogs not allowed on that side of the beach. Except for these ones, because they are special.

The photo, taken around noon on the 11th May, shows that these dogs were special, and rules didn’t apply to them. Neither the rules saying no dogs on that side of the beach, nor the rules saying keep your mutt on a lead, because it’s so much more fun for Fido to race up and down the beach, other beachgoers be damned. That’s bad on the beach, it’s really quite unpleasant in the tunnels.

crisis, what crisis?

I come back after about a week away and Monevator’s Bonfire of the Vanities seems to indicate that it’s been a tough time in the markets of late. GBP investors’ ability to shoot straight is handicapped by the falling pound, which flatters apparent returns.

Looking at my iWeb ISA, it didn’t look so bad, though of course that’s in falling pounds. I sold out a fair amount a little before the turn of the year, because I had done reasonably well coming out of the Covid crash and unicorn shit is on the rise. There is a lot of gold in there, because I had a plan to sell out gold from my ISA and rebuy it in my GIA, and buy income in the ISA with the liberated cash. Because: income tax and inflation.

Although discharging capital gains is a pain, with a gold ETF I can swap some SGLP for a gold ETF run by Wisdom Tree or SPDR, which would harvest capital gains for the cost of the turn.

As it was, I started buying gold in the GIA, but then Putin switched from exercises to war, and although I had started buying income ITs by selling gold in the ISA, I didn’t sell the rest of the gold for cash, so I rather increased my total exposure to gold. I will continue to hold my capital in the ISA as gold rather than cash, selling gold only just as I am buying. For some reason you don’t seem to have to wait for settlement in an ISA, so other than the £5 transaction cost there’s no advantage to selling it for cash ahead of the purchase.

I will admit to a fair amount of schadenfreude about tech, which I viewed as vastly overvalued before, and other than my exposure as part of VWRL didn’t really have much exposure. I do take the point that this will have given up return although I wasn’t quite as heavy on dividend paying equities as GFF, VWRL is my largest equity holding and pays almost diddly squat in yield. 1.56% isn’t going to make anybody fat. One needs £600,000 to capital in VWRL to earn £10k in dividends. I am some way off that.

Ill fares the land

Ill fares the land to hastening ills a prey
When wealth accumulates and men decay.

The Tory party conference is in full swing and celebratory high-fives, with Lord Frost chuntering that the long bad dream of EU membership is over. Now unlike some of you whippersnappers, I recall what the sick man of Europe looked like in 1973, though as an ankle-biter I wasn’t that economically aware. Ermine Command sent an expeditionary force to the fair city of Oxford. Through the crackling wisps of t’internet came this signal

Tesco

Our nonplussed forward team commander wondered if they’d picked up the time machine by mistake “I’m in a time slip and it’s Thatcher’s Britain all over again” – at least they’re all set for CDs if they can find a way to put them in their phones.

Fintech Fantasyland – Raisin and Coinbase

In more innocent times once upon a time, I walked into a branch of Barclays opposite where I worked, showed them my staff pass card and 20 pounds to get the ball rolling, and walked out with a shiny new Barclays bank account. No passports, name rank and serial number proof, no pack drill, just me and them. They knew The Firm, they knew what a staff card looked like, and that was good enough. They knew their customer, in an analogue way.

Nowadays the process is grief-stricken and involves webcams picturing your driver’s license(sic) and all sorts of aggravation. I figured I should start to get a teeny bit better return on my cash than 0% as the amount started to creep up to Harry Browne regions, so I was tempted by Hargreaves Lansdown’s Active Savings, on the principle that I already had an account with them, so I wouldn’t have to go through all that customer ID crap. I stopped as soon as I read signing up for active savings means they will always send an SMS to log in, even for my SIPP. I am sick of this stupidity. It’s the easiest job in the world to slam your phone number to some ne’erdowell, particularly if you live in rented accommodation with a shared mail access. But it’s not that hard to do for everyone else.

We had/have a perfectly serviceable alternative – your bank card and one of those reader things to generate a one-time password. But no, it the general fetish to have everything on your damn smartphone, SMS messaging is a less secure alternative they are pushing. Because every bugger has a smartphone surgically implanted, FFS.

The advantage of Active Savings is that you have a single interface to the account, and they then let you save with a number of other organisations without signing up with those separately. Which is good, because the process of signing up for a bank account in the UK is absolutely horrible now with all the ID checks, I’m sick of it.

So I looked for an alternative, and Raisin seems to do the same thing. Given that I have a SIPP with HL, running with a separate FSCS institution seems a good idea anyway, and though I have to suck up the SMS bullshit at least I only have one sign up process to do.

The time to worry about bail-ins is before they happen

If you look at Raisin’s FSCS protection page, once you have signed up for savings account through Raisin, you get the FSCS (or Euro equivalent) protection of the destination institution. One of the biggest drags about savings is having to sign up with many institutions, the implication here is that you could break up your holdings below the 85k FSCS amount all through Raisin, provided you were careful where the destinations were.

There is some argument that holding more than the FSCS limit in cash is mad, unless you are really, really old. However, at current valuations I can see myself doing that for some time. Inflation is not the only hazard I see, and looking at what happened in Cyprus the FSCS limit is roughly where you become a tall poppy and a source of emergency bank funding of last resort.

So far so good, but though Raisin is associated with Starling Bank and I used Starling as a feeder account, it seems to be taking its time to happen – transferred about 10am and only got there 11pm. In general I expect better from Starling, my experience to date has been of quiet, understated competence, and blistering speed at posting details of transactions. Pay for something using the card, and by the time you have picked up the phone and opened the app that transaction is there to be seen in your account right away.  I don’t bother to ask for paper tickets for those card transactions because there’s no point.

For other Starling customers wondering what the hell their sort code is, Starling tell you there is only one: 60-83-71 at the time of writing.

I found Raisin confusing in operation. Some of this of course is that the nominee method of banking is new to me. For example I applied for a 32 days Investec notice account, paying 0.8% APR. Time to order some tiny fireworks, eh? So I get an email saying the Ts and Cs for the Investec savings account you viewed, and I think fine and dandy, to be treated to a pdf with 16 pages of solid cruft about Meteor Asset Management, with nary a peep about Investec. If you look at How Raisin Works you will see that Meteor Asset Management is the pool account front running Raisin’s customers, sort of analogous to a nominee account¹, which is how you don’t get to streetfight the onerous Know Your customer crap for each and every share line in your ISA.

I happen to have read the how it works page before getting this 16 page Investec Ts and Cs not mentioning a word about…Investec. I was more tolerant of this rum carry-on because I had already qualified Starling as a competent operation, but that sort of inconsistency is going to scare the horses in customers of a more nervous disposition.

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

This won’t be over by Christmas in Brexitland

Ah, bless. Remember July, when we were all camping and heating up the barbie and it was all going to be over by Christmas?

Hostage to fortune, mate, and you lot can’t plan your way out of a paper bag, it’s been firefighting all the way. Do or do not, do not try.The usual wingnuts from the torygraph and unHerd are fulminating, they may as well hold their breath.

We have long argued that the country needs to live with this virus. […]

The alternative is to protect the vulnerable while letting normal life continue for most people. Older people who do not wish to be locked away can make their own choices knowing the risks.

Don’t sweat it, guys, it’s what’s going to happen anyway. After Cominic Dummings’ little escapade because he is such a sociopathic Billy No Mates he couldn’t find anyone to do his childcare in London, you can’t tell any bugger what to do.  We’ll be battle testing herd immunity by default. We got there in the end, 40 years after I played this track at university.

Weed out the weaklings…

And WTF is it with all the over-acting emphasis Bozza? Don’t they have decent drama school and elocution in Eton? Less of the lunging into the damn camera, and perhaps engage brain before opening trap? Nah, it’ll never catch on, and anyway, we’ve had enough of experts. Funny how Boz is so uniquely unsuited to wrangling something with the potential to kill people. I’m not convinced that it’s the end of the beginning yet. Boz really did need to pay attention at drama school. This, dear boy, is how you deliver that sort of news:

BoJo’s emphasis is all wrong and his cadence sucks, he’s trying too hard. If you want to know who to take people with you, listen to Donald Trump – he gets that right. He can talk absolute bullshit but make it sound right.

Socrates called out the problem of the unwilling leader being better qualified than those who really, really want the job, though he didn’t crack the implementation problem. Bozza is proof positive, he’s a good-time guy who wanted to get Brexit done, not fight bugs. Be careful what you wish for…

Capitalism gears up to ream the poor at Christmas

Anyway, it was clearly bollocks that it’ll be over by Christmas. What’s more, capitalism red in tooth and claw is tooling up to ream the poor, and the recently unemployed anyone else.

Beware the plastic

The Bank of England fondly believed that shitting on savers would give borrowers a break.While they did shit on savers they gifted ‘investors¹‘ a doozy, which is how after a near death experience in Spring your equity portfolio is worth more, though about 10% of the UK economy has been burned.

Dunno what the heck they are smoking in Threadneedle Street, but it is strong. For starters lending money to people who have just lost their jobs is a risky biz in the first place, it’s about return of capital as well as the return on capital. Personally I’d also charge people more around Christmas anyway, because parents who are unable to tell their kids that Christmas is cancelled this year are unlikely to have the fortitude to do what it takes to pay this borrowing back under adverse conditions. Ten years ago in the midst of the GFC I suggested Charlotte tell her precious ankle-biter that Christmas is off, and the problem remains the same. Different perps, different kids, but Christmas is an elective spend, and it’s likely to be a tough time this year. Elect not to spend, rent and power before pressies. Tragically, there will be many who won’t have the option of either. If you have no assets, there is an argument to hit the old CC hard and fast, knowing you will never pay it off, but the IVA/bankruptcy option does rob you of some options in future. Given this hit is hopefully a one-off, then it’s a hard call. Going IVA/bankrupt may make it harder to rent a place or get some jobs…

Same old shit, different decade

Maybe we should have a guest appearance from Shona Sibary, she of the too many kids and the unawareness² that you’re actually supposed to pay off a mortgage, plus if you use a string of fixes to borrow more than you can afford you make yourself a hostage to fortune in market crashes.

Lenders gonna lend, and you have to make money. They’re more Chuck Colson than FDR on this,

“If you’ve got them by the balls, their hearts and minds will follow”.

If the Bank of England was really that troubled about hard-working families getting a dreary Christmas then they could always lob money out of helicopters themselves, rather than getting credit card companies to do the dirty work for them. I guess Rishi might disapprove, but hey, whatever works, my friend.

As living proof of this incipient reaming of the newly unemployed, I received the following mealy-mouthed missive from a bank:

We want to help you manage your borrowing and ensure your overdraft limit is right for you. As you haven’t used your overdraft for a while, we’re planning to reduce this from £3,150 to £1,300 on 27 November 2020. Your new overdraft limit is still above the most you have used on your account in the last six months.

Well, thanks a bunch. I’ll have you know that I haven’t used my overdraft for the last fricking ten years, I can’t remember ever using it and it will have been cock-up anyway. However, you cynical punks are clearly expecting me to lose my job by Christmas and don’t want to be left holding the baby, eh? Well, you can f*ck right off and stick your overdraft where the sun don’t shine, busters.

Help me manage my borrowing? WTAF?

We’re in the chest-beating and mutual hollering abuse stage on Brexit

It was always going to get to this. Personally I’m of the view that too many Tories want a no-deal Brexit and there’s another four years to spin it as all t’other side’s fault. But perhaps all the chest-beating is just a phase we are going to have to go through.

In this crossfire, the Ermine needs to work out to preserve capital across the Brexit interregnum. I grouped together the bits from shorting earlier this year, reserves and I have enough for next year’s ISA before becoming a net decumulator.

I have ‘invested³‘ in SGLP, I will tolerate some cash in NS&I ILSCs, and some more in premium bonds. Now that does expose me a bit to Government cash grabs in the troubled fiscal future, as well as the lessening of the greatness of British Pounds to buy stuff, but the combined amount is less than the FSCS limit. Not that that pertains to NS&I anyway. I need to work out what I am going to hold the value of next year’s ISA contribution in. Gold via SGLP is one option, but I start getting seriously exposed to the gold price.

There’s still time before Brexit once October is gone, with it’s nasty tendency to downside violence in the markets, and perhaps if we know whether Trump will finish the job of Making America Great Again. Although my shares ISA is rammed, I could start to deploy the next year’s allowance into a trading account, and then bed and ISA the shares into the ISA after March. I am unlikely to be hammered for capital gains on £20k worth of say VWRL, although I suppose it depends on how well Bojo and his mates respond to the FXmarket singing ‘how low can you go’ about the GBP in the background.

There aren’t any good options here. Just less bad ones…

 

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1. That’s you and me trying to make sense of what will hold value into the storm. assuming you have capital. God knows, but I suspect valuations are not representative of value. This too will pass. That’s better for you if you have 30 years of investment horizon rather than two, but hey ho, I have had a good run since the GFC. If I buy VWRL, I am not under the impression I an ‘investing’ in productive assets at good value these days. More I am disinvesting in great British pounds. It’s a race to the bottom. ↩
2. Some of it is she’s having a larf and needs column-inches, her story about running away from Devon and how to fix the First World problem of puppies turning into dogs were designed to get a rise, along with the power of phenergan elixir to quieten your rugrats on flights ;) ↩
3. Ah, the i-word again. Nobody invests in gold – it’s noted for not adding value, unlike farms and companies. It’s a pure fear play, trying to hold value against a storm. ↩