2 Mar 2014, 4:15pm
economy personal finance
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  • Doom and Death Spiral Deliberations

    I used that title a while back, in that curious Summer of Rage in 2011 when the stock market was taking a hammering and the yoof were rioting on the streets of London for the right to the correct sort of trainers and bigger flat panel TVs. Feels odd to exhume the title for a time when stock market valuations are running high and animal spirits seem to be on a bender of irrational exuberance. We’re three years on from then. People are being boring in pubs about house prices, though we don’t so far have much retail buzz about the stock market. Presumably because Joe Public is taking such a pasting in the cost of living crisis, and even the relatively well-heeled Lucy Mangans of this world grizzle about downward mobility.

    The engine of consumer spending is spluttering and dying

    I enjoyed Lucy’s piece for it’s internal contradictions. F’rinstance

    Our lives may be becoming more precarious than our parents’ or grandparents’ but we have tasted the good life and we want to keep it for ourselves and our children. And we still have the time and energy left for a fight. We may even discover in ourselves a greater empathy for the poor and the beginning of an understanding that impoverishment is not always the choice or result of personal bad decisions we vaguely – and our politicians fervidly – believe it is.

    Lucy Mangan – downward mobility

    Lucy Mangan of the Torygraph. "Going down" as the operator used to say in the Harrods lifts when I lived near there (in a crummy student dive)

    Lucy Mangan of the Torygraph. “Going down” as the operator used to say in the Harrods lifts when I lived near there in a crummy student dive.

    I’d agree with Lucy’s assessment that the ‘middle classes (as defined by the torygraph)’ lives are becoming more precarious. But a lot of that is due to taking on stupid and mahoosive levels of debt – the travails of Shona Sibary with the ridiculous flipping of houses to extract home equity in times of plenty has something to do with it, along with the general living larger than life on somebody else’s dime. There is a shift of power going on from labour to capital, and some of that debt is going in keeping up the pretension of being richer than they really are. That sort of impoverishment is the result of bad personal decisions and her parents and grandparents wouldn’t have tolerated it – or even found it possible in a time of credit controls.If you want to be middle class, you need to have middle class values, and living within your means used to go with the territory of being middle class.

    I don’t have as much income as I did when working. I could borrow money on credit cards to do the stuff I spent money on while I was working. But guess what – I try and live within my means, and that means doing things cheaper or doing without. The whole credit card thing would be a seriously bad personal decision. It doesn’t mean don’t use credit cards – but it does mean pay the blighters off in full each month. Just like the middle classes used to do in the late 1970s!

    I was tickled by

    We need to use our remaining capital – both social and financial – to demand change from governments, to avoid tax-evading and semi-monopolistic companies and shop at smaller, more local shops who still use humans rather than automata, and to set up local educational and financial institutions that better suit our needs. Set up a new game, with new rules. But in the meantime, while we work out what they are and where best to place our pieces, I shall be shopping at my local Lidl rather than at Waitrose,

    That’s the trouble with the middle class these days, they have no values. Lucy moved within two sentences from realising that the social contract includes using smaller shops that employ her neighbours to shopping at Lidl, which saves her money but doesn’t even share the profits with some faceless shareholders never mind some of the employees :) You really ought to at least finish the paragraph before you undiscover “one for all, and all for one”.

    The middle class are hosed. It take unique and rare skills to pull out of a vicious circle, and to do it, the middle classes will have to jettison a lot of things that are dear to them. I just don’t think they have the integrity and moral fibre to take the hit – after all Lucy’s moved from corner shops to Aldi without realising the irony. With consistenty and integrity like that you don’t deserve to win. The problem in the future will not be keeping up with the Joneses, Lucy. It is going to be keeping out of debt slavery. Know your enemy….

    Values matter

    I’m personally of the view that having values matters a lot more in personal finance than absolute income. I’d say this is behind a lot of the struggle the middle classes are having – they have embraced consumerism and lost their way a bit. Middle class people were much poorer overall in the London I grew up in than they are now, but they seemed to have a stronger set of values, in particular debt other than mortgage debt was frowned on. Credit cards had an uphill struggle when first launched in Britain and had to emphasise the flexibility of rolling a  month’s worth of payments into one payment in those days of handwritten cheques. Hence  “Access your flexible friend helping out Money” rather than the way they advertise now, which is full of offers to buy now  pay nothing for a year etc. The rot soon set in with “Access takes the waiting out of wanting” – fast forward thirty years of this and we have Lucy Mangan grousing about downwards mobility. Once upon a time the middle classes knew that you only borrow money  to purchase assets or increased productive equipment and not for consumer spending, but it’s been a long, long time since that attitude prevailed.

    The Ermine is fearful

    I was looking at my TD account, which currently looks great, and spent a little bit of time trying to imagine the sea of red and the bottom line about half of where it stands today, and really picture what that looks like. You need to do that every so often to remember that a lot of the value in a portfolio is illusory. Over the long term it does tend to reflect the value that the asset is creating, but over the short term it reflects fickle human opinion. As the GDP chart shows, there’s no earthly good reason why valuations should be so high now. Granted, there was no good reason they were as low as they were in 2009 so only about half the difference is probably real, which is lucky – I thought I was doing okay before 2013 and didn’t buy anything new of note that year.

    Of note is that the yield from the HYP will probably rise 1 – dividend payments tend to fall less than the market value. Now being mindful that the bearish argument always sounds smarter I came across an interesting chart of GDP growth over time – hat tip to Flip Chart Fairy Tales

    GDP growth

    GDP growth

    So you then take a look the recent US and UK stock market performance

    Vanguard US and UK, rebased to GBP

    Vanguard US and UK, rebased to GBP. Obviously the timescale is only the very end of the GDP one.

    And you go obviously, ho-hum, the rise of the stock market is obviously a leading indicator of…the pole-axeing of GDP? Clearly the good people driving the price up 2 are smoking something powerful. The usual explanation is the shocking devaluation of the currency and everybody running to equities because all the QE, money-printing, what have you is debasing the value of money to inflate away the debt so people are trying to buy anything halfway real to dodge that.

    It’s hard to know what to do with this sort of doom and death spiral deliberations. The correct response to the last one was to go out and buy with both hands. The correct response to this one is to try and get used to what that 50% suckout looks like. And then go and buy – but what? I am looking a diversifying away from the dev world and that seems a reasonable way to get a long term edge from this current point. The dev world has served me well so far, but the imbalance stinks. Fortunately now isn’t a bad time to buy some geographical diversity, with the pound being less of a basket-case and creeping up. But stock markets are more correlated than ever nowadays, a bear market in the dev world is a bear market in AsiaPac. Something (globalisation?) seems to be phase-locking markets world-wide, giving a we’re all in it together aspect. There’s obviously the barbarous relic, gold, it may make sense to aim for a longer-term holding of about 5%, but its shocking medium-term volatility makes it a tough call. It’s not a bad time to buy, nowadays. RIT is the man to go to for a level-headed assessment of the details and how to do it. Unlike RIT I’ll wing it tax-unwrapped, since gold doesn’t pay an income :) Its role is a swing producer of ISA funding should the doom and death spiral come to pass.

    1403_shark-fin

     Nathan’s right. There be fins in the water IMO.

     

    Notes:

    1. the yield will rise because the stock prices tank – I’m not saying the dividends will rise
    2. yes, I know, that’s you and me, though in my defence I don’t expect it to be up here, certainly don’t want to buy at this price and couldn’t find anything worth buying last ISA year
    2 Mar 2014, 7:15pm
    by Neverland


    I dunno….there are lots of happy clappy middle class professionals doing very well thank you very much

    They just happen to live in India, the Phillipines, Korea and China thats all

    They all also still take home a fraction of the monthly wage of a Torygraph/Daily Fail journalist

    Its just a rebalancing of the world economy after 250 years of Western exceptionalism

    Watching Putin stick his middle finger up at Nato will just be another straw in the wind

    2 Mar 2014, 8:54pm
    by Possum


    Does Lucy write for the Torygraph now? I’ve only read her in the The Guardian where she often extols the virtues of frugality and declares herself to be quite ‘tight’, as it was how she was brought up.

    @Neverland – the response to Putin will be interesting, in a does a tree that falls unheard make a sound sort of way.

    @Possum oh dear, I guess I’ve been caught out ferreting in dodgy places! Actually she seems to be a freelancer – fair amount in Style magazine as well! In terms of productivity you can’t knock her output, it’s the middle-class lifestyle to maintain I suppose! And I had to look up what desuetude means from the bitcoin article, so she has the edge on me in education ;)

    I read this woman’s article with interest. She clearly has a sense of entitlement that makes even benefits claimants pale into insignificance (and I’ll bet she has views on benefits claimants…).

    She considers herself to be ‘middle-class’ and yet she obviously wouldn’t last for five minutes into the future without employment income. She’s obviously very much working class, just like everyone else who still needs a wage to survive.

    Worried about job security ? Welcome to how the rest of the real world has felt for the last forty years or so – longer than she’s even been alive, actually – this is not a new phenomenon.

    Jobs for life ? Been reading too many ancient history books, luv, never in my lifetime and I’ve got fifteen years on you.

    Only on a short-term contract ? By far the best and most lucrative type of employment for those with any sort of talent in their chosen field. Perhaps this is why she feels threatened by it….

    Final-salary pension schemes ? Unless your folks were civil servants, they were on their way out when you were just a toddler, pet.

    Decent returns on savings ? Only in the last five years have savings rates been consistently below inflation, and this actually penalises the ‘…titanium-hipped pensioners…’ she disparages much more so than it affects her. What’s a 39 year old doing with cash in savings accounts anyway – doesn’t she read any financial blogs ?

    School fees now exceeding the cost of a new Prada handbag or even a bottom-of-the-range Chelsea tractor ? This is hardly going to find a whole lot of sympathy amongst the so-called lower orders.

    House prices out of reach ? Rumour has it that houses also exist outside of the M25 – some even have inside toilets, I’m told…

    Reading books by economists and actually giving credence to their predictions ? Oh, dear. Especially those by also-rans claiming the discovery of electromagnetism and the invention of motor cars (by genuinely smart people) were ‘low-hanging fruit’ ?

    Past generations had ‘freedom from worry’ ? On reflection, I’m not entirely convinced that this whole article wasn’t some sort of elaborate wind-up, or am I crediting the author with too much wit and intelligence…

    @DM top rant, I enjoyed that greatly! Lucy does play a bit to the gallery, when you compare it with some of her other work. However, the attitude is all too real. I can relate to people feeling hacked off that some things are getting worse, but they need to start from where they are. Not buying wasting assets with borrowed money is most of the win.

    ‘middle-class’ and yet she obviously wouldn’t last for five minutes into the future without employment income. She’s obviously very much working class, just like everyone else who still needs a wage to survive.

    Now there’s a new angle on middle class, I don’t think it’ll play well to the aspirational of Tunbridge Wells!

    Hi. It’s just that I’ve never understood what is meant by the ‘middle-classes’, even though I’ve seen the Cleese-Barker-Corbett sketch !

    Is it an income thing, and if so what’s the threshold for joining ?

    Is it an aspirational thing, but to what do they aspire and how do they when they’ve reached it ?

    Is it an educational thing, which you can achieve simply with an old A-level in domestic science (I’m thinking of Margot in ‘The Good Life’ here).

    Is it an occupational thing, when you automatically become a paid-up member if you’ve qualified as a GP or solicitor, and conversely you’re automatically black-balled if you happen to shovel shit for a living ?

    Is it inherited, i.e. automatic membership because your father was a senior civil servant and your mother made jam for the WI ?

    Is it a set of values, and if so, then what are they and how are they different to anyone else’s ?

    Is it a belief they’re somehow better than the average manual worker ?

    Is it simply an in-built mindset to procure things you don’t really need with money you don’t really have in order to impress people you don’t really like ? (I know I’m paraphrasing someone here, but I don’t know who !)

    Or is it something that you can just never be part of if you don’t instinctively know all the unwritten rules and have to ask dumb questions like this…

    Lucy my old fruit… The reason why you are feeling hard up and not able to save for a pension is because you spend too much money. This is a direct quote from an article by her in Stylist Magazine, dated last October. I am staggered that she has the gall to write the article that Mr Ermine refers to!
    “My husband is baffled by the number of parcels that come to the house. All for me. All from somewhere lovely and filled with lovely things….And of course, there’s my amazon habit. I know I shouldn’t … I suppose ocado is for both of us”

    3 Mar 2014, 7:42pm
    by ermine


    @DM Let’s have fun with this. Maybe it’s worth a post one day – what is the middle class – but it’s probably like the blind men and the description of the elephant.

    Looks like the definition is becoming more important, ‘cos Peter Brant, a Big Cheese at the gov’s Social Mobility and Child Poverty Commission says that “Coming from a working class or lower socio-economic backgrounds and trying to culturally fit into middle-class lifestyles and jobs can be incredibly difficult.” So the working class had better act middle class else they won’t get on.

    It used to be simple when I was growing up. Blue collar was working class (up to skilled trades) so my Dad, for instance, as a fitter was working class, as was the chargehand. But it’s more fluid now, as fewer people do that. After all, I’ve donned overalls and pulled cable where necessary, but I’ve also done high-level design and got contract firms to implement this so there’s more fluidity in a generation.

    For the Torygraph, however:

    > Is it an income thing, and if so what’s the threshold for joining ?

    I estimate about £120,000 in their eyes, as long as you don’t earn it by stripping ;)

    > Is it an aspirational thing, but to what do they aspire and how do they when they’ve reached it ?

    Private school education for their kids, usually a second home, by observation…

    > Is it an educational thing, which you can achieve simply with an old A-level in domestic science (I’m thinking of Margot in ‘The Good Life’ here).

    Hard to say, everybody seems to have a degree these days!

    > Is it an occupational thing, when you automatically become a paid-up member if you’ve qualified as a GP or solicitor, and conversely you’re automatically black-balled if you happen to shovel shit for a living ?

    I’d say yes, in the UK, shit-shovelling definitely excludes you. And a GP or solicitor includes you, though the six-figure salary previously noted must help

    > Is it inherited

    They’re trying to make damn sure it is :)

    > Is it a set of values, and if so, then what are they and how are they different to anyone else’s ?

    I’m gonna be controversial here and say I believe there were some before the fall of the post-war consensus, though consumerism did for that. The middle class of my childhood differed from the working class in that it didn’t borrow money for consumption. A mortgage was the only exception, and that was a repayment mortgage, none of this interest only malarkey. Tey didn’t get the telly on HP, though some would rent it because of the dreadful reliability.

    > Is it a belief they’re somehow better than the average manual worker ?

    Yes. As an example though from the other end of the telescope, my Dad actively avoided showing me how to use mechanical tools because he didn’t want me working in the same line. I had to learn some of that as an adult. The culture was that strong, I respect his viewpoint from the place he was at, though it was pain having to learn all that as an adult.

    > Is it simply an in-built mindset to procure things – Tyler Durden quote, though it’s often ascribed to Dave Ramsey

    Didn’t used to be! That used to be the defining character – the middle class lived within their means.

    > Or is it something that you can just never be part of if you don’t instinctively know all the unwritten rules and have to ask dumb questions like this…

    Probably that, but Peter Brant can help you with that

    Hi. It gets more confusing !

    Looking back now, I can see as a kid were quite poor, but we certainly weren’t destitute or deprived. I grew up in an inner city area which seemed fine at the time, but either I’ve changed and/or it’s gone downhill since then and I definitely wouldn’t want to live in the same place now.

    I used to love to frequent some of the ‘rougher’ bars in the city centre, so much more warmth and humanity there than in the upmarket 1980s wine bars.

    Like your dad, I’m a time-served fitter after a craft apprenticeship, and also qualified as a draffie shortly afterwards, but then I went to university full-time in my mid-20s and so I’m also a Chartered Engineer with a first-class honours degree (pre the-everyone-goes-to-university days).

    This morning I was at policy meeting with a client’s directors, and then looking at the progress of a project and having a bit of crack with their guys on the shop-floor.

    I’ve travelled all over the world, dined in many of the very best restaurants (usually with clients or on expenses when someone else was paying), but there’s still nothing I like better than a fried-egg or fishfinger sandwich for lunch !

    I don’t make the £120k income cut-off, but I’ve been close in the past and I could probably still do it if I ever wanted another ‘proper’ job.

    I’ve a second home, although I don’t want one and I’m trying to sell it.

    And I’m still happy enough doing manual work occasionally and also shovelling shit around the garden when required, although that’s a hobby so it probably doesn’t count !

    I look forward to your future post on the conundrum that is the middle class…

    “If you want to be middle class, you need to have middle class values, and living within your means used to go with the territory of being middle class.” – this is SO true. Growing up, I wasn’t middle class (actually benefits class) but I remember there being an attitude towards credit that was bad, it did used to be called the “never never” didn’t it.

    But it changed of course – I remember my mother, like many others, being seduced and buying things from “the catalogue” – easy monthly payments / get it today with no money! Then comes the interest and the payments lasting all year.

    You’re correct to point out that when the attitude, and understanding, of credit changed then a lot of people were in for a rough ride. “Take the waiting out of wanting”, ah those clever marketing people! And, “your flexible friend”, now that takes me back, although it probably should have been “your bendy nemesis”!

     

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