29 Oct 2014, 11:01am
housing personal finance
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  • Financial Foolhardiness is Forgivable in the young, not old Fogeys

    It’s perfectly understandable at 12 to want to have your cake and eat it, but unseemly after middle age. Taking an interest-only mortgage when you’re 30 is naive, but having one when you’re 60 is wilfully ignorant. The Torygraph seems to be metamorphosing from the journal of retired generals to cheerleader for those growing old disgracefully and a representative for their greedy children. So they fulminate on behalf of the wilfully ignorant

    Take your mortgage to the grave, older borrowers told

    Around 130,00 interest-only mortgages are due to expire every year until 2020, with half facing a shortfall of £71,000 on average, according to the City watchdog. One in 10 borrowers have no repayment plan in place at all.

    It was in the mid 1990s that warnings of endowment shortfalls started going out. I know because I got one of these. So I got on the case of the endowment firm and eventually pursued a claim against them for selling a single fellow a life insurance product. But I was a dumbass, and realised this so I started to overpay the sucker! The eventual result was that this contract I had so foolishly entered to in 1989 which was due to come to the end of its term in February 2014 was discharged early. There’s a case to be made that this is a vaguely stupid thing 1 to do for an early retiree with no income for a while wanting to defer his pension, but fair enough.

    Now there isn’t anything fundamentally wrong in taking out an interest-only mortgage in your 30s as you are buying for the first time, if you expect to earn more as time goes by, or indeed spend less. From a high-level tragedy of the commons viewpoint it is a stupid thing for us to do collectively; if Help to Buy, interest-only, shared ownership and all the other methods of paying more than you can afford for a house were disallowed, or we had decent credit controls, then the market would settle at a level that most buyers could actually afford. But that’s a different story.

    So the latest that somebody could take out an interest-only mortgage without being aware that this is the purest form of renting money from a bank is probably 2000, and these are presumably people whose parents look like this

    A terribly disturbing reflection to see in the bathroom mirror for 15 years, no?

    A terribly disturbing reflection to see in the bathroom mirror for 15 years, no?

    if they haven’t jumped to the fact that they have a serious problem when more than halfway through the terms of their mortgages. If they haven’t paid off any of their capital, then they are living beyond their means, and we all know from the old boy Mr Micawber what happens then

    Result misery

    Now it is true that you get a bit more hidebound as you get older, and you become  more reluctant to up sticks and move. The human animal is a wondrous marvel of evolution/chance/creation, something, anyway. You really owe it to your forebears to honour all the work and the chances they took to create a rich, First-World country where you have many things that people used to sweat for handed you on a plate to make use of that to at least try and become wiser as you get older.

    So if you want to stay in the house you raised your children in, rattling around the empty spaces full of memories then damn well pay off your mortgage, because ownership of an asset gives you control. If you don’t want to do that, then FFS downsize, if only because that house you raised children in could be used by people of your children’s generation to raise their kids in, and you will find it more and more expensive to heat, clean and maintain unless you are rich enough to pay over the odds for your consumption.

    Speaking on behalf of the greedy children, the Telegraph asks

    Would you agree to die in debt?

    What’s actually wrong with that? Why the bloody hell not – it isn’t like the debt would be a claim upon the assets of your heirs. Obviously they don’t get to inherit anything, but there isn’t anything that terrible about this, from the deceased’s point of view. What’s wrong with it is the wider picture. If you’re of working age, no money and live in a house you don’t own  that’s too big for you then people will give you a hard time until you move or  become rich enough to afford the privilege. Get past that, even if you rent your house from a bank and not a landlord, then you are home and dry.

    We flog ourselves to tie up such a large part of our lifetime earnings in a mute capital asset largely because we haven’t worked out a better way of manage the physical assets of the world for the transitory existence of humans 2. In the UK, the renting a house option is so heavily loaded it’s a ghastly alternative to renting the money. An interest-only mortgage is a good way of getting better security of tenure, because paradoxically the 25 year terms on renting money from a bank seem to be a hell of a lot better than the six months AST terms on renting a house from a landlord. In which case why not rent the money, but the 25 year term still comes to an end one day.

    The Torygraph is wrong:

    Experts said lenders were compromising by creating lifetime mortgages which allowed older couples to stay in their homes if they promised the keys would go to the lender, rather than a family member, on death.

    However, borrowers should see the new mortgages as a “last resort”, the experts said.

    They think this is terrible because the kids don’t get to own a family asset that was never in the family in the first place. There’s nothing wrong in penalising foolhardiness in the old. Folly should have consequences. If you want to featherbed your kids and not have to move from the family home/ancestral seat of residence then FFS go on fewer cruises and pay off your mortgage, it’s not hard to understand!

    Notes:

    1. There seems to be no limit to ways a Ermine can screw up anything that involves property but I don’t regard it as a calamity and I’m prepared to pay for my folly by paying 5% on the money I borrow for a few months rather than 2% on a mortgage
    2. The luxury watch brand Patek Philippe had an ad running  “You never actually own a PP. You merely look after it for the next generation.”  The ad is absolute poppycock targeted to aspirational wannabes but could be applied to houses, or the world – anything of value that lasts longer than a lifetime. Houses in the UK can last four or five human lifetimes before they become slum clearance, so having to own the whole thing is inefficient in some ways
    16 Oct 2014, 11:32am
    personal finance
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  • The difficulty of managing money in silos

    Pensions, ISAs, NS&I - they all break your capital down into silos isolated from each other  Image: dsearles/Flickr

    Pensions, ISAs, NS&I – they all break your capital down into silos isolated from each other Image: dsearles/Flickr

    Silos are bad for organising a lot of things where the contents should all be pulling in the same direction, singing from the same hymnsheet and other associated buzzword bingo 1. All through my working life companies have moaned about ‘silo mentality‘  – well WTF do they think is going to happen when you reward people for individual results using S.M.A.R.T. metrics, the stupid berks? Knowledge is power, and you don’t want to be an interchangeable outsourceable meatspace unit x – you want to be the irreplaceable kingpin…

    The same intractable problem is easily introduced into our personal finances – some of it by foibles such as mental accounting, but a lot of it is by government action – if you want to take advantage of certain tax breaks you are pretty much forced to split your money into different silos. Pensions are the obvious example, a one-way silo that you can draw on after 55 2, and ISAs, which only have tax protection inside the silo.

    The whole reason humans invented money was to create a divisible and fungible token of wealth – later on that became a fragile store of wealth 3 too. That’s all very well, but in practice we don’t really seem to like operating in a miasma of undefined cash or debt swilling around, so we often break it all up into itty bits and tackle each one of these on their own. In doing so we often lose the big picture – the classic case is somebody carrying credit card consumer debt who has savings, or even worse, has money in the stock market. There is no point in having savings if you have debt that is at a higher interest rate than the net return on those savings unless you have a specific reason for it. If you are carrying chargeable consumer credit you have no business being in the stock market – fight the nearest fire that is burning faster before worrying about the flames on the horizon.

    The Silos of Tax-advantaged Savings

    The biggest and most complex of these taxation silos is the pension. It has the greatest restrictiveness, and is therefore the hardest to manage. It’s also usually at a high-water-mark in your 50s.

    As you get closer to the magic 55 the problem of silos gets a lot more acute, and doubly so if you are an early (pre 55) retiree. For an early retiree with a defined contribution pension the decision is clear – draw the pension from the age of 55, because you have no other earnings income (that’s what retiring is) so you get more of your money back paying less tax by choosing the longest time period to draw it. That favours drawing from 55, all other things being equal. If you’re still working that’s nuts, but if you aren’t, knock yourself out.

    However, just before 55, you have pension silo that is a dead hand that demands maximum feeding at the expense of the ISA silo, or indeed your general free cash flow, because it is the most lucrative. For instance, the Ermine specifically took out a DC pension when Osborne’s pension reforms were mooted, because, well, it’s rude to turn down a guaranteed roughly 10% p.a.  uplift on about £7000 in cash, tax-free if you swing it right. The fact that this allows me to defer my main pension increasing it by 5% is an added bonus.

    Trouble is, you have to design your savings plan and glide path while you are still working, and I predicated mine on an ISA allowance of £9,000 p.a. and being able to ignore pensions, because I didn’t want to have to take out an annuity at 55 or wait until I was old enough for it to be worth it.

    I’ve only been retired for two years, and in the meantime they’ve mucked around with the silos so much that the original plan is in tatters. My original aims were simply to fill my ISA each year, basically by selling unwrapped holdings up to the CGT limit and tossing them into the ISA and topping it up a bit from savings. The increase in ISA allowance means I want to top it up a lot – there’s another £5000 p.a. to find. And then Osborne changed pensions so that it’s worth tossing £9000 into one to win £2000 of tax that I paid years ago back – even if you’ve never paid tax the deal is on offer, though it’s only really favourable for people close to being able to draw the prceeds in a couple of years.

    Fortunately I overestimated my spend rate; I expected to have to draw the pension after a year and a half, so the start of this year. When I do draw it I get hold of my 25% pension commencement lump sum which is a shitload of cash saved up for this, and then have to push that into ISAs for a few years. It is this which makes me keen to max my ISA allowance across the intercession between stopping work and getting hold of the AVCs.

    Then I needed to find about £10k for an opportunity that has come up, and so I am now up against the end of my free cash flow. I still have deep strategic cash savings in NS&I and a Cash ISA, which would easily cover that but I am loath to break into them, because God knows when I will be able to save and preserve cash in real terms with NSA&I again, and I don’t want to lose the ISA capacity. So heck, it’s time for the Ermine to borrow money!

    Lenders are all computers these days, and all lending is predicated on income

    The last time I borrowed money from a bank as a loan was in the mid 1980s. At that time there was this quaint custom of going into the bank where you would talk to someone about what you want the money for and what your income was etc, so I went into my bank in South Kensington and showed the fellow the payslips and how much I wanted to borrow for a car. Arguably what the bank manager should have said was don’t be such a damn fool you young whippersnapper, a car is a wasting asset that will depreciate faster than you will pay down the loan, but for some reason he didn’t, I had another £2k in my account and everything was fine. They got their repayments on time every time and that was that. It was a damn fool thing to have done, don’t ever borrow money to buy a car, particularly as cars as much cheaper now in relative terms. But I got away with it.

    It so happens that I am still with the same bank, branch and account because I can’t be bothered to fiddle about with this, I never go overdrawn so many of the so-called benefits of switching aren’t of value to me. So I spark up their website and inquire of a personal loan for £8k, using the non-credit referenced query. Income – 0 (I suppose I should have put in my ISA income, but what the hell). Now bearing in mind this is my own bank and they should damn well know that my Cash ISA has more than enough money to cover the £8k, but the answer is basically

    Computer say no, fuhgeddaboutit m8.

    There’s apparently a hidden assumption that has crept into lending money these days, and that is that you are a good li’l consumer trying to buy more consumer shit than you can afford at the moment, but your income is enough to service the debt. There seems to be no concept that a member of the consuming proletariat may have the money but because of the silo structure it is in the wrong place and he may lack liquidity. Let’s face it, who would you rather lend money to – some kid wanting to buy an iPhone or somebody with financial assets of many times your loan but ensiloed in a pension AVC or shares that can’t be sold till the next tax year? There’s no question – go for the iPhone toting kid any time 😉

    Now in the 1980s, I would have gone to see Mr Bank Manager, I would explain that I have these CGT embargoed shares to cover it, and if that isn’t enough that in two years I would have my AVC of way, way more than the loan amount and I am being sensible in deferring my pension so this loan is in fact there to use my capital to make more money. It isn’t for a wasting asset like an iPhone or a car, and he would look back over 20 years of running that account, figure £8k isn’t quite enough to do a runner to Rio and advance the cash. But we aren’t.

    Computer says no

    Now unlike many people I never go on the assumption that I have the right to have people lend me money, so that’s just the way the cookie crumbles, more loss Mr Nat West, because compared to most people they advance personal loans an Ermine is probably a good bet.

    Where can a skint Ermine borrow from – aha – Wonga and Credit Cards 🙂

    My main problem comes around the turn of the next tax year – I need enough liquidity to max the rest of this year’s ISA, and to max my SIPP this tax year. There’s no point in drawing money out of a Cash ISA to fill a S&S ISA – it’s the old Silo problem again, that money is already in the ISA silo so there’s no point taking it out the bottom and chucking it back in at the top. That silo needs new money.

    As soon as the tax year is done, however, I get a new CGT allowance, so I can sell some unwrapped shares and pay off the loan 4. For a short period I even considered Wonga or The Money Shop, despite taking the piss something rotten a while ago. A two-week period over the 6th April would actually be the correct use of a payday loan, but the thought of being spammed shitless for the next 10 years by their ilk wasn’t really an attractive proposition. This from Moneysavingexpert is pretty much all I need to know.

    1402__wrong_way_signage

    Yup, got that. Wonga is probably more crafty than I am clever…

    Mrs Ermine didn’t really approve, either. So let’s take a step back. Now it so happens that every month Barclaycard entreat me to borrow money from them. I don’t use the card, but I have it because I figured that after leaving work nobody will give me another credit card until I become a pensioner, so I may as well hang on to the ones I have got. Presumably Barclaycard still think I am working for The Firm, because I told them truthfully that I was when I took it out and they haven’t asked me since. So like clockwork, every month they send me something like this

    1410_bcard

    Now I don’t know how ‘king stupid Barclaycard think their customers are, but a 0% interest cash loan with a x% fee is not 0%. At first sight this is a loan for 9 months at 1.9%, ie a loan at an APR of 12÷9×1.9%=2.6%. It’s actually a little bit worse than that because you have to repay a credit card loan at quite a high rate, about 3% of the loan outstanding per month, so you don’t get to use all of the cash for all of the time. The car loan was so long ago I can’t remember if you have to repay a bank loan every month. Here in practice you either get not to use the full loan amount or you effectively borrow a smaller amount at a higher interest rate, say about 5%. And you must must must ensure you repay the minimum amount every month, I’ve always taken card firms up on the Direct Debit pay minimum amount off each month, so the first thing you have to go on getting the loan is chuck some of it into the debited account ready to pay the loan down.

    I actually prepaid the 1.9% fee – ie paid too much into the card account before taking the loan so the fee is taken from the existing credit balance and not the loan, because I suspect they would charge monthly card interest on the fee, which they can’t it it’s not carried 🙂

    Then I repeated the operation with MBNA, who offered me a year and a half loan for 5%. They also offer this every month or so. I still have a soft spot for MBNA – 25 years ago they lent me £15,000 interest free which was a significant part of the deposit on my first house. And I really didn’t pay any interest on it – in those days 0% interest really meant 0%, no fees involved. The fact that it was a tremendously stupid time to buy a house, very much like the present time, indeed, can’t really be blamed on them.

    That will take me into the time when I can draw my DC pension, and all of a sudden I am rolling in liquidity, particularly as the impending stock-market rumble means I can probably liquidate more unwrapped holdings CGT free as they fall to par. Which is dead good, as stock market rumbles are exciting and opportunities to get stuck in and pick up value. I love the smell of fear in the markets in the morning. And it so happens that I have a fair amount of uncommitted cash in my ISA. Maybe I can stop writing articles like this and write more like this. If I can have just one word in Mr Market’s shell-like, if he could just delay the denouement a teeny bit, so say Q4 of next year, I’d be in a better position to use it. If he has to throw a benny earlier, I may have to switch some of my AVC fund that is currently in cash into say a FTSE100 index. The trouble is my AVC fund is currently already exactly 25% of my pension capital by design, so I can’t really use any increase that much…

    Oh yeah, about that classic bad case of somebody carrying credit card debt but with savings, indeed who has the temerity to be in the stock market to. Well, that’s me. What the hell, do as I say, don’t do as I do 😉

     

    Notes:

    1. you can take the Ermine out of The Firm, but not yet the biz lingo out of the Ermine, it was drummed in over 20 years
    2. corrected 20 Oct from earlier version “only fill until you are 55” which wasn’t what I meant
    3. money in terms of cash is a fragile store of wealth because it tends to depreciate over time as it is created at a higher rate than the value accumulating in the economy
    4. I was dead chuffed when IDJV that I hold unwrapped fell to the price I paid for it in the current market loathing for all things European. That means there’s no CGT to pay, so I sold them and that will give me some extra liquidity at the turn of the tax year – or I can simply to an internal transfer of the cash into my ISA this tax year, leaving only 2k to find this year. It’s an ill wind…
    10 Oct 2014, 12:42pm
    personal finance shares:
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  • The incredible lure of day-trading

    Ah, day trading, the ultimate signal of feel-good in the markets 1. It’s the harbinger of doom, because it is a signal of irrational exuberance. A bunch of day-traders were on the telly a few days ago, hat-tip to Under The Money Tree who flagged up Traders – Millions by the Minute as an object-lesson in what not to do.

    There are two fundamental approaches to trying to make money out of the stock market. One is to regard it a way of purchasing a selection of productive assets, and then becoming a rentier, sitting back and taking a slice of those productive assets without having to do any work. Don’t knock it -that’s the way the super-rich are getting richer. They’re not saving from income, that’s soooo 20th century, dahlink. You need to have inherited wealth or stupendous good luck. The latter is how Russian oligarchs get rich, the former is how Paris Hilton and the Ecclestone daughters got rich. You don’t get to have a pad at the Odeon Tower Monaco if you’re on the side of income no matter how clever you are or how good a footballer.

    Capital, not income will get you here

    Capital, not income will get you here

    Half a billion is doable as income, but you need a turbo-charge from the stock market to keep you there. CEOs and the like have managed to get into this area by getting on the side of the stock market, but they don’t day-trade.

    The second is to regard the stock market as a casino, and to attempt to pick a smidgen of signal from the noise the market throws off. In Traders-Millions by the Minute the punters were taking this line, using spread-betting. The Ermine has indeed had dealings with spread-betting. I’m a fan of it in dealing with sharesave, because you can lock-in profits.  Though I lost money on that side of the trade I achieved my goals. Every year I get on the wrong side of the trade with my house insurance too, and lose money. I am cool with that.

    WTF? The Ermine is a fan of trading and spread-betting?

    Sometimes you have to hold shares for a particular period. Sharesave and Employee Share Incentive Plans are a classic case, particularly the latter. You have to be a special kind of mug to lose money on Sharesave, but on ESIP you can, because you purchase the shares from pre-tax income but have to hold the shares for five years from purchase, else you get to pay the tax and NI you didn’t pay to buy the shares.

    So say you buy 100 shares of Megacorp at £1 a share using £60 of your hard-earned cash post-tax. The £100 only costs you £60 because the taxman doesn’t thieve £40 from your income in this instance. But you have to hold those shares for 5 years. If they go down to 60p at the end of those 5 years you break even, less five years of inflation.

    If you short the number of shares you buy, then you will cancel out any gain or loss on the shares, though it will cost you something to do that. But you do get the benefit of the 66% tax bung. Why 66%? Because you forgo £60, but you get £100. Thus a profit of 40/60 or 2/3 = 66%/ Less three years of inflation, say about £10, so you come down to 50% up.

    I used this towards the end of my time at work with ESIP and Sharesave – to protect myself against significant falls in The Firm’s share price. As it was The Firm’s SP went up, and I got to pay IG about £1000. I was easy with that – it was worth paying to insure myself against losing a lot of what I had gained already.

    Social Trading and Trading Superstars, a new development in the trading universe

    Apparently you can now track some other trader’s trades if you can’t be bothered to do the legwork yourself. It really puzzles me whyit’s not obvious what’s wrong with this. The long-term rise in the stock market is roughly 5% p.a. real 2 , though you have to be invested for long periods of time (about 20 years) for things to settle out like this. It’s one of the reasons why I believe index-investing’s studious ignorance of high CAPE/valuations is am issue. But that’s something for another day. So traders, every day, are exposed to  1/7300th of their stake on average in real stock appreciation if they go long, less the cost of the spread on every turn which applies going long or short.

    Now trading tends to be a short-term activity – that daily gain from the stock market going long isn’t going to speak for much there at 0.01% per day. So you profits as a trader have got to come from somewhere, and it comes from either the punters or the casino your spreadbetting firm. Seen any spreadbetting firms go bust recently? Nope. So it’s coming from the punters. In theory it could come from the markets, because the SB firm presumably hedges any major shifts building up over time, but the programme seemed to indicate most of the profits were from the spreads on the trading, which stays within the system.

    And therein lies the rub. If all the punters start getting ahead, the odds will lengthen. Particularly in spreadbetting, where you are running on a model of the real thing, not the underlying market.

    The trick with day-trading is to quit when you’re ahead

    Over a dreary telephone conference at work way back in 2010/11 an Ermine extracted £400 from IG index on gold, trading per tick, and gave up £350 of it by the end of the meeting. It was sheer luck. Some while later I dabbled in forex trading, using a VAR spreadsheet to control risk. After a few months 3 I looked at the results, observed how much risk it was necessary to pay the fees. I experimented with IG’s automated trading system, where you try and craft a black-box strategy based on the previous charts price history, and back-test it on historical data without using real money.

    I could find no strategy that permitted risk to stay bounded as time passed – everything seemed to trend towards a martingale situation where you can always win – if you have infinite wealth and infinite time. If you have infinite reserves of wealth you don’t need to piss about with spreadbetting, cos you don’t have infinite time. I was never tempted by the breathless folks offering courses and training to learn how to trade xyz because of the natural suspicion – if you can make me rich then why the hell aren’t you in some darkened room making yourself rich, dude? Cut out the middleman. I guess it’s the gonzo version of the active fund charges.

    I was Frankie, although I derived the result in a different way from The Escape Artist, by observation and hypothetical experimentation. So I took my £800 gains plus the £1000 stake, and stopped doing that, because it was the logical thing to do. MMM has a nice post on get rich with science. It’s harsh, but when you see the statistics tell you that this is more luck than judgement you can either ignore the results or take the insight offered. If I want to make money out of a spread-betting firm, I will buy their shares. I did learn from this, however, and applied the knowledge to my investing. Trading costs you money. So I stopped selling, and made it a priority to sit on my backside and take the dividends.

    That, fundamentally, is the trouble with day-trading. In the end you are part of generating the wall of noise – for you to gain, somebody else must lose. This does not necessarily hold with the stock market over the years – because in aggregate returns accrue to capital. But those returns accrue very slowly. To actually get rich from a 5% p.a. real return you need to live frugally and ideally you need to take a multi-generational view. If you have talent and/or cunning, you are much better off leveraging your capital with a business and then selling it.

    How do the rich get rich?

    Take a look at the top 10 of the  Forbes Rich List There are more Mark Zuckerbergs,  Bill Gates et al than there are Warren Buffets. If you look through the top 10, the sources of wealth are typically from running or selling a business, followed by ancestral wealth of some sort. Four are self-made, and six are inherited wealth. Forbes trumpets this as saying the American Dream is hale and hearty. I’m not quite sure I want to imagine what it looks like when it’s poorly – holders of old money outweighing new in the top 10 shows maybe the rags to riches isn’t quite as easy as it’s made out. But it can be done. Something else of note is: no actors/actresses. No musicians. No sportspeople. None of the ways teenagers hope to get rich. Something else of note is that most of these are no spring chickens – it’s the greybeards who have all the money. And they’re not a pretty bunch, eh, indeed some of them probably can’t have intact mirrors in their homes.

    Of those ten, only one  ‘made it on the stock market’. And curiously few in the top 25  ‘made it day-trading’ 😉 Mind you, Sheldon Adelson comes in at #12 from running casinos. There’s nothing wrong with casinos as a way of making money. It’s just that most people go the wrong way about it! Don’t walk through the casino  doors. Own them.

     

    Notes:

    1. I wrote the first draft at the end of September. The feel-good doesn’t quite ring true now – exciting times ahead?
    2. this comes from the BarCap Equity study
    3. I had a similar temperament to the timid trader in the programme, if in doubt I did n’owt. This is apparently not the route to success in this field
    7 Oct 2014, 8:48pm
    living intentionally Suffolk:
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  • the season of mellow fruitfulness is on us

    Nutscape

    and it’s time to look at the non-financial investments. In this case, indeed, the non-financial investments of the local Squire, the Fonnereaus. Not only did they build this gaff

    Christchurch Mansion

    Christchurch Mansion

    but they planted some chestnut trees, and the chestnut harvest is awesome this Autumn. The recent winds have brought down a fine crop, and it’s before the weekend when World + Dog will have got to these. The trick is to win your chestnut harvest from the spiky hulls

    Herein dwells a fine nut

    Herein dwells a fine nut

    Sweet chestnut

    Sweet chestnut

    with the minimum of cursing.

    a fine  nut harvest

    a fine nut harvest

    and win a fine harvest of fresh, sweet chestnut from veterans like this tree

    one of the chestnut trees

    one of the chestnut trees

     

    Now there may be some of you reading this that think to yourselves

    goddamnit I earn £200,000 p.a which boils down to £125 an hour and I can get loose chestnuts from Tesco delivered to me for £7/kg so all round so WTF? Why would I be pissing about scavenging nuts in the park

    And I would respect your opinions. But I would venture you’re missing out of some little piece of being human as you sit behind your  screens oblivious to the passage of the seasons. Being a flâneur is one of the good things about owning my own time and if I want to go pick nuts then I damn well can 😉 It’s the sheer optionality of it that adds to the sweetness. As summed up delightfully by The Escape Artist – the Ermine tips his hat and welcomes yet another soul across the event horizon of FI.

    2 Oct 2014, 7:54pm
    economy:
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  • It’s Election year, lots of lovely pork is up for grabs

    now this looks like trouble...

    not that sort of pork…

    Bank of England to Government – we need powers to rein in the housing market

    Threadneedle Street is asking the chancellor, George Osborne, for powers to restrict the size of mortgages compared with the value of a property and borrowers’ income, in what is a major policy shift following the 2008 banking crisis. The buy-to-let market will be part of its considerations when deciding to apply any restrictions.

    Government to, well pretty much anyone

    Sod that for a game of tin soldiers, we want more people paying more money for homes – so we’ll give them a 20% bung to make it happen

    Are they ever going to learn? Imagine a parallel universe where house prices were half the cost they are. Where the Bank of England operated credit controls, like they did in the 1970s, so that you could only borrow so much of your wages. We still wouldn’t have any more houses, because we hate everything about building houses. Niccolo Machiavelli told us why, in The Prince

    It ought to be remembered that there is nothing more difficult to take in hand, more perilous to conduct, or more uncertain in its success, than to take the lead in the introduction of a new order of things. Because the innovator has for enemies all those who have done well under the old conditions, and lukewarm defenders in those who may do well under the new. This coolness arises partly from fear of the opponents, who have the laws on their side, and partly from the incredulity of men, who do not readily believe in new things until they have had a long experience of them.

    So it is that everyone who already lives in a place, no matter how mean and ugly their hovel, thinks “I don’t want that development of mean little hovels, because it will inconvenience me/spoil the view/just piss me off”. So no more houses would be built than now. Some would say fewer would be built, but the cost of a house is determined not by the cost of building it but by the value of the land. If stupid people could be stopped from overbidding for this, these costs would fall. Nevertheless, there would be a massive boost for the common weal.

    Why? Just think of the extra fun we could all have with the money that’s no longer ticking up the numbers on our mortgages, at least. The poor could go on holiday/afford to buy food and the rich could afford to send Tarquin and Jemima to public school, although they would probably bid the price up with the new found money they weren’t pouring into housing. That’s not such a bad thing as nobody needs public schooling, whereas everybody needs to take shelter from the rain.

    No more bloody pork for the housing market, Dave. Just don’t go there. Don’t fight the tape, don’t add fuel to the fire, butt right out of it. Everything about housing is so deeply wrong in the UK, this is an area where we need Government – to stop the self-harm. But until we can put something in the water supply that cans the meme that paying rent to a landlord is wasted money, because paying rent on the money rented from a bank for a house you will never get to own outright is so much better – even though it’s just a change of counterparty. The Telegraph tells us the average working life is no longer long enough to be able to afford to buy a house. So you are renting that money.

    It’s been a bad week for a lot of proposals that will have some ghastly consequences. At the risk of sounding like David Icke here’s some obvious actions and reactions

    Death taxes, eh? Wanna know what a death tax is? This fellow knew how death taxes work, and it's not the way the retired colonels of the Torygraph were fearful of...

    Death taxes, eh? Wanna know what a death tax is? This fellow knew how death taxes work, and it’s not the way the retired colonels of the Torygraph were fearful of…

    Action:

    Ros Altmann tells us  Seven things you need to know about George Osborne’s abolition of the pensions death tax. Dear Ros, and all the others who call this a death tax –

    You can’t take it with you you stupid berks, there are no ‘king pockets in a shroud!!! The dead pay no taxes.

    Reaction:

    Rich people will featherbed their kids, who will outspend their compatriots on housing. After a couple of generations of this, we will have a dog-eat-dog society if we are lucky. If not we will have the English Revolution as the dispossessed battle the possessed in a war of all against all. The Ermine is not of the opinion that people’s children have unlimited rights to the fruit of their ancestor’s labours once these ancestors are pushing up daisies. An awful lot of people died in the past to wrest the wealth of the country, first from the King with all that Magna Carta malarkey and then from the aristocracy after the World Wars. I am all for property rights and the rule of law, and I don’t want to see the politics of envy and wealth creators stripped of the fruit of their labours. In life their property is theirs, but in death, well, they really can’t take it with them.

    wealth distribution in the UK

    wealth distribution in the UK – a 300k IHT tax-free lump sticks each child into the 5’th wealth decile of people at the high-water-mark of lifetime wealth accumulation

    To forestall the usual I worked hard for this blah blah blah, note that a) you can give money to your kids tax-free over a period while you are alive, b) ahem, you’re dead, pal, and past caring, and c) a couple can pass £600,000 to their children before IHT is charged. Divvied up across two rugrats who have zero other wealth would put each of them into the 5th decile of wealth in the UK. It would be sad to see a New Aristocracy rise from the ashes. I am sure that solutions can be found to address Pa deceasing when the child is a minor and other edge cases, but in general we are living longer – particularly the richer among us.

    I know it’s an unpopular view, all I can say is be careful what you wish for the precious fruit of your loins, and hope there’s no afterlife so you never get to hear about the results of these best laid plans 😉 The obvious side to be on in this Hobbesian choice is on the side of ancestral wealth. Just don’t mention this dude and the Reign of Terror, eh? The trouble for the ancestral wealth is that all the bad guys are already inside the country’s borders, and they will have little to lose. Also see #3 – they may not have to take up arms…

    Action:

    Help to buy, or any other cobblers like that under the banner of “assistance for people to pay too much for a house”

    Reaction:

    People pay too much for houses. D’oh. That’s what you want, Mr Cameron. yes? So that ties up loads of capital in an unproductive asset. In theory if I own a car factory and invest twice as much into it I get to make more cars in the same time, or better cars, or cheaper cars. If I pay twice as much for a house in real terms than the last person who buys it, it still keeps the same amount of rain off my head. The only people who win from that game are Buy to Letters. Who can look after themselves, thanks.

    Action:

    Loads of the proletariat earning less than £12k get to pay no tax at all. And yes, an Ermine will benefit no end, indeed I may shift my affairs as to get a higher proportion of income from ISAs if necessary.

    Reaction:

    Loads of people vote for stuff without any regard for the cost of provision. It’s a particularly hard one to undo because of all the new losers in a one person one vote system where an increasing percentage of the voters pay no tax at all. Let’s face it, turkeys don’t vote for Christmas, do they?

     

     
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