26 Nov 2014, 7:25pm
personal finance:
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  • I read the news today, oh boy…

    red warning lights are once again flashing on the dashboard of the global economy

    David “I wanna get re-elected” Cameron, G20 junket

    I know some wag said a week is a long time in politics so five years is prehistoric, but I do recall that a certain Mr G Brown tried to get re-elected by scaring the shit out of the proletariat five years ago. The problem is that the hurt of the original global financial crisis/credit crunch was bought off. Some of it was fixed in the aftermath, but when the questions got too hard or it was going to bugger up people’s living standards in some obvious way, the solution seems to be create some more money, whistle a dancing tune and look the other way.

    I'll be back...

    I’ll be back…

    The trouble is that some of these problems have got a bit of the Terminator in them. That’s not good.

    The last two years on the stock market have been tedious IMO, there hasn’t been a decent rumble on the markets since the Summer of Rage 2011. It’s all been frothy and up in the air, and generally what are we all doing up here mate. So far I’m made to with selling my own shares back to myself, drifting my unwrapped shares into my ISA.

    I suppose all the QE had to go somewhere, and propping up share prices and house prices is one way to soak some of it up. The trouble is that there’s fire burning underground in some structural parts of the economy. The 3% p.a  growth of the second half of the 20th century seems to have been a positive anomaly, giving way to soggy growth which seems to be the British expression for secular stagnation. Wonder how Robert Peston feels about having another good recession

    I don’t know if Dave was trying to make us all feel better, because the Bank of England has been loading on the gloom, with Mark Carney who has obviously been watching Humans Need Not Apply, and, well, indicated humans need not apply. It’s a bastard that it’s the humans that are the voters, this ain’t gonna end well, do you bet on the immovable object or the irresistible force? Over to you, Mark, hit it:

    “My personal view is that there will be an increase in self-employment and part-time work relative to history, in part driven by the reality of technology. I think in the end, we won’t go back to historic levels, but that’s my personal assessment. There are some structural changes which are driven as much by technology as any particular policy.”

    Carney added that increasing automation in the workplace was increasing the supply of lower-skilled workers and keeping wages down.

    “The automation of a series of formerly white-collar tasks, the growth in computing power, has a consequence in adjusting the shift of types of jobs. If we’re not careful it will mean more people are competing for lower-skilled jobs as opposed to moving up.”

    Bloody hell. I had actually expected this to take more than just five years, so the Ermine is clearly behind the curve on the whole power-shift from Labour to Capital. Fast-moving world eh, I take a couple of weeks of well deserved rest and the lookout at No 10 and the Bank of England call in the Four Horsemen, and there I was thinking it’d be a generation. Or at least a few years.

    That means there are a lot of pissed-off people about, and often the blame gets placed on furreners. Hence the rise of the island mentality and the quite serious likelihood of Brexit, to add to the litany of external woes and boogeymen Cameron invoked.

    So the Ermine extends a furred paw to investigate my ISA, and mulls this possibility over a mug of tea. Not only has it been hard to find anything worth buying in my ISA but some of my calls of late haven’t done well. Now obviously if I am going to chase things that are bombed out I’m going to be travelling third class. The torygraph had a good graphic of stock market valuations by CAPE. Since they half-inched the graphic from Hargreaves Lansdown I’ll run it too 🙂

    Russia, Greece – good value in some odd places

    If you are going to slap a 10-year moving average on something you will slow your response to real shifts too, but nevertheless CAPE has something to be said for it. So I went and got me some HRUB to go ride with the madcap nutcase Putin. Somewhere you have to try to make sense of the twisted wreckage that lies within that braincase, but on the other hand the index is going for a song. Increasingly so, it seems – I am down 15%. Just as well I managed to miss the 21% fall earlier in the year, eh 😉 Still, that’s the advantage of diversification – I can afford the odd dog. To be honest my old mate Vlad isn’t making the sort of terminal hash of things that got me and my buddy Warren into trouble over at Tesco, Vlad’s got a long way to go to plumb those sorts of depths. But I’m sure he’ll explore more. As sub commander he’s the fellow yelling ‘Dive, Dive’.

    Russia has bad form

    In general, an index doesn’t go bust. But as the WSJ sez anybody with money in the St Petersburg stock exchange would have received diddly squat, even if they lasted the 70 years for the Phoenix-like rise of the MCSI Russia Capped Index

    U.S. Fracking: the Largest Red Herring in the History of Oil

    HRUB is all about oil and gas. Now everybody knows that fracking is going to make oil too cheap to meter, destroying old-skool oil. The West can bring back its military from the troubled Middle East and mind our own business, revelling in the glorious self-sufficient future. Well, the US can, and since they are the only people spending on their military unlike the cheese-eating Europeans so that’s all good.

    Fracked wells seem to run for 2 years and it also seems to be the devil’s own job to make money out of fracking – you can get enough oil out of the ground but turning a profit seems to be a git. Jeremy Grantham of GMO (hat tip to Monevator) has a level-headed summary of the oil issue here, and I pinched the subhead from him. It goes much wider, but fracking is more like tapping short-term storage than finding a new Ghawar field. So I don’t think Russia will have to wait for ever for the oil price to be favourable to them… The main problem with Russia seems to be that all the decent shrinks are in New York, and Vlad is in deep need of expert assistance to let the primal scream or deep historical upset within his mind out in a controlled way that doesn’t involved unnecessary force. Compared to that the other economic problems are probably tractable. But hey, a low CAPE needs a reason.

    Now you can have a low CAPE without the vodka, as Mebane Faber indicated

    You might end up “riding a country down as well as up,” says Cambria Chief Investment Officer Mebane Faber, whose firm this month launched the Cambria Global Value ETF, which invests in countries based on value measures such as long-term P/Es.

    Well, yeah. If you want a smoother ride get a more diversified index fund like VGLS. That’s the trouble with bottom-feeding. It’s bumpy down there.

    Of risks and known unknowns like Brexit

    Anyway, I observe that I still have about £4k to toss into my ISA for this year, but it’s hard to drum up any enthusiasm even VWRL and VGLS are 50% US, and while I’d love to be holding more of the US at the moment I don’t want to be buying it at current valuations. None of the price alerts on real shares I want to get into are near tripping. Apart from TSCO and I got enough of that 😉 However, standing back and looking at the big picture:

    1. some blighter keeps on putting money into my ISA as dividends
    2. TD direct are a Canadian/Dutch operation, so at the moment the Dutch equivalent of FSCS covers some of this
    3. As a result of 1, I have drifted way, way over the FSCS compensation limit in capital value

    Those divi payments come in as itty-bitty lumps – though the invisible hand has contributed a decent whack, with capital growth more, indeed, than I contributed my first full year. I almost have some sympathy for TD direct’s low rent operation, when I look at the transactions in my order list with TD for the last 12 months, there are 59 line items for dividends and 9 purchases, so they are dealing with an awful lot of ratty transactions, for which they benefited about £110 mainly in sales commission. I observe that TD Direct’s FSCS status compensation is a serious mess – to wit

    Compensation Arrangements (see also Appendix E of our Terms of Service)

    Stock held electronically with us is placed in safe custody with a nominee company that has been established for this purpose in accordance with FCA rules. Stock held within the customer’s brokerage account is covered by the FSCS. This means that if we are unable or likely to be unable to pay claims against us, customers can apply to the FSCS for compensation.Cash held within TD Direct Investing is protected as client money and are segregated from firms money. In the event of failure of TDDI then the funds should remain segregated and should be repaid to the client in full. Should any shortfall arise due to discrepancies on distribution then each client will be entitled to make a claim under the FSCS.

    Any claim against the stock and cash will be limited to £50,000 per individual. Further information is available on the FSCS website at www.fscs.org.uk.

    TD Bank NV

    Your eligible deposits with TD Bank N.V. are protected up to a total of 100,000 euro by the Dutch Deposit Protection Scheme and are not protected by the UK Financial Services Compensation Scheme. Any deposits you hold above the 100,000 euro limit are not covered. Further information is available on the De Nederlandsche Bank website at www.dnb.nl/en.

    and heading over to Appendix E

    1411_tdterms

    So that’s all as clear as mud. For my ISA I am covered by the FSCS even for cash, but for the trading account cash balances I am with the Dutch scheme. So I need to ice that TD trading account in the next tax year.

    And I definitely need to open a S&S ISA with someone else next year, and possibly move the excess with TD, possibly to a third operation. Sadly a Brexit is one of those things where it all going titsup at once is something that could be expected. It will also be a time of opportunity, of course. I will make sure that these new ISA platforms are a) not related from a FSCS point of view, and b) are British, since in a Brexit I suspect the EU financial guarantee won’t be worth a huge amount.

    Platform charges

    You have to use a platform to have an ISA 1, and platforms either charge flat-fee or as a percentage of stock value. Over at Monevator they have delved into this, and the crossover point comes at roughly 25-40k. In theory I’d be looking for a couple of flat-fee brokers. However, I am a shares/ETF guy. That gives me some option to reduce costs, because I don’t aim to sell – my transactions per year have already slowed greatly, and many percentage fee platforms charge on fund holdings. TD is one of them – I paid them a platform fee of  £6.86 over the last 12 months despite being well over the crossover point. So I want out of funds, that means for indexing VWRL not VGLS 2. By thinning out funds and favouring ETFs I may not suffer too badly from the RDR platform fee increases.

    Looks like a rough ride ahead

    I’m with Cameron in one way, there may be trouble ahead. That’s not bad for a net buyer 🙂 On behalf of the British people and his voters, however, I really do think that he could steady on with the own goal mini-disasters. There’s enough trouble and fight in the world as it is. And God knows what the political solution to Humans Need Not Apply is going to be. At the moment it seems to be footnotes, but it’s something to be thinking about. If you have a child today, it’s quite possible that they will never find enough work as an adult to buy a house or get control of their life financially unless some of these political challenges are faced. We have had decent growth for a long time that was distributed widely. Carney seems to be of the view that this not going to be the case in the part-time self-employed future. That looks like Squeeze 2.0 ahoy.

    Notes:

    1. one containing more than one line of stock
    2. as a bonus to that it looks like VWRL is a better match to balance a UK-heavy HYP than the UK flavour of VGLS which is UK-biased

    I’m not a particular fan of PE or CAPE – I think they only make sense at the extremes, and even then not _that_ much sense.

    In fact, I’d have been confident that the US would continue doing well if it wasn’t for the baffling mid-term results. (Any ideas why they went that way?) I really don’t trust the GOP not to screw everything up.

    Note that TD have improved their portfolio X-ray which now has a ‘Fees’ section. It shows both the AMC and OCF, though irritatingly, it only has the weighted average stat of the former and I assume won’t count their platform fees!

    I think BTEM and BACT might be of interest to you right now, or perhaps SMIF if you’re looking for something different. Japan might be interesting too…

    (You’ve got a typo in a possessive ‘its’, btw)

    The European future looks looks very much like Japan for the last 20 years right now, mainly because of awful demographics

    The first question is do we think the UK can really decouple from Europe?

    Personally I think not given that the UK is so embedded in trade within Europe and has such a small export industry outside Europe

    Second question is what behaviour can we expect from Europe by looking at Japan:

    – miniscule government bond yields
    – see sawing stockmarket
    – minimal inflation
    – vested interest blocking real change
    – lots of false dawns
    – zombie companies propped up by banks
    – some big corporate success stories focused on the realities of their market, eg Uniqlo (budget clothing)

    @Greg hehe, typo fixed. Well, that particular one apropos of the Western military 🙂

    Slate magazine had an interesting article on the midterms and the different voter constituencies voting between midterm and Presidential elections. I have no idea if they are right, but it seems to have some internal consistency. I guess Slate would be mildly left-of-center politically. The prognosis seems to be somewhere between an uneasy truce and gridlock!

    I shall take a look at some of those other stocks. I do suspect another rumble coming on…

    @Neverland that’s a grim prognosis, though I don’t disagree. European markets do have some notable and profitable big fish Monevator had an interesting post on European value.

    I trailed Brexit as a hazard. I’m not a tremendous fan of the idea personally 😉

    I can never work out exactly how ’embedded’ into Europe UK exports are (tbh, I don’t think anyone can). There are two issues here; first the UK’s relatively large aerospace industry. All those engines and wing boxes Rolls-Royce and Airbus UK sell to Qatar Airways and Cathay etc. count as exports to France (where they’re assembled in to aeroplanes). Second is that a large amount of the UK’s EU exports appear to go to the Netherlands. This is because a large number of our non-eu exports go through the shipping hub of Rotterdam. Nobody seems to know exactly what proportion goes where after Rotterdam, making calculations of EU versus Non-EU exports from the UK almost impossible. Ho-hum.

    27 Nov 2014, 1:48pm
    by The Rhino

    reply

    What about VHYL.L as a global alternative with a lower exposure to the US?

    27 Nov 2014, 3:42pm
    by Neverland

    reply

    @Matt

    From the ONS “where do the UK’s exports go?” (2011 vintage):

    – 50% Europe
    – 28% North and South America
    – 16% Asia
    – 4% Africa
    – 2% Australasia

    If you want to have something you can deploy if there’s a wobble, what about the IP Global Targeted Returns OEIC? Ok, it’s 1.07% + 0.30%p.a, but zero dealing fee, SDRT or bid-ask. While £55 a year seems quite a lot on £4k, you probably won’t keep it that long. I understand it doesn’t match the sensible frugality of the main portfolio, but a war-chest is _not_ the same thing.

    I had a small holding in my ISA and sold it to start my spread betting adventure in October. (I don’t have to worry about filling my ISA allowance!) Crucially, it didn’t tank when the markets did!

    I think you have 3 options:
    1 – get an appropriate OEIC, of which there aren’t that many
    2 – keep the money as cash
    3 – just bung it in something sensible for the long term and not worry about eking out a few percent more. (Not as fun.)

    As for Japan, people forget that although the stock market has been rubbish, it fell from silly valuations. (Ok, ok, PE isn’t _totally_ useless) Things have been good on many other metrics. European valuations are not exactly stretched. Stagnation here wouldn’t be so dire for investors. But then, you and Monevator know all that…

    @The Rhino – VHYL.L is interesting, it fits the HYP theme better too. Shame it’s relatively new, because I have come unstuck with tracker high-yield ETFs, experience with IUKD tended to show high yield needs to be flown on manual…

    @Greg splitting the core holdings from the ‘war chest’ is where I’ll be going when I get hold of my AVC holdigns. At the moment i use cash but I hate it, nevertheless until I can get hold of my main savings I need the liquidity and I accept the depreciation. And indeed borrowing to preserve liquidity 😉

    Europe is a strange old game. It looks like the definition of catabolic collapse and yet that tracker is up 13%, Mind you, I do expect the Euro to go down and stay down one of these days, which will probably make that look like Tesco for a while!

     

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