9 Dec 2014, 12:59pm
economy living intentionally
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  • The case for a Universal Income

    Those clever fellows at Oxford University have identified a problem with social mobility – it’s increasingly downwards. I have to run with the Guardian’s description of this because it looks like the paper is published by Wiley and is therefore going to be £££££ to get.

    The Grauniad will bring to the party their own biases, and yet their summary of the problem seems pretty clear and gels well with Humans Need Not Apply  – a storm of globalisation, automation and the shift of power from labour to capital is stripping out premium jobs – to wit

    The UK’s boom in managerial and professional level public services and industrial jobs during the 1950s, 1960s and 1970s saw an increase in the proportion of children born into professional and managerial families. The decline in these jobs meant that the number of individuals at risk of downward mobility were higher.

    Goldthorpe added: “Politicians are saying that a new generation of young people don’t have the same opportunities for social advancement as their parents, and these results seem to bear that out. The trend shows that, while social mobility has not stalled, more mobility is going in a downward direction than in the past.

    “ The emerging situation is one for which there is little historical precedent and that carries potentially far-reaching political and wider social implications.”

    I’m not totally sure there’s no historical precedent – the story of humanity is not a monotonic increase in wealth from generation to generation, but it is a problem. The issues boil down to that Britain’s GDP is being produced with fewer people. In itself that shouldn’t be a surprise – after all if you look at how many people it took to make anything a generation ago it’s obvious that you need far fewer people to make it now. There was a programme called The Secret Life of the National Grid that showed how the old CEGB used to erect pylons – basically about a hundred men and a lot of rope! According to the ONS, the real value of Britain’s manufacturing output is much higher now than in what we think of its heyday. When I entered the workforce over a quarter of the UK workforce was involved in making stuff, whereas now we make more stuff, but with  fewer than 1 in 10 of us compared to more than 1 in four. As the ONS succinctly says

    productivity in the manufacturing industry has risen by around 2.8% a year since 1948, compared with 1.5% in the service industry. While only 8% of UK jobs are now in manufacturing, compared with 25% in 1978, today’s workers are significantly better skilled and more experienced.

    We booted those humans out, and manufacturing does this quicker than services. Now whenever you say this might not be an unalloyed good loads of people come down on you like a ton of bricks and holler Lump Of Labour Fallacy until you can’t hear anything any more. The Economist gives a good summary too. The LoLF is predicated on the assumption that it is always possible to improve things for people in the world by putting more people to work, so Schumpeterian creative destruction is all to the good, as it can reallocate capital and work to where it can do most good.

    This assumes people are always as flexible as they were in their 20s. So they had better not get old, have children or otherwise tie themselves down to any one place or way of doing things. If you want to see the counterfactual, take a drive to some of the Welsh valleys – the Ermine started work and got to retire all in the space of time since these areas were nuked by Mrs T in the early 1980s and they still haven’t recovered by the looks of it.

    The other trouble is the modern economy produces great jobs and crap jobs, with nothing in between. And it’s producing fewer and fewer great jobs, though these seem to be higher and higher paid. At the moment we fight that – but the battle is being lost. At the moment we tell people work is the way out of poverty, which is bullshit.Let’s have a bit of fun with Google, shall we, on the theme of work is the way out of poverty. Let’s start with the dude who ought to know

    Bloomin' eck, I thought we've already done Halloween. Oh, wait. That was the other guy...

    Bloomin’ eck, I thought we’ve already done Halloween. Oh, wait. That was the other guy

    Iain Duncan Smith: ‘My mission is to lift people out of poverty and I will not give up’ there’s a hint of the Terminator in there, Iain. Always pays to investigate whether the thing you’re trying to do can actually be done, if only to find out which impediments to take on first…

    Sweatshops: A Way out of Poverty – Ludwig von Mises institute. Loosely paraphrased to  ‘get ‘em by the balls and their hearts and minds will follow’ 1

    For millions of people, work is no longer a way out of poverty – Archbishop of York/George Osborne

    Seven ways UK wages have changed over the past four decades – the proletariat has been losing this fight for the last 20 years

    Is Social Mobility Really Going into Reverse – only if you think about the money, according to the Telegraph

    We now have to subsidise crap jobs with tax credits for people to survive on them. I don’t think work is the way out of poverty unless you are unusually skilled. It’s time to strike a new bargain with the 1%. Along the general lines of

    Dear 1% – Britain provides opportunities for you to sell us stuff, move money around in complex ways and get rich on that, and hell, invest in London property. We the people of Britain are easy with that. In return, we require that you give us something in return, and that is a tax on economic activity in terms of corporation tax, CGT and income tax. And we also require that you obey the law of the land as far a polluting the environment etc. Let’s cut a deal. Make as much money as you want, within the rules. If you don’t like that, piss off to Monaco or wherever.

    The standard riposte to that is the wealth creators and owners of capital will up sticks and take their toys with them. Atlas Shrugged by Ayn Rand is the long-form version of that. In balance  there should also be a call to the rest of the 99%, along the general lines of a fantastic rant I overheard from someone describing why the 99% were moaning about the cost of living so much

    People go through life picking up unnecessary accessories like dogs and children without thinking how much it all costs. No wonder they get themselves into trouble.

    It’s hard to argue with her observation, and this is from one of the 99% ;) Mr Squirrel takes a slightly softer line.

    It appears that that august organ, the OECD takes issue with the claim that all the wealth creators will cram into Monaco or a seastead with their capital leaving the remaining starving hordes to eat each other. Unlike  Wiley who act as Gollum to knowledge the OECD publishes their stuff – short form here and full monty to be had from here. It’s worth a read – basically in contrast to Ayn Rand they take the view that we are our brother’s keeper in terms of the maximum aggregate human societal benefits:

    The most direct policy tool to reduce inequality is redistribution through taxes and benefits. The analysis shows that redistribution per se does not lower economic growth. Of course, this does not mean that all redistribution measures are equally good for growth. Redistribution policies that are poorly targeted and do not focus on the most effective tools can lead to a waste of resources and generate inefficiencies.

    Now before we all become communists it is possible for this to be true and yet nevertheless some people’s end of the boat may end up going down, even if most of the boat and inhabitants rise. Somewhere the John Galt in me does and did object for paying for other people’s lifestyle choices, for most of my working life I was paying towards my colleagues’ child benefit, though I am very happy that this has been stopped now. They are/were rich enough to pay for their own choices in life ;)

    The OECD’s stats are also backward-looking, over a period where the assumption that it is always possible to improve things by putting more people to work probably held. I have a lot of time for the thinking that we are in the middle of a third industrial revolution, and I will probably not live to see the full effects of this one. It takes far longer than a human lifetime for the rubble to stop bouncing in an industrial revolution, and the transformational effect of the improvement in communications, data handling and processing on economic activity is probably not complete. Unlike Roger Bootle, however, I wouldn’t necessarily bet on human ingenuity this time.

    We have a lot more humans to draw on, and capital can be more picky about which humans it uses. When I graduated, I was bright enough to be able to work in research and development. The twenty-something me was 2 nowhere near bright enough to work for Google. So we could have a lot more economic activity and vast increases in GDP with fewer humans aided by machine ingenuity, but the spoils of war would increasingly accrete to those that own the means of production, otherwise known as Capital.

    As a result the idea that we can improve economic efficiency by educating people better is not a given for the future in my view. It may be a good thing for their quality of life – after all having reached the end of my working life the economic value of my education is now entirely spent. There is still some intangible value in terms of being able to read, write and have a basic grasp of how things work, infer conclusions from experimental data and have a cultural reference to the world around me – the value of education is not purely as a way to amplify earning power. It’s possible that the OECD’s narrative is accurate for the past – the historical economy had the capacity to employ more human capital and ran below full bore because it was starved of skills and boots on the ground. The global economy has got access to a hell of a lot more people now than it did when I started work, and this seems to be at the same time as it needs fewer people per unit economic activity as a result of the various issues in Humans Need Not Apply.

    Which then brings us to the point of what the hell is the economy for? Is it to make as much stuff as possible and get as many people to buy this as possible, even if they can’t add enough economic value to pay for their consumption? Is it to maximise the sum total of human experience? These are political issues, but we don’t really seem to be tackling those issues as to what all this economic activity means and whether it is serving us well, we just know that we want ‘growth’ because it sprinkles some fairy-dust and seems to have made people feel better over time. Charging around telling people work is the way out of poverty seems to be pissing more and more people off, because it’s just not true. Eighty years after Keynes observed

    The decadent international but individualistic capitalism in the hands of which we found ourselves after the war is not a success. It is not intelligent. It is not beautiful. It is not just. It is not virtuous. And it doesn’t deliver the goods. In short we dislike it, and we are beginning to despise it. But when we wonder what to put in its place, we are extremely perplexed.

    he could still make the same observation.

    The Citizen’s Wage/ Universal Income – an alternative to the Occupy movement

    The Occupy movement is one response to the rise of the 1%, which is basically to try and tear them down. But it isn’t the only one. There’s another one. Let the 1% (and the 20% below) earn shedloads of money. After all, take a look at the Grauniad’s excellent analysis from Mona Chalabi  – people paying higher-rate tax and above make most of the running in tax revenue – about 2/3 of the tax take comes from them.

    Then set a flat rate of tax, at 40%. Abolish the personal allowance. But give everybody a universal income of about the National Minimum wage once they reach 18.  At the old higher rate tax threshold of ~ £40k you will have paid 32% of £30k which is about £10k in tax leaving you with £30k, under the new regime I guess you’re paying £24k in tax leaving you with £16k to which is added £13k resulting in ~ £30k in total

    Abolish all special interest pleading – nearly all of the Welfare state goes away, we presume that the NMW is enough to basically live on, be you pensioner or 19 year-old. No special case for having children – a couple on the NMW is a little under the average household income. Now, without the requirement to work, you can enjoy your children, see them grow up, walk them to school. You can now live anywhere in Britain we don’t all need to pack ourselves into the SE because that’s where all the jobs are – maybe even repopulate the North of the country – fabulous countryside.

    If you don’t have kids, well, you have a bit more money then, follow your interests. Have a better house or car, or go on holiday more. If you want more than the NMW, then by all means, if you are talented enough, go get a job. Your universal income won’t be taken away or taxed, but everything you earn would be taxed.

    The uber rich will now have to pay decently for their shit to be cleared, their houses to be cleaned and for fire service in London. But they can afford it, so the wages of shit-shovelling service industries will go up to whatever is needed that people will sell their time to do that sort of thing electively. But both parties will have a choice, and it’s up to the market to set the right price.

    This isn’t a fully formed idea – there’s no doubt endless problem with it. For starters until globalisation makes everybody in the world equally well off and we have ended war, entitlement needs to managed. Britain allocates citizenship/residency largely by jus soli as far as I can see, and some steps will need to be taken such as requiring you to be born in Britain by people here legally to get the entitlement. Before I get charged with being a card-carrying nut-job – immigration is no problem but the parents will have to be here legally and presumably work of be of independent means. And it seems fair enough that if you aren’t entitled to the citizen’s wage you at least get a personal allowance re your earnings of the same amount :) The devil would be greatly in the details.

    The problem we have at the moment is that we seem to be trying to micromanage our way out of macro sociological changes. The disenfranchising of a large part of the human population of a First World country isn’t necessarily a problem if it is caused by improvements in productivity caused by technology 3, but the way we allocate resources is going to drift out of track with the assumptions that underlie our societies.

    With the industrial revolution we managed to dramatically reduce our use for human physical labour, but increased our capacity to use intellectual human labour. With the Information and computing revolution we are reducing our need for intellectual human labour, because we can solve many of these problems using IT (and outsource a lot that doesn’t). It’s not absolutely clear to me where we are going to put these now idle hands to work, though I don’t have the Protestant Work Ethic that always assumes the Devil is going to be the employer of last resort. There are many things that would be nice that more human effort could do, but in general we don’t seem to be prepared to pay hard cash for them.

    That which we can’t do automatically demands much more cognitively of the humans 4, and it is beyond what many can do, we are way beyond the central bump in The Bell Curve and out there in the tail. I’m not really sure I’m bright enough to get ahead in this economy if I were starting now, the leading edge is way out there. We aren’t doing less, but the fruits of the productivity enhancements are accruing to people with capital and to people with power. CEOs and the 1% are skimming off a fair amount of the capital, but it is interesting that they have streaked ahead particularly through the use of equity allocations as well as higher pay.

     

    Notes:

    1. Charles Colson, possibly
    2. I am making the slightly ageist common assumption that this fades with time – accumulated experience has much less value now in technical fields than it did when I started work
    3. if the improvements are caused by globalisation then it is a problem, because living standards must fall to equalisation otherwise there will be balance of payments problems with the countries doing the work
    4. Not all future work is cognitive. There will still be work for some other types of skills – being a footballer, or a Kardashian doesn’t require smarts, and artistic creativity requires a different type of smarts
    30 Nov 2014, 6:38pm
    rant:
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  • Dear Mr TV Licensing. The Ermine has no TV licence…

    Because he doesn’t watch live TV. What part of that do you not understand?

    It’s not often that the Repo Man tries to call at Ermine towers, but one of your boys visited this Sunday, while the Ermine is laying out a printed circuit board, so no, I don’t appreciate the gratuitous interruption to something that needs concentration and keeping a load of spatial stuff in mind. But you’re also cheeky enough to want to come inside my house because you want me to prove that I am not lying to you. Well F*** off.

    I’m not having you search my house for it. An Englishman’s home is his castle etc. And I’m not pulling down my aerials either. I may want to use them one day, in which case I’ll pay out. All I have to do to be legally absolved of the need to buy a TV licence is not watch live TV as it is broadcast. And I don’t do that. It’s really no great deprivation, despite the apparent incredulity. One of the joys of becoming financially independent is you usually get to do that  by living a bit differently to the way other people do. This is one of them.

    There are ways of looking for signals leaking from TV gear in use. It’s a lot harder now those damn Europeans with their pesky EMC regulations mandate lower emissions from  consumer electronics. I wouldn’t imagine it’s economically viable for TV licensing to have people capable of driving the gear and making sense of the results. And it doesn’t look like this

    And it doesn't look like this you bunch of chumps

    And it doesn’t look like this you bunch of chumps

    There is a satellite dish and a TV aerial on the outside of my house. You are very welcome to park a Transit van on the public highway and point a dish at the Satellite quad LNB and look for the 11GHz local oscillator, and use a Yagi aerial to look for the Freeview local oscillator leaking from the TV aerial, it’s about 39MHz off the wanted channel if I remember right. Take yourself down to Livingston Hire and book out something suitable, the Rohde & Schwartz FSV13 would probably see you right. If you pay my consulting fee I’ll show you how to use it :)

    You won’t find any signal, because I don’t watch TV, there’s nothing connected to these aerials. I do still have the Humax Freesat box I talked about a while back but it is in a box in my loft – the resale value is sod all and I might one day change my mind. It’s not hurting anybody and I’m not using it.

    I’m not one of the rabid refuseniks who doesn’t think there should even be a TV licence, though the vexatious rudeness of TV licensing could turn me into one. There may be other better ways to fund the BBC but to be honest that’s not one of the problems in the world I give too much headspace to. The reason I don’t need a TV licence isn’t that I don’t watch TV, but I don’t have any way of picking out what’s worth watching ahead of time, other than people telling me. Obviously they have to watch TV first – thank you Under The Money Tree and Mr Squirrel for the last couple of recommends. I can’t abide TV series of the sort most people really rate like Breaking Bad or The Wire. I don’t do sport.  If I am interested in someone’s recommendation  I watch it on iPlayer or the ITV/C4 equivalents. There’s not much point in me shelling out £145 a year for the privilege of being able to do something I don’t do. If I needed to pay for iPlayer I’d live without. I do vaguely miss the TV news but it’s hardly as if the Web is without news, for instance if I want to see some people fighting over buying a television set then due to the magic of the new-fangled intertubes I can do just that. I think this is my favourite clip of Britons behaving badly, though I do note on some of the videos the gentlemen of the press outnumber the punters. The weather forecast is that much better on the Web, and if I want cat videos then there’s always Youtube.

    I do have a TV, though not the big one from this post – that went to the county dump a while back. Mrs Ermine uses it to watch DVDs. It is so old it doesn’t do Freeview or HDMI, though it has a nice analogue tuner showing many varieties of snow. I was even toying with getting a bigger TV monitor, preferably without fighting for it, because a 20 inch 4:3 machine at not even SD resolution isn’t that easy to see from a distance 1 and does lose the effect somewhat. But then I’d have to get a secondhand stereo for the sound because that’s half the story and it would end up in some ghastly version of the Diderot effect. And I’d like to go HD but couldn’t find anywhere to rent HD movies without being sucked into a subscription, and movies aren’t important enough in my life to subscribe to anything. DVDs seem to be £1 a go PAYG from the library, and you can’t argue with that.

    TV Licensing are a vexatiously rude bunch of tossers

    The reason TV Licensing get such a load of shit from people is that they are bully-boys. There’s a tradition in this country that you are innocent until proven guilty, but in TV Licensing start from the assumption that nobody in 21st century Britain can live without the glass teat feeding the lifeblood of consumerism directly into their face. Despite there being the competing multimedia firehose pointed at their face that you’re now looking at, and the smartphone for da yoof. So you are guilty and they address you as such. It starts off with the wheedling

    1411_TVL-141130-ren

    TV Licensing -> Ermine after 1 month  Shurely Shome mishtake, Sire has omitted to renew?

    NO, you numbskull, I don’t watch live TV because it consumes too much of my precious time to find what I want, so I wait for others to tell me, OK?

    1411_TVL-sept

     

    TV Licensing -> Ermine after 2 months  RENEW NOW YOU BACKSLIDING SPIV; WE KNOW WHERE YOU LIVE – YOU WILL BE ASSIMILATED. RESISTANCE IS FUTILE, MASSIVE FINES, INVESTIGATE, INVESTIGATE

    Ermine to TVL – no, I am not telling you anything, this is something I am no longer doing. I’m not paying money, wasting time on your phone system, giving you my phone number or email address to hassle, and the onus is not on me to prove my innocence. The onus is on you to prove I am doing something you can charge me for. As I walk down the street I can see lots of people’s TV screens. You are more than welcome to see if you can see mine from the public highway. Maybe I should get me one of these TV simulators  to make your pay-per-hit Capita dudes have a rush from the thrill of the chase, eh?

    TV Licensing -> Ermine after 2 months, random mailed intimidation and final demands.

    Random unjustified aggro by post

    Random unjustified TV Licensing aggro by post

    I haven’t had this sort of aggravation since Thatcher’s Poll Tax in the early 1990s!

    TV Licensing -> Ermine after 4 months  Up close and personal we want to inspect your house to make sure you aren’t watching TV.

    Eh? I haven’t ever had so much bloody grief for something I’m not doing and don’t need to do. It’s not 1984 guys, where you get into deep doo-doo for switching the damn telescreen off! Chill out and piss off.

    Postscript

    It appears that I will never be shot of this grief, this bloke has been harassed for the last 8 years…. Still, saving ~£150 a year is worth some aggro, the opportunity cost is a respectable  amount in red wine and coffee or 3 DVD rentals a week!

    Notes:

    1. I can see the damn thing perfectly well but it hardly fills the field of view :)
    28 Nov 2014, 12:53pm
    living intentionally
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  • Today is the official spendy frenzy of Black Friday and it’s time to

    … ask yourself some searching questions in the vein of Oscar Wilde discoursing about the cynic

    A man who knows the price of everything and the value of nothing.

    because apparently you must go out and bag yourself a bargain this weekend. So what are these bargains they tell me of, then? I may as well start with what I know :)

    Bargains I tell ya

    Bargains I tell ya

    So what do we have here? Top left, a shaver, which apparently was ‘worth’ £300 and is now half that. Now the Mail is not targeted at Russian oligarchs, or the sort of bullshit you get in the seat-back in business class, or even the Torygraph’s look-but-don’t-touch Luxury section. So it wouldn’t be unreasonable to imagine the typical Daily Mail Reader on the median UK wage, apparently £517 per week last year. From all the wittering about stagnating wages, automation and damned furreners I don’t imagine it’s gone up that much in the last year. These are apparently gross earnings, so a quick spin on ListenToTaxman tells me

    Listen to Taxman gives it you straight

    Listen to Taxman gives it you straight

    that this fellow gets a gnat’s over £400 per week. So let’s say he runs a 40 hour week then he’s earning £10 per hour. Sadly his commute costs him more time and to add insult to injury the train companies seem to take a dim view of not paying. The FIrestarter did the maths, I’ll assume my punter eats a 25% hit rather than TFS’s 1/3 hit. So our Daily Mail Reader needs to spend an hour working/going to work for every £7.50 he earns.

    Righty-ho, so he wants a shaver, call it £150. That’s 20 hours of not seeing his wife and kids… The Ermine is clearly behind the times, I didn’t realise you can spend that much on a shaver. So be it. We have the Nespresso Lattissima coffee machine, yours for £125, that’s 15 hours at work. I’ve already had the rant about how a Nespresso anything is a way to electively pay more for a restricted range of coffee, and produce more needless waste compared to the gonzo filter cone. But here you have to add the extra time to decoke this darned thing, because the combination of milk and heat is a cleaning nightmare, so you have to factor in the extra cost of the cleaning help. Or be prepared to take half an hour over an espresso, half of which is to clean out the milk section. The advantage Starbucks has is they amortize the cleaning over lots of coffee drinkers, whereas drinking 50 cups of espresso a day is going some at home.

    So let’s move on to the pretty lady then. mail6Somebody really ought to tell her that winter’s coming, but what the hell. The trusty Ermine calculator tells me that is about 634 of your Great British Pounds for four items of clothing, so she’ll be working a month and a half 1a shade over two weeks  to pay for that little lot.

    Black Friday is For Fripperies, not Fundamentals

    Not so fast –  the time calculation gets worse. All these good people have to live somewhere and presumably eat something, so we really ought to run these calculations using disposable income. The Money Advice Service tells us that the average monthly disposable income is £224 2. Mind you, these are the same fellows who tell us that  it’s news to 1 in 100 of our fellow countrymen that you are supposed to pay a loan back, so maybe they fish in murky pools for their punters.

    All of a sudden our shaver purchaser is looking at working for three weeks to get his whiskers trimmed, and our summery lady is looking at the wrong side of three months to buy that outfit.

    Personally I’m on the other side of Oscar’s cynic.  There are a lot of very clever people out there. They go to work every day to make you screw up your finances by buying shit you don’t need. And Q4 of every year they go into overdrive.

    ‘just think of your children – buy these loom band kits’

    Reminds me of Charlotte Metcalf buying Silly Bandz for Christmas because she couldn’t bear to tell her daughter that she didn’t have any money left. WTF is it with selling overpriced rubber bands to children?

    Where’s Tyler Durden when you need him, eh?

    God damn it, an entire generation pumping gas, waiting tables – slaves with white collars. Advertising has us chasing cars and clothes, working jobs we hate so we can buy shit we don’t need.

    Happy Black Friday, all, and Cyber Monday, two inventions designed to put the consumers of the UK further away from financial independence. We can’t have the people giving The Man the middle finger, eh, so run along and form an orderly queue to buy shit you don’t need. No fighting on the shop floor, okay?

    Notes:

    1. Clive is absolutely right, it’s not as bad as that
    2. lies, damned lies and statistics, eh, note the shocking sleight of hand switching from median to average. When it comes to income, it seems the stinking rich lift the average with respect to the median so that £224 is probably an overestimate
    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
    11 Nov 2014, 11:46pm
    personal finance
    by

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  • Sometimes you should not be allowed to do what you want to do

    Over at the Torygraph they are fulminating gently about the hidden costs of capping payday loan charges. To most of us the action on Wonga et al seems pretty clear-cut – the cap means that they are limited to a 100% interest rate – ie they can’t charge you more than twice the original loan amount.

    A Money Shop

    This is a Money Shop. It is what a problem looks like, not what a solution looks like

    Judging by the number of money shops and assembled crap joints in the High Street, there’s a lot of demand. The apologist for wanting to make a profit out of lending money to people that shouldn’t be borrowing money is this mouthpiece for the Institute of Economic Affairs Steve Davies, on Radio 4

    Payday loan companies will no longer be willing to lend to those judged to be at a fairly high risk of defaulting. Previously, these people could arrange a short term loan from legitimate businesses. As has been the experience in other countries, we can now expect more of them to turn to often vicious loan sharks that operate entirely outside the law.

    Mark Littlewood of the Institute for Economic Affairs

    The Torygraph cited the IEAs Director-General Mark Littlewood for the gem, but it sums up what Steve said on Radio 4. And hell, if you’re the DG then I guess the buck stops there

    Now if you look at the IEA’s website you can see that these guys are basically right-wing-nut-jobs. You know the search for John Galt is strong in the hallowed halls of the IEA from the topics. Now there’s nothing wrong in having right-wing nut-jobs, humanity needs a range of views. There’s no doubt a school of thought that considers an Ermine in that category with intemperate snarls like this.

    Nevertheless there are some wickets it’s really hard to bat on. Like giving matches to two-year-olds, ‘cos it’s an affront to their yuman rites of freedom to stop them discovering fire. It being A Good Thing that uniquely among European nations ordinary UK citizens will receive their mains powered goods with three exposed wires and will have to source and fit their own mains plugs 1 with a one in three chance of a lethal outcome 2, and other things like that.

    So let’s translate what IEA DG Mark is saying here

    We at the IEA think it is a jolly good thing to lend money to people who don’t have any. It’s a decent, honest source of profit and there are a few edge cases where it’s the right answer. Obviously there’s a risk of collateral damage and totally screwing up some punters’ lives, but in the end you gotta ask yourself

    What would John Galt 3 do?

    And then do the right thing by John, natch.

    Err, yes. There are about ten good ways of using payday loans and about a hundred wrong ways of using them. Guess which ones most people use, which is why we’re having the discussion. The IEA’s bod was on t’other side to the Bishop of Stepney. The fundamental beef the IEA has is simply summed up on their website

    Regulating payday lenders will shrink the supply of credit

    Well yes, that’s the ‘king point you wunch of bankers! I am just old enough to remember a time when Britain had credit controls, before Thatcher iced them. That was a terrible time, believe me.  Ordinary people could manage to buy houses, because they weren’t allowed to borrow stupid amounts of money to pay stupid prices for a collection of stones. If you couldn’t afford to buy a TV you bought your consumer shit on hire purchase. You ended up paying a hell of a lot more, but if you couldn’t afford the repayments then all that happened is a bunch of guys with thick necks came into your house and grabbed their telly back without paying you a bean.

    Stumbling and Mumbling sums up the results of Thatcher’s easement of credit controls as a successful failure pretty well.

    her relaxation of credit controls in the early 80s had a bigger economic impact than she intended. She envisaged these as a step towards economic freedom. But they were more than that. They permitted a consumer-driven society and economy. This was not her intention. […] her vision of Britain was of a property-owning democracy of savers with moral restraint. She got indebted spendthrifts. She wanted the British people to be like her father, but they turned out more like her son.

    In short, the IEA need to get the idea that sometimes the puer aeturnus in us all needs some roadblocks to getting his own way. What happened with the expansion of credit was that after three decades the property owning democracy got hard for ordinary grunts because it tempted them to put too much of their lifetime earnings into the purchase cost of a house, aided and abetted by the suppliers of that credit. That trickled down to the poor, who in the past were saved from revolving credit card debt by the fact that they couldn’t get any. I recall the first Access card I got in 1979 as part of the student banking deal at Imperial College with Nat West. It scared the shit out of me because I had the voices of previous generations ringing in my ears

    Don’t spend more than you earn, son

    and yet to use a credit card at all you have to spend more than you have at the instance of the purchase. It’s the whole point of a credit card – to increase your instantaneous spending capacity.

    Wonga is out there bottom-feeding in this market. The IEA is missing the point deliberately when they assert regulating payday lenders will shrink the supply of credit

    Shrinking the supply of credit to people who shouldn’t have it because they can’t pay it back is the whole bloody point

    Earth to IEA right-wing nut-jobs

    The FCA is fighting the fire that was started by the loosening of credit controls – those indebted spendthrifts epitomising Thatcher’s legacy  by spending money they don’t have because they can. The IEA then tried to play the bleeding heart about where will the poor get their utilities from? Well, way back when I had an electricity meter with a slot for 50ps guess what happened when I didn’t have any 50ps?

    I lived without electricity until I had the money

    People did it for hundreds of years, y’know.You get cold. You get hungry. You go to bed early in the winter. There are better electricity solutions than a Wonga loan. It’s called a prepayment meter. Yes, the cost per unit is higher. But that’s just the way the world works – poor people pay more for a lot of things because of credit control, buying in small lumps and it being increasingly hard to tell the thrifty poor from the spendthrift poor, hence the Sam Vimes Boots model.

    Let’s face it, if you can’t afford the ‘leccy bill you aren’t going to get any sustainable electricity supply using Wonga, are you? The kind of situation that Wonga can help with are people who have assets, but can’t  access them for the moment. Those assets can be the value of your future work, or next year’s un-CGT-embargoed share sales . But this is a very small set of Wonga’s client base, because usually when you have enough income to generally cover your spending you are financially literate and don’t get yourself into such financial shit in the first place. Most of Wonga’s customer base are people who are on the wrong side of the Micawber principle. Their spending is too much for their income. The guys need to Spend Less or Do Without. In theory they could Earn More but that’s not working out in this economy, leastways at the bottom end.

    Wonga and the guys that the IEA are batting for basically lend money to people who they know can’t pay. They take the risk because they holler loud enough in people’s ears and garnish their credit card accounts such that the non-payment gets shifted to some other unlucky creditor – like the utility supplier or the credit card firm.

    The next line the IEA took is that all this will do is push people into the arms of loan sharks ;) The answer to this is to crack down on loan sharks, seize their assets and if you can’t actually break their legs then at least do a Taylor Swift on their Beemers and Mercs

    Now in my view the Bishop of Stepney has an error in his thinking too, but it isn’t dangerous. He believes credit unions are the solution. They aren’t, because unlike banks, credit unions can’t lend money they don’t have. 4 So they need to persuade rich people to save with them at low returns to lend to poor people who are bad risks. Rich people don’t get rich by taking on bad risks at low returns. It’s just not how you get or stay rich.

    If he wants rich people to give money to poor people he needs to do that through the political arena, and that’s a different question. Shrinking the supply of credit to people who can’t pay it back is a start in plugging the hole. Every time you buy something on credit, you are choosing to buy it at a higher price, because you pay interest, and you are choosing to impoverish your future self.

    Thatcher apparently believed people had morals when it comes to money. History has proved her wrong

    I had the bad luck to look for a job in the aftermath of Thatcher’s first recession, so I’m probably not a balanced critic, but it appears that Thatcher believed that people had principles, even when it comes to money. Bless. I’m not sure I buy this interpretation, but let’s run with it

    Presumably she didn’t foresee her property owning democracy ending in a BTL property owning oligarchy, and giving the market power over lending meaning that lending would be advanced  to NINJAs in times of plenty leaving seven lean years and counting that ruin whole generations. In the end asking for any politician to have a crystal ball that shows true across thirty years is a big ask, and even if she did set a wrong course the ghost of Thatcher past could reasonably challenge the weak hands afterwards of failing to steer the ship of State away from the sandbanks.  There are some people who have principles when it comes to making money, but not enough. Somehow you have to regulate an ever increasingly complex system that is global, not national in scope and staffed by the finest minds money can buy, while your regulators are the civil servants of nation states.

    Wonga et al are obviously parasitic enough that regulation isn’t hard, though I’m sure Wonga will find some way round the rules and their customers are desperate enough not to face up to their problems that they’ll comply. But for now the cat is ahead of the mouse. Anything that pisses the IEA off is probably good for the country as a whole.

    The trouble is that it isn’t just the poor who are drunk on credit The middle classes are drunk on it and passed out on the kerbside with the bottle in their hands. Those high house prices are still there. One way of regulating credit is increasing interest rates, but there’s no taste for that because of the massive keening noise that would ensue ;)  Now that we’ve cracked down on poor people spending more than they earn with Wonga, it’s time to move on to the overstretched middle classes in their zombie households. Their pay is falling behind inflation. Somebody should step up to the plate and stop them borrowing money to spend more than four times their salary on a house. And demand that they have a convincing answer for the question “how are you going to pay off the capital before you retire“?

    No doubt the IEA will come over all John Galt on me and say well, it’s a free market, why shouldn’t these numbskulls borrow loadsamoney to buy a house with? To which the answer is that they jack up the price of commodities like houses until every bugger has to borrow loadsamoney. Even if they don’t want to buy, their rent goes up to service the capital. It’s not a victimless crime.

    I’ve accepted most of the fault in overpaying for a house early on, But some of it was because I was competing as a single man with couples desperate to get their MIRAS double tax relief before the door closed on that. We’re not all independent actors on the stage when a shitload of easy credit is dropped from helicopters, precisely because it is a market. Thatcher can perhaps be forgiven for the stupidity of thinking she’d get savers rather than spendthrifts, the experiment hadn’t been tried. But we have thirty years of research that shows give a Brit easy credit and s/he will chuck it into housing which will go up in price to soak up the credit. Where it festers – if they had to spend it on meals out at least restaurateurs would get some of the money and it would enter the economy. As it is the money just goes to make the land and bricks dearer, and no, the answer isn’t a land value tax it’s to stop feeding the Beast  in the first place. Credit isn’t just bad for poor people. It’s bad for homebuyers too.

    Sometimes you should not be allowed to do what you want to do. For your own good and that of the people around you. Reining in Wonga is the hors d’oeuvre. It’d be nice if the mortgage market were the main course one day.

    Notes:

    1. this was the situation in Britain before February 1995 when commonsense prevailed in the  face of resistance from manufacturers. There’s a bunch of old fossils reminiscing about the lost art of UK mains plug wiring which tickled the vintage geek in me.
    2. there are six ways of wiring a plug, assuming one wire to one pin and nothing left out. If you wire the green and yellow earth wire to the live and it’s a Class I device like a kettle, then if you plug it in and grab hold of the tap and the metal case it will piss you off deeply if you are lucky, and kill you if you aren’t lucky
    3. John Galt was the protagonist in Ayn Rand’s Atlas Shrugged, with the motto “I am not my brother’s keeper”
    4. That in itself is no safeguard – the branch manager of the Ipswich credit union looted £100,000 of savers’ money. Although it’s claimed this didn’t have any effect on the ISCU, I note it is no longer in existence
    5 Nov 2014, 12:08pm
    living intentionally
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  • Work is but a stage of Life

    A human life has seasons – it is written in the cycle of life, we aren’t Immortals, dying through accident alone. The gateways between these seasons was often marked by rites of passage in earlier generations, but the modern First World has few rites of passage.

    But life is still a journey. You can close your eyes and pretend it isn’t, but like all parody the Trainspotting song gets its edge because it does contain a kernel of truth. Many of our life choices are taken on autopilot. Some of this lack of deliberation is necessary – there simply are some important stages that the newborn has to master in the difficult progress from mewling and puking infant to the arbitrary stage of 18 we call adult. There is a dynamic tension in all of us that balances preserving the comfortable status quo against the effort necessary to challenge old forms, to break free of constraints, challenge habits and develop as human beings.

    Consumerism can help you with all of these bar one

    Consumerism can help you with all of these bar one

    Consumerism doesn’t do meaning well, and if you look at Maslow’s Hierarchy of needs, the one at the very top, self-actualisation, is the one element that you can’t buy or outsource, by definition. Consumerism becomes increasingly ersatz the higher up the pyramid you go, but it doesn’t run out of road until the apex.

    Sorry, Paris, but Daddy's billions still ain't gonna buy you to the top of that pyramid. Some jobs you have to do yourself. Time is on you side, so you can get away with 'Dress cute' for now...

    Sorry, Paris, but Daddy’s billions still ain’t gonna buy you to the top of that pyramid. Some jobs you have to do yourself. Time is on you side, so you can get away with ‘Dress cute‘ for now…

    In this journey through the stages of life, often you cannot progress until you surrender old forms. Thus it is that the parents of a newborn must surrender some of the hedonism of the DINKY lifestyle. Many years later tears well up in the mother’s eyes as she waves her son goodbye as he steps into the world to become his own man. It is a transition for him, but also for her too, we have no shared Western narrative for maiden/mother/crone 1 or the masculine equivalent boy/man/sage or wizard 2.

    Consumerism doesn’t favour introspection and a search of meaning, and it actively discourages personal growth, because it always needs you to look outwards for satisfaction of your wants. There’s nothing to sell, otherwise :) MMM summed this up well as the Poisonous Pitfall of Piss-Poor Lifestyle Planning. Look at how much is sold to young and middle aged men to encourage the puer aeternus who “covets independence and freedom, chafes at boundaries and limits, and tends to find any restriction intolerable”.

    look - no other cars get in your way if you are in one of these

    look – no other cars get in your way if you are in one of these

    Indeed, an awful lot of ultra-luxury seems to be marketed towards these ideals of independence and freedom as expressed in Stuff. The irony doesn’t escape me that some of the aims of Financial Independence are seeking to live life without boundaries and limits, finding restrictions (on one’s time) intolerable ;)

    In many of the myths of Europe, there is the story of the hero starting his journey as a young man, going out in the world to earn his fortune. Precisely how we have turned this, in an age of relative richness, into working for The Man until you drop is a puzzle. Some of this is because  because of the endless aspiration to Stuff and Experiences. Some of it is because we have engineered certain kinds of inequality into our economy such that an increasing number of people will never have the opportunity to decide what Enough looks like because their lifetime earnings won’t be enough to compete with the credit-inflated value of some necessities.

    And so I offer to the FI community that making your fortune is good, as a first step, but the hero of our myths of old does not simply make his fortune and then sit on it, or play cards into his dotage, In the modern world work is often the way to making your fortune, but once you have this, then its work is done. To progress the  traveller on the journey of life must release old forms. For most people working for The Man, their legacy as a human being will not be their work 3. People who retire often believe they will be sorely missed but most organisations self-heal rapidly.

    Thoroughly unprepared we take the step into the afternoon of life; worse still we take this step with the false presupposition that our truths and ideals will serve us as hitherto. But we cannot live the afternoon of life according to the programme of life’s morning; for what was great in the morning will be little at evening, and what in the morning was true will at evening be a lie.

    Carl Jung, Modern Man in Search of a Soul

    As the slave grows accustomed to his chains, so it seems the wheel grows accustomed to the shape of the rail for thirty of forty years, perhaps even fifty if we count the guided track of the education system in childhood. For long a path is trodden, but as Jung indicated, it slowly begins to lose validity.

    The Queen's Tower at Imperial College

    The Queen’s Tower at Imperial College

    The seeker of financial independence speeds up the process. Recently I passed through Imperial College where I did my first degree in Physics many years ago. The alumnus office provided me and Mrs Ermine with a fine cup of coffee gratis and a place to rest a little. It’s  strange to think that when I last passed this way here I had maximum human capital and zero financial capital. Over the ensuing thirty years I exchanged that human capital for financial capital – in the words of our fairy tales, I made my fortune.

    Now the value of my human capital is zero – nobody is going to pay me more or less because I have a Physics degree. It has become worthless, but it has done its job. Surrender and redemption are part of the cycle of life. Work is now an old form for me. In many of the earlier posts on here I ascribe leaving work early to the world of work changing. It did, but now I also see that I changed – things and ways of doing things that used to be acceptable to me became less acceptable. I resisted the change, because I had a conventional viewpoint that I would make this change at 60 (which was the normal retirement age for The Firm). Resisting change in personal development always causes pain, but here I took the pain up front. Exchanging my human capital for financial capital doesn’t trouble me, I don’t hanker after the ‘meaning’ of work. It was a phase of life, it is done, and I’m with Carl Jung there. I want to deepen, to develop, to understand more. I will probably affect other people, and share some of the journey. It’s more open-ended than the world of work, and that is a good thing.

    If they are successful, and if they know how to know that they are successful, every striver for financial independence must one day ask themselves

    What do you want now?

    If the answer is ‘more of the same’ then you may have to tarry awhile at this waystation of Life. Retiring is a change, and to do it well you must change. The change is hard, because you have followed the track of ‘work’ and the meaning and setting that gave you. Change comes easier to the young – your change into work was easier than perhaps your change out of it. Little wonder, then, that so often the new retiree seeks to replicate the comforting rituals of work.

    I see it a lot, and it puzzles me. Mistersquirrel calls some of it out with

    Have viable alternative pursuits. One of the side-effects of working in a regular job is that there isn’t actually much time left over to do things.

    Now self-development is a strange thing – everybody comes to it by the shortest distance they can manage, even if that path is messy and indirect. Many get stuck somewhere, because the process of knowing who you are, what you stand for and what you value is not easy. M Scott Peck said

    The truth is that our finest moments are most likely to occur when we are feeling deeply uncomfortable, unhappy, or unfulfilled. For it is only in such moments, propelled by our discomfort, that we are likely to step out of our ruts and start searching for different ways or truer answers.

    Work is a stage of life for some people. Retiring is a challenge, and I would estimate that of the people I’ve observed 4 more than half get stuck because they cannot surrender the work-self that they built up over decades. They still value themselves by what they did. Even the Ermine retains Chartered Engineer status at a modest cost, because I haven’t yet come to the conclusion that I will never do engineering professionally 5 again.

    Only once you surrender the old truths and ideals can you further the process of individuation and enter the next phase of life as Carl Jung intimated. People’s paths are many, and there is no one True Way, but I choose to go forwards, to surrender the old to gain new insights in the game of Life.

     

    Notes:

    1. Crone is terribly perjorative in a youth-obsessed world, I mean it in the way referred to in Wikipedia as  “a Croning is a ritual rite of passage era of wisdom, freedom, and personal power”
    2. I’m sad to observe that fewer of my gender seem to pass into the wizard stage, though it is hardly as if the mythic landscape of Western culture lacks the Gandalf/Luke Skywalker role model, and RPGs seem full of it. We aren’t getting lost because we’re in a pathless land
    3. If you’re a Nobel prizewinner or otherwise advance human knowledge or art in your work, maybe. Tim Berners-Lee was working for the Man, part of his legacy is you can read this
    4. most of these are from my parents generation, being an early retiree myself, I don’t have much data from my own peer group
    5. I use professionally in the sense of ‘for money’ as opposed to looking for a job in it, which I view as extremely unlikely
    29 Oct 2014, 11:01am
    housing personal finance
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    10 comments

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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
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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:
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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.

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