4 Dec 2017, 9:58am
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  • UK FI/RE folk are fortunate compared to other Europeans

    I guess we’re still European at the moment 😉 Though I do wonder if our good fortune is perhaps connected with our impending departure from the continent. I came across Mrs W of whatlifecouldbe.eu 1– who is already FI at 32, this is their story. Basically Scottish lass goes to work in Germany in 2005, meets handsome young Romanian fellow starting college, ten years later they have a couple of nippers and are FI/RE. Even my grizzled and cynical old heart is warmed by the tale of chutzpah, enterprise and general derring-do.

    I confess that when I read the story of what makes them FI, invested 100% in a single asset class of German rental property it makes me feel a little bit squiffy for the FI part of their future, particularly when I hear Mr W’s diatribe about the SWR and equities in general. But then I recall that he is still in his early 30’s at a guess, so while I intensely disagree with Mr W’s approach to diversification and cavalier use of leverage,  it will probably work out just fine in the end though probably not exactly as planned. These guys have got human capital in spades. It’ll be all right on the night even if something goes wrong with the FI side of things. This fearful Ermine would be scared of with the mix of leverage and lack of diversification. Unlike the Ws, I have already earned all the money I will ever earn, so I have to be more timid, because I have no human capital in reserve.

    What makes you FI/RE in your 30s is very different from what makes you FI/RE in your 50s

    The world is too unstable to convincingly clock off in your 30s, unless you have a very serious trust fund behind you. Yes for Petra Ecclestone 2

    Petra Ecclestone. unlike you or I, doesn’t need to earn the money to put into her investments

    no for people who have to earn the money to become FI.

    In Petra’s case her dad did the heavy lifting, though I believe her mum wasn’t a pauper either. Mr W nails it, however, when he says passive income is worth more than net worth. Back in the dark days of 2009, I took the same line, albeit in a different asset class, and started building a high yield portfolio – at the sorts of valuations one was getting then it was possible to envisage getting there. And in all fairness I still have that HYP, and it’s paying a decent steady return in aggregate for what I paid for it then. The bad odds for FI/RE are written in the stats of the SWR – if it’s 4% then you need to save 25 times your desired annual spending rate that is a big ask for a working life of 20 to 30 years. You ain’t got years enough to get there from here if you are looking to live a normal life of spending most of what you earn.

    You can get there if you earn a heck of a lot more than you plan to spend, but you then have the living like a celibate monk in a brothel problem because you will be surrounded by spendy peers. You can get there if you are prepared to work for 50 years, because the faint whisper of assistance of compound interest may give you a bit of a leg-up 3. But otherwise it’s a very, very long stretch. In your working life it’s also good to be able to buy a house, which is a hedge against paying rent, otherwise you will have to lift your savings target to cover renting for the rest of your life, so it’s all a tough ask.

    Having an unleveraged stash of wealth it’s the canonical way older people look at becoming FI – you build up enough stock of assets that the flow of income from them is enough to make up for the flow of income you aren’t getting from selling your time or skills for money.

    At this point most Brits would yell Get into BTL in my ear and indeed that’s what an awful lot of people do. If you still carry a mortgage on that BTL then it’s a bit like taking out a mortgage to buy the assets in one’s SIPP or ISA, it obviously reduces the upfront costs and you can get a lot more bang for your buck. For someone like me that would be insane, not just because I loathe real-estate as an asset class with a deep and heartfelt hatred born of the way it hurt me early in my working life, but also because I don’t have any earning potential left – my human capital is close to zero. You just don’t carry debt when you are all out of human capital 4, because it’s a drag on your financial capital. But looking at how Mr and Mrs W do it, I wonder if perhaps leveraged BTL is more healthy in the young than in the old.

    We are greatly privileged in the UK in terms of tax-sheltered accounts

    We can shelter £20k a year in ISAs tax-free and up to 40k a year in SIPPs tax-free, which is stupendous compared to the paltry $6000 annual limit for the US equivalent of a SIPP, an IRA. In Canada that’s about $15000 CAD, about £9k p.a. Here we have people bitchin’ and a moanin’ about the lifetime allowance of £1M, our North American FI colleagues would find it hard to get that much after a normal lifetime of working. Then there’s free health provision, which is a whole world of hurt for US FI/RE people, which is a lot of money you don’t have to save for.

    Then let’s look at the situation in Europe – countries like France have a wealth tax, and countries like Switzerland charge tax on the imputed rent of a house. In Belgium No More Waffles is battling a dividend tax rate of 30%.

    There is, of course, a case to be made that is all a byproduct of the way British elites are keeping their money to themselves, tossing a few crumbs for the upper middle classes, making it look like anybody could do that. After all Britain has an ignoble tradition of government facilitating large scale tax evasion through looking the other way as far as tax havens and things like trusts to circumvent the already generous IHT allowances. Perhaps the FI/RE community is just slipstreaming the kind treatment of wealth and its owners, because they have to save much more money at a much higher rate than normal workers are doing. The generosity of the ISA allowance is roughly the same as the median UK household income of ~£23,000. Your average FI/RE saver is chuffed if they get to a savings rate of 60%. Getting to 90% is a serious stretch, so let’s face it, that £20k ISA allowance is one for the rich – FI people earning £50k p.a. net and probably normal people earning at least twice that. The rest will struggle to fill it each year.

    Of course all this lost tax probably makes living in Britain a bit more shit for other people, and as a result said elites get an angry howl of rage when they hold referenda. So perhaps we might have had a better collective quality of life if the tax-sheltering regime were not quite so generous, but you have to work with the world as it is.

    It’s not all upside, however

    There’s trouble brewing in the increasing shitstorm being made of Brexit, where none of the protagonists can agree what success looks like though they all have very fixed but orthogonal views of what it should be. That, combined with flatlining productivity could lead to serious unrest in the years to come. There are some things historically peculiar to Britain – the general godawfulness that is hideously expensive housing. The horribly unequal distribution of jobs with all the investment happening in the southeast and London. You can find cheap housing in the UK, just not near any work of substance. Then there’s expensive tertiary education, which could be circumvented by studying in Europe as Mrs W did, but is no longer an option 5

    Be grateful for what you have, UK FI/RE people, and sweat it while you’ve got it.

    Gratitude is good for the soul, and British FI/RE aspirants have a massive leg-up in tax privilege compared to many other First World countries. Celebrate your good fortune, and hit it while you have it…

     

    Notes:

    1. I was surprised there are so many German FI blogs, and surprised to see German blogs are written addressing the second person singular not the formal third person plural
    2. Queensberry rules require me to point out that the Graun makes out that Petra earns her crust. Do you believe that explains how you get to own a Hollywood mansion at 25? Me neither
    3. A bit like NASA’s ion drive, compound interest’s action is feeble compared Saving Hard, the equivalent of the sturm und drang of chemical propulsion. But it keeps going steadily, and over timescales longer than a FI/RE working life it can add up significantly
    4. there are specific times when it’s okay for FI/RE people to carry debt because of the 55 limit on drawing pensions, but as a general rule, don’t
    5. Whether the Erasmus scheme that served Mr W (and Mrs W perhaps?) carries on for UK students after Brexit is unclear but probably no because of the issue with free movement despite the Brexit boosterism of the torygraph – even they have to confess the Swiss had to craft a replacement after they voted to can free movement. For the Torygraph scenario to be right the UK Government would have to craft a Swiss style UK Erasmus replacement and fund it for cheaper studying in EU universities than the high cost of studying in England. In other news, a flock of pigs was seen flying to the coast
    29 Nov 2017, 9:28am
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  • Taking back control

    How the holy heck did we get from this

    to this

    There was once upon a time when Britain had a reputation for diplomacy and pragmatism, but I guess that died with the generation before the boomers who are in charge of things now. This seems like a slow surrender, a bizarre interpretation of Taking Back Control. While I didn’t agree with Brexiters, I could see there were values  there – but oh how easily they are tossed aside. The FT has a point that Brexit is a cargo cult for gentlemen of a certain age.

    Hardly any of today’s Tories actually remember Britain’s golden age of ruling India and winning the second world war. Even the party’s ageing members are merely the children of the Dunkirk generation. Economically, they have been the luckiest cohort in British history. But they and many other Tory MPs feel the shame of late birth. They disdain the UK’s tame, vegetarian, low-stakes, Brussels-based, post-imperial incarnation, which in 70 years offered nothing more glorious than the Falklands war. Now they have their own heroic project: Brexit.

    A collective incompetence seems to have afflicted  the British body politic. Usually before going somewhere it pays to work out what the preferred destination is, whereas at the moment we are stuck with an ‘anywhere but here’ narrative. The parallels are more with the Psychology of Military Incompetence

    arrogant underestimation of the enemy, the inability to learn from experience, resistance to new technologies or new tactics, and an aversion to reconnaissance and intelligence.

    Although there’s much to be said for the drunk’s adage that to go there you wouldn’t start from here, it’s possible to envisage a successful Brexit, either in terms of the economy and some sovereignty or in terms of sovereignty and repelling immigration. Sadly at the moment we seem to be headed for a general clusterfuck that will cheer nobody at all. Drafting a view in government of what a successful Brexit looks like would be a damn good start. At the moment I am reminded of Chuck Colson’s poster

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

    and at the moment the sack-holder isn’t anywhere near London by the looks of it. Get a grip and get a clue, guys.

    27 Nov 2017, 10:15am
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  • iii take an Ermine for a ride – again!

    A few years ago something bad happened to the ISA platform III that I was with. Presumably they were taken over by some hedgies yelling at  them to sweat the assets. They came to the conclusion they weren’t making enough money off the punters after the Retail Distribution Review pissed on their fireworks hiding platfom fees as OEIC class variants, so they jacked up their fees wildly. So I cleared off taking my shares with me to TD Direct, who have served me well over the last five years. But now the big bad wolf is back, since III, realising they still weren’t making any money, decided to come along and buy TD Direct, and impose their ugly inactivity – punishing fee structure on them. They call it simple, clear and fair, well, it’s simple enough and it’s too bloody much. Not much has changed since my 2012 summary of their attitude

    Here is a message from the CEO describing just how we are going to obfuscate our previously simple offering to you. We will obscure things by bundling some services, charging more for others and complicating the process of comparing our charges with other ISA providers. Of course we are going to make out that we are doing you a favour, but basically we want you to trade a lot more often so as we get more money. Geddit? No, well, what we will do is charge you for two trades a quarter, constraining what you can do, and enticing you to churn more. Oh and we’ll wrap it all up in fluffyness of how we believe in the stuff we’ve been forced to do. Unfortunately, Mr Ermine, you weren’t using any of the funds that we were stealing some of the proceeds from every year, because you identified them as a ripoff. So you get to take the shaft, this time, buster. That OK with you? Because if not you know what you can do but it’ll cost ya. Bwahahahahahaha

    Pretty much rinse, repeat – I was happy with TDs costs – basically now’t if you do now’t 1, and £12.50 per trade. As opposed to £90 p.a. with III, which is reduced if you trade often enough. ‘Cos that’s where money is to be made for III, on the turn, they want to nail you in transaction fees or in annual fees.

    End of October I requested a transfer to iWeb, and TD Direct acknowledged this by email on the 1st November.

    We’re sorry to hear that you’re looking to move the assets you hold with us today but we’ll work closely with IWEB to ensure your transfer is completed as quickly as possible. If you change your mind and decide you’d prefer to stay with TD Direct Investing, please let us know and we’ll look after this for you.

    Moving is a big step

    We know that moving your assets is a big decision and we want to make sure you know what to expect during the time it takes IWEB and ourselves to complete this for you. Please take the time to read through the points below so you know what’s involved. We won’t charge you for moving your assets to another provider but it’s worth checking to see whether IWEB will charge transfer or exit fees if you decide to move your assets again in the future.

    Things to consider

    • Some providers will only accept cash transfers in pound sterling (£). If IWEB will only accept pound sterling (£) you’ll need to convert any cash you hold with us in other currencies before we can move your cash. Foreign Exchange (FX) rates will apply to all currency conversions you carry out.
    • Transferring assets can take up to 6 weeks, sometimes longer, depending on the complexity of the investments being transferred but we’ll work closely with IWEB to make sure this happens as quickly as possible.

    Since then they have done diddly squat, to the extent that IWeb sent another letter saying they hadn’t heard from TD Direct on the 24th. Which pretty much confirms my initial feelings about III from five years ago – shysters. From this thread on MSE I’m not the only one to be taking the shaft here.

    The RDR has been a bastard from my point of view – I was mainly a shares/ETF sort of guy and was quite happy to pay my way in buy/selling costs and for the massed ranks to pay for their free fund buying/selling via the various kickbacks on funds/OEICS. The information was out there that you were being ripped off annually in charges, and if you couldn’t be bothered to learn about it then I figure it’s fair enough. Whereas the shares proposition was always that you pay for activity. Not churning your portfolio was the win there. In other words don’t do this:

    bunch of contract notes from two years of my dotcom days

    Then the RDR came along and said it isn’t fair that the sheeple are being gouged, so we now have this problem of platforms being incentivised to make their punters churn their portfolios to generate some transaction fees, and changing their fee structure to try and catch people out. It’s a little bit like the way regulation of the power market means you have to shift supplier every few years, because all the best prices are aimed at new customers. The FCA come along all self-congratulatory and say that early signs are that the RDR is working, well it sure as hell ain’t working for me. I was quite happy for the fund buyers to pay their hidden platform charges, after all if you don’t want to pay annually then shares and ETFs are your friend 😉

    You see the background radiation of the old system in the new charging structures. Platforms made their money on fund kickbacks, so they didn’t charge for buying or holding funds. They didn’t make money on shares, so they charged transaction fees on shares. Now that they don’t make money on fund kickbacks, they charge annual fees just for having funds, and just because they can, they extend this ripoff  and charge annual fees for shares. The likes of Hargeaves Lansdown at least have a little bit of shame about that, inasmuch as they cap their annual fees on holding shares at £45, while fees are unlimited on funds until you reach £2 million assets under management. HL would actually be half the price of iii for my ISA, as their charges on shares and ETFs top out at assets of £10,000 under management, but £45 is still too much to charge for inactivity. The one greatest lesson I learned in investing is the power of sitting on my backside. Time in the market is your friend. I don’t want to be paying for it.

    UPDATE 27 Nov 18:00

    III have acknowledged the poke about the transfer and say

    Dear [griping mustelid]
    Thank you for your secure message in respect to transferring your ISA
    account to Iweb. 
    We have received the transfer form – transfer reference nnnnnn and we are due to send a statement of your account to Iweb.  Due to a spike of activity in the transfer team, transfers are taken longer than normal to process but I will make them aware you have been in touch so they can expedite this for you.   
     I can assure you that as we can see you have already requested a  transfer out, you will not be expected to pay the fee.  If your account is still open in January just email us again at this time and we will waive or refund it.
    Should you have any further enquiries, please do not hesitate to get in touch again. Our response time to secure message is usually 1 working day,
    although in times of high volumes we may take up to 5 working days.
    
    

    Notes:

    1. ETFs and shares – I got right out of funds in TD when they started charged platform fees to hold them
    26 Oct 2017, 8:13pm
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  • Why does getting super-rich mean a taste bypass?

    Dear readers, feast your eyes on this, which is a new development in Nine Elms in London called Versace Tower. Now the first thing you need to know is that Nine Elms is south of the river, and anywhere sarf of the river is infra dig for the cognoscenti, it’s just not the place to be seen.

    inside London’s Versace Tower. You need to view this full size to take in the true horror… I confess at first I thought the things on the side were urinals, but did wonder why you’d put a dining table in the bog.

    The only way you can make it worse is to go south-east, which is where an Ermine grew up, basically in the arse end of the city. There’s a historical reason for that, which is that the prevailing winds in Britain come from the south-west, so when people used to throw their crap into the river the prevailing winds carried the stink east and north. London had a problem because the Romans built Londinium north of the river, so all the useful stuff ended up on the north side of the river and transport links south were historically poor. A quick glance a a Tube map of the bits that matter shows you this at a glance. 1

    Not much south of the river, and the east side beyond Bank is relatively new build too. And yes I know this is symbolic rather than cartographic, but the symbolism carries the story of what matters too

    WTF is wrong with the über rich? Ever since I read that Saddam Hussein had gilded taps in his toilet it struck me that a problem with today’s rich is that all too often they have absolutely no taste.

    the only thing not to expect, as Peter York noted in his 2005 book Dictators’ Homes, is good taste.

    Dictator’s Homes

    That’s kinda understandable in a dictator, to the extent that there’s even a book on it, Dictator’s Homes.

     

    Saddams gilded bog

     

    Random item of Gaddafi’s palace

    The landed gentry of Britain developed taste and a sense of proportion, which is why once the great unwashed managed to deprive them of some of their unearned wealth a lot of it was deemed a national treasure, and the National Trust has been able to charge us and foreign tourists to be able to gawp at some of this.

    concentrating inherited wealth led us to stately homes and a tiny part of the population owning nearly everything. But at least they didn’t gold plate everything.

    I start to see some of the reason why the aristocracy of old looked down their noses at the nouveaux riche, the problem with the hyper rich is that they are such tasteless bastards. A taste bypass is perfectly acceptable in a rapper but the rest of us have to live in the same world as the hyper-rich, and it’s time something stopped them despoiling large parts of London with their ghastly mega-basements and uninhabited gilded towers. The problem seems to apply across the board – paint this boat battleship grey and it still lacks the aesthetic appeal of a Navy destroyer, where at least form follows function

    and yet apparently it is a design of Philippe Starck, he of the elegant lemon squeezer. He must’ve been having them on when he did this project.

    Now if taste were the only problem it wouldn’t be too bad, but all too often it goes along with bad character, as exemplified by the despots. When it comes to gold and interior design, less is definitely more. There’s another well-known example of this genre

    Chez Trump

    which begins as soon as you get into the elevator

    America take note. Gilding the living crap out of everything is a look that says something about the perpetrator, and that something isn’t very good, all the way from King Midas through Nicolae Ceaucescu, Gaddafi and Saddam Hussein 😉 Be afraid, very afraid.

    Notes:

    1. It took me longer to get 15 miles from my parents’ place to Cannon Street by train in the 1980s than it took me to get the 70 miles from Ipswich station to Liverpool Street station in the heart London’s financial district, which says something about how southeast London was disfavoured in terms of transport.
    20 Oct 2017, 11:02pm
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  • Investing for Brexit

    The Ermine has two retirement resources. One is my DB pension, which is easily enough to live on at the moment – it is deferred for only a couple more years, because the Ermine is grizzled of fur and will reach normal retirement age for most of that pension accrual, some time after Brexit, sadly. But it’s denominated in pounds, and there’s an inflation cap on it. Neither of these had been a particular concern until June 2016.

    The other is my stock market holdings, which are in two ISAs for platform diversification. I hold equities and ETFs with TD Direct, which by a quirk of fate don’t incur platform fees because TD make its money on the buy and sell commission. The ermine is not a source of rich pickings here, as my aim is to never sell in the case of the HYP or a world index ETF. Sadly TD Direct have been bought by iii, and I fell out with them a while ago for stupidly hiking fees in an attempt to make us all churn our portfolios. That good fees fortune may not stand.

    I also hold funds with Charles Stanley, or rather a single fund, the excitingly named B2Q6HW6, which tracks the FTSE World (ex UK) Index. The original aim of this was to lean against the home bias of my HYP.

    Brexit changes the risk balance

    The classic view is a DB pension is steady as she goes, as close to gold as you can get, whereas equities are an exciting but unreliable floozy on the side. Brexit changes that because it is likely to hammer the value of the DB pension in real terms by devaluing the pound. It’s a massive risk to the UK. The rest of the world will probably tootle along just fine. Now it’s entirely possible that the Brexiteers are right and nothing of note will happen, or having flung off the yoke of the EU we will do well. Trouble is, I am very heavily exposed to the UK – the ISA is worth only about half the notional value of the DB pension, so even if it was all in foreign assets I’m more than half exposed to the UK. And what I’ve experienced so far of Brexit is inflation, and we ain’t even left yet. Now on a contrarian basis there’s an argument for buying the UK, but I felt a bit bad writing that last time, and @hosimpson and @Neverland  weren’t sold. No, I can’t really convince myself either. There might be a case to do that if I weren’t in the eye of the storm – a Frenchman could consider a small contrarian punt on the UK, but the trouble is if the  UK goes titsup so does my main pension. I don’t need any increase in UK exposure.

    There are some things I could do with the pension – I could draw it a couple of years early, shovel those years into my ISA. But then I get to pay tax on my SIPP that I haven’t cleared out yet. I could take a pension commencement lump sum, which commutes some of it to cash, and invest that, but the rate isn’t terrific.

    Doing nothing is iffy, I am sitting on half a house worth of cash much of it borrowed from my ISA and a Brexit steamroller coming to pummel the value of that into the ground.

    The Ermine takes a sneak peek behind enemy lines

    Most of what I hear of Brexit boosters comes from the Brextremist wing of the Tory party, for the simple reason that they seem to be doing most of the running these days. I obviously hear the endless barrage of whiny Remoaning, to which I am adding here, but it’s always good to hear other voices. I thought I’d look wider, and in amidst a lot of Googling, I came across these guysI confess that I quite like the cut of their jib on a lot of things, since it appears that I share some of the sovereignty issues 1, though I am nowhere near as worked up about them as they are, and weight the economic hit much greater which explains why I am still a pusillanimous Remoaner.  I also kinda like North’s descripton of blogging as a way to learn 😉

    In the search I came across all sorts fo flotsam and jetsam, I was tickled by this piece by an anti-fangirl of Jacob Rees-Mogg, as a cheerful interlude before we get on to what Peter North thinks Brexit will mean, as led on by the no deal wingnuts. In some ways people who voted Brexit seem almost more pissed off by the mess May and her crew is making than Remainers. At least the latter know they lost the fight.

    The phoenix must burn to emerge

    Bloody hell, and I thought it would be bad, and North is still a fan of the process.

    all JIT export manufacturing will fold inside a year… Across the board we will see prices rising… Britain is about to become a much more expensive pace to live. It will cause a spike in crime…  lot of engineering jobs to be axed since a lot of them are dependent on defence spending. It will kill off a number of parasitic resourcing firms and public sector suppliers. it will wipe out the cosseted lower middle class and remind them that they are just as dispensable as the rest of us. 

    major rationalisation of the NHS and what functions it will perform. It will be more of a skeleton service than ever… a lot of zombie projects will be culled and the things that survive on very slender justifications will fall. We can also expect banks to pull the plug in under-performing businesses. Unemployment will be back to where it was in the 80’s…. Anyone who considers themselves “Just about managing” right now will look upon this time as carefree prosperity. There are going to be a lot of very pissed off people.

    young people actually start doing surprising and reckless things again rather than […] tedious hipsters drinking energy drinks in pop-up cereal bar book shops or whatever it is they do these days. We’ll be back to the days when students had to be frugal and from their resourcefulness manage to produce interesting things and events.

    A few years in and we will then have started to rebuild EU relations […] we are looking at a ten year recession. Nothing ever experienced by those under 50.

    I really recommend you read the whole thing, I like his style, but I think he graduated at the Nietzschean school of dialectic, perhaps with coaching from Tim Gurner regarding da feckless yoof, who seem to have dropped some smashed avocado into his beer at some stage.

    That which does not kill us, makes us stronger.

    Mind you, I need to be careful what I say, I was/am part of the cosseted lower middle class and an engineer to boot, so already up against the wall in his world. He’s saying that the economic fallout from Brexit will blight a third of the amount of life I have left, statistically speaking. The bear case always sounds smarter. 2It’s poles apart from keep calm and carry on, and it’s a more dramatic story. But this narrative of woe comes from a fan of Brexit. Leave alliance has the most cogent takedown of the no-deal it’ll all be OK with WTO rules stance of the wingnuts – it’s not all about the tariffs guys. But in the end it’s for the Brexiteers to sort out what Brexit means, beyond the gnomic tautology of Brexit means Brexit.

    In the time we have left, is there a brace position?

    Foreign assets, basically. That FTSE World (ex UK) Index. There’s not enough time and I don’t have smarts enough to do anything better. It’s the world according to Lars  Kroijer but I get to atone for my seven years of nonchalance in not anticipating that my fellow countrymen would suddenly perform an act of economic hara-kiri with the ex-UK slant.

    I did have a look to see if I could buy that in a L&G ISA to get rid of Charles Stanley’s platform fee but sadly the L&G ISA index funds list doesn’t include the L&G fund I want. Go figure.

    It won’t be enough to compensate, but it may slow the fall a little bit. I will probably have to pay health insurance to make up for the fact the NHS will be eviscerated and life will be a bit more shit in many ways, but we will have taken back control. The same sort of control of the pilot taking a hammer to the autopilot and getting in a flat spin, but goddamn it, it’s his own flat spin till the crunch comes.

    OTOH it may well go all swimmingly, bluebirds will be tweeting and there will be the fine sound of leather against willow on a thousand village greens in the joyful sunlit summers that will come when the foul yoke of the EU superstate is thrown off.

    Fair enough – so what’s the worst that will happen out of my attempt to brace for Brexit if it all goes swimmingly? I will end up with a ISA that is more or less balanced according to the advice of Monevator’s tame ex-hedge fund manager, albeit oddly with the old HYP core. I guess there are worse things that could happen.

    Plus I increase my risk of devaluation due to a stock market crash, since valuations are high, but then I am almost guaranteed another value of cash sort of crash with Brexit, so I’m stuck between a rock and a hard place. A market crash usually comes good in a few years, whereas Brexit looks like it will hammer the pound for a decade – and that’s according to parts of the Brexit camp, they have so little faith in the competence of Her Majesty’s Government to know their arse from their elbow. I need to pay back my ISA from the cash from the house sale, pay this year’s 20k in and get me some Brexit ballsup insurance in the form of foreign assets while the pound is still worth more than a bucket of spit.

    There aren’t any good answers here. Unlike Rees-Mogg and his band of happy Brextremists I am not rich enough to come out of Brexit unscathed. I will go down with it, it’s a question of how much. I need some light relief. Let’s hear some Moggmentum from Madeleina Kay, JRM No 1 fan – not.

    Notes:

    1. I haven’t searched all the Leave Alliance, but I note they don’t really say much about immigration
    2. It seems to be a more general case in more than investing
    16 Oct 2017, 10:47pm
    personal finance rant:
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  • So what does all this Brexit baloney really mean then?

    Be careful what you wish for. You may just get it.

    King Midas, and the characters in The Monkey’s Paw

    Democracy is the theory that the common people know what they want, and deserve to get it good and hard.

    H.L.Mencken, 1915

    I have much sympathy with the view of Guy Verhofstedt that Brexit is the result of a catfight in the Conservative party that got out of hand. The more I see of how the Tory party prosecutes the aim of leaving the EU, the more Verhofstedt’s observation rings true.

    Very little of what I have seen since June 2016 has convinced me that I erred in voting remain. However, it is clear from the result of the referendum that there is considerable animus in the UK to what the EU does or how it does it. Added to that seems to be a terrific amount of projection of other issues the EU is not particularly responsible for, from the winds of globalisation and automation to the fact that Britain was a much more significant player on the world stage 40 or 50 years ago, and those of late middle age feel the ways of the world slipping away from them, and hearken to glories past.

    The tragedy of the referendum is that it was couched in the nihilistic terms of this or not-this. The problem is one of direction. A remain result would have been a clear result for a particular solution – the status quo in that case. A no result is a vote for ‘anywhere but here’. If I get in my car and set the sat-nav for London it can take me there. But I haven’t yet found the ‘get me the hell anywhere but here’ button.

    The Tory party is ripping itself apart like a bunch of rats in a sack, because it is not of one view on anywhere but here. We have the swivel-eyed nut jobs, step forward John Redwood, Bill Cash, Daniel Hannan 1, Jacob Rees-Mogg and others. Now to their credit they do deeply believe in Brexit, from a point of basically despising John Donne’s dictum that no man is an island – basically it’s everyone for themselves and let the devil take the hindmost. You can take that point of view as long as you are much richer than average, because you can buy your services and security on the open market. It’s Ayn Rand’s Objectivism, and Britain is Going Galt, 2 along with everyone in it.

    These Brextremists positively crave a no-deal Brexit, because any deal gives the EU a say in something, and that pisses them off. No price is too high to pay for purity, and anything that doesn’t give them what they want is always the other side’s fault. There is a mirror-image of this in the EU with the focus on the terms of process, but in the end the UK is the dumper rather than the dumpee, so we get the advantage of calling the what and when, but fewer rights in calling the how.

    We have the self-serving egotists – hello Boris Johnson, Gove et al, trimming their sails to whichever wind will blow them personal aggrandisement. The concept of living in a country run by BoJo is I suppose a little bit less bad than living in one run by Donald Trump, but the fundamental problem is the same – narcissist at the switch. BoJo is brighter than Trump, but has more of a tin ear, whereas I have a sneaking admiration for Trump’s ability to signal to his vote base via a barrage of what looks to others like random brain-farts.

    Cats will fight

    Then we have a whole bunch of non-extreme people that think a well-negotiated Brexit would work well for Britain, who seem to be AWOL on both sides, scared of the intensity of feeling of the nut-jobs. If we could kick out the swivel-eyed nut-jobs, then perhaps  the rest of Tory party could make a fist of it, but at the moment my greatest hope is that they rip themselves apart in the next few months. Cats will fight, and the buggers have been fighting about this for 40 years, it’s time that the fight goes all the way to death or dishonour for the sake of the rest of us. The endless yowling needs to stop, and Top Cat needs to stand on top of his dustbin lid.

    What does a successful Brexit look like?

    The trouble with the referendum is the nihilism of the No response leading to a lack of direction.

    It should have been more nuanced – for instance

    Should the UK remain a member of the EU or leave

    Remain a member of the EU

    Leave the EU

    If you voted Leave the EU, what are your primary concerns?

    The primacy of Parliament to determine life in Britain
    The effects of freedom of movement on the social fabric
    The effects of freedom of movement on wages
    The effects of freedom of movement on services

    It would have been useful to gauge which of the aspects of the EU concerned people the most.The obvious pushback is that it sets a leading question and favours the Leave side, and the government didn’t really want the No answer, but Cameron stupidly made it a manifesto promise hoping a Coalition would spike it.  Very little work was done on what a successful Brexit looked like. However, I saw the vile creepy grins 3 and the spring in the step of my fellow voters who were all of a certain age (I voted in the afternoon, like all retirees) and I was pretty sure they weren’t voting remain 😉

    Qualifying the issues people had would have informed what to prioritise afterwards. For instance, May and the wingnuts are making a hullabaloo about the ECJ, which probably doesn’t exercise people bothered about immigration, while the wingnuts frequently don’t even bother to mention immigration. I love Hannan’s disingenuity in asserting

    In the event, of course, things worked out differently. Britain appears to have grown more strongly in the six months following the vote than in the six months before it, and finished 2016 as the world’s most successful major economy. Unemployment, far from rising, has fallen consistently since the vote. British stocks are the best performing in Europe..

    Hannan, me old mucker, you may be a wingnut, but you’re not shit for brains. The result you wanted has devalued the pound by a lot. Obviously things measured in pounds will look bigger, in the same way as it takes you twice as many six-inch rulers to measure your carpet as 12-inch rulers.

    the pound has got about 10% smaller in IMF SDRs since the referendum

    A lot of those stock market gains you’re seeing aren’t real. The way unemployment is measured is deeply borked. I will be considered employed this year because I was working as self employed between April and May. We torture the genuinely unemployed with pettifogging rules and regulations; it’s not surprising that people claim to be employed but make no money and get tax credits. Look at the increasing number of rough sleepers and the use of food banks, which are also caused by the increasingly worthless pound among other things.

    rich Brexiters fuss about sovereignty, the poor about immigration

    It is of course possible as a remainer I have missed some aspect of the Leave debate, but of what I have heard, rich Brexiters tend to lie on the sovereignty axis, often not really giving a toss about freedom of movement, whereas poorer Brexiters have concerns about immigration, the effects of freedom of movement and the effect on their wages. The rich make sweeping assertions about Ricardian advantage and Schumpterian creative destruction, but when Tony Blair opened the UK to people from Eastern Europe the resulting influx had a negative impact on wages the lower end of the market. There is a very strong argument that the influx was good for the UK economy as a whole, which probably made people that took the sharp end of the stick feel even worse, seeing rich Londoners living it up on fine dining while they went to food banks.

    A ‘sleb leaving the Chiltern Firehouse. Observing the increase in London fine dining probably throws a hard light on the tribulations of the minimum wage slave on a zero hours contract

    If you’ve taken the shaft on minimum wage, voting Leave is not necessarily irrational even if it impoverishes the country.  It will be immigration that lights your fire. It is tragic that the effects of globalisation and automation are hurting these people too, and it is compounded by the wilful destruction of the welfare safety net in the last few years. The EU ended up shot for an awful lot of decisions that should have been laid at the door of UK politicians or the tides of capitalism and Schumpeterian destruction, as well as secular trends which aren’t going the way of unskilled labour. There’s some case for adapting the welfare system to ameliorate this shift from labour to capital, but it’s not really the theme of the current administration.

    Free movement of persons seems to be the main sticking point. Freedom of goods is OK – not that many people seem to have an an issue about driving German cars or eating Italian ham. Curiously enough nobody seems to have a beef with the free movement of capital, even if they don’t have any, though that also makes working a bit more crap than it used to as the capital chases the lowest labour costs offshore. Freedom to establish and provide services across the EU doesn’t exercise passions either – people rich and poor are happy to bank with Santander.

    The Ermine, sadly, is in the same camp as the swivel-eyed nut jobs in one aspect. I think the EEC jumped the shark with the treaty of Maastricht and the inception of the Euro. The change of name from European Economic Community to European Union showed the nature of the rot. I view the economic benefits of the EU as the reason for being in it, the political union as misbegotten, I’m not so keen on a United States of Europe, although it doesn’t exercise me with devastated dreams of Imperial derring-do of yesteryear, I’m not old enough to recall the pink of the British Empire maps.

    The British Empire in 1915, when the sun didn’t set on it.

    I don’t give a toss about freedom of movement, so that places me on the rich people side of the issues – with sovereignty. But I’m not rich enough to afford that sort of navel-gazing – in the end rubbing along with people in the world is about compromise. Britain secured specific opt-outs from the ever closer union and the Euro, which means what we had was better from a sovereignty point of view than what we would have if we left and rejoin once the old colonels dreaming of Empire days of glory die off and the interests of younger voters and the economic argument shifts the balance, as Verhofstadt carried on to say

    “I am also sure that, one day or another, there will be a young man or woman who will try again, who will lead Britain into the European family once again. A young generation that will see Brexit for what it really is – a catfight in the Conservative party that got out of hand, a loss of time, a waste of energy, stupidity.”

    […]

    Let’s not forget, Britain entered the union as the ‘sick man of Europe’ and thanks to the single market came out of the other side Europe made Britain also punch above its weight in terms of geopolitics, as in the heydays of the British empire.

    And we from our side must pay tribute to Britain’s immense contributions – a staunch, unmatched defender of free markets and civil liberties. Thank you for that. As a liberal, I tell you, I will miss that.”

    I am not rich enough to prize sovereignty above economics. I expect to be hit less than the poor by the economic fallout of Brexit, but I expect to be a lot poorer, and we will be the sick man of Europe once again. Looking at the swivel-eyed crew with their indifference to the economic costs, I am nowhere near as rich as they are, I would probably need to have much more than twice the wealth I have to share their insouciance about the economic fallout. I have no human capital left, so unlike the young who might be able to make it up by moving and working abroad – after all people worked in other European countries before 1973 – I will have to make my stand in the UK, stuck on a small island with these guys

    I will probably face the need for health insurance as the NHS is destroyed because we can’t afford it, I expect social unrest because we won’t be able to afford even the eroded welfare state that we have now. It’s not an attractive thought to grow old in. And in the event that Britain does leave and rejoin, we will have less sovereignty than we had before we left, though I can hope that the Euro explodes due to its internal inconsistencies before any of those events come to pass, which may trim some of the dream of ever closer union. Europe doesn’t even share a common language FFS, never mind a common culture, there is more history in any one European country than there is in the entire United States (born 1776) which is why the United States of America is a viable union of states in a way the United States of Europe isn’t.

    I do get some of this Brexit bollocks, from a sovereignty point of view, but nowhere near enough of it to think it’s a grand idea and vote for it. The EU had a lot wrong with it, but an awful lot more right, inherited from the old EEC, which was partly shaped by the UK, particularly the Single Market that the wingnuts are so keen to get away from. I find no conviction in the notion of a buccaneering Britain striking trade deals left, right and centre. The one with the United States will be ‘Here are our terms, you sign here for our GMO crops, chorinated chicken and antibiotic and hormone-pumped beef’. It’s been 60 years since Britain surrendered its Empire, the 1950s ain’t ever coming back, and Verhofstadt was wrong. Britain did perhaps punch above its weight in terms of geopolitics as part of the EEC, but not as it did  in the heydays of the British empire. Declinism is a disease of late middle age, and we are in peak Boomer time. I am one, but hey guys, we didn’t have to actually help the downswing come.

    Sic transit gloria mundi, guys. For a Matt-Ridley-esque counter strike, let’s hear it from the Spectator

    Brexit was a vote of confidence in our ability to shape our future as an independent democratic nation — a choice that few of our European neighbours feel they still have. We should not allow declinist panics to confuse the outcome.

    I think matey boy is barking, but I admire his chutzpah, and ability to sell a great story. I suspect it isn’t just me that doesn’t have any idea what this Brexit bollocks means. The only people that do have an idea are the wingnuts. It’s the usual problem

    The best lack all conviction, while the worst   
    Are full of passionate intensity.
    The wingnuts seem to be in the ascendant. Their no deal Brexit probably won’t be about immigration, bucanneering free market Britain will need all the lost cost hands it can get, and if that keeps the oiks in their place, well, all to the good if you’re Jacob Rees-Mogg and his ilk.

    The personal finance angle – what to do?

    Most of the last few years I have been allocating new spend towards foreign assets, with a bias ex-UK. As I accumulated stocks, I became lazier as I realised I wouldn’t have to eat an actuarial reduction on my pension, so I shifted towards the world according to Lars Kroijer. I didn’t sell my HYP but I bought a lot of a FTSE World ExUK index, to offset the fact my HYP was heavily UK biased. If you expect the UK to go titsup due to Brexit, it’s a good move.

    Against that one should set the fact that fund managers deeply hate the UK at the moment (H/T Monevator)

    When I see something stinking up the place like UK equities I want to go buy it – there’s now’t wrong with schizophrenic investment and so I am tempted to Buy Britain at the moment. Maybe a push on small/mid cap with about a quarter FTSE100, after all I should lean against my own prejudices every so often and I am too biased towards UK big fish. Brexit might turn out absolutely great, I find it hard to believe, but it’s possible. I may allocate half of this year’s £20k ISA allocation to Lars and half to the UK. If Brexit is a bastard the UK lot will go down the toilet, if it is a terrific success then it will save my ass for this year’s contributions. And vice versa for the L&G Lars option, which coincidentally is heavily weighted towards the US (because the US is the largest component of world equities by valuation) so I still remain contrarian. The US is also notably hated by the professional fund managers. I really can’t think why 😉

    I need to stoke my SIPP with £7200 this year and next. It will follow the rest of my small SIPP which is currently in a gold ETF, this is money I will call on in the next year or two and I don’t trust the £ across March 2019. I will be most  happy to eat the hit if Brexit is a roaring success and the pound soars 😉

     

     

     

    Notes:

    1. A measure of the hypocrisy of the scumbag Hannan and that of Nigel Farage is that they were MEPs sucking at the teat/gravy train of their supposed arch enemy FFS, Hannan since 1999
    2. Attempts to replicate Galt’s Gulch didn’t go very well “Ayn Rand’s Capitalist Paradise Is Now a Greedy Land-Grabbing Shitstorm” for the same reason communism didn’t work – human nature. Better luck with Seasteading, eh, chaps?
    3. I wish I had taken my camera with me, I saw an animation in people quite unlike any election before or since, and the turnout was huge
    5 Oct 2017, 5:30pm
    housing personal finance
    by

    21 comments

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  • Cheques checked the recipient’s name – BACS & CHAPS use untested numbers

    It’s a funny old world. Way back in 1979 when I got my first bank account I got issued with a thing called a cheque book. You could write out the recipient and how much you wanted to pay them and that was all you needed to do. In those days the cheques were open, so some thieving git could swipe it or steam open the letters, and pay the cheque to themselves or ask for it to be paid in cash over the counter. Fewer people had bank accounts then – when I started my first job I was paid by open cheque that I had to go to the bank over the road and exchange for cash.

    To forestall the hazard of dodgy geezers steaming the mail open they changed the system so you got to draw a couple of lines across the cheque and write A/C Payee, and they changed the law such that this happened

    Not if it is crossed ‘A/C Payee Only’ or ‘A/C Payee’. The Cheques Act 1992 and Section 81 of the Bills of Exchange Act 1882 give statutory power to the ‘A/C Payee’ and ‘A/C Payee Only’ crossing, when it is used. The legislation means that a cheque which bears the ‘A/C Payee’ or ‘A/C Payee Only’ crossing can only be paid into an account in the name of the receiver of the cheque exactly as it appears on the cheque.

    A cheque crossed A/C payee. Presumably the computer’s trained to ignore the * sign.

    Now in practice you could usually get away with paying in cheques in a different name if they were small, or if it was just the first name that was different. I presume if the payer kicked up a fuss then the bank would have clawed the money back, and if recipient had skipped to Rio then they’d have to refund the money. All in all a perfectly serviceable system, though because of all this possibility of fouling up you could only count on having the money after about five working days of paying the cheque in. When I bought my last house in the dog years of the 1990s, I had to make up the mahoosive amount of money I had lost on the previous one and pay even more because I was going upmarket from the two-up-two-down bachelor pad I had foolishly bought in 1989. To do that I went to my solicitor and paid them a cheque. There was never any issue of the secretary deciding she wanted a knees-up in Lanzarote with all her pals funded by running off with the cheque because she’d have had to change her name by deed poll to the solicitors and open a bank account in that name.

    Fast-forward 20 years and we don’t check the name any more

    Twenty years of technical progress passes, and I get to receive the proceeds of my old house. It all comes down to a six-digit number and an eight digit number. Sure, the payment system would like a name to put in the payee field, but it doesn’t matter if you put Mustela erminea, Beyonce or Beelzebub in there. The routeing system doesn’t give a damn. So criminals hack emails and change the details, because the humans look at the name and think it’s all okay but the transfer goes to a different account, which is then emptied and the bad guys scarper with the money. And you get to read newspaper articles like this, this and this

    Given all the usual delays involved in selling a house, there’s something to be said for the security of the good old crossed cheque. We were smart enough in the 1980s to realise that making the name matter was key to fixing this, but that wisdom has got lost in the search for expediency. Is it really too much to ask that 21st century money transfers meet the standards of the 20th century paper methods?

    This pathology also applies to the faster payments system – it doesn’t matter if you make the payment to your cat rather than the payee, it’s all about the six digit sort code and the eight digit account number. They could make these combinations testable by the same system used to catch mistyping of credit card numbers, but this isn’t done either. Update – this Ermine rant is not in fact correct – see David’s comment below. Despite this, some people still seem to be able to screw up in this way – presumably they err is more than one number.

    So you can easily mistype or transpose the numbers, sending your payment to the water company to Bill in Basildon, and you don’t get to know that until you start getting dunning letters from the water board. Bill doesn’t have to give you the money back – after all he’s done nothing wrong. He never claimed to be the water board, all he saw was a kind gift from an unknown benefactor come out of the blue, and he’s probably spent it now. As Faster Payments say on their website, it’s tough luck

    Faster Payments, once sent, cannot be cancelled.

    Whilst the vast majority of payments are made without issue, in rare cases problems can arise if the wrong information (e.g. sort code and account number), is entered – resulting in a payment being made to the wrong account.
    It’s vital to double check the sort code and account number before sending a payment: payments are processed only using these numbers and getting them wrong is like sending a letter with the wrong address and post code.

    The last statement is bullshit – if you send a letter using the wrong address and postcode there’s a much better chance of it getting to the right place because there’s some redundancy and there’s also local knowledge with the postman. And the name would help clarify matters, as it did with crossed cheques.

    Double checking doesn’t help with some conceptual errors, like transposing some digit pairs, for the same reason that it’s tough to proof-read your own writing. To err is human – we could do with helping people out a bit. This is why credit card numbers use the Luhn algorithm, to catch simple cock-ups like transposition and single digit errors.

    The six payment systems in the UK. More info from the BACS PDF

    How about BACS – this is the payments system 1 you use when you put money in, or take it out of NS&I. My solicitor was proposing to use that for the house money because it would save me the £30 transfer fee. I decided I was easy with paying £30 to know I’d got it on Friday afternoon rather than some unspecified time probably Wednesday the next week. If something goes wrong, time is absolutely of the essence to flag up that the crims have made off with the loot to at least try and freeze the receiving account before they empty it over the weekend 2.

    I was unable to determine if BACS checks the name, though the warnings from NS&I to get the right sort code and account number imply not. BACS gives you an automatic delay of three working days, as I found to my cost when I transferred money into NS&I using a debit card, and then got to ring them up to find out what black hole half a house worth of money had disappeared to. At least that made the three working delay between transferring out and receiving it a bit more understandable, though it still raised the blood pressure.

    We have implemented a system without number error checksums, casually tossed away the A/C payee name checking of the cheque era, and sped up the ability of the criminals to scarper with the money by an order of magnitude. This is not progress.

    Notes:

    1. BACS has a rather neat PDF describing the six inland money transfer systems in use in the UK
    2. This is why in an ideal world you should complete on any day other than Friday, particularly a Friday before a bank holiday weekend. Of course, everybody wants to move on Friday so they don’t have to take time off work, which suits the bad guys just fine
    2 Oct 2017, 5:07pm
    debt personal finance
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  • Toxic car finance could work out the best way to pay for a new car

    I pinched the headline straight from the Torygraph, and I have searched the page to see if it is an advertorial. 1. But no, this financial foolery is being prosyletised in the name of money/consumer affairs. The article goes into great length to find a financial edge case where you buy a brand new Mercedes E-Class saloon with an on-the-road value of £35,205 and if it all goes right then you pay £19,255 in depreciation if you pay cash and £18,404.24 using a PCP. Thus saving being ripped off less by a whopping £851 using PCP.

    If you need to borrow for a consumer good, you can’t afford it

    The rule was codifed by that Wilkins Micawber chap, and it’s good. It’s one of the deep tragedies about personal finance that if you are desperate enough to need to borrow the money, you usually can’t afford to buy what you want, with two exceptions, housing and education.

    How to decide if borrowing money to buy it is a good idea

    The most toxic thing about borrowing to buy a new car is that half the value of the car falls off it in three years, which is why buying new cars is a mug’s game. If you want to do that sort of conspicuous consumption of an expensive wasting asset you should be rich enough to pay cash, and face up to burning half of it in one go, rather than trying to stretch it out. If you need to ‘save’ £851 putzing about with PCP then you’re not rich enough to do it in the first place. As the lede says

    More and more drivers want to be driving the newest cars available

    Well, yeah, I’d like world peace and there to be half as many humans on it as there are now 2  so as we get to keep that peace, but what you wants is not what you gets, eh? They talk a good talk about PCP giving you a saving on £851, about 3% on the price. To be honest, if you are going to spunk 18 grand of capital depreciation to drive a car for three years, you’re not the type of person who is going to squeeze the lemon for that £851. If the PCP looks attractive to you it is telling you one thing only.

    You are not rich enough to piss away that much money on running a new car for three years.

    The reason you’re not rich enough is that Bad Shit can happen to you, you get to lose your job or get sick or any of the vicissitudes that can affect a fellow who spends more than you earn. All of a sudden some of the break clauses in the PCP contract come to bite you on the ass if you stop paying. Whereas if you really are rich enough to pay cash up front, paradoxically you can actually use the PCP to save yourself the 3%. If Bad Shit happens you just carry on paying the instalments from your vast wealth until the balloon payment is due and then you do whatever’s the best at the time. In that case knock yourself out and put the money to work.

    I understand the principle of what the Torygraph is saying, because I’ve done it. Many moons ago, in 1981, a young ermine bought a secondhand Audio Research preamplifier on an interest-free loan for half of his annual net salary, saved up over a while. In personal finance terms that was an extremely dumb thing to do, Mr Money Mustache would have reached back in time and punched me in the face, 3but I wanted it there and then, and there were fewer consumer gewgaws for youthful excess in those days than now. What made it less dumb was that I was rich enough to afford it, because I had saved up first. I paid the finance company on time each month until the principal was redeemed.

    A grizzled ermine sold that preamplifier on Ebay earlier this year for about half the nominal price, so it gave me good value for thirty-six years. So I do understand the principle – you can save money using finance, because I had the cash saved up when I bought it. I parked it with the Nationwide Building society and in those distant times you could earn interest on your saved money. It actually cost me less to take the interest free loan than if I’d bought it cash.

    Sad fact is, most people borrow money for consumer purchases because they haven’t got the money at the time of purchase. It is a rare consumer indeed who buys on credit to stooze the cash they saved up for the item beforehand. It was right up there in the credit card ads on the 1970s

    Access takes the waiting out of wanting

    If that’s you, you are about to borrow from your future self.

    To use PCP properly, have the cash to buy the car outright when you sign for the car loan

    And then you need to park that cash somewhere safe. Ideally earn interest on it 😉 Alternatively, you need to have at least the depreciation in cash, and have insurance against the sorts of events than would write the car off while you’re still potentially on the hook for the balloon payment, should the car get trashed. If you’re doing anything else, then you are driving more new car than you can afford. If you’re lucky, you’ll make it to the balloon payment without Bad Shit happening in your life. That’s the sting in the the tail. Driving more car than you can afford is a risk nobody needs to take. PCP conceals the downside in all the messy stuff in the small print that nobody thinks will happen to them.

    Micawber was right. Save up for you car first, even if you do use PCP 😉 In the edge case of people who are rich enough to be able to pay cash, toxic car finance is probably the best way to pay for a new car. For everybody else, PCP is just…toxic. Imagine listening to Britney on loop for three years 😉 That’s how toxic…

    Notes:

    1. If it were, it’s against Queensberry rules to take the piss, because the whole point of of an advert is to make you buy shit that you don’t need with money you don’t have to impress people you don’t like
    2. this was roughly the number of people on earth as when I was born
    3. MMM would tell me that had I invested the money at a 4.5% real terms ROI then as Monevator’s compound interest calculator tells me I would now be sitting on £25,000. I think the old Ermine would have socked him on the mush back because I had 36 years of enjoyment from that thing
    30 Sep 2017, 1:46am
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  • Michaelmas – a good time to get out of Britain’s favourite asset class

    The Ermine has lately been that pariah of the bien-pensant crew, a vile second homer. Not particularly because I wanted to oppress the young of some rural district but to give me some more time to move, and widen my options. As such I have been long residential property. When everyone else in the UK looks at residential property they see this

    but when I look at UK housing I see this

    Housing is a particularly evil asset class because you tend to be a forced buyer, initially when you get old enough to need to set up on your own or want to fire out kids. That’s basically a function of when you are born, then add about 30 years. There’s not much scope for riding out the market cycles which are very long with housing compared to the stock market.

    In our case although I was a free agent after retiring Mrs Ermine was very much connected with the location, but it started to get apparent that working in the open was starting to get physically demanding, and various things got in the way of even being able to get a field shelter. So it was time to move on, but the trouble was that just before we came to this conclusion, the good people of Britain decided they wanted the 1950’s back. I know that the protagonists say that dynamic Blighty is being held back by the sheet anchor of trading tariff-free with the EU and wanted to take back control, but the trouble with all that is none of them seem to have a clue. They don’t agree on what they want, and they have no idea of how to go about it. Brexit may mean Brexit but no bugger seems to be able to tell us how they plan to make it happen. Those that do major on bluster rather than substance, BoJo, I’m looking at you, while you’re not busy making our man in Myanmar’s toes curl by reciting Kipling in their temple, FFS. I know you want to recreate the glory of Empire, but not everyone is as fond of it as the Brexit brigade and as foreign secretary it behooves you to keep that in mind. Keep the Kipling for the Conservative Club, eh?

    The UK housing market seems to be in a strange place at the moment, puffed up by low interest rates. I wanted to go upmarket a bit, and there seems to be a strange effect of compressing prices. You seem to have to pay an awful lot to get anything at all, and not as much more to get a lot more house than when I last bought a house. We aren’t getting younger, so I wanted to do this before Brexit, not after, although people going upmarket want a housing crash. But I didn’t know if that compression would unwind, and in the end I don’t have enough time to sit out the cycle.

    So we bought the new place a couple of months ago and completed the sale of the old one recently. It’s good to be clear of it by Michaelmas – one of the old quarter days. The quarter days were traditionally days when debts were settled and when magistrates would visit outlying districts to administer their justice.

    “There is a principle of justice enshrined in this institution: debts and unresolved conflicts must not be allowed to linger on.

    However complex the case, however difficult to settle the debt, a reckoning has to be made and publicly recorded; for it is one of the oldest legal principles of this country that justice delayed is injustice”

    On the way to the Postmodern

    It is pure happenstance that this came good for me by Michaelmas, but I like the olde-worlde symbolism. Some commercial leases still cleave to the old quarter days for rent periods – I noticed some shops closed or moved in the last week or so, presumably when their rent period ended.

    I discovered that the trauma of the first house I bought runs very deep. Whenever I look at a house, in the back of my mind there is a siren going off which asks “yes but what happens if this falls by half in real terms” because that’s what happened to me. And there are parallels with 1989, cynics would say that to an Ermine every year has parallels with ’89 in housing – but:

    Prices were in the late 1980s Lawson boom because of government policy. Well, they’re high now because of government policy – 10 years of interest rates way below the long term average means people can ‘afford’ to pay stupidly high prices. I would hate to be bringing new money into this market – although we have bought ridiculously overpriced property we were selling overpriced property to buy it, and divesting ourselves of land which is a similar asset class.

    Then, in a couple of years, there was a recession in the early 1990s. Perhaps in a foretaste of Brexit we attempted to track the ERM and failed dismally in 1992. I was paying a mortgage rate of just shy of 15%. Unless you’re a rampant Brexit booster we have that recession coming our way, hell, we voted for it. If anybody wants to see what Britain’s free trade agreement with the US will be like, well, let’s see how it goes with Boeing and Bombardier, shall we? The Telegraph is steaming that May took dictation from the EU, but the US is the 900lb gorilla compared with the UK. It will be a case of “here are the terms, you sign here”.

    So we have high valuations, the only way for interest rates to move is up, and we have got a recession on the way. As the IPPR said in forever blowing bubbles

    In short, house price rises are particularly vulnerable to depart from fundamentals and are very hard to correct if they do. Meanwhile market actors are likely to suffer from momentum behaviour and have strong reasons to behave speculatively. So, we move from periodic bouts of fear of ‘missing the boat’, followed by the pain of negative equity and retrenchment.

    OK, so we haven’t heard much about negative equity for three decades. So it’s all different now and that will never happen again. Until it does. But at least I’m out of here. One bite of that damn cherry is enough for a lifetime.

    Buying a house is a lot more scary without a mortgage

    I last bought a house 20 years ago, with a mortgage for most of the capital. You never see most of the money, because a lot of it’s between the solicitors and the mortgage company. When you do it without a mortgage, massive amounts of money go flying in and out of your bank account – for starters the normal payment system seems to max out at £100k, so I had to go to the bank to initiate a CHAPS payment. Then of course there’s the  stress of trying to ensure thieving bastards don’t intercept email transactions, basically don’t let solicitors act on emails account details, face to face is the only way 😉

    You can borrow from your ISA under certain conditions

    I also learned that you can borrow from your ISA, this helped me capitalise some of the second house. To do that it must be a flexible ISA – not all ISAs are but it so happened that my Charles Stanley one was, although my TD Direct ISA wasn’t. I use the CS ISA for index fund investing, basically world according to Kroijer  with an L&G FTSE World ExUK tracker, to lean against the UK bias of my shares, matched with VGLS100. I sold a hefty chunk of this and took it out, as long as I put it back by the end of March I still have my entire 20k allowance for this year. Which is pretty neat. What borrowing from your ISA won’t help you with is if you need to borrow money across the April change in the tax year – in that case you lose the tax shelter.

    All this means my ISA is about 30% in cash now. I’m not in that much of a hurry to restore it to what it was before because the markets are at a high, but I am still regularly buying the two funds back.

    21 Jun 2017, 9:37am
    living intentionally Suffolk:
    by

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  • Archives

  • A FIRE approach to air conditioning

    One of the advantages of being an employee is that The Man usually air-conditions your cubicle. Well, for knowledge workers, anyway, rather than, say, brickies or landscape gardeners. And the heat is on in England at the moment.

    Way back when, in the 2003 heatwave DxGF and I bought a standalone air conditioner and we thrashed that unit, but it used a horrific 3kW to sort of chill one room. It seems to take far more energy to cool something down through a certain temperature difference than it does to heat it up by the same difference, I guess these things are dreadfully inefficient, particularly standalone units that try and pump out the waste heat carried in air as opposed to dual systems with an inside and outside unit with the waste heat carried in a circulating liquid. So you get a 3kW heater in the room to add to the load. Not only that, you have to open the window a crack to get the exhaust hose out.

    We were grateful for that in 2003, but it made an unconscionable noise and power was cheaper in those days. 1

    Dunwich beach

    So it needs some lateral thinking. I need a large body of water, and the North Sea will do. Time to park myself down by the waterside and chill out to the waves –

    and the peaceful sound 2. There was a pleasant breeze off the sea – it was almost too cold.

    I did look around and wonder why the other punters weren’t at work – some were retirees but half seemed to be families. I can’t really moan that the beach was teeming like Benidorm.

    So the ermine air conditioning isn’t really that portable. But it does have some extra features, like the fine ruins of Greyfriars Friary

    Greyfriars, Dunwich

    and it seemed rude not to celebrate the moment with some fine dining

    Local strawberries and cream from the Friday Street farm shop just off the A12

    Londoners travelling up the A12 for a weekend break may want to note the  Friday Street farm shop, which is a few hundred yards detour off the A12 on the London-bound side. The strawberries and cream set me back £3.23 which I thought was a good deal for quality in both items, and they have a good range of foodie delectables. I paid roughly twice that in fuel. There are some that may carp that you can’t spend £10 for gratuitous decadence every day, but I have done my time of ultra-frugality now. No nightingales to be heard in Dunwich forest, where I’ve heard them in previous years, it’s probably too late in the season now

    Dunwich is noted for mostly having disappeared into the sea. In 1250 it was a rich port town of 4000 souls. Since then the sea has gnawed away about 1.5km of the coastline, so most of the old town has fallen into the sea. It is now a village of about 100 people.

    The last surviving gravestone from All Saints church, lost to the sea. This was Jacob Forster who departed this life March 12th 1796, age 38

    The sound of the sea is not far from Jacob Forster’s grave. It’s coming for him after two centuries of undisturbed repose…

    Mr Money Mustache will no doubt consider seeking air conditioning an act of pusillanimous weakness, but the trouble is that no part of Britain is very far from the sea, and in a maritime climate it always really wants to rain. Even on a hot day with blue sky – the inherent desire to rain results in high humidity. So things like swamp coolers work fine at the lower latitudes of LA, but are a waste of space and money here.

    In LA at the same temperature this would be way down towards the 40% mark

    So I am leveraging the fact that I own my own time, and summer is a good time to live like a king, reasonably cheaply. Strawberries and cream by the seaside is pretty good 😉

    Incidental rant: why doesn’t Britain have proper cadastral records?

    I came across this notice walking from the car park to the Friary:

    No cadastral records, no bloody clue

    Every other European country has a definitive land register of who owns what. But not in Britain. Because all the land was seized in 1066,  what the King didn’t keep for the Crown was handed out to the aristocracy, which hoards it and passes it down the generations, much of the land in the UK is not on the Land Registry, so you get situations like this.

    In any French village you can ask to look at the cadastral records at the Mairie to know who holds a piece of land. Isn’t it about time that we sorted ourselves out and demanded of the aristocracy and anyone else that it bloody well registers every single claim to every piece of land it asserts that it owns, and if no claim is made after 10 years then tough shit, it belongs to us all? After all, if it isn’t registered then Lord Warburton-Smythe can simply make sure everyone looks the other way when his sprog Jimmy Warburton-Smythe-Pollock take over that part of the family estate when he pegs it because no bugger knows about that acreage, because it isn’t on the records. Decent cadastral records would help catch sneaky buggers avoiding inheritance tax and would be a prerequisite to introducing a land value tax. It smacks of dire incompetence not being able to find out who owns what of a scarce and finite resource, and one every other civilised country has solved. But since the lack of transparency serves the aristocracy perfectly well, they won’t let anything be done about out it, the piss taking bastards.

    Notes:

    1. Americans will be tapping their heads, and go just get damn split system aircon, but I wonder how you have any hearing left. When I arrived in LA after a long flight and got to the motel the room aircon unit was on, and I thought I can’t hack this racket, so I turned it off. You don’t do that in LA in July – not getting any sleep was preferable to being fried 😉 Airconditioners I’ve come across in Europe are usually made by Japanese firms like Mitsubishi and are much quieter, but that thing was an all-American GE unit and made a terrible noise. Elsewhere in the city aircon seemed unwholesomely rowdy until you got to a Fortune 500 company offices or a bank. I guess people just get used to the noise.
    2. the intermittent rumbling is sadly the wind, I only had a handheld rig as I wasn’t expecting to do any recording.
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