10 Jun 2014, 7:18pm
economy:
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  • families on the financial brink – this isn’t going to get easier

    The National debtline tells us that household bills are pushing people into debt. There’s a big picture here, and it’s ugly.

    source: Changing Household Budgets, National debtline https://www.nationaldebtline.org/EW/Documents/Changing%20household%20budgets.pdf

    source: Changing Household Budgets, National Debtline

    People are losing the fight with inflation

    “How did you go bankrupt?” Bill asked.

    “Two ways,” Mike said. “Gradually and then suddenly.”

    Hemingway, The Sun also Rises

    The reason for that is that people are short the cumulative difference between the yellow line and the dark one – they are losing the fight about 1% a year. That adds up.

    Up until 2007 it seems a lot of debt trouble was due to basically stupid spending on Stuff. It’s possible to fight that – buy less consumer shit and learn to say No to your kids in the way that these folk don’t.

    1406_shopaholic

    That sort of spending tends to show up in the form of revolving credit card debt and personal loans. While there are serious problems with that sort of spending, it is tractable, because nobody actually needs a new pair of heels, iPad or new mobile phone.

    The personal finance blogosphere has many sterling examples of people who have overcome the Beast of consumer spending. So much pre-2007 debt was basically a lack of self-control. That concept is terribly old-fashioned and of course it’s so unfair when you can’t afford the stuff that you’re entitled to, but even for one of these pampered princesses it’s not a matter of life and death. Because consumer spending is about wants, not needs.

    I haven’t seen the programme and I’m not sure I’d want to give it too much headspace. However, from the summary I have some sympathy for the children, who are growing up in a value-free desert without map or compass and being ill-prepared for the time when they will have to make their own money choices. By people who lack the self-awareness to know when to stop. It’s bad enough to do that to yourself, but to do that to a child’s plastic mind is a dreadful injustice.

    While I’m happy to say that I have managed to avoid stupid consumer spending with money I didn’t have, I managed enough stupid consumer spending with money I did have. That’s not so bad – I give the credit to competent parenting, introducing me to the Micawber doctrine.

    If you ain’t got it, don’t spend it, son

    Not that hard, eh? Unfortunately there were three exceptions to that rule 1, so I saved my stupid spending with money I didn’t have for the most toxic asset class Britain has to offer – housing. And got away with it – just.

    It’s always about families, 2 and the way the economy is going, an increasing number of people can’t afford to have children. Not because they won’t be able to afford to keep them in designer labels and smartphones. But because they can’t afford to keep them to a minimum standard of Maslow’s lower levels – warm enough and with enough to eat.

    The wants are a pain but it’s the needs that are a bastard, things like water and power. You can actually live in a bedsit without power – I’ve done so for the odd week as a student when I didn’t have any money for the meter or it wasn’t in 50ps and it’s no big deal. But there’s a story behind the trend

    More households are vulnerable to problem debt and are not benefiting from the economic upturn, research shows

    Debtline carries on

    “The gradual erosion of some families’ surplus income in the face of rising prices has led to a new generation of debt problems – one to which more people are vulnerable, one which is harder to resolve and one which has no definitive solution,”

    This shouldn’t come as too much of a surprise. We are designing an economy with

    A secular move towards winner-takes-all

    There are structural changes in the employment market that we never anticipated 3. The increasing mobility and virtual value-add of work is concentrating power towards smaller sectors of the workforce and towards capital. Because you can move information at a much lower cost than in the past, and a lot of added value to goods and services is in the form of Mind rather than Stuff, capital is responding. It makes sense where you need human input to pay rockstar wages to a smaller part of the workforce at the highest skill level, and try and automate everything else. Apple and Google take the #1 and #2 world slots by market capitalisation – and most of their product is Mind. Just how unusual this is can be seen by the fact that the massive oil firm ExxonMobil is beaten into third place – the first company that has Real People™ doing Real Stuff™.

    ExxonMobil - Real Men doing Real Stuff

    ExxonMobil – Real Men doing Real Stuff

    That money talks, and it’s paying more and more to a smaller part of the workforce. That’s because they can afford to chase up the high skill tail of the talent bell-curve, because the output of Mind is much more scalable than Stuff. If a skill is normally distributed then the really skilled 0.1% of individuals above the 3 sigma mark may well be worth paying 1000 times more than someone of average ability, if you end up selling more than 1000 times as many units because of the value they add. Real stuff doesn’t scale that well – if you’re mining coal then even a really, really skilled miner is probably not so Stakhanovite that they can get 1000 times the output of an average miner. Physical limitations on throughput often place extra bottlenecks with Real Stuff.

    If we look at pre-oil societies, each market town would have, say, their own blacksmith and carpenter, that meant even the moderately skilled could hold their own. Even if there were a 3σ artisan 100 miles away shifting all your horseshoes and wardrobes from him to you would jack up the cost. We have gradually eroded these transport and transmission costs. Even in real stuff Britain outsources a lot of ‘carpentry’ to Ikea – because we can shift goods cheaper, although I’m not sure that Ikea is a 3σ talent! We use robots to make our mechanically propelled horses these days so the blacksmith is neither here nor there. If we want tools we order ‘em up on the intertubes, the ‘smith is probably in China.

    London shows us where this is going – the south east is where the work is in the UK, particularly in the dematerialised area of finance and other industries requiring Mind like media. So pay goes up, and the price of accommodation goes up. It’s therefore not that surprising that poor families are being moved out of the city, because rents are being jacked up. A young Ermine saw the writing on the wall 25 years ago, came to the conclusion that despite the great lifestyle he was too poor to live in London where he grew up and went to university. So he moved out. Eventually London will become a city-state like Singapore. It will generate lots of GDP – even now in it’s non-city-state form it’s 22% of the UK GDP, with it’s 8.3 million people being only 13% of the UK population. I found it surprising that the South East including London generates 45% of the UK’s GDP. Those poor families can’t fight that. The edge the young Ermine had was I saw it coming and was prepared to take elective action to jump before I was pushed.

    that concentration is bad news for most people

    because there are more below the skills threshold than above it, and the line is drifting up. It’s great news if you’re on the talented side. Though beware the gradual shift to the right of that bell curve.

    Of work suitable for less stellar talents, much is being outsourced to lower-cost regions. This eroding of families income relative to the cost of essentials will continue, because they aren’t adding as much value as they were before. They may be able to afford the iPad, but not the roof containing it as the years go by. The Telegraph opined that London is becoming a workhouse for the young. Although they said it’s no place for old men, it’s no place for families either.

    They need to start consuming less. These problems were clear for the middle classes a couple of years ago. This seems to be a secular trend – Stuff is getting cheaper while services get dearer. Services that affect families are accommodation, power and childcare. Accommodation is already a dreadful mess in Britain, we seem to have a whole bunch of perverse incentives that started with Thatcher destroying social housing. Apologists for her policy say if a council tenant buys under Right to Buy they don’t take any accommodation out of service – they’re still living in the house they occupied as a council tenant. That is true, but, when you look at what has happened to housebuilding in the UK Thatcher pole-axed it because councils don’t build much any more and housing associations failed to take up the slack.

    post-war housebuilding

    post-war housebuilding

    So the price goes up. Energy is going up because there’s more competition for the finite resource, and in a peculiar twist of fate it is being loaded to pay for insulating the houses of the poor. Well, those that have houses, of course.

    Childcare is a service, so it is not very scalable, and regulation seems to be upping the cost. For many families there will come a point where the amount the lower-earning adult earns is going to be less than the amount paid out in childcare. On the upside the child gets to see more of its parents. On the downside I’ve it sets the adult back in their career. Life is full of choices I guess. If there is only one adult in the family then I guess they’re SOL unless they have a valuable skill and the gift of the gab. Every which way this is not easy, and it’s not going to get easier.

    For more ambitious families, child-related services include university, and private schooling. It’s all going up faster than inflation, because they need skilled labour, and there’s competition from  mobile aspirational third culture consumers. However, these guys are probably not the ones struggling to pay the ‘leccy bill.

    There’s serious incoming trouble on its way

    Interest rates are at historic lows, and may need to rise. Unless associated with remarkable house price falls, the only way to picture that is severe hurt. The British housing market is now a gun that fires on both ends. What is probably in the national interest is for massive falls in the real value of house prices, so that we don’t tie up so much of our national wealth in our homes. But that would shaft no end of people who have already massively overpaid for their homes – making my antics in ’89 look like driving a hard bargain.

    People are gonna get hurt, and all of this is against the background of those secular changes. It’s all very well for IDS to charge around saying work is the answer, but I’m not sure it’s as simple as that. At the moment all his designs, if he ever gets them to work, are either telling the unemployed how crap they are for not being up to getting one of the bountiful jobs that there are in the UK, or pushing them into poorly paying jobs. Maybe we need a change in the unemployment figures, from people in work to man-hours worked, and some way of tracking the median household takehome.

    I don’t think this is a moan for the good old days

    When I was at school I watched the punk Arthur Scargill tell us how hellish mining was, as he held the nation to ransom with his flying pickets and secondary action in the 1970s. They fought like hell to keep those jobs in the next decade, and yet Art was right. You only have to see the toll in China to see that this isn’t a safe place of work.

    That sort of revisionism is critiqued on the right by the likes of Tim Worstall and a little more gently in  in Why does Joe Public love sweatshops. I’ve tried to avoid that problem – if the New Economy produced work across the ability spectrum there wouldn’t be so much of a problem. My observation is more general, of the winner-takes-all and the trend towards capital and the exceptionally able. It is possible that we are going through a future shock – after all the 5 day work week wasn’t written in stone and previous generations had different patterns determined by the demands and structures of their economies – the trend has been downward. It’s possible the John Maynard Keynes’ Economic Possibilities for our Grandchildren may come to pass. But at the moment work is polarising, and we are telling a lot of people of average ability that they are worthless, while the likes of Duncan-Smith pretends that if only they get off their asses there would be loads of work for them. Perhaps the resurgent economy will fix this, but if it is fixing it, Natonal Debtline seem to be pointing to a deeper malaise.

    We need more honesty in this debate. On the one hand we could stay as we are. Old money will become more important as will high ability – either will give you enough to handle the system and become part of the 1%, both will give you an express ticket. There’s a cost to that, which will eventually look like razor wire, armed guards and watchtowers to keep the disaffected and disenfrachised 99% from doing some DIY redistribution. There is the alternative of Martin Ford’s The Lights in the Tunnel and the citizen’s wage. There are no doubt other alternatives. But it isn’t the 1950s and 1960s any more. There may be plenty of unfilled jobs and plenty of unemployed. It’s not necessarily true that the shape of the pegs match the shape of the holes.

    How did you go bankrupt?

    Slowly at first, then all of a sudden

    How I first heard Hemingway quoted

    postscript

    Bloomin’ heck, apparently the Ermine has company in Oxfam, which is charged with pumping out agitprop :)

    the Oxfam version of this

    the Oxfam version of this

    Seems a bit hard to be charged with being a commie bastard for making the observation that shit’s going down. Okay so I’m not necessarily with Oxfam on the benefit cuts and I view zero-hour contracts as part of un(der)employment.

     

    Notes:

    1. housing, which most people can’t do without borrowing and is not normally a wasting asset, investing in productive assets in a business context and education if it would make me richer or happier. These are particularly hard risk assessments to do for a twenty-something
    2. I am using family in the way the press use it, which is to imply one or more adults and one or more dependent children
    3. These are secular in the economic sense, as opposed to being irreligious
    3 Jun 2014, 2:12pm
    rant
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  • Dear Amazon. Want more than 40%? Quite frankly, stick it

    The Ermine occasionally flogged off some spare CDs. In a previous life I used to wholesale some and occasionally I’d come across yet another bunch of these. It was an easy win – I get to clear out some space and somebody gets a new CD. But I’m down to the last box now. I had an Amazon Marketplace account. And today, having sent one of these and mailed it off yesterday, I get this peremptory message from His Jeffness.

    1406_amzon

    Dear Seller,

    We are contacting you today regarding your Amazon.co.uk seller account. Please be advised that we have made some structural changes to our EU Marketplace. As before, Amazon Services Europe S.à r.l. operates the Marketplace platform and provides the Selling on Amazon service. However, from now on, Amazon Payments Europe S.C.A. will provide the new payment component of the service.

    [translation: we have opened up yet another tax-beneficial scam joint who will no doubt start raking off more fees just like Paypal with Ebay]

    In this regard, EU regulations require Amazon Payments Europe to collect certain business and personal information from you and take steps to confirm your identity. To fulfil those requirements, we need your support to make some changes to your existing seller account with Amazon Services Europe:

    In addition to your current seller account you now need to open a Selling on Amazon payment account with Amazon Payments Europe. The proceeds of your transactions on Amazon EU Marketplaces will be disbursed from this account to your bank account.

    [translation: we will be salami-slicing you for fees upon fees, because we can]

    The Business Solutions Agreement has been amended to reflect this change, and you will need to agree separately to the Amazon Payments Europe User Agreement. Because these are new agreements and formats, we ask that you accept the new and amended agreements and provide the requested information in Seller Central.

    *** It is essential that you accept the new agreements and provide the requested information within the next 60 calendar days in order to continue to sell on Amazon. If you do not provide the required information within 60 days, you will not be able to open your Selling on Amazon payment account and you will not be able to continue to sell on Amazon. ***

    [translation: we hold all the cards and have you by the balls. You will do what we say because you're a sharecropper on our estate and we're bigger than you are]

    Err, no. Piss off. All items removed. If you aren’t prepared to pay me the less than a tenner for that last CD then I am absolutely fine with that – my customer will get his goods, presumably Jeff gets a few quid to take over more of the world(edit: 5/6/2014 in the interest of observing Queensbury Rules  Amazon will pay for that last CD in the old way I have now heard) and I don’t have to agree with yet another non negotiable shrink-wrap you do what we say or you suck it up demand. I had enough of that sort of stupidity at work, but at least they paid properly. Working for Amazon is already low-rent enough as it is, Amazon makes about 40% on the deal – more than the postage. Royal Mail actual do the work shifting goods from A to B, Amazon just pay the ‘leccy bill for their website. Well, okay, and make it easy for people to find stuff ;)

    As a retiree it isn’t always totally possible to avoid the issue of making money, but it’s the power-play I always want to avoid. I have done too many things for too long because I didn’t have options, and now I have the option it’s sweet. I don’t have a religious opposition to making use of skills, though curiously enough most of what I have done that’s made people money since leaving work has had nothing to do with engineering. Maybe I was too narrow in my engineering career, and lifting the daily grind has shifted the balance.

    This much I know, however – selling or giving mind and know-how is far preferable to wrangling Stuff. Cash-flow and storage is always such a pain with buying and selling stuff, you have to store this clobber, you have to look after it, even after you’ve turned a profit on the deal it feels bad to just throw stuff out that has sold well even if you have a more profitable/timely product. Compared to that shooting sound and video, editing it, or hacking code doesn’t consume anything other than a bit of power, you get to see new situations  and problems, and junk doesn’t build up in your garage or loft. Selling knowhow or ways of doing something has other subtle business benefits – there are often indirect lock-ins or costs of changing, whereas with mass-market products you’re just a rat on a wheel, particularly selling made goods on the internet.

    Every so often I’m tempted to make products, and even got a bunch of boards made for one design, but after I’ve used half of them on my own sensor network I think about all the EU crap like CE marking that didn’t exist the last time I produced devices and figure I need to remember the lesson from my multimedia company on the side relative to the CD operation run by DxGF.

    Don’t. Do. Stuff.

    Yes, if you’re starting out and want to make your fortune it’s not a bad way to go if you have the skills, but it’s a full time job. If you want to turn a little bit on the side it’s a hard row to hoe, because the margin on Stuff and the added value seems lower than adding Mind. And you need to warehouse Stuff and it moulders quietly if you keep it too long. So I’m going to toss the remains, get it out of my way and declutter. Jeff can get on his bike, and thank you very much sir for highlighting the low rent of that sort of work by being such a greedy bastard as to prep for extracting another slice of the action. The rake on Amazon Marketplace makes people like Hargreaves Lansdown look like public-spirited philanthropists -only 1.5% fees at HL compared to 38% at Amazon. And I’m no longer prepared to be a sharecropper for them and their bunch of Luxembourg umbrella companies.

    I’m starting to warm to the concept of Bitcoin, just to get shot of all this bollocks. Seriously, Amazon, there’s less than a ton left worth of goods here. I’m not validating my bank account and giving you shitloads of personal details, which you will use a) to scam me brainless with advertising crap to me that I don’t want and b) no doubt fail to secure your corporate network at some stage like your mates over at Ebay, spewing this information all over the internet so some bunch of ne’rdowells can cause me grief. No. And of course you’ll probably do like the fine fellows at Selftrade and ask for all sorts of extra useful marketing cobblers because, hell, the EU made you do it.

    30 May 2014, 3:18pm
    personal finance
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  • Why Compound Interest won’t help you retire early

    I’m always the bad guy when it comes to the compound interest myth, but really, it’s not powerful enough to help you retire early. I’ve picked up the challenge, but the tl;dr reasons why are

    1. the real-inflation adjusted return on equities is too low and
    2. you don’t live long enough and
    3. you don’t work long enough (sort of related to #2)

    None of these are within your control.

    Wealth warning – nothing in this should be construed as saying that you don’t need to save into a pension in your 20s. All I am saying is one of the common stories about early pension savings is overrated to mythical extremes. Saving enough money to stop working is a tough job and takes the whole of your working life. The sooner you start, the sooner you can check out, provided you balance pension savings with the rest of the calls on your finances.

    What is compound interest?

    There’s a much more positive account of it not written by a cynical old git available here, but the definition is easy:

    Paddington Bear takes his money to the bank, and deposits a nice five pound note. A year later he gets £5.10. That’s because he gets paid interest on his money, of 2%p.a. Next year he gets 2% on £5.10. And so on until he is rich beyond his wildest dreams, apparently. The mathematically astute will observe that the future value of his investment is basically

    Present value × (1.02) ^years in the bank

    where ^ means raised to the power of. Now I’m going to cheat and raise Paddington’s interest rate to 5% for reasons that’ll be clearer later on.

     

    The Magic of Compound Interest

    The Magic of Compound Interest – 45x gains after 40 years, Whoopee-do

    And show you this chart. You will observe that if Paddington puts in £1 in 1974 and becomes a Retired Bear this year then he’ll get 45 times as much out. Fantastic. People use that sort of thing to give you bullshit like “when saving for 10 years is better than saving for 40” along with the obligatory wacky picture of Einstein, who is supposed to have said compounding is the eighth wonder of the world

    Fabulous story. But it’s fiction. I’m not contesting the maths – after 30 years as an engineer I’ve learned you don’t fight the laws of maths or physics. It’s incontrovertible that if Paddington got a real interest rate of 10% every year, his first year’s saving will punch 45 times the weight of his last year’s saving. Note this graph shows only what happens to the value of his first £1, not the cumulative value of his pension!

    That’s the story, but the devil is in the detail

    Detail #1: Whoa, boy, you said 5%!

    The sharp-eyed will, of course, spot that I said 5% at the start, in which case lower your gaze from the lofty value of 45 to the pedestrian boost of 7 times.

    That’s the first problem. As I described in an earlier rant on this topic, Warren Buffett, the most successful investor the world has ever known , has managed 13% annual return in real terms. So he’s doing better than 10%.

    You aren’t going to do that. You’ll get about 5% provided you can avoid screwing up, which is challenge enough in itself. Follow these ideas on passive investing and you stand a decent chance.

    That’s the trouble – to make the compound interest story interesting you have to sex it up with unrealistic values of return. And it’s gotta be the real rate of return, ie subtract the long-run rate of inflation from your nominal investment return as well as any fees. The FCA regulator doesn’t even allow people to use 10% for their optimistic projection rates for equity based pension investments. Repeat after me – you are not Warren Buffet.

    Detail #2: Most people earn more as they get older

    at least compared to the start. If they save as a percentage of salary they will save more as they get older. I deliberately selected a chart that made a dramatic entrance, because it’s all about that first £1. You save to a pension across your entire working life. A lot of the UK PF community seem to work in finance, where this may not hold because burnout is rife in that industry; it’s a young man’s game. But most people pick up some knowledge, skills and contacts so they can command a higher salary in their 30s and 40s than in their 20s. It’s much harder to save 10% of your salary when it’s £25,000 than when it’s £50,000, because the fixed costs of living are a larger proportion of your income. There are other pressures on people in their 20s that I didn’t have in my 20s, so it’s even harder, but even I found the cost of rent, house deposits and all that stuff hard in my 20s and early 30s

    Cumulative chart of all years contributions to total, zero real value career progression

    Cumulative chart of all years contributions to total, zero real value career progression

     

    cumulative total, 3 times career progression

    cumulative total, 3 times career progression

    These charts show you the total as a sum of all the contributions, growing. You can track how each of the contributions grew if you have the patience and clarity of eyesight. In the top one there is no career progression at all, in the second one over 40 years  the Ermine achieves a 3× real times value career progression (this happened to me over 30 years, which would make the later contributions even more equal with the early ones :) In the first chart £1 is contributed each and every year, and compounds at 5%. In the second chart I start off contributing £1 and then each year  it is increased by linearly interpolating to a final salary of 3× initial salary (ie adding £3)

    You can see in the first example the early contributions punch way over their weight, but in the second this effect is deflated by the increase in salary. The favouring of later contributions is in fact much heavier due to tax breaks  benefiting the better off more because -

    Detail #2a: It’s easier for the rich to save and they get more bang for their buck in a pension

    because they are saving 40% tax instead of 20% tax. So to save £100 in his pension a rich saver only needs to go without £60, whereas a basic rate taxpayer needs to reduce his post-tax income by £80. The fixed costs of living are usually still a lower proportion of income, so they get a win from that too

    Detail #3: Can you stick working for 40 years?

    Look around your office. How many 60-65-year olds are there?  If people start in your company at 25 then one in 8 should be old gits between 60 and 65. If there aren’t that many it says something about the likelihood of you working there that long. Now generalise that to your industry. Note how all the compound interest action happens at the end of the chart… 1

    I’m perfectly capable of engineering, still. It was the stupid gamification of the workplace and nutty management that I tired of and made me want out. Yes, maybe I was more mentally unstable or weaker than the average Brit. I don’t think it’s that huge – in my last year at work I had to rugby tackle one dude in the office who had just hurled a laptop computer at the wall, over a few colleagues’ heads because he was pissed off by something it was or wasn’t doing.

    I took his car keys, drove him home, stuck him in a chair and told him to get on the horn to his doctor. ASAP. The official story was that he tripped and dropped his laptop on the stairs. Mental health wasn’t good at The Firm. There are a few cracked paving slabs under some of the stairwells. You can’t open the windows in those stairwells any more…

    And it’s not good in a lot of places. We have people talking cock like this

    You need Emotional Resilience.

    For many people the workplace is becoming a worse experience. Some of the problems are fundamental. There is a power-shift from labour to capital which is particularly noticeable in developed economies because globalisation and improved communications dramatically increases the global workforce that can be brought to bear on solving business needs.

    So about that 40 years you need to work for compound interest to give you a leg-up, well, it’s time to roll out Clint again

    I didn’t bloody well make it to the modest normal retirement age of The Firm at 60. Will you? And I was lucky – after I got a job I never lost it 2  until I took voluntary redundancy at the end of my working life.

    Detail #4: if your workplace is no place for old men, compound interest ain’t going to help you much

    ‘Cos early retirees are drawing down their savings earlier, and so they have less time in pure accumulation mode

    Compound interest is oversold

    I’m not saying compound interest does diddly-squat for you – in that previous rant I came to the conclusion that it would give you about a 50%-100% uplift on what you pay in over a typical working life, less if you experienced career progression and saved more towards the end, more if you very given a pension at birth by your parents. But don’t get the impression it’s going to do a lot for you, and the Telegraph article was absolute bollocks – the 10 year saving beating out 40 years only applies at unrealistic rates of return.

    You can test this out yourself on Monevator’s Compound Interest calculator. An Ermine saving £100 a year for ten years at 5%p.a. gets £1500 at the end of that 10 years. The lazy tyke then sits back for the next 30, ending up with £6500 after 30 years of 5%. The Johnny-come-lately variant steadily saves £100 a year for 30 years and ends up with £7000. Who knows – the Johnny-come-lately variant might have put the £100 a year for ten years into a house deposit or starting a business, in which case it would benefit his finances in other ways. In my case the Johnny-come lately fellow earned twice to three times in real terms as the young pup, so he probably ended up with £14,000. The old boy was a 40% taxpayer too, so each £100 saved cost him £60 rather than £80. It’s just not a fair fight.

    become a long-lived vampire to get the magic of compound interest working for you

    become a long-lived vampire to get the magic of compound interest working for you

    You ain’t gonna get the rates of return that the Telegraph used, and unless you’re a vampire you ain’t getting to live long enough to have compound interest do the heavy lifting for you. If you get an employer match in your 20s that will probably do as much for your early contributions than compound interest will. The Telegraph had you working for 50 years FFS – life is much too short to donate 50 years of it the The Man. Life is not all about work. My earnings, for what it’s worth, although respectable and well above the UK average were low compared to what I’d estimate to be the majority of the UK PF community – I never earned anywhere near £100,000

    There’s a converse part of the story. If you are an old git in your late 40s and you suddenly find all four engines flame out in the second half of your career for some reason then compound interest does not mean you are doomed automatically. I saved a quarter of the HMRC nominal capital of my final salary pension in the last three years of working and filled ISAs and saved cash with NS&I. I was lucky enough to be standing next to an open goal in the form of the stock market when I started. And I was fortunate enough to have enough mental capacity left to seize the day.

    Compound interest will do something for you. But it won’t be earth-shattering, and it’s not worth flogging yourself into the ground in your 20s for. Try and take the employer match, because it’s rude to leave part of your salary behind. But before you believe the stories about the 25-35 making more difference than the 35-65 years do the maths. With realistic, not fictional values for the rate of return.

    Compound interest is particularly not going to help early retirees. I am a normal early retiree (less than 10 years to normal retirement age for my company). Very early retirement (40s) or extreme early retirement (30s) means your money only has 10-20 years to grow. Compound interest at 5% just ain’t gonna cut it, you’re own your own, which is why ERE’s logic ignores it totally.

     

    Notes:

    1. this is in fact a property of any autoscaled charts of that sort plotted on linear scales. If I were to extend it to a thousand years all the action would look like it happened at the end
    2. I did switch jobs a few times. But without gaps – when I left the BBC in London on Friday I came to Suffolk and started at The Firm on Monday
    27 May 2014, 5:35pm
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  • Hello Mr Putin, fancy meeting you here?

    It’s not an experience you get that much in the UK with its short distances, but when air travel was dearer, in the 1970s, it was worth travelling by train in Europe. You’d get off the boat at Ostende, and after some interminable shuffling, end up at the railway station, where you had trains that went to different countries, which looked really exciting to a young ermine. Sometimes the train would have a destination of two countries, depending on which end of the train you boarded.

    Unlike air travel, the train stops at many places, and different people would embark and disembark at the waystations. As you approached your destination you’d get a sense of the place you were going to by your fellow-travellers.

    1505_putin

    So in my ISA I found myself waking up next to this fellow with hard gimlet eyes. You get the feeling he’s not a chap who is unused to seeing a dead body that was alive not so long ago. It’s not a friendly face, eh? And you get the feeling the old boy’s known some troubled times. Here’s a fantastic album of Vlad doing all sorts of derring-do -  not bad pecs for a geezer who’s getting on a bit.

    Vlad, a word in your shell-like. If you don't like what's on TV you can switch the darn thing off. Chill, bro'.

    Vlad, a word in your shell-like. If you don’t like what’s on TV you can switch the darn thing off, particularly if you’re Prez, they ain’t gonna stop you. Chill, bro’.

    Exactly why he’s so bothered by the existence of Conchita Wurst is presumably something that’s between Vlad and his shrink, if they indulge is such effete decadence in between all the huntin’ and fishin’.

    However, it’s not so much Vlad himself but Russia in general I’m interested in.

    A lot of people have lost a shitload of money in Russia. It’s a different country – they do things differently there. The term ‘ownership’ and the general rule of law has a more fluid meaning, as the odd oligarch has found out to their cost. Smarter people than me indeed have had Russia cost them dear – the rocket scientists of Long Term Capital Management who believe that risk could be abstractly quanitified discovered to their cost that

    In times of stress, the correlations rise. People in a panic sell stocks — all stocks. Lenders who are under pressure tighten credit to all

    Crikey. No shit, Sherlock? That’s the trouble with being a rocket scientist, you haven’t spent enough time with people to realise that scared humans (or dogs, or wildebeeste, or pretty much any living thing) do not scatter preserving their individual independent calm assessment of the situation. They run like hell. Mostly in the same direction as everyone else. Dunno what the maths of that are, but it buggers up your kurtosis and fattens your tails. And drains your wallet.

    So why do I want some of this? Well, I’m not going to go stockpicking in Russia. But I’ve been toying with the idea of getting some exposure to Vlad’s country despite his sabre-rattling and raising the uncomfortable topic formerly known as ‘living space’ in a previous context. After all, that nice man Tony Blair wasn’t averse to making other people live as he wanted them to live, though it’s still not an attractive characteristic in a world leader. Like it or not, Europe is going to have to cut deals with Russian companies, unless a large part of Europe would like to freeze its rocks off this coming winter. Even if they do, the Chinese might like some too.

    Unlike the traditional view of investing for retirement, where you liquidate on retirement to buy an annuity, I will use the income from my ISA over the coming years, and that terminal horizon is still several decades off possibly. I expect the financial and political power of the West to decline relative to other regions of the world for a range of macro reasons, as well as the Spenglerian thesis that cultures grow old and tired as they become more distant from the shared values that invigorated them. That isn’t to say that I believe Russia will stand towering above the early/mid 21st century like a Colossus. This long-range section of my ISA is small, and it includes a bit of  Asia, a little bit of Africa and now a little bit of Vlad’s domain in the form of HRUB 1 . I can take a long time over buying these areas, because the aim is to hold these for many years. So I try and pay as little as possible. The pound is relatively high at the moment, so it’s probably a year for looking for foreign assets, and Vlad’s been pissing a lot of people off which also seems to scare the horses a bit. The index is a funny old thing, too, being the MCSI Capped Russia index – basically Russia is about Gazprom, energy, oil, Sberbank, energy, more oil, mobile, commodities. And the chart looks fantastic – full of absolutely everything you don’t want in a stock chart – nose-dive-tastic, if this was an aircraft and you’d lost 30% heading for the ground hail Marys wouldn’t really be enough to give you hope.

    Crashing nosedive - all-time low. Time to buy?

    Crashing nosedive – all-time low. Time to buy?

    So I couldn’t resist – a P/E of about 5 and a yield of of a gnat’s under 3% I figured I’d have some of what my old mate Vlad is having. It was the devil’s own job to get data on HRUB – I had to sneak in to HSBC and pretend I was a professional and then look for HRUD and switch currency to GBP. I favoured it over the db-x trackers flavour of the same thing (XMRC) which seems much more popular (or heavily advertised) because that is a derivative with Deutsche Bank as counterparty, whereas HSBC was physical replication.  Physical replication isn’t all it says on the tin, though, because they still lend stuff out, turning physical into synthetic-lite.

    But to be honest, if you’re going to invest in Russia then you’re not of the most nervous disposition, and you gotta be prepared to let it all go. This isn’t a huge part of my ISA ;)

    Actually buying it on TD was no fun either. They swore blind they didn’t have any of it, I have to look up HSBC, page through pages of cruft, click on the HRUB link, upon which they still said they still didn’t do it, but a crafty Ermine observed that they could run a realtime quote 2 and were actually prepared to sell me some. Which they did.

    TD. We don't do this, but since you're a crafty bastard we do.

    TD. We don’t do this, but since you’re a crafty bastard we do.

    Now if a company was on a P/E of 5 and a yield of 3% I’d pass. but most of Russia’s stock market is companies doing real stuff with Real Men digging crap out of the ground. OTOH my mate Vlad could say he owns the lot and the Ermine is unlikely to launch ICBMs to get my stuff back. It’s gonna be a case of back away quietly from the hard man, eyes to the ground and then beat it ASAP. Indexes don’t usually go bust but the Russian stock market does have form on that, I hear 1917  was a pretty rough year on the St Petersburg stock exchange…

    But in the meantime, the Ermine will ride with Vlad, though still looking nervously at those gimlet eyes…

    Notes:

    1. HRUB is the GBP denominated version of HRUD, but it’s easier to find charts for HRUD (dollar flavour) so I’ve used HRUD, so there’s a forex shift
    2. when the market was open, it wasn’t when I went back to get a screenshot of the crappiness of their interface
    25 May 2014, 9:16pm
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  • Dear Mr Gove. Do not be such a parochial prat

    An Ermine notes with displeasure that a certain Mr Gove appears to have charged out of the stable with his blinkers on. To wit he has decreed English Literature will be dictated thusly

    Students taking the OCR exam from 2015 will be required to study a pre-20th century novel, Romantic poetry and a Shakespeare play.

    i.e. none of that damned American stuff like To Kill a Mockingbird. Or perhaps appositely, The Grapes of Wrath, maybe…

    Now unlike the NUT I’m not implacably against Mr Gove. I do agree that our children should leave primary school being able to read, write and do ‘rithmetic including tables. And that whatever today’s equivalent of maths O level should at least have acquainted the little dears with differential calculus. But hasn’t anybody told Mr Gove that the past is a different country?

    I had the bad luck to have to do Charles Dickens’ Great Expectations at O level. The prose is turgid, dense and repetitive. It’s like trying to read a newspaper with a 1″ loupe – you can’t stand back enough to get an overview. Let’s face it, here was a dude who was paid by the flippin’ word. Plus the gruesome detail is of an age that was a different country. I cite Exhibit A

    A now economically worthless document because my human capital is worth jack shit in the marketplace. One line stands out ;)

    An economically worthless document because my human capital is now worth jack shit in the marketplace. One line stands out for all the wrong reasons ;)

    Now I was to become an engineer, and had already done maths and physics early to get the suckers out of the way. You will already see the signs of weakness in the humanities in the History grade 1 . But I wasn’t so terrible at reading – but I just could not get enough overview of the tedious turgid tripe that is Great Expectations.

    Over thirty-five years have rolled by since I sat that exam and flunked Eng Lit because I hadn’t read enough of the the book, and what I had read had been routed to the trash dump of my brain, which had tried to parse it for meaning and had come up with a null pointer.

    The world has become more global since then. And around Europe the lamps are going out in the intellectual sphere as fearful citizens from Scotland to Greece  seek to make their world a smaller place and hold the tides of globalisation at bay because ‘dem furreners a comin’ fer ours jobs’. These citizens were happy when dem furreners were making their DVD players and their iPhones cheaper, and they are not being served well by the spineless political class that hasn’t got the balls to tell the electorate that the good times are gone for good – living standards will stagnate or decline because power is shifting East. GDP will no doubt increase, it’s the slice of it available to the 99% that will fall.

    This is no time for parochialism, Mr Gove. We need to light the lamps of Reason and of culture so that some pathfinders will be strong enough to navigate their way across the long Western Intercession of the next 30, 50, 100 years. I read Harper Lee’s To Kill a Mockingbird at the same time as Great Expectations – for interest, because the story captured my attention. It is not time now, Mr Gove, to pull up the shutters and look inwards at a little Britain of its Victorian heyday. If anything we need to read a wider pool of literature, so let’s not lop out our American novelists, eh?  Maybe das Glasperlenspiel in translation or Flaubert’s Mme Bovary. It is probably too big an ask to include non-western literature and teenagers are hardly well-read enough to put it into context, but the British canon is too old and too narrow now. The journey is longer to Dickensian London than to the American South of the early 20th century.

    Mr Gove, keep the windows to the world open. We aren’t little England now. The flame of the Enlightenment is flickering in the wind, now is not the time to drain the fuel supply. Spengler had it nailed in Der Untergang des Abendlandes

    [of a culture that has passed the high-water mark]

    And we find, too, that everywhere, at moments, the coming fulfilment suggested itself in such moments were created the head of Amenemhet III (the so-called ” Hyksos Sphinx ” of Tanis), the domes of Hagia Sophia, the paintings of Titian Still later, tender to the point of fragility, fragrant with the sweetness of late October days, come the Cnidian Aphrodite and the Hall of the Maidens in the Erechtheum, the arabesques on Saracen horseshoe-arches, the Zwinger of Dresden, Watteau, Mozart.

    At last, in the grey dawn of Civilization the fire in the Soul dies down. The dwindling powers rise to one more, half-successful, effort of creation, and produce the Classicism that is common to all dying Cultures. The soul thinks once again, and in Romanticism looks back piteously to its childhood; then finally, weary, reluctant, cold, it loses its desire to be, and, as in Imperial Rome, wishes itself out of the overlong daylight and back in the darkness of protomysticism in the womb of the mother in the grave. The spell of a “second religiousness” comes upon it, and Late-Classical man turns to the practice of the cults of Mithras, of Isis, of the Sun – those very cults into which a soul just born in the East has been pouring a new wine of dreams and fears and loneliness.

    That Intercession must come to pass, the West is tired and weak, it’s once shared values lost, and its energy washed out in dissipation, bread and circuses. The seed must lie dormant, perhaps for centuries, until it is ready and willing to serve humanity again, perhaps in a totally different form. Your hearkening back to the old, Mr Gove, is just as hubristic though perhaps less disastrous as the Project for the New American Century, but it’s born of the same refusal to see that death is the necessary counterbalance to birth, in human cultures as well as in Nature.

    Look outwards Mr Gove. You cannot forestall the Intercession, but maybe, if the seed is fed well in the dying of the Light, you can shorten the Interregnum. Somebody has to staff the Second Foundation 2of the West. That child may enter one of your schools, Mr Gove, and you are cutting him off  from the narrative of the recent West in favour of the small-Britain distant past. We don’t need to be reframing our cultural references for a smaller world. One of those kids may be charged with carrying the Staff of Knowledge across the rocky pass that leads future Europeans out of the darkness as the new wine begins to flow.

     

    Notes:

    1. note that these exams were norm-referenced and not the everyone’s a winner sort now. A B was still respectable and nowhere near as dreadful as it would be considered now. This is because norm referencing is autocalibrating. However an E was definitely  an incontrovertible fail, the pass mark was C I believe
    2. A reference to Isaac Asimov’s Foundation series, which held the  same Spenglerian concept that the Intercession cannot be avoided, but had the thesis that if some way can be found to preserve the essential values then it can be shortened.  Science Fiction was considered arrant trash and the lowest form of literature in my school-days, I still don’t know why it’s so reviled. Perhaps there was more reason why I got that E than failing to read Dickens, maybe the Ermine has really has no understanding of literature :) I really liked the Foundation trilogy
    23 May 2014, 12:43pm
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  • The subtle way Hargreaves Lansdown make their money

    One of the things I rather admire about Hargreaves Lansdown is the slickness of their operation. It’s a full-service shop, and the Ermine is nowhere near rich enough to fly First Class, use valet parking, or invest with Hargreaves Lansdown.

    Managing your income is an excellent way to stop feeding the Beast of HMRC – as a PAYE grunt paying the mortgage there were only limited ways I could do this, basically pension AVCs and employee Share Incentive Programmes though the latter were only good for sheltering about £1.5k from tax a year. However, it means an Ermine is now sitting in First Class of the investing platform world albeit with a cattle class ticket, and I get to see how HL works.

    One of the things you notice about First Class 1 is that paper is king. Ditto with HL, so the Ermine has this lot on the dining table -

    A single mailing from HL

    A single mailing from HL

    I recently read this article in the Grauiniad, which chimed in with the book Authenticity: what consumers really want I read from the library a while back, that we are increasingly being sold lifestyles rather than specific products. I’m still not sure whether the Grauniad article is really insightful or absolute bollocks, but anything that makes me think has been time well used IMO. A great quote is

    This is how capitalism, at the level of consumption, has integrated the legacy of 1968, the critique of alienated consumption: authentic experience matters.

    And I thought of that when I looked at this wodge of HL stuff. Clearly HL targets their advertising a people of a certain age, preferably people who have more money than I have and therefore can afford to not look a the price ticket too much :) One of the things that struck me is that it’s all about funds. For historical reasons I’ve never been that much about funds and the way the whole market is going I am going to get out of funds all together, because they induce platform fees whereas so far you can avoid platform fees on things like shares and ETFs. Not only that, but funds seem to offer the opportunity for all sorts of indirection and fees upon fees. This is clearly how HL operate. Their fundamental platform fee is 0.45% 2  – bearing in mind the long-term return form stocks is typically estimated at ~5% you’re paying a 10% income tax right off the bat, just for being there. The reason I have left my money there as cash is that this fee doesn’t exist for cash, though obviously you are paying the government about 3% inflation tax to manage the money supply for the benefit of mortgaged homeowners to depreciate the currency ;) However, since they are giving me back a load of tax I paid in previous years I can eat that.

    However, riffling through the HL paperwork, this is clearly a fund shop, and the fee loadings on the funds are usually over 0.5% so you’re looking at fees of over 1% just to be in the market. Annually. The Ermine is just not used to the concept of being rushed each and every year just to exist. But the words are warm, in the typical vapid style when talking about the unknowable future. Everything is good, and if it isn’t, it’s suffered a temporary setback and is an excellent buying opportunity. There was one chart that made me sit up and go WTF, which was the chart of the UK stock market by CAPE

    The UK stock market - good value right now

    The UK stock market – good value right now

    Now I look at that and think bloody hell, the reason I haven’t yet sorted out what I am doing this year is that the market looks on the upper side of the good value line to me. Better people have suggested that it isn’t so much the headline FTSE100 price level but that earnings are improving, but nevertheless I’ve still got some feeling for the WTF are we doing up here mate fellow, though it’s not as bad as it was maybe. That’s why I am looking at emerging markets, and Russia still draws me, with their PE of 5 nowadays, but I still can’t get my head round what exactly the meaning of the word ‘ownership’ is in a Russian context ;)

    Anyway, the UK stock market – good value by historical CAPE? There are three things wrong with that. The first is look at that great big spike from the mid-Nineties up. That, my friends, was called the dotcom boom. Everybody was charging around like blue-arsed flies buying anything with internet in it. Then anything with www. then any company with an e in the name. Seriously, it was a real case of the madness of crowds. Everybody’s brains fell out on the floor and some people are still looking for theirs fifteen years later. I was there. It really was that mad. I made about quarter of my gross salary in the run-up. And lost half in the bust ;) The training was excellent value, because I learned not to buy into momentum. You will run out of greater fools, because in general you are one of them.

    Just like Mark Twain said about the unique learning you get from carrying a cat by it’s tail 3there are some things you have to do to learn things in a way you can’t learn any other way.

    A man who carries a cat by the tail learns something he can learn in no other way

    Same with the madness of crowds, You gotta be in it to know it. The trick to success is to retain that knowledge  for future use. It’s always a fight…

    If we lop out that piece of irrational exuberance, the chart doesn’t look quite so wild, and there’s also a general downtrend, possibly because the power-shift from the West means the market may be prepared to pay less for any given earnings because it suspects that profitability is falling. After all, with the level of debt both personal and national, where’s the money going to come from to buy your stuff 10,20 years down the line? We can’t all keep borrowing from the Chinese ;)

    Standard Deviation? On Stock prices? Mr Gauss would not approve, m’lud

    The second thing wrong with this is that the trouble with using things like standard deviation on stock prices is that stock markets do not obey the central limit theorem. Mr Market is not a collection of independent random variables, and every so often everybody decides “Holy shit, the world is going to end”. On the flipside, we all sometimes decide that it’s all different now and we have reached a plateau of permanently increased productivity, which leads to irrational exuberance about stock prices. In priciple a government can row back against that by increasing interest rates, but on the other hand they can promise all sorts of Good Stuff to the electorate to get re-elected. Any resemblance to Help To Buy is of course purely coincidental. As a result, the distribution is fat-tailed and is not typical of a normal distribution, so using standard deviation of a normal distribution is iffy. Companies got into hot water with their value at risk calculations because they were seeing events that typically you’d only expect to see in longer than the age of the universe – in about ten years. It actually staggers me, that, in trying to substantiate this paragraph, I discovered people really did use the normal distribution as the model for financial markets.

    I am sure that once upon a time, the level of general and scientific knowledge in the West was widespread enough that it would have been obvious what was wrong with doing that to people in a professional organisation. We seem to search more and more for stupid metrics and valueless numbers rather than seeking knowledge. The world is complex, it’s messy, and one size rarely fits all. The abuse of the scientific heritage of the West that this represents is shocking. This is not new stuff – Carl Gauss died in 1855. Mind you, to my shame I only scored a lousy 5 on the Grauniad’s science quiz so clearly the rot is spreading. But I’m not in charge of shedloads of other people’s money.

    Have you ever seen what happens in a mass of humans when somebody yells Fire? They all lock into each other and start running the same way. That is not a canonical example of a set of mutually independent variables acting individually, so the central limit theorem breaks down. In crises – at the very time when you need your model to work to qualify the severity of the problem. Maths doesn’t help you in dealing with human emotion.

    The third thing wrong with that chart is the data source: internal, with the data set from Jan 1974 giving a veneer of respectability to something that, basically, HL could have made up entirely. And since they benefit from shifting your cash into their funds there’s always the temptation. You can’t validate that data against anything. HL might well have said “trust me, I’m a salesman”.

    I have nothing but admiration for HL

    HL did serve we well when the Chancellor decided to improve the usefulness of DC pension savings no end - just before the end of the tax year! So I needed a place to stash £2880 with a pension firm, pronto, and HL were the only people who managed to open an account and take the money, within a week. TD, my current ISA provider, demanded proof of identity through the post, because their system isn’t joined up presumably, and Cavendish were also after that.

    Now the ermine is not a million years away from getting my hands on that money back, and in a rare turn-up for the books, I can claim back 20% of the tax I paid on earning that money – by simply leaving it with HL and HMRC will add £720 to my £2880. That’s an effective interest rate on cash of about 12% (it’s amortised over two and a bit years) and I can do the same next year and the year after that, for an interest rate of about 20%. I don’t know about you, but I sure as hell don’t know anywhere you can turn that sort of interest rate on cash. Okay, so it is only the money stolen from historical pay packets being returned to me, but it’s worth shifting an Ermine paw and banking with the might of SIPP rather than the Nationwide. I stand to win about £2000 back from HMRC. The trick, of course, is to manage one’s income and make sure I don’t have any when I hook this cash back out – it’s about £10800 which is currently above the personal allowance, but you can get 25% of it tax-free. By living on this for a year I get to defer my main pension, too, which goes up by ~5% each year I defer. Although actually 4% since HMRC will be tapping me for tax- I’m tempted to save my taxable part of the pension into a SIPP to reduce the tax on my pension to 15% since I can manage the cash-flow. The main challenge is having enough cash reserves to keep loading my ISA allowance each year, which has suddenly got a bit harder with the increased allowance. I may consider taking out an cash loan for the last year, if anybody will lend me some money, simply to fill up that ISA allowance. 4

    The Ermine has been freeloading on the money that fund investors have been putting in for years when it comes to the costs of running a platform. I don’t need the lifestyle stuff, but I’m happy for it to pay for my seat on the boat. Most of HL’s customers have a lot more money than I have, so every so often they may see the flash of white fur and a small black tip to the tail scurrying about, but in the end it’s the rake of their wealth that is keeping this ship afloat and in good condition. I salute my well-heeled fellow passengers and raise a glass of proscetto to their choice of lifestyle, if not their quest for value for money. Perhaps the Guardian article was right. When you have enough, you don’t need to seek value for money. The quality of the ride may matter more. HL is selling an experience – giving you the warm feeling

    “You are a wealthy sort of chap, probably a chap, probably 50+. You are knowledgeable in the ways of the world, so here is a shitload of complexity and a teeny bit of salami-slicing of fees. Needless to say, an experienced individual of your calibre has the savvy to make shitloads of money from these fine opportunities despite the fees, so take it away from here. For those of you into shares, we now offer real time live share prices, so you can ride the markets like a pro. Come on in”

    And they do – HL is apparently one of the biggest retail investment platforms in the UK.It’s a slick operation, and probably a nice ride. just not the cheapest. Except for their okay 0% rate on cash, which will do me fine. I live in hope that the new NISA integrated accounts will actually pay you a return on cash, but it’ll never approach the HMRC rate on a SIPP.

    Notes:

    1. I’ve never flown First Class, though I flew Business class enough for work, and you got a lot more bumph there too compared to cattle. But it’s a long time since I have boarded an aircraft – not because I can’t afford it but the experience is so horrible and I get to hate my fellow humans so much for their screaming brats and inability to follow written instructions holding up the queues. So I really try not to do that to myself, or them.
    2. capped at £200, corresponding to an account value of £45k. Now my ISA is more than that, but I don’t currently pay £200 to TD to hold it. I checked last year’s statement and my platform fee was £2.31, so HL are 8600% dearer. In fairness, I made 9 purchases and zero disposals, and HL are 65p cheaper on share purchases, so the difference of £5.85 should be added to TD. So HL is only 2450% dearer than TD, a much more manageable difference for some chrome trim and a slicker operation, no?
    3. I suspect he didn’t say that directly, it is a paraphrase of  Tom Sawyer’sa person that started in to carry a cat home by the tail was getting knowledge that was always going to be useful to him, and warn’t ever going to grow dim or doubtful” but I’m damned if I’m going to surrender the thought picture on the altar of technical accuracy.
    4. You should never, ever, borrow money to invest in the stock market. However, I have a large AVC fund that is in cash and can come out when my main pension commences. So I am not borrowing money I don’t have, I am borrowing money that I can’t access yet. If you want to borrow money to invest then you may as well go into spread-betting.
    13 May 2014, 2:51pm
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  • The sleep of Reason is producing monsters in the UK

    We recently received the postal ballot papers in the UK, and I was reminded of this classic drawing by Goya in 17th century Spain

    Goya's darwing from 1799

    “Fantasy abandoned by reason produces impossible monsters: united with her, she is the mother of the arts and the origin of their marvels.”

    We humans tread a thin line between rationality and unreason, and it feels like the trendline is pointing away from the direction of Reason and has been for the last three decades. I recently discovered that the proportion of GDP Britain spends on R&D has really fallen over the years I have been in work, which might explain why my experience of the world of work moved towards a tedious paint-by-numbers and away from the interesting stuff as time went on. But that’s all for another day, because this ballot paper showed me, at a glance, what is wrong. And it is frightening

    This ballot paper is either a triumph of the democratic process in giving an insight into the true feelings of my fellow countrymen. And giving them a way to vent their spleen in a way that really doesn’t matter one whit, because the European Parliament has no executive power. Don’t take my word for it, get it from the horse’s mouth

    To wit

    Under Article 289 of the Treaty on the Functioning of the European Union (TFEU), consultation is a special legislative procedure, whereby Parliament is asked for its opinion on proposed legislation before the Council adopts it.

    The European Parliament may approve or reject a legislative proposal, or propose amendments to it. The Council is not legally obliged to take account of Parliament’s opinion but in line with the case-law of the Court of Justice, it must not take a decision without having received it.

    In the beginning, the 1957 Treaty of Rome gave Parliament an advisory role in the legislative process; the Commission proposed and the Council adopted legislation.

    So it doesn’t really matter who becomes an MEP – I personally would be in favour of abolishing the whole shooting match and making the Council of Europe representative to the electorate in some population-related way. I don’t think the European Parliament performs any useful function and costs us shitloads of money, and gives a platform for some very strange people of which Nigel Farage is by no means an outlier – he’s positively square compared to some. It’s not gonna be changed in my lifetime. These European elections therefore give the opportunity it seems for a primal scream.

    Psychology tells us that the human mind has to deal with a lot of complexity, and the self-aware I is only partially self-aware/conscious. There is an unknown part of the mind that runs in the background, collecting and sifting data, forming opinions, holding grudges, simplifying the world around to make it digestible by the limited lens of consciousness, at it scans across the too big to read newspaper of our experiences.

    This unknown part of the mind is the back-seat driver to the conscious mind, and it guards the boundary well. It has to, because if the thin line fails under the load then you have a range of rotten experiences from bad dreams through a nervous breakdown to the a full blown breakdown of everything like the effects of LSD gone wrong. Huxley got away with it, Syd Barrett didn’t… That line is there for a purpose, mess with it at your peril. But you can see it indirectly. If you want to know what your worst character fault is, think of what all the people you instantly dislike have in common. The unconscious mind projects some of this upon the world it sees outside, and that gets read back through the lens of the conscious mind.

    Despite that fact that Britain is immensely richer than it was in 1973/5, this primal scream is taking the form of ‘There’s lots of stuff that I can’t have and it’s not fair. It’s all somebody else’s fault’. And this scream is getting voiced in this ballot paper.

     

    the sleep of reason

    the sleep of reason

     

     

    11 May 2014, 10:58am
    personal finance:
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  • The Scotland problem

    Something’s afoot later this year, and I can’t really get my head round the finance implications. Two things are afoot, indeed, and they are loosely related from an Ermine’s viewpoint.

    One is the increased ISA allowance to 15k, and so far I’ve chosen to ignore Under the Money Tree’s sage advice and get my capital in there ASAP. Unlike UTMT I have no income and need to be more cautious at this particular stage, but more to the point I am well over the FSCS limit in my existing ISA, because unlike my Cash ISA, which is busy going nowhere, and indeed backwards in real terms, S&S ISAs tend to grow a bit over the years, which whopping heart-rending retrenchments every few years. I was fortunate enough to start just after one of those.

    And there’s an event on the horizon that might make FSCS protection more important. It’s the threat (from my point of view) of Scottish independence.

    Tomnaverie stone circle in Aberdeenshire

    Tomnaverie stone circle in Aberdeenshire

    Fantastic place, Scotland – wide open spaces, loads and loads of marvellous megalithic sites, people with a great engineering tradition and wide open spaces. Okay, so it gets brass monkeys in winter and don’t even think about going near water in July ‘cos the midges will eat you alive.

    It’s all about to get a lot better, ‘cos that nice Mr Salmond has invited the Fairness Fairy to sprinkle a bit of magic pixie dust, and he’s written it all down in Scotland’s future – Your Guide to an Independent Scotland. Here are some of the things he will bring to the good citizens of that fair country

    • Scotland will continue to use the pound,
    • guarantee that the minimum wage rises – at the very least – in line with inflation
    • a commitment to increase the personal tax allowance, benefits and tax credits in line with inflation
    • single-tier State pension at the rate of £160 per week in 2016

    More spending and less tax, what on earth is his secret? I’m not quite sure what sort of crack he’s smoking, but he clearly has a good dealer. Now I am all for the Scottish people having the right to self-determination, and there are some obvious cultural differences with England that stretch beyond football. The country is much more left-wing than the UK as a whole. There’s nothing wrong with that and indeed we might all live a little happier if we cared a little bit less about money and more about people. I can see that it sticks in the craw to have a largely Tory government when Scotland returns no Tory MPs. If people in Scotland are that pissed off with being part of the UK then they will vote accordingly.

    Now independence comes with rights but also responsibilities, and I’m buggered if I understand the sort of independence that uses another country’s currency, never mind your ex’s currency. Managing the money supply to broadly track the amount of goods and services in your economy , your appetite for national debt and foreign goods is all something you can do when you run your own currency. It’s possible that the Calvinist roots of Scotland will mean it powers ahead of the rest of the UK despite the tendency of the Fairness Fairy to run out of other people’s money, in which case with the Pound Scotland will be Germany to the rUK equivalent of  Club Med. But without the power of Germany. In that case the spendthrift English will borrow against the hardworking Scots and spend all their money until they a) access the EU and b) join the Euro in which case the Germans will save them. Until the Germany runs out of young people in about 20 years time.

    Alternatively the Fairness Fairy might start to run out of other people’s money and the Bank of England will seek to cut the supply off. That will cause plenty pain for rUK because it probably means higher interest rates, but given the relative numbers it will cause ten times more pain for Scotland. So have some self-respect, guys, and create a currency (Salmond?) ASAP and start managing your own financial affairs. What part of independence do you not understand, exactly? It’s not like we are still under Bretton Woods and Scotland can do like Australia did in ’65 and switch to the AU$ and £1=2AU$ until the 1970s. Yes, the pound is convertible and available on the open market. But like all those Hungarians and Cypriots who took mortgages denominated in the Swissie and found out how that can turn into a world of hurt the fact that you can do something doesn’t mean you should. The whole point of being independent means that you want to run things differently from the UK. Lockstepping the currency for any longer than you have to is a strange way of going about that.

    Scottish independence and the Ermine

    My problem with Scottish independence isn’t about independence as such, but the damage and turmoil that could do the the economy of the rest of the UK. What the bloody hell are we going to call the rUK then – the disunited kingdom? The Shattered State? At the moment the pound is relatively high (compared to the last few years) and that makes a case for buying foreign assets, given my ISA has a heavy home bias. It’s what I have been doing of late, to lean against that – a bit of emerging markets, a bit of Africa. I’m almost tempted by some Russia, but only a small amount. It’s hard to work out what the meaning of ‘ownership’ is there…

    However, I don’t want to open an ISA until I can open a NISA because I need to use a different company that TD. Obviously I will make sure it’s not one domiciled in Scotland, in the end if I want to open an offshore account 1 then I’d want to choose somewhere in a country that is far away from the UK and not going through birth pangs as well.

    The Ermine is not a funds sort of person, which is nice because an awful lot of funds are run by Aberdeen Asset management, and I will look at the policy of some of my investment trusts too. And I don’t really fancy having a lot of money tied up in a company in a new-born state trying to work out a monetary policy. Capital controls can go along with that. I don’t like Alex Salmond, I think he will say anything to get his own way, and I bloody well don’t want to have any money exposed to him or his world view. After the dust settles, Scotland may well be a good place to  invest – the Scottish people will be able to straighten themselves out and get to work building a country that expresses their world-view. At least with Russia you know that buying a small stake in Mr Putin and that the rule of law is tenuous; this is what the risk premium is all about. With Scotland because of the policy vacuum it’s all about unqualified risk for anybody in the rUK because we get to eat the downside with no exposure to the upside of all that Free Stuff from the Fairness Fairy.

    On the plus side, it is at points of turmoil that opportunities show themselves. So having an ISA open by August with the higher available is an exciting opportunity – sort of like the summer of 2011 but hopefully without the rioting. Scottish independence, should it happen, should be a happy event for Scotland.

    Of course it may all be a damp squib or other events like the clanking of Russian armour rolling into Kiev may cause more widespread issues. But I’m surprised the prospective breakup of the UK is met with such equanimity in the(r) UK PF scene.

     

     

     

    Notes:

    1. I know there aren’t any offshore ISAs :)
    7 May 2014, 4:51pm
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  • The Squeezed Middle are Doomed

    Because they are puppet slaves buying empty dreams. They’ve lost the ability to look around them and the cornucopia of goods and services an advanced industrial nation has to offer them, and ask themselves the simple question

    Does buying this crap improve my quality of life?”

    and if the answer is no, then leave it well alone!

    Firestarter and MMM kicked this off with a deconstruction of one example from the USA, and I’ve now found one from the UK. Get your violins out for Guy and Shaz on £120,000 who haven’t been out for a meal for yonks.

    Annually it’s costing £45,000 after tax, which is a considerable outlay, but I’m happy to pay because I want them to have the best start

    Folks, you were part of building a world where there are no bloody jobs for your kids no matter how much money you throw down the toilet of school fees. We’re talking a sunk cost of  £157,000 per child (11 to 18). There’s a case to be made for setting up the trust fund – it’ll deliver ~£8k each for your precious nippers to sit on their backsides all day. Every year for good.

    Independent schooling seems to be one of those empty dreams that caters to people’s understandable sense of vicarious living and immortality through their children. But here’s a shock finding – it is values, grit and integrity that maketh the man, along with a decent dollop of good old-fashioned luck. That used to be your job as parents to do bar the luck, but I guess along with the usual trend of outsourcing things so you can earn more money to outsource more things that sort of thinking seems to be passe.

    Now you can tell that this is ad-land berlercks from the Mission Statement of Lord Wandsworth college where Guy sends his progeny to -

    LWC is a socially inclusive non-denominational boarding and day Foundation school for boys and girls. We focus on the needs of each individual, while developing in each child a concern for others and a love for and loyalty towards the school community. We ensure that each pupil shapes their values and aspirations within a stimulating and supportive environment, and strive constantly to improve the quality of teaching and learning.

    We aim to equip pupils with character attributes, passion, resourcefulness, independence, skills, knowledge and qualifications so they can become the best possible version of themselves and make a great contribution to a changing world.

    LWC should reach out and become known as a leading and opinion forming school, in principle and in practice.

    Now bearing in mind that presumably if you are charging shitloads of money for entry you can hire the best ad copywriters, WTF is this passionless management speak that we see before us – it’s more befitting an firm of book-keepers that a bunch of people who will relieve you of nearly 200 grand to do a job you could get done for free if you were prepared to be part of the solution. Let’s deconstruct this fine prose. It isn’t a fair fight – the Ermine has merely a thirty-year old grammar-school edukayshun and I failed 1 English Literature. Whereas Lord Wandsworth are education.

    LWC is a socially inclusive non-denominational boarding and day Foundation school for boys and girls

    To be honest, if I’m a parent, I want a school that is a bit socially exclusive – to keep the thickos and oiks away from Tarquin. Even if Tarquin is a moron and I know it, I want him to go to a school where they keep out the rough sorts. With the exception of people like Fiona Millar, most parents are like this, once you have loosened their tongues with enough wine. People are tribal that way. However, this is achieved in a roundabout way. Obviously if you can stump up £20k+ per head per annum, you have automatically eliminated most of the lower classes ;)

    Of course the social inclusives would say ah but 10% of our intake have bursaries. Well yeah but you gotta know the lingo to apply for a bursary. I had to look it up to know what it means in a school context.

    We focus on the needs of each individual, while developing in each child a concern for others and a love for and loyalty towards the school community.

    The usual oxymoronic claptrap. Humans are not multitaskers and you can develop the individual or generate good community sheeple, but you cannae do both. Look around you are the people who have made a difference in the world. They are often borderline sociopathic, driven and not balanced all-round team players. It goes with the patch – great talent sticks out because it is so rare. So don’t go cutting my tall poppies down, school. It’s a dog-eat-dog world out there.

    We ensure that each pupil shapes their values and aspirations within a stimulating and supportive environment, and strive constantly to improve the quality of teaching and learning.

    The Ermine has parsed this sentence searching with his beady eyes for any semblance of meaning beyond the sort of random gwana-gwana that exercised the Register years ago. And failed to discover any. It’s like the snow you used to get on a television when the aerial had fallen out – the random hiss as the intermediate frequency amplifiers are turned up in the vain search for an incoming signal. Is it a dog-whistle to acolytes of Tom Peters, MBAs an other purveyors of management-speak who torture the English language daily? WTF does it mean? How exactly do you do this? Where do you start, and where do you go for help?

    Do or do not, do not try

    We aim to equip pupils with character attributes, passion, resourcefulness, independence, skills, knowledge and qualifications so they can become the best possible version of themselves and make a great contribution to a changing world.

    Way back in the mists of time, when there was still talent and creativity flowing in George Lucas’s veins rather than an unending search for filthy lucre amongst the twisted wreckage of his youthful originality, he created a remarkably plug-ugly character whose greatest statement highlights what’s wrong with that sentence 2.

    It seems following generations have projected these wise words upon subsequent heroes, according to Google. The truth is timeless.

    my fellow Google searchers consider this worth of Dumbledore and Gandalf

    my fellow Google searchers consider this epithet worthy of Dumbledore and Gandalf

     

    LWC should reach out and become known as a leading and opinion forming school, in principle and in practice

    More of the same, really. If you should reach out and become known, then what is standing in your way, FFS, and give no quarter – sack them or eliminate them from your world. Do or do not, people.

    So I thought I would investigate more as to what Mr Squeezed Middle is shelling out for. They have an entry in the Good Schools Guide, so I took a butcher’s hook

    A good, broad, mid-range school, and a good place to be a bright kid – they are well rewarded for working hard, half a dozen Oxbridge candidates each year.

    Obviously nobody has stupid kids, because this might be a crap place to be dumb. But then no parent has stupid kids, right? Have you ever known any  parent who says “my child has shit for brains and is talent-free, not even good with his hands”? Obviously all humans are above average, then…

    That yells out aspirational mediocrity to me. Now Guy and Shaz may know that their kids are no-hopers in the smarts department, but as I said, the trust fund is the alternative, and the great thing about investing in that is that Guy can evaluate the likely return what with being a finance compliance wallah, presumably some of the know-how sticks around. The advantage of the trust fund is even if the kids have the entrepreneurial instincts of a beach pebble there’s a known return.

    As for the Oxbridge entry the odds look poor – three decades ago even my sarf London grammar school of 600 kids all in managed to muster half a dozen Oxbridge candidate in my year 3. I was one of them – though not up to scratch. I’m always suspicious of schools that talk about the candidates and not the entry, too.

    And we had genuine problems, like dimwits kicking a hole in the plaster because they were bored and wanted to leave at 16. I couldn’t determine how many kids LWC has but if he’s dropping three hundred grand on buying the best start it might behoove Guy to look at what he’s actually getting for his hard-earned money. And slightly lower odds than a south London grammar school could muster when five times as many people go to university now as did then is a little bit crap in my view.

    But it’s the mealy-mouthed mission statement that made me smell a rat. Now obviously if you’re dropping well over half your take-home to pay for a service that can be had for free then you don’t get to eat out much. But you’re also not going to get shedloads of sympathy. I’ve never earned anywhere near what Guy earned, and while I don’t begrudge him his hard-earned, nor his right to piss it up the wall of a school that can’t see what’s wrong with not being able to say what they stand for, I can’t really find it in myself to feel a great deal of sympathy. The single mother going to a food bank to buy her kids a book, yes. Guy who is buying what he thinks he ought to buy because he’s only a member of the middle class because he pays for his children’s education, no. Since when did you have to be paying for public school, never mind boarding school, to become middle class?

    This is where the middle class went wrong and why they are doomed. Somewhere along the line they lost their values. They’s skint because they buy without thinking, they are sold dreams of the way they should be living and go for it hell for leather. You only get one chance at life, and it’s too bloody short to spend living somebody else’s dream. Particularly if the somebody else is advertisers looking to created desires in you to make as much money out of you by selling you services and stuff.

    Advertising has us chasing cars and clothes, working jobs we hate so we can buy shit we don’t need.

    Tyler Durden, Fight Club

    Look at LWC’s website. It’s all about the sizzle, not the steak. It’s about the 1200 acres, the founder, the farm. What do you need to have a good school? You need good teachers, you need to have clear aims and goals. I’ve never been to LWC -  they may be a perfectly good school. Maybe Guy assessed this himself. Or maybe he is just buying into a chimera of what it’s like to be a well-off resident of the Home Counties doing the job of financial compliance and raising kids. Which apparently means paying shedloads of money on public schools to be in with the in crowd. I suppose you gotta spend your money on something, can’t take it with you…

    There seems to have been an explosion of independent schools out there to shake down the ‘middle class’, feeding off the inchoate fear of not doing the best for their children. I take the point that if you want political influence and are rich enough, send your offspring to Eton or somewhere where you can buy influence. Money has always bought influence. It is crystallised claim on future human work, so it goes with the patch. I suspect there are a lot of redbrick independent schools set up to feed the increasing aspiration. And why not – if people want to pay for it, let ‘em.

     

    How much you need to earn gross as a household to enter the relevant decile accordig to the ONS. Guy's well over to the right

    How much you need to earn gross p.a. as a household to enter the relevant decile according to the ONS. Guy’s well over to the right, assuming his wife doesn’t work

    Finally, Guy should take a butcher’s hook at the ONS Gross Household Income by Income Decile (Excel sheet) You need a household income of £70k to enter the highest income decile. Guy and Shaz, you are not the squeezed middle. There are people queueing up at foodbanks. They are squeezed. Finding out that you have to budget and discovering it is a stretch to pay more than a 7th decile household earns for public school education 4 is not being squeezed. You have options that many Britons couldn’t dream of, so you’ll have to excuse us when we say tough luck mate.

    I don’t actually have anything against LWC, apart from their pedestrian ad copy. They may be a perfectly good independent school, just a tad short on the imagination and self-critical side. In old-skool-speak that used to be called ‘could do better’. I believe these characteristics used to be considered important aspects of self-development from Socrates onwards.

    LWC are unlucky enough to have one of their customers moaning in a national newspaper that they are bleeding him dry with their outrageous fees so he can’t afford to go for a meal with his good lady wife. His lack of irony demanded a snarl, LWC is collateral damage. I’m sure they’ll weather the storm.

     

    Notes:

    1. I got an E. In those days people weren’t afraid of calling that a fail. But then I only sampled Great Expectations, despised poetry and was slightly bored with Shakespeare. I was to become an engineer, FFS
    2. SW geeks, of which there are many, will slam me for misquoting the Great Yoda. I like my version better, this is my blog, and if you don’t like it then go read another of the several billion pages on the internet
    3. This should be taken into perspective; far fewer people went to university when I left school, roughly a fifth of the current proportion
    4. for any bemused Americans reading, in Britain public schools are the ones you pay for privately, and State schools are the one the public pays for
    3 May 2014, 9:22am
    economy:
    by

    16 comments

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  • There is trouble burning underground in Britain

    The Times They Are a-Changin

    Bob Dylan, 1964

    We have a problem in Britain. There are a lot of people who are pissed off with the way things are working. One of the good things is that there is some recognition now that the shift of power from labour to capital is causing grief for an increasing number of people. I’m not claiming to know what the answers are, but the one thing that I hope is that the way we humans try and work things out will stick with jaw-jaw rather than the sort of thing we had in the long hot summer of 2011 when people were rioting. And using Blackberry phones – it seems so long ago ;)

    One of the problems is the increasing polarisation of the workforce. I earned a decent wage at The Firm, but I never got anywhere near paying 45%/50% (in those days) tax, though I paid plenty of 40% tax until I wised up. I never got anywhere near six figures. That doesn’t bother me particularly 1  – if people want to push themselves hard enough have at it. Part of the secret to happiness seems to be to value  the riches that you do have 2It doesn’t particularly please me when CEOs pay themselves shitloads of money, but that’s because I don’t think they are worth it, this is a cartel in action and they are stealing money from the shareholders. I’d rather they actually got the money they want but actually did more to make the firms work better, rather than go for the willy-waving of loads of mergers and buying other firms up. Their yachts don’t really trouble me, and while I despise the louche taste so often displayed by the über rich that’s more because it’s a crime against culture and aesthetics than its effect on my world.

     

    That is one tasteless ugly piece of kit, non? And this is the attractive side. Apparently something to do with Philippe Starck, he of the elegant lemon squeezer. Where’s a Viking longboat or Jonny Ive when you need ‘em eh?

    That polarisation is starting a fight. The Torygraph highlights that higher rate taxpayers pay more than two-thirds of the income tax burden in the UK, which is supported by the excellent infographic by Mona Chalabi of the Guardian. That obviously hacks people off. It hacked me off – at the time I hadn’t jumped to the obvious incentive/conclusion, although instinctively I found an answer in the form of employee share incentive schemes, AVCs and retiring early.

    And yet I equally despise bollocks like Help To Work, which Suzanne Moore rightly called punishment for the undeserving poor. I’ve never been anywhere near a Jobcentre ever since it was called the DHSS in the early 1980s. I also don’t have a problem with calling some sectors the undeserving poor, if people want me to work because they can’t be arsed then it does make me wonder why. However, there is a deep problem in Britain today.

    There are no jobs that match the talents and living costs of an increasing part of the potential workforce. They are either not up to it, or the costs of living the way they would like to is not commensurate with the pay they can get. The whole endless hurt that is house prices in Britain is associated with that. The high house prices are where the work is. We can shovel our old gits out to the seaside as much as we want and large swathes of the North are acceptably priced, but that’s not where a lot of the jobs are. Help to Work should honestly be called workfare. And it should ideally do something useful for society, not just make people who have been out of work for three years go to a Jobcentre every flippin’ day. What the hell is the point of that? Unfortunately it’s structural, it’s not a Depression era New Deal building the interstate highways. It’s just employing a bunch of civil servants to get the long term unemployed out of bed every day. The civil servants/PFI firms are just as unemployed as the unemployed, but they get their benefits in a different way.

    We need new thinking here. Despite the ermine probably being on the right of centre, I don’t have a deep issue against the idea of a citizen’s wage, though I do feel uncomfortable being on the same side of the road as George Monbiot, never mind the Greens who couldn’t punch their way out of a paper bag IMO. At least I am also in there with the Swiss, with their vote on a Grundeinkommen who aren’t usually noted for being raving Communists. Unlike the first two, it’s also not about the ethics , it’s the interest of self-preservation. Obviously as wages polarise the highly paid will pay more in tax, for the simple reason that in the immortal words of Al Capone, that’s where the money is. No other bugger has any. With the citizen’s wage, however, I would like to see a whole load of other social  fiddling stopped.

    All the explicit subs going to families for a start – the citizen’s wage ought to be enough for two adults to put enough on their own and two kids plates, and actually get to enjoy their company. If you want three, or you want to send Tarquin to Eton, or you want to run a car, well go out to work or do without. We run a perfectly workable state school system, indeed if we could break the stranglehold of chuntering out economic units we might well run a better one from an all-round education point of view. And let’s rack back on the crazy expansion of the university system. University is about research and advancing the sum total of human knowledge. The average punter isn’t bright enough to do that, and a 50% university entrance target is basically aiming at the average and up. And the way we’ve rigged the system means that it won’t get you a better job often and the graduate premium is dropping anyway, presumably because of all the dim bulbs but also because, fundamentally, machines are getting smarter and the equalisation with China and India still has a way to go.

    There’s just less and less work to go round, and what there is demands more cognitive function, or it’s relatively mindless and low rent. The exams either need to get harder and university more elitist so the taxpayer can support people properly, or people need to lose the idea that you can pre-retire for three years at the beginning of your working life. And if you are going to pre-retire, then for God’s sake keep costs down – the fanciness of student accommodation is presumably a large part of the living costs now. It’s better than anything I was living in until I was in my late thirties!

    Luxury and student living don't go together. As a rule, avoid luxury when you're financing it with debt...

    Luxury and student living don’t go together. As a rule, avoid luxury when you’re financing it with debt…

    Pretending that power shift isn’t happening and calling workfare  Help to Work isn’t the way to fix it. Let’s have the discussions in the political arena about what might work in the future. It isn’t like Britain is creating no value, but fewer and fewer people are doing the creating, and paying a larger share of the tax burden in doing so. What the hell does success look like? Obviously everybody earning loads of money or with capital wants to hang on to it, but OTOH starving hordes of people running through the streets isn’t that much of a laugh for anyone. Somewhere in between lies the maximized quality of life for the most people. You don’t wanna be killed by the not-haves, but you don’t wanna be bled dry for the 40inch TVs either, as Jamie Oliver called out.

    I read The Spirit Level a while ago, and though I didn’t agree with the rationale or the interpretation I’m not so stupid that I’ll let prejudice stand in the way of data.  At least it opened up the debate. There’s more of this lefty stuff in Thomas Piketty’s Capital in the 21st century. I note that Piketty has a very good handle on capital, inasmuch as it costs £18 to buy an ephemeral copy as Kindle format. The Ermine generally tries to avoid buying what I can’t touch so I’m happy to wait for the library or the secondhand market to fix this for me. However, the Guardian is pretty much serialising it in a lot of articles.

    The Guardian has been getting themselves into a wet mess about Piketty’s book, so I turned to The Economist for a bit of balance. They were pleasantly even-handed to his ideas in this article, although whoever drafted the x-axis in the return on capital chart demands a lot of his readers. However, I will pinch the summary from one of the Guardian’s less breathless articles to summarise Piketty’s thesis

    Piketty deploys 200 years of data to prove them wrong. Capital, he argues, is blind. Once its returns – investing in anything from buy-to-let property to a new car factory – exceed the real growth of wages and output, as historically they always have done (excepting a few periods such as 1910 to 1950), then inevitably the stock of capital will rise disproportionately faster within the overall pattern of output. Wealth inequality rises exponentially.

    The process is made worse by inheritance and, in the US and UK, by the rise of extravagantly paid “super managers”. High executive pay has nothing to do with real merit, writes Piketty – it is much lower, for example, in mainland Europe and Japan. Rather, it has become an Anglo-Saxon social norm permitted by the ideology of “meritocratic extremism”, in essence, self-serving greed to keep up with the other rich. This is an important element in Piketty’s thinking: rising inequality of wealth is not immutable. Societies can indulge it or they can challenge it.

    I remember challenging somebody at work to a bet since he flatly refused to believe that he was in the upper 10% by income 3. I am nowhere near the top 10% by wealth – conveniently it appears you need to be a sterling millionaire according to the ONS to be in the top decile. But it is at least all my own accumulated wealth from when I started work. It is interesting what Piketty says about the toxicity of inheritance to the distribution of accumulated wealth. As an example, take a look around you. Two thirds of the land in England is owned by 0.6% of the population, and it was largely the same families who owned it 200 years ago. 50% of land in Britain is unregistered – by definition it hasn’t changed hands in modern times, but is part of ancestral wealth.

    Some might say that inheritance tax is there to address that, but it is only the little people who pay that. The aristocracy struck a deal with the post-war governments who were were keen to shift the balance, mindful of the efforts of the people in the wars. The deal was this “UK.gov, you wouldn’t want people driven off their farms because when Dad hands it on to Son, Son would have to pay 50% IHT, would you?” So there is no inheritance tax on agricultural land in the UK, so it becomes the ancestral wealth store of first resort for old money. The land has to be farmed, but now that’s hived out to contract farmers. These are good enough to rapaciously farm the land using the soil as blotting paper for chemical fertilisers, so we have increased runoff which floods some of our towns and cities, given that our forebears built their habitations around rivers that historically weren’t flash-flooded by industrial agriculture.

    This way there’s an income from the wealth and it can be kept inside the family IHT-free though it has nothing to do with farming. The little people obviously get to pay IHT, which hopefully slows down a little bit of the rampant rise in house prices compared to what it would otherwise be, but old money has nailed that IHT problem that seems to exercise the old buffers at the Torygraph ;)

    In general we seem to have designed a society in which we live materially richer than kings in recent times – and that includes people sucked into Help To Work. But we are hammering people’s emotional needs. We encourage rapacious advertising to make them always want more, we collectively mentally torture people who are unable to find work in the rapidly shrinking pool by dishonesty telling them that it is all their fault that they can’t find work to match their aptitudes that gives enough return to live in the way the advertising tells them. We make it difficult for people to raise children which is a pretty common aim of human animals, oddly enough. We glorify paid work and despise the unpaid graft that goes into making a human community. In fact generally we despise service to people and glorify service to stuff.

    Taylor Schilling in Atlas Shrugged. Apparently the movie stank. The novel has over 1000 pages so it's a big ask ;)

    Taylor Schilling in one of the movies of Atlas Shrugged. Apparently the movie stank. The novel has over 1000 pages so it’s a big ask ;)

    Before readers think the Ermine has been taken over by space aliens and become a raving Communist I don’t agree with Piketty, or the Guardian, that the answer is to steal the money from one group of people to give it all to another. Reading Ayn Rand’s Atlas Shrugged did not cause me to spill my beer. Niall Ferguson’s The Great Degeneration sums up a lot of the problems. What I’d like is for us to apply some mind and intellect to establish where we are, what we want of an economy – the hint is probably to make human life more enjoyable, rather than to worship metrics 4  and digits on a screen, and then to have a decent debate on the big picture. I’m with Scott Fitzgerald that

    The test of a first-rate intelligence is the ability to hold two opposed ideas in the mind at the same time, and still retain the ability to function.

    Politics now is all to much micromanagement of detail and polarised crap. I fell into that damned trap myself – I kept on earning even when the process of earning money was beginning to seriously piss me off, but never opened my mind to what am I trying to do with life, until I encountered a sudden stop. And then realised that I could stop and should stop bashing my head on a brick wall, but it would demand changes in how I did things.

    Let’s avoid that sudden stop and inquire on how to do things differently. As I wander through the neighbourhood I spot loads of UKIP posters. It reminds me of the 1970s when the National Front was marching through Lewisham High Street. UKIP seem racist in a different way – less about colour, but let’s not forget that Europe has known a terrible amount of human misery perpetrated between groups that one would be troubled to spot a difference between by sight 5. The troubled history of the Balkans and the dreadful conflict that started 100 years ago shows where that sort of thing goes. One of the delightful collective qualities of the English are that they are generally a tolerant and easy going bunch of people in comparison.

    Hopefully we will think our way out of the problems rather than fight our way out of it. But the language of some of the election literature I am receiving troubles me. I don’t normally bother with European elections for the simple reason that the European Parliament has no executive power, I of the same opinion as both Piketty and UKIP that there is a serious democratic deficit in the EU, and it would be remedied with a Parliament that was elected in proportion to population and had the power to make the running. The EU was historically a trade body set up by technocrats, and that is fine. For a trade body.  The expansion of the mandate needs different structures. But smashing it all up in a fit of pique doesn’t strike me as the smartest option either. And what I really, really, want is to lean against a UKIP victory. The East of England is already a redoubt for that party, and these guys scare me, because when you start to hear that the end justifies the means it’s not usually a sign of good times coming.

    And we need to stop lying to the people that the economy is disenfranchising.

    There’s nothing we can do for you, you’re on your own

    would be a far more honest response to the long-term unemployed than bullshit like ‘Help to Work’ and oxymoronic compulsory volunteering. I’m not smart enough to know what the answer there is, but I am smart enough to know that collectively lying to ourselves isn’t the answer. We have to deal with the world as it is, not how it was. And right now the pool of work for the averagely endowed is dropping, the returns on that work is falling, and there seems to be an increasing amount of hurt as a result. There are also a fair few own goals – one of the things I am deeply grateful to Gordon Brown for is keeping Britain out of the Euro. The Island Kingdom is essentially different when it comes to handling money, it is perhaps a shame for other members of the Europe that Britain is not the only exceptionalism.

    There’s a lot of slow-burning crap at the moment. To be fair there’s probably always a lot of slow-burning crap at any time through modern history, and every time somebody declares that the slow burning crap has been nailed it turns out that he’s standing right on top of it, like Francis Fukuyama’s The End of History and the Last Man. It’s not just human development where declaring victory is unwise, Lord Kelvin thought physics was done and largely dusted in 1900 bar improving accuracy. But it probably does to engage with the slow burn rather than pretend it isn’t there and end up like Centralia.

    Notes:

    1. a lot of people get worked up about the unfairness of some people earning shitloads of money. As a citizen of a First World country in the 21st century, many Britons are  probably doing pretty well, on a global scale…
    2. That’s maybe easier for old gits who have known outside bogs, no central heating and draughty windows. Clean water, which in fairness to Britain I have always known, being warm enough and having decent food knocks having the right iFads and consumer goods into a cocked hat. Try doing without any of them for a couple of days in February.
    3. He declined, because he had already lost £5 to me because he didn’t believe that Mustela erminea has a baculum some time before
    4. The most common metric of economic growth, GDP, has serious deficiencies as described by the OECD
    5. I’m really trying to avoid Godwin’s law here, particularly this year