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

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

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

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

    I'll be back...

    I’ll be back…

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

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

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

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

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

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

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

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

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

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

    Russia, Greece – good value in some odd places

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

    Russia has bad form

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

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

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

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

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

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

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

    Of risks and known unknowns like Brexit

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

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

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

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

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

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

    TD Bank NV

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

    and heading over to Appendix E

    1411_tdterms

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

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

    Platform charges

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

    Looks like a rough ride ahead

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

    Notes:

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