The Full English Accompaniment – How are we all managing?

Last year I started writing a blog post called “How the other half live”. I never finished it for various reasons. In it I started to explore the realities of being super rich, financially independent from birth. What’s it like to have a trust fund(1). COVID-19 has brought this to the fore of my mind. It has indiscriminately affected us all, so how have different people managed?

One of the core tenets of the FIRE movement is minimising lifestyle inflation. Happiness does not need to be bought. The overlap with the stoic philosophy of acceptance. Seeing and appreciating small pleasures.

Plenty of blog posts have been written on this balance. How much do you limit your spending, does deprivation become part of the journey (2). More ascetic than stoic. Stingy or frugal (3). The overlaps with minimalism.

Some university friends had the UK-equivalent of trust funds, or came from families where money was not a problem. We have family friends who are 1%-ers. Not billionaires, but enough for their family to never need to work as long as money was managed diligently. There were able to explore passions and hobbies; pottery, classic cars, travel, sailing. Money was never spent on displays of wealth. Why should it be? The pressure to display wealth, emulate the Kardashians, didn’t effect this brand of old-money (4). Their passions, experiences and opportunities to share them brought them happiness, not flashing cash (5, 6).

We are all humans. Social creatures. Our friends in some way define us, and what we think is important, so we can share things we enjoy. COVID-19 has stopped those social interactions. Zoom/ Skype/ WhatsApp/ Facebook calls are great, but they’re not the shared lived experience.

The billionaire in their lockdown bunker is still isolated from their friends (7). Unable to have their social interaction.

The body conscious duck-pouters can’t get their fillers/ extensions/ acrylics (8). Unable to have their social interaction, which doubles as their internal validation.

Even TI isn’t able to have cup of really good coffee with a friend (9).

My wife recounted a conversation with a production line worker at her company discussing how different people on her street were coping, including the line “it must be really difficult for the ones on the game”.

We’re still working full time. We’re eating nice food and doing house renovations. The biggest change to our day-to-day life in lockdown has been a lack of shared experiences with friends. It’s made me realise how important that social interaction is. It’s the thing I really miss, and the absence of it has made life less enjoyable. I don’t think I would enjoy FIRE if I had no-one to enjoy it with.

I hope you’re all coping well.

Have a great week,

The Shrink

COVID:

News:

Comment:

References:

  1. https://www.thecut.com/2018/04/what-its-really-like-to-have-a-trust-fund.html
  2. http://www.thefrugalcottage.com/deprivation-is-not-part-of-the-journey/
  3. https://fourpillarfreedom.com/living-stingy-vs-living-frugally/
  4. https://www.thecut.com/2018/06/how-do-celebrities-spend-their-money.html
  5. https://theescapeartist.me/2014/08/08/optimising-for-happiness/
  6. https://monevator.com/how-to-enjoy-life-like-a-billionaire/
  7. https://www.bbc.co.uk/news/av/stories-52669638/how-the-super-rich-spent-lockdown
  8. https://www.bbc.co.uk/news/newsbeat-52728957
  9. https://monevator.com/the-latte-factor/
  10. https://www.thelancet.com/journals/lancet/article/PIIS0140-6736(20)31180-6/fulltext
  11. https://www.bbc.co.uk/news/health-52737169
  12. https://www.bmj.com/content/369/bmj.m2066
  13. https://www.cnbc.com/2020/05/20/highly-indebted-zombie-companies-control-more-than-2-million-us-jobs.html
  14. https://www.theguardian.com/business/2020/may/20/uk-sells-government-bond-with-negative-yield-for-first-time-coronavirus
  15. https://www.thisismoney.co.uk/money/saving/article-8336629/Savers-opt-old-favourite-NS-offering-best-deals.html
  16. https://www.bbc.co.uk/news/business-52735240
  17. https://www.bbc.co.uk/news/in-pictures-45046023
  18. https://www.visualcapitalist.com/zoom-boom-biggest-airlines/
  19. https://www.telegraph.co.uk/business/2020/05/22/britain-sliding-deflationary-death-spiral/
  20. https://www.bbc.co.uk/news/business-52691369
  21. https://www.thetimes.co.uk/article/james-dyson-interview-electric-car-tesla-tzls09t5m
  22. https://www.businessinsider.com/perfect-storm-of-stupid-in-stock-market-right-now-2020-5?r=US&IR=T
  23. https://www.theguardian.com/environment/2020/may/20/coronavirus-fallout-to-slow-global-growth-in-renewable-energy
  24. https://monevator.com/salary-sacrifice/
  25. https://indeedably.com/dichotomy/
  26. http://quietlysaving.co.uk/2020/05/24/information-overload/
  27. https://medfiblog.wordpress.com/2020/05/24/johari-rumsfeld-and-overpaying-mortgages/
  28. https://medfiblog.wordpress.com/2020/05/16/the-nhs-pension-allowances/
  29. https://simplelivingsomerset.wordpress.com/2020/05/22/what-will-we-do-with-our-world-when-this-is-over/
  30. https://awaytoless.com/remaining-positive/
  31. https://eaglesfeartoperch.blogspot.com/2020/05/relocating-fig-tree-six-on-saturday.html
  32. https://theescapeartist.me/2020/05/22/back-to-basics-why-you-must-get-out-of-debt/
  33. https://gentlemansfamilyfinances.wordpress.com/2020/05/22/were-all-going-on-a-mortgage-holiday/
  34. https://firelifestyle.co.uk/2020/05/22/reached-100000-in-index-funds/
  35. https://thefifox.wordpress.com/2020/05/22/an-analysis-how-to-optimise-the-traditional-emergency-fund/
  36. https://drfire.co.uk/lifestrategy-100-vs-ftse-global-all-cap/
  37. http://bankeronfire.com/losing-the-plot
  38. http://bankeronfire.com/demystifying-stock-market-returns
  39. https://zerotofreedom.org/how-to-invest-on-minimum-wage/
  40. https://lifeafterthedailygrind.com/will-the-gold-standard-return/
  41. https://www.itinvestor.co.uk/2020/05/scottish-mortgage-the-biggest-and-the-best/
  42. https://playingwithfire.uk/what-to-do-if-you-lose-your-job-6-steps-from-a-recently-unemployed-fire-enthusiast/
  43. https://pathtolife2.com/2020/05/21/which-fi-dinosaur-are-you/
  44. http://diyinvestoruk.blogspot.com/2020/05/troy-trojan-ethical-portfolio-addition.html

The Full English – Elon Musk, lifestyle design, cults of personality and F=MA

I bloody hate ‘Lifestyle Design’ (1). Thankfully, I’m not the only one (2).

It’s so glib. Why in God’s name do I need someone to tell me routes to follow my dreams but blatantly ignore that most goals are achieved through hard graft and determination.

Yeah, so Tim Ferriss made a killing off the 4-hour work week, but that doesn’t mean you will (3). He grafted for it.

People seem to focus on the outcome, and that self-belief alone will get them there. Along with an online course and a self-published book…

Sod off.

The people who do consistently well have a combination of self-belief (A), confidence to achieve it (B), intelligence (C) and grit (D).

It’s all well and good singing your self-belief and confidence, but if you haven’t got the smarts to see the end-goal, and the kajones to graft it out, you’re just another dreamer.

Plenty of (A) and (B) on Instagram, selling a life/ie.

Plenty of billionaires grinding out (C) and (D), quietly supported by (A) and (B).

Those making noise about all four gather admirers, those who wish they could be the same. Steve Jobs, Branson, Jay-Z, Trump. Maybe not the C or D for Trump.

Which is where Elon Musk is interesting.

He’s on Instagram, selling the life, building a cult following, leveraging that to support his business. He’s not just a man with a long-term goal, he’s a master of public performance. He courts intrigue and amusement, despair from the stuffy stiff suits. He’s a man of the people… he projects.

He also seems to have spent too long getting high on his own Instagram feed. A good marker for Tesla’s stock price would be Musk’s order to his dealer.

Self-belief is great, but at some point it conflicts with reality (4). Don’t get me started on when he tried to tell Anaesthetists how to run a ventilator on a COVID-19 patient.

Image Credit: Reddit

But lets not forget he got where he is by working 100-hour weeks. As someone living that life, I can tell you they’re pretty shit. Musk is selling his homes (his instagram life?) to achieve his Mars dream (5).

Your life is the product of your decisions. Those decisions and choices determine the direction of your life. Graft then takes you there.

Applying a formula

Turn to our old friend Newton (6).

F=MA

Force = (mass) x (acceleration)

If you want your life to go a certain way, you need to exert your will to accelerate it in that direction. Your existing lifestyle ties is the inertia, your mass.

Sometimes one big push will be enough to produce force in the required direction. One burst of acceleration.

Most of the time slow sustained acceleration will achieve the force in the direction required.

Steady graft.

Not a Youtube tutorial and a £1500(+) drop-shipping course.

Have a great week,

The Shrink

COVID – I advise the use of the BMJs information hub for evidence-based updates:

News – I have been deliberately avoiding news outlets recently. I don’t have the headspace for the hysteria:

Opinion:

References:

  1. https://fizzle.co/sparkline/what-is-lifestyle-design
  2. https://medium.com/swlh/lifestyle-design-please-shut-the-fuck-up-a16dc38cd306
  3. http://www.timferriss.com/#
  4. https://www.bbc.co.uk/news/technology-52627744
  5. https://www.bbc.co.uk/news/business-52530316
  6. https://en.wikipedia.org/wiki/Newton%27s_laws_of_motion
  7. https://www.bmj.com/content/369/bmj.m1844
  8. https://www.bmj.com/content/369/bmj.m1849
  9. https://www.bmj.com/content/369/bmj.m1835
  10. https://www.bbc.co.uk/news/business-52663523
  11. https://www.telegraph.co.uk/business/2020/05/16/investors-bet-750m-plunge-sterling/
  12. https://www.bbc.co.uk/news/business-52673727
  13. https://www.thisismoney.co.uk/money/saving/article-8313027/Saving-deals-plunge-Goldman-Sachs-cuts-rate-Marcus-account.html
  14. https://www.thisismoney.co.uk/money/mortgageshome/article-8307873/Mortgage-rates-lowest-level-fail-pace-BoE-cut.html
  15. https://www.autocar.co.uk/car-news/industry/insight-four-lessons-aprils-car-sales
  16. https://www.ft.com/content/78108d3a-d046-4916-858a-a5df090ce8c3
  17. https://www.theguardian.com/business/nils-pratley-on-finance/2020/may/14/investors-can-return-to-obsessing-over-relations-between-us-and-china
  18. https://www.telegraph.co.uk/business/2020/05/16/britain-heading-eighties-style-unemployment-crisis/
  19. https://www.bbc.co.uk/news/business-52578720
  20. https://awealthofcommonsense.com/2020/05/nothing-fails-quite-like-success-in-the-stock-market/
  21. https://www.ukvalueinvestor.com/2020/05/tips-for-investing-in-a-coronavirus-world.html/
  22. https://earlyretirementnow.com/2020/05/11/another-bull-market/
  23. https://medfiblog.wordpress.com/2020/05/16/the-nhs-pension-allowances/
  24. http://eaglesfeartoperch.blogspot.com/2020/05/building-new-greenhouse-part-3-six-on.html
  25. https://gentlemansfamilyfinances.wordpress.com/2020/05/15/the-merits-of-a-paid-off-mortgage/
  26. https://southwalesfi.co.uk/2020/05/15/my-progress-to-f-i-r-e/
  27. https://asimplelifewithsam.com/2020/05/10/april-review/
  28. https://averagemoneymanagement.wordpress.com/2020/05/15/5-reasons-why-investing-isnt-gambling/
  29. https://theescapeartist.me/2020/05/15/predictions-are-a-mugs-game-but-lets-play-anyway/
  30. http://thefirestarter.co.uk/2020-re-budget-lockdown-impulse-purchases-exciting-announcement/
  31. https://gettingminted.com/short-term-thinking/
  32. https://www.itinvestor.co.uk/2020/05/herald-investment-trust-home-grown-tech/
  33. https://leftfi.home.blog/2020/05/17/personal-finance-update/
  34. https://monevator.com/would-you-lend-yourself-money-in-an-emergency/
  35. https://monevator.com/get-out-of-debt-to-unleash-your-inner-money-maker/
  36. https://monevator.com/the-stock-market-is-wilder-than-you-think/
  37. https://pathtolife2.com/2020/05/16/do-you-need-as-much-as-you-think-to-be-financially-independent/
  38. https://www.iretiredyoung.net/post/early-retirement-small-things-make-a-difference
  39. https://indeedably.com/doppelganger/

View at Medium.com

Investment Strategy Statement – Part 3 – Allocations (revisited April 2020)

So here’s the guts of my ISS.

When I first drafted it in late 2018 I painted in broad brush strokes with the optimism and ambition of the naive. This updated version is, I hope, more pragmatic.
Asset Allocation

As a novice investor with relatively little in the market my wealth can essentially be divided five ways:

  • Property equity
  • Cash
  • Alternative assets
  • NHS Pension
  • S&S investments (1)

The first four can be covered in short order:

Property equity

Tied up in my home. Dependent upon the local market, plus our own mortgage repayments schedule and renovation work. The largest portion of my current wealth, and continuing on it’s merry accumulating way whilst we work up to our forever home. I have no interest in BTL until that point is reached.

Cash

Current accounts, savings accounts and premium bonds. My emergency fund, plus any extra money saved for upcoming expensive purchases. Emergency fund of three months personal salary, plus three months held jointly. Holdings target high interest and liquidity, through usage of high interest current and savings accounts with FSCS cover.

Alternative assets

Miscellaneous other physical holdings; cars (including current classic projects), art and books. Not alternative investment assets like currency/ bitcoin, EIS or private equity (2). Just plain old shit I own because I like it, that happens to be worth something.

NHS Pension

Unfunded, with no option to trade-out, my NHS pension is entirely tied up in my working life and retirement date. Subject to the whim of the government and BMA, I don’t include it in most of my net worth calculations as it does not physically exist until I retire.

Stocks and shares investments

The more interesting bit. My timescale is long, my employment is (in theory) secure and my pension scheme is (supposedly) generous. All money going into my portfolio is that which I can afford to lose. My current lifestyle, while not extravagant, is comfortable and by limiting lifestyle inflation I hope to increasingly channel spare cash into investments. I’m happy to take a reasonable amount of risk on this basis.

In choosing my asset allocation split I’ve tried to read widely, including the usual Smarter Investing 3rd edn – Tim Hale, Monevator, etc (3, 4, 5). My holdings are split between a core 80% passive tracker portfolio and 20% active ‘satellite’. The ‘satellite’ includes stocks, funds, trusts, ETFs and some odd crowdfunding investments.

Allocations will be reviewed and re-balanced quarterly. At this stage I’m uninterested in commodities, currencies, and REITs or other property investments. The diversification benefit is not worth the added effort and complexity for my paltry portfolio. Bonds I may revisit in the future, but at this point accumulation with a long timescale is the name of the game.
Fund/Brokerage Allocation

I intend to allocate across ETF/ fund providers. Rules here are loose as I’m still in early stages, but the intention is that no provider will hold more than 34% of my holdings. To minimise risk I’ll also allocate across brokers, with the intention of simultaneously reducing TER and minimising tax burden (6).
World Allocation

Global allocation applies only to my market investments, not my overall wealth.

Testbed Active Portfolio

This section of my portfolio is largely UK-based, but not limited by global allocation targets. Some themes include EIS/ early stage investments, green investment trusts, tech and mining.

Core Passive Portfolio

It would be very simple to put all my money in a LifeStrategy 100 and be done with it, but as my wife will attest I like to make life difficult. As fits a diversified passive-focus portfolio the central core will mirror world markets, using all world tracker funds and ETFs (7).

I understand the broad investment logic behind investing in your own country, and holding trackers to your domestic market. The protection against inflation a home market affords (8). But much of my active investments, cash, property and other assets are in the UK. I’m already UK inflation vulnerable/protected before even looking at passive equities.

I’m therefore largely ex-UK in my passive section. But then how do you slice your pie? Contribution to Gross World Product? Global market capitalisation? If global cap whose data do you use?

Weighting

My goal is passive purist, using a blend from Bloomberg, Credit Suisse’s Yearbook, Star Capital and World Bank reported data covering all countries with contributions >0.01% (9, 10, 11, 12). Getting clear data for free as an amateur investor has proved to be tough. The ex-UK adjusted average forms the basis of my allocation, alongside a further CAPE-adjusted view.
In summary

My allocations are fairly standard, if slightly over-complicated by my own adherence to dogma. I’ll review this yearly with new world data to see what changes need to be made, and in five years for a full review of asset allocation split.

In Part 4 – Funds, Accounts and Rebalancing.

References:

  1. https://monevator.com/asset-classes/
  2. https://en.wikipedia.org/wiki/Alternative_investment
  3. https://amzn.to/2Sthjtv
  4. https://monevator.com/asset-allocation-construct/
  5. https://www.bogleheads.org/wiki/Asset_allocation
  6. https://www.bogleheads.org/wiki/Asset_allocation_in_multiple_accounts
  7. https://monevator.com/investing-for-beginners-the-global-stock-market/
  8. https://www.investopedia.com/articles/basics/10/protect-yourself-from-inflation.asp
  9. https://seekingalpha.com/article/4202768-u-s-percent-world-stock-market-cap-tops-40-percent
  10. https://www.credit-suisse.com/about-us-news/en/articles/news-and-expertise/esg-investing-a-trend-that-is-constantly-evolving-202002.html
  11. https://www.starcapital.de/en/research/stock-market-valuation/
  12. https://data.worldbank.org/indicator/
  13. https://monevator.com/world-stock-markets-data/

The Full English – Why did Buffett sell his airline stocks?

This week, whilst avoiding infection in my daily work, I’ve been thinking macro. I kept coming back to that Buffett selling BH airline stock news (1). Something about it doesn’t hang right.

Market Insider reckons he bought in against his own advice, anticipating that more people would fly and airlines would maintain value and continue stock buybacks (2). He sold out at a $50bn loss (2, 3). Most of the articles reckon this is because Coronavirus has off-the-cage smackdowned flying. They quote Buffett’s “The world has changed” (1). Plenty of airlines are staring into a debt pit and begging governments for handouts. So of course Buffett sold out at a loss, better to lose some rather than all.

So is the Sage of Omaha just a normal investor who called it wrong?

I can’t help but feel someone of Buffett’s experience, who normally play the ultra-long/ value/ invest and hold game, wouldn’t sell out because of profit warnings. There was already talk of government bailouts. Yes those airlines aren’t going to be profitable in the short-medium term, and will probably suck cash at the same rate as oxygen and Jet A-1, but people will still need to fly. Are our choices and habits really going to change that much? Is our society really going to stop the daily business return flights, or the stag weekends in Budapest?

So what’s he seeing?

The market and it’s FOMO rally appears to be convinced of the V-shaped recovery. The NASDAQ has climbed back to where it was pre-COVID (4). Record numbers of investors are buying back in (5). People called January the melt-up, but this feels suspiciously bubbly again (6). Buffett didn’t give much away in this years Berkshire Hathaway AGM (7). Perhaps most intriguing is that $130 billion cash pile.

To try and gain some sense, I went to other unprecedented times; specifically the Great Depression and Stagflation. To be clear, I’m not thinking we’re in a repeat of either, each major crisis is different, but I’m looking to learn.

The Great Depression

Split between Keynesian and monetarist theories. Keynesian’s (demand-driven) believe loss of confidence led to reduction in investment and spending. Holding money becomes profitable as economic deflation sets in. The monetarist theory suggests this was a normal recession that tipped in severity due to scarcity of money supply. These then follow Irving Fishers debt deflation theorem (8).

A third school of thought, the Austrian School of Economics, argues the FED drove the Great Depression. Expansion of money supply in the 1920s (hence the roaring twenties) led to an unsustainable credit boom (9).

To quote Ludwig von Mises:

 “Credit expansion cannot increase the supply of real goods. It merely brings about a rearrangement. It diverts capital investment away from the course prescribed by the state of economic wealth and market conditions. It causes production to pursue paths which it would not follow unless the economy were to acquire an increase in material goods. As a result, the upswing lacks a solid base. It is not a real prosperity. It is illusory prosperity. It did not develop from an increase in economic wealth, i.e. the accumulation of savings made available for productive investment. Rather, it arose because the credit expansion created the illusion of such an increase. Sooner or later, it must become apparent that this economic situation is built on sand.” (10)

During the period there was massive deflation, falls in GDP, and high unemployment. The CPI began the decade at 17.1, and had fallen to 14.0 by 1939 (9)

CPI and Inflation 1930- 1939

Image Credit: Inflationdata.com

Stagflation

Up until the ’70s it was believed there was a stable inverse relationship between inflation and unemployment. The US economy slowed, in part due to the Arab Oil Crisis. Rapid rises in the price of oil made some companies uneconomic, leading them to sack workers. Rising unemployment was accompanied by rising price inflation. Monetary policy in the late-60s and early-70s period was also expansive, contributing to inflation (11).

The normal response of increasing interest rates to reduce the speed with which money changes hands doesn’t work (12). Annual inflation ran at 7.25%, but in some months touched 13%. The CPI rose from 37.8 to 76.7 (13).

Image Credit: Inflationdata.com

To summarise:

  • Both periods preceded by expansionist monetary policy
  • Both periods have high unemployment
  • Great Depression – economic deflation, low interest rates, fall in aggregate demand
  • Stagflation – price inflation, reactionary interest rates, fall in aggregate supply

Application

Concerns about the future are widely shared. The Bank of England is predicting the sharpest recession on record (14). TI in this weeks Weekend Reading covers a bit of the GDP expectations (15). Iona at Young Money Blog takes it further, covering GDP and drawing comparisons with the Great Depression (16). She goes so far as another event-driven collapse, the Great Frost of 1709. The Ermine has also looked to Buffet and seen bad news (and as an ardent Asimov fan, I particularly like his Trump-Mule comparison) (17).

Plumbing the depths of some thought experiments and potential outcomes, what are the current conditions?

  • This period has been preceded by expansionist monetary policy (QE).

Though bond/gilt yields and limits on futures lending suggests there remains fear in the market (18).

  • We’re about to see high unemployment.

This New York Times front page showing how many jobs were lost due ...

Image Credit: Reddit/ NYT

To some extent the Coronavirus job retention scheme, or whatever name the Government is currently calling it’s buy-itself-out-of-jail card is going by now, has helped. The Gov is footing the bill, and most people will receive an income. This has maintained peoples spending, and therefore aggregate demand in the economy.

This is not infinite. The furlough scheme is due to end in July, at the same time as mortgage holidays (19). It is unlikely we’ll be fully back to normal until autumn at the earliest. Not all companies will start back. Our heavily service-sector dependent economy will probably be the most affected. Services account for 80% of total UK economic output. The purchasing index data for those services is a fifth of what it was pre-Coronavirus (20).

To quote Ermine quoting ZXSpectrum on the Monevator thread (21).

“The high street was obsolete anyway, airlines should go bust, the petroleum industry needs massive downsizing. The FTSE is not coming back because it full of crap companies with obsolete business models. The S&P and Nasdaq are not.

I’m also more relaxed about higher unemployment. The UK made a sort of Faustian bargain: low unemployment for high underemployment and low skill base.

[…]

Machine learning and AI is going to make many middle class people unemployed. We might start getting used to it now and stop stigmatizing those who don’t have jobs. A generation or two from now being unemployed might well be the norm.” (17)

So we’ve got mass unemployment, largely of those working in the service industry, most affecting those on zero-hours, casual contracts, or those with minimal qualifications.

  • Interest rates have been dropped to record lows

Which, coupled with QE, is putting more money into the market. Again helping perk current demand.

Supply or demand?

The great fear when this kicked off was the supply side. All the factories in China were shut, companies going under because they can’t source product etc. Plenty of anecdotal evidence. This led to various fears that Coronavirus would lead to stagflation through flat economic growth and spiking prices from the supply side shock (22). This could still well be the case.

This article on Econlib makes a good argument for it (23). We’ve seen a fall in aggregate supply. We’re seeing a fall in aggregate demand. If there’s more demand then supply we’ll see stagflation.

I think they’ve got it the wrong way round though.

The aggregate supply has returned through global supply chains. Deliveries happen, and the companies that supply are making bank. Looking at you Amazon.

Demand is the question.

The government has kept aggregate demand going through the furlough scheme etc. That is not indefinite. Will, or even can, companies restart with their employees?

If they can’t, and we see mass unemployment, then what happens to demand?

This could coincide with the end of a Kondratiev wave, such as the transition from a supply/ IT/ service predominance to one of green technologies and an internet of things (24). Ably supported by the rise of home-working through improved IT. Goodbye commercial REITs.

We could see mortgage refinancing risk rear it’s ugly head, coinciding with decreased bank lending due to deflationary concerns, as laid out in this masterful piece by Finumus (25). It has me worried about my rate.

If aggregate demand falls but supply doesn’t, then oversupply drives deflation and job losses. Basic economics. Decreasing supply costs have helped maintain standard of living and low inflation for years – all that offshoring. In days of deflation, oversupply and job losses then cash in the bank is king. Is the governments current demand prop enough to see us through?

Or did Buffett just call it wrong on airlines?

Have a great week,

The Shrink

N.B. I would truly appreciate others thoughts in the comments on posts like this. They are my attempts to reason through processes, and balancing counter-argument is most welcome.

COVID – I advise the use of BMJs information hub for evidence-based updates:

News:

Opinion:

References:

  1. https://www.marketwatch.com/story/buffett-dumps-entire-airline-stake-saying-the-world-changed-for-airlines-2020-05-02
  2. https://markets.businessinsider.com/news/stocks/why-warren-buffett-invested-big-4-airlines-sold-them-loss-2020-5-1029167021
  3. https://www.telegraph.co.uk/business/2020/05/03/warren-buffett-sells-shares-major-airlines-amid-50bn-loss/
  4. https://www.theguardian.com/us-news/2020/may/07/us-nasdaq-index-wiped-out-all-of-2020s-losses-triggered-by-covid-19
  5. https://www.theguardian.com/money/2020/may/06/small-investors-poured-back-into-stock-market-in-april-says-data-firm-uk-equity-funds
  6. https://seekingalpha.com/article/4317127-2020-melt-up-and-aftermath
  7. https://compoundyourfreedom.com/2020-berkshire-hathaway-shareholders-meeting/
  8. https://en.wikipedia.org/wiki/Debt_deflation
  9. https://inflationdata.com/articles/inflation-cpi-consumer-price-index-1930-1939/
  10. https://mises.org/library/causes-economic-crisis-and-other-essays-and-after-great-depression
  11. https://www.investopedia.com/articles/economics/08/1970-stagflation.asp
  12. https://inflationdata.com/articles/2008/11/19/stagflation-what-is-it/
  13. https://inflationdata.com/articles/inflation-cpi-consumer-price-index-1970-1979/
  14. https://www.bbc.co.uk/news/business-52566030
  15. https://monevator.com/weekend-reading-get-ready-for-the-drop/#more-50276
  16. https://youngmoneyblog.co.uk/coronavirus-economy/
  17. https://simplelivingsomerset.wordpress.com/2020/05/04/this-is-your-captain-warren-speaking-its-going-be-a-long-night-three-out-of-four-engines-are-on-fire-the-fourth-is-running-rough/
  18. https://www.bloomberg.com/news/articles/2020-05-03/hong-kong-oil-etf-s-broker-refuses-to-let-it-buy-more-futures
  19. https://www.thisismoney.co.uk/money/news/article-8294137/Double-blow-furlough-mortgage-holiday-schemes-come-end.html
  20. https://www.thisismoney.co.uk/money/markets/article-8288563/Services-sector-plummets-customer-facing-businesses-remain-closed.html
  21. https://monevator.com/weekend-reading-under-infected-over-optimistic/comment-page-1/#comment-1198185
  22. https://edition.cnn.com/2020/03/10/investing/stagflation-economy-coronavirus/index.html
  23. https://www.econlib.org/i-fear-stagflation-and-general-price-controls-are-coming/
  24. https://en.wikipedia.org/wiki/Kondratiev_wave
  25. https://www.finumus.com/blog/beds-are-burning
  26. https://www.bmj.com/content/369/bmj.m1861
  27. https://www.bmj.com/content/369/bmj.m1850
  28. https://www.bmj.com/content/369/bmj.m1742
  29. https://www.reuters.com/investigates/special-report/health-coronavirus-britain-elderly/
  30. https://www.bbc.co.uk/news/business-52591262
  31. https://www.euronews.com/living/2020/05/05/musk-and-bezos-feud-goes-electric-with-amazon-s-answer-to-tesla
  32. https://www.theguardian.com/business/2020/jan/29/uk-electric-van-maker-arrival-secures-340m-order-from-ups
  33. https://www.rightmove.co.uk/news/articles/property-news/first-time-buyers-uk-home-guide
  34. https://firevlondon.com/2020/05/03/april-2020-a-mad-bounce/
  35. https://thesquirreler.com/2020/05/03/savings-ninja-thought-experiment-10/
  36. https://pursuefire.com/monthly-update-20-april/
  37. http://diyinvestoruk.blogspot.com/2020/05/personal-assets-trust-portfolio-addition.html
  38. https://www.mouthymoney.co.uk/from-investing-to-account-switching-what-hit-video-game-animal-crossing-can-teach-us-about-money/
  39. https://simplelivingsomerset.wordpress.com/2020/05/06/ive-got-a-sneaking-admiration-for-donald-trump/
  40. http://bankeronfire.com/a-letter-to-my-younger-self-three-key-lessons-for-building-wealth
  41. http://www.retirementinvestingtoday.com/2020/05/obfuscation.html
  42. https://averagemoneymanagement.wordpress.com/2020/05/08/buying-shares-as-a-substitute-for-buying-stuff/
  43. https://theescapeartist.me/2020/05/08/how-game-of-thrones-won-the-culture-war/
  44. https://playingwithfire.uk/i-lost-my-job-what-now/
  45. https://www.onemillionjourney.com/portfolio-update-17-april-2020-97039e/
  46. https://www.moneymage.net/2020-april-savings-report/
  47. https://www.foxymonkey.com/managing-money-with-your-partner/
  48. https://indeedably.com/indefensible/
  49. https://adotium.co.uk/2020/05/09/are-you-not-entertained/
  50. https://awaytoless.com/why-100-equities/
  51. https://thefifox.wordpress.com/2020/05/06/internet-privacy-and-your-data-part-1/
  52. https://igniting-fire.com/2020/05/05/just-20000-to-save-the-world/
  53. http://eaglesfeartoperch.blogspot.com/2020/05/building-raised-beds-six-on-saturday.html
  54. http://www.lifesavvy.com/24712/this-companion-planting-chart-will-help-your-garden-thrive

 

 

The Financial Dashboard – April 2020

The goals for April were:

  • Review target asset allocations
  • Get the project car back on the road
  • Tidy the garage, sell anything unnecessary
  • Tidy the loft and begin to clear

Checking the assets and liabilities:

AssetsLiabilities

These are taken, as always, from my Beast Budget spreadsheet. Long time readers will again notice a change in how I’m expressing my net worth. I’ve removed my pension and student loan numbers from my overall calculation. My numbers are always ‘what would be left if I died’, and the figures above now represent this. My pension is recalculated every tax year as well, and is generally a bit lumpy for calculation uses. My net worth increased a tasty 3.7%, in part due to a 48% savings rate. New investment positions were opened in my FreeTrade account for TRIG and UKW.

Goals:

Goal achieved: Review target asset allocations

Completed, updated post scheduled. Led to me rewriting my investment tracker spreadsheet… again.

Goal achieved: Get the project car back on the road

This was a nice little success too. Had some work done at a good new garage I’m trying, got a clean MOT and I’m now using it to get to work. If lockdown continues I’ll be doing more tinkering and improvements to hopefully bring it’s worth up. I’m still commuting but my fuel spend has dramatically dropped.

Goal failed: Tidy the loft and begin to clear

Started to do this, but found I need to buy some loft struts/legs to lift the boards clear of the insulation. These are currently sold out in Screwfix/ B&Q, so I’m held up. Hopefully I can get this completed this month.

Goal achieved: Tidy the garage, sell anything unnecessary

Tidied, but found little to sell. I’m planning to move more to the loft so I can tidy further. There’s a load to go to the local tip as well, but they’re all shut.

Budgets

  • Groceries – Budget £200, spent £238.77, last month £175.55 – The nice dinners in have replaced the dinners out 
  • Entertainment – Budget £100, spent £55, last month £106.75
  • Transport – Budget £460, spent £429.79, last month £401.48
  • Holiday – £150, spent £0, last month £317.33
  • Personal – £100/ £156.85/ £25 – New threads
  • Loans/ Credit – £0/ £0/ £0
  • Misc – £50/ £3.25/ £15.12
  • Fees – £70 /£522.94/ £267.50 – Bloody GMC/ Royal College!

In the garden:

This is perhaps my favourite month in the garden, I love seeing everything come back to life. I’ve been sowing seeds left, right and centre. Potatoes and raspberrys shooting up. The apple tree is in blossom. Succession sowings of lettuce, radishes, lambs lettuce, pak choi and rocket are accompanied by tomatoes, cucumbers, pumpkins and courgettes in the greenhouse.

Goals for next month:

  • Tidy the loft and begin to clear
  • Read three books
  • Update my investment tracker spreadsheet and sync with allocations
  • Strip out kitchen for renovation
  • Fix minor problems on the modern(ish) car

Happy May everyone, I hope you’re all keeping well,

The Shrink

The Full English Accompaniment – Dumping Shit

This week the Swedish city of Lund dumped a tonne of chicken manure in one of it’s parks at night to deter visitors to an annual celebration (1). Chicken shit wasn’t the only thing being dumped. Lots of UK bloggers are selling off, and so is the Sage of Omaha.

I try to avoid commentating on transient market flux, but right now I find myself drawn in. What the hell is going on?

Well the talk has been of whether we’ll see a V-shaped or L-shaped recovery from the March sell-off. If you read the headlines you’ll see that the stock market has been going great guns (2):

FT

As TI at Monevator identifies in this weeks Weekend Reading it’s mostly a US market thing; and specifically the S&P500 (3). The FTSE100 is looking very L-shaped. The FTSE100 is heavy in oil and service stocks, which are taking an absolute battering. The S&P500 is tech led, companies who couldn’t ask for a better demand boost. We saw a small sell-off at the end of last week after earnings reports, but not as much as was expected (4).

If you hold a world index tracker like myself, due to sheer capitalisation size, you probably hold a decent portion of the S&P500. Like many bloggers below you might have seen a net worth jump. Tech values have gone up on expected earnings, the market appears convinced that we’ll all be back to work soon, and it’s banking on the ‘Fed put’; that cheap government lending will bolster and boost the market (5, 6).

Meanwhile, on the ground, people are being laid off and things don’t look all that rosy. Retailers with shut shops are having online sales to clear stock, a problem compounded as discount shops like TKMaxx can’t help them clear inventory (7). Manufacturers like Rolls-Royce are cutting jobs (8). Some bloggers like Playing with Fire have been made redundant (9). Others like Fire Lifestyle have lost significant portions of their turnover (10).

Poor darlings who over-extended themselves to buy property to then let on AirBnB, inflating the housing market in the process, are suddenly exposed to a lack of income (11).

The market as a whole feels quite self-contradicting, in my opinion. Tech is going to be doing well in this environment, along with all the rest of those companies raking it in with our lifestyle alterations. Meanwhile huge swathes of the economy are seeing cataclysmic change. Buffett has dumped all his US airline stock (12). He’s also said the range of outcomes from this is massive.

Me, I’m with Ermine (13). I think we have a long way to go yet. I’m still buying – I’m not a big enough man to bet against time in the market by timing the market. Tech offers plenty of potential returns, and I’m sure there are some value investor nuggets out there. I just see the stories coming out of people losing their jobs, companies shutting, and IMF predictions of global recessions and eyebrows are raised (14).

We live in interesting times.

Have a great week,

The Shrink

News:

Opinion:

References:

  1. https://www.theguardian.com/world/2020/apr/29/swedish-city-lund-dump-tonne-chicken-manure-park-deter-visitors-coronavirus-lockdown
  2. https://www.ft.com/content/88e57ec9-42d4-455d-a045-293a6a54837d
  3. https://monevator.com/weekend-reading-under-infected-over-optimistic/
  4. https://seekingalpha.com/article/4340089-big-cap-techs-report-all-in-one-week-and-what-means-for-sell-off-scenario
  5. https://www.thisismoney.co.uk/money/markets/article-8277961/How-come-global-stock-markets-best-month-years.html
  6. https://seekingalpha.com/article/4342416-what-hell-is-stock-market
  7. https://www.businessinsider.com/tj-maxx-ross-shutting-down-makes-inventory-problem-worse-2020-4?r=US&IR=T
  8. https://www.bbc.co.uk/news/uk-england-derbyshire-52514444
  9. https://playingwithfire.uk/well-it-finally-happened/
  10. https://firelifestyle.co.uk/2020/04/18/work-is-getting-tough-recession-looming-small-business-pressure/
  11. https://www.wsj.com/articles/a-bargain-with-the-devilbill-comes-due-for-overextended-airbnb-hosts-11588083336
  12. https://www.theguardian.com/world/2020/may/03/warren-buffett-dumps-us-airline-stocks-saying-world-has-changed-after-covid-19
  13. https://simplelivingsomerset.wordpress.com/2020/05/01/musings-on-misadventure-and-market-madness/
  14. https://www.weforum.org/agenda/2020/04/imf-economy-coronavirus-covid-19-recession/
  15. https://www.thisismoney.co.uk/money/saving/article-8266703/Now-banks-target-LOYAL-savers-rate-cuts.html
  16. https://www.theguardian.com/business/2020/apr/30/covid-19-crisis-demand-fossil-fuels-iea-renewable-electricity
  17. https://www.bbc.co.uk/news/business-52483455
  18. https://www.bbc.co.uk/news/business-52483359
  19. https://www.telegraph.co.uk/business/2020/05/02/tesla-applies-uk-electricity-provider-licence/
  20. https://averagemoneymanagement.wordpress.com/2020/05/01/my-alternative-investments/
  21. https://lifeafterthedailygrind.com/how-identity-theft-happens-and-how-to-stop-it/
  22. http://diyinvestoruk.blogspot.com/2020/04/gresham-house-energy-storage-2019.html
  23. https://www.itinvestor.co.uk/2020/05/combining-fundsmith-equity-and-lindsell-train-global-equity/
  24. https://theescapeartist.me/2020/04/29/light-at-the-end-of-the-tunnel/
  25. https://playingwithfire.uk/april-2020-savings-update/
  26. https://thesquirreler.com/2020/04/26/april-2020-net-worth-update/
  27. https://earlyretirementinuk.blogspot.com/2020/05/end-of-month-report-1st-of-may.html
  28. https://www.moneyforthemoderngirl.org/the-british-woman-who-became-financially-independent-in-her-mid-30s-in-london/
  29. https://www.firemusings.org/invest-in-the-bottoming-market-or-pay-the-mortgage-off/
  30. https://gentlemansfamilyfinances.wordpress.com/2020/04/27/the-lowdown-on-the-lockdown/
  31. http://bankeronfire.com/an-introduction-to-investing-in-bonds
  32. https://drfire.co.uk/lockdown-reflections/
  33. https://igniting-fire.com/2020/04/30/tshe-time-for-a-solar-battery/
  34. https://thesavingninja.com/savings-report-22-i-failed-at-market-timing/
  35. https://www.muchmorewithless.co.uk/aldi-food-parcel-review/
  36. https://firelifestyle.co.uk/2020/05/01/april-2020-financial-update/
  37. http://fiukmoney.co.uk/april-20-net-worth-and-monthly-update-20-534439-32858/
  38. http://quietlysaving.co.uk/2020/05/02/april-2020-plus-other-updates/
  39. https://adotium.co.uk/2020/05/02/april-2020-report/
  40. https://awaytoless.com/monthly-spending-april-2020/
  41. https://pathtolife2.com/2020/05/01/financial-independence-update-april-2020/
  42. https://zerotofreedom.org/investors-on-what-they-wish-they-knew-before-starting/
  43. https://southwalesfi.co.uk/2020/05/02/how-to-invest-avoiding-fossil-fuel-companies/
  44. https://monevator.com/do-us-treasury-bonds-protect-uk-investors-better-than-gilts/

The Full English Accompaniment – Oil’s sticky slide

It’s been a funny old week. The price of oil fell through the floor, getting below a dollar a barrel (1). Makes a good headline.

The measure we’re talking about is a West Texas Intermediate (WTI), although Brent Crude also saw a substantial slide. Why this happened is also fairly straightforward; this is a futures market. These were traded prices of a barrel of oil to be delivered before the end of May. Worldwide demand for oil has slumped due to global lockdown, and the storage facilities are full. Ergo, if you hold a contract for oil to be delivered in May, and there’s nowhere to store it and nobody wants to buy it then what the hell do you do with it? Flog it quick (2, 3, 4). And if you can’t? Well there’s always the probably apocryphal story of the futures trader who took delivery by accident (5).

This had wider knock-on effects. The contract price for June also started to drop (6). Oil specific ETFs re-structured (7). With stock investors banking on the “Fed put” (8), the business front-page looked even more oxymoronic.

Futures markets for oil fall well into the realm of day trading that I consider speculation rather than investing (can you tell I’m reading The Intelligent Investor). Easy to lose money quickly, as Barstool Sports founder Dave Portnoy shows; down $647,000 (9).

Slow and steady wins the race, and oil futures ain’t that. Oil’s a dying business. Renewables are getting dramatically cheaper (10). Frugality, environmentalism and renewable energy sources go hand in hand (11). Big oil companies are moving to other energy sources, pivoting to the wind (12). The DIY Investor UK is evidence the growth of renewable energy can provide financial growth (13).

Leave the speculation and drama to the day-traders and the headlines.

Have a great week,

The Shrink

News:

Opinion:

References:

  1. https://www.economist.com/graphic-detail/2020/04/20/american-crude-oil-has-fallen-to-less-than-nothing
  2. https://moneygrower.co.uk/explaining-the-negative-oil-price/
  3. https://www.foxymonkey.com/gemfinder-q1-2020-free-oil/
  4. https://www.cnbc.com/2020/04/22/billionaire-investor-howard-marks-calls-oil-crash-completely-rational.html
  5. https://thedailywtf.com/articles/Special-Delivery
  6. https://www.bloomberg.com/news/articles/2020-04-21/oil-meltdown-spreads-beyond-expiring-contracts-as-wti-slumps-42
  7. https://www.ft.com/content/11cf8aeb-2d74-4c25-a111-943be6d8bf39
  8. http://bankeronfire.com/doom-gloom-and-negative-oil-prices
  9. https://www.businessinsider.com/barstool-sports-founder-dave-portnoy-tries-day-trading-and-loses-2020-4?r=US&IR=T
  10. https://theescapeartist.me/2018/01/07/is-renewable-energy-now-cheaper-for-you/
  11. https://www.frugalwoods.com/2017/05/26/you-cant-buy-your-way-to-green-how-frugality-is-environmentalism/
  12. https://www.theguardian.com/business/2018/dec/26/shell-says-it-wants-to-double-green-energy-investment
  13. http://diyinvestoruk.blogspot.com/2020/04/portfolio-review-to-end-march-2020.html
  14. https://www.bbc.co.uk/news/business-52371062
  15. https://www.bbc.co.uk/news/business-52390860
  16. https://www.theguardian.com/business/2020/apr/22/cornish-copper-find-metal-mining-industry
  17. https://firevlondon.com/2020/04/19/my-isas-need-a-topup/
  18. https://theescapeartist.me/2020/04/24/how-the-magic-money-tree-works/
  19. https://gettingminted.com/short-term-thinking/
  20. https://averagemoneymanagement.wordpress.com/2020/04/19/prioritising-goals-at-the-beginning-of-your-fire-journey/
  21. https://www.finumus.com/blog/grinding-halt
  22. http://bankeronfire.com/key-reflections-and-takeaways-from-our-most-recent-net-worth-update
  23. https://zerotofreedom.org/simply-investing-report-review/
  24. https://earlyretirementnow.com/2020/04/22/three-equity-investing-styles-that-did-ok-in-2020/
  25. https://sparklebeeblog.wordpress.com/2020/04/22/hows-lockdown-going/
  26. https://indeedably.com/character/
  27. https://pathtolife2.com/2020/04/24/the-thrill-of-a-free-share-starting-my-mini-share-portfolio/
  28. https://medfiblog.wordpress.com/2020/04/24/to-me-to-you/
  29. https://playingwithfire.uk/car-finance-why-it-is-stopping-you-reaching-your-financial-goals/
  30. http://diyinvestoruk.blogspot.com/2020/04/google-portfolio-addition.html
  31. https://monevator.com/the-alchemy-of-turning-uncertainty-into-risk/
  32. https://monevator.com/the-reality-behind-investment-trust-revenue-reserves/
  33. https://monevator.com/how-diversification-worked-during-the-global-financial-crisis/
  34. http://www.moneyforthemoderngirl.org/thought-experiment-covid-19-edition/
  35. http://quietlysaving.co.uk/2020/04/21/thought-experiment-10-covid-19-edition/