The Full English Accompaniment – Why a seismic economic shift won’t happen.

The end of the month fell since the last Full English. That means a link-fest below. To save time for all the other writer’s out there I only have a few short thoughts today.

A YouGov/ New Economics Foundation poll published in the Guardian this week demonstrated that 31% of people want to see big changes to the global economy in the wake of the COVID-19 pandemic, with only 6% wanting no changes (1). I take any poll or news-worthy statistic with a pinch of salt, especially those espoused to support lefty claims in a lefty rag. However it makes sense, we’ve all experienced big changes through lockdown:

  • Less commuting and more working from home
  • Supply chain changes, less in the shops, more available locally
  • A push to support local businesses
  • Less spending for the sake of it on consumerist tat (because the shops have been shut).

Why not take this opportunity to change things? The Government is already bankrolling huge sectors of the economy. Now is the perfect time to do the big rejig. Perhaps switch towards:

  • renewable, green energy and policies (2)
  • home-working supported by massively improved infrastructure
  • on-shoring industries to support rapid supply chains.

But we won’t. For two reasons.

  1. Inertia (3)
  2. Management.

People do not like dramatic change. Individually we may find it exciting and exhilarating. The potential. The opportunities.

That requires you to get up and do something about it. And we’re fundamentally lazy, stupid, panicky animals. We are much happier doing things the same way we’ve always done than having to learn something new. It requires effort, and motivation. Motivation on a national scale is a challenging construct.

The top level management are also not going to be on board. They have a vested interest in the status quo, it’s how they got there, it’s how they get power/money/fame (delete as appropriate). Why would they risk that?

Plus when have top-down restructures worked well? The Government’s management of the COVID tracking system says enough here.

So, like Soho’s pubs, we’ll soon be back to where we were before. Minus a few tens of thousand dead.

Have a great week,

The Shrink

News:

Opinions/ Blogs:

References:

  1. https://www.theguardian.com/world/2020/jun/28/just-6-of-uk-public-want-a-return-to-pre-pandemic-economy
  2. https://www.forbes.com/sites/joanmichelson2/2020/06/30/how-to-rebuild-the-economy-and-create-jobs-with-clean-energy-innovation/
  3. https://indeedably.com/inertia/
  4. https://www.bbc.co.uk/news/business-53222765
  5. https://www.economist.com/finance-and-economics/2020/07/04/a-latin-american-economic-tragedy
  6. https://www.thisismoney.co.uk/money/cars/article-8475855/No-road-tax-cheaper-run-E-car-recharge-finances.html
  7. https://www.theguardian.com/business/2020/jun/30/tesla-shareholders-urged-to-oust-elon-musk-over-55bn-pay-deal
  8. https://www.theguardian.com/money/2020/jul/01/uk-annual-house-prices-fall-for-first-time-since-2012-coronavirus
  9. https://www.theguardian.com/business/2020/jun/29/central-banks-could-face-political-pressure-to-allow-high-inflation
  10. https://www.bloomberg.com/news/articles/2020-06-28/the-future-of-inflation-is-the-biggest-question-in-finance?amp_js_v=a3&_gsa=1&usqp=mq331AQFKAGwASA%3D#referrer=https%3A%2F%2Fwww.google.com&_tf=From%20%251%24s&ampshare=https%3A%2F%2Fwww.bloomberg.com%2Fnews%2Farticles%2F2020-06-28%2Fthe-future-of-inflation-is-the-biggest-question-in-finance
  11. https://www.bbc.co.uk/news/business-53272411
  12. https://www.moneymage.net/2020-june-savings-report/
  13. https://www.onemillionjourney.com/portfolio-update-19-june-2020-100347e/
  14. https://firevlondon.com/2020/07/04/june-2020-disadvantage-month/
  15. https://awaytoless.com/monthly-spending-june-2020/
  16. https://thesavingninja.com/savings-report-24/
  17. http://quietlysaving.co.uk/2020/07/01/june-2020-plus-other-updates/
  18. https://gentlemansfamilyfinances.com/2020/07/01/month-end-june-2020/
  19. https://playingwithfire.uk/june-2020-life-spending-and-investment-update/
  20. https://www.thefrugalcottage.com/dividend-income-june-2020/
  21. https://moneygrower.co.uk/june-stock-purchase-the-new-economy/
  22. http://fiukmoney.co.uk/june-20-net-worth-and-monthly-update-22-569037-13570-89-fi/
  23. https://sparklebeeblog.wordpress.com/2020/07/03/monthly-update-jun-2020/
  24. https://pathtolife2.com/2020/07/02/financial-independence-update-june-2020/
  25. https://www.moneyforthemoderngirl.org/i-did-an-antibodies-test-plus-saving-side-income-and-learning/
  26. http://eaglesfeartoperch.blogspot.com/2020/07/investment-review-june-2020.html
  27. https://firelifestyle.co.uk/2020/07/01/financial-update-16-june-2020-going-up-up-and-away/
  28. https://earlyretirementinuk.blogspot.com/2020/07/total-portfolio-37113-1688-debt-0-0.html
  29. http://www.cantswingacat.co.uk/2020/06/30/june-income-report/
  30. https://monevator.com/the-slow-and-steady-passive-portfolio-update-q2-2020/
  31. https://drfire.co.uk/q2-2020-report/
  32. https://igniting-fire.com/2020/06/29/2020-q2-update-long-days-short-weeks/
  33. https://firevlondon.com/2020/06/29/help-wanted/
  34. https://www.firemusings.org/time-to-change-the-car-part-1/
  35. http://thefirestarter.co.uk/dont-faint-its-a-blog-post/
  36. https://thefifox.wordpress.com/2020/07/05/why-everyone-should-start-a-blog/
  37. https://hustleescape.com/anchoring-and-adjustment/
  38. https://gentlemansfamilyfinances.com/2020/07/04/8-great-things-about-working-from-home-during-the-lockdown/
  39. https://playingwithfire.uk/hi-im-the-new-girl-expat-financial-mistakes-learnt-the-hard-way/
  40. https://monevator.com/financial-planning-software-wide-of-goal/
  41. https://youngmoneyblog.co.uk/apprenticeships-are-we-failing-disadvantaged-young-people/
  42. http://bankeronfire.com/hunters-farmers-and-financial-independence
  43. https://indeedably.com/better-days/
  44. http://diyinvestoruk.blogspot.com/2020/07/powercell-portfolio-addition.html
  45. https://www.foxymonkey.com/day-trading/
  46. https://earlyretirementnow.com/2020/07/01/passive-investing-bubble/
  47. https://www.itinvestor.co.uk/2020/06/blue-whale-growth-fund-the-next-big-thing/
  48. https://www.muchmorewithless.co.uk/lockdown-spending-habits/
  49. https://www.finumus.com/blog/school-fees-are-now-very-expensive-or-are-they

The Full English – Strength in Unity

This blog is mainly apolitical, and this post is not intended to be politically biased. With that in mind I’ll start this post with a statement:

Boris Johnson will not lead the UK to growth through Brexit.

How did I come to this conclusion?

I’ve been reading a lot of posts through the Way Back Machine on Slate Star Codex (1). I’m late to the SSC party (many thanks Indeedably for the pointer), but there are a lot of parallels of thought. Relevant to this point, is the 2014 essay ‘I can tolerate anything except the outgroup’ (2). It’s particularly pertinent with the current Black Lives Matter movement.

Scott Alexander essentially makes the point that we define ourselves as part of a tribe. Those definitions are often built upon stereotypes. Those stereotypes, that definition, and that tribe provoke more intense feelings than race, ethnicity, gender or sexuality alone. The concept that you are more likely to have intense negative feelings towards someone outside of your, essentially political, tribe has been validated again more recently. A 2017 Stanford study found that political identity is that which we hold most dear (3).

Boris Johnson built his current political success through a combination of his previous irreverent populist persona and alignment with the Brexit campaign. Cummings further drove that campaign and the subsequent political party direction towards populism. Defining themes included that Westminster and the political elite were not hearing the ‘man on the street’, ‘taking back control’ and investing in UK-centric policy (4, 5).

In doing so they created a new political schism. The ‘outgroup’ were centrist and included the existing ‘political elite’. The new division was Leave/Stay, and BoJo was a strong enough persona to unite people behind him. Corbyn, for all the positives he may have, was indecisive on the a difficult question, but one through which people began to define their tribe.

Johnson and Cummings won their battle. They created a large enough tribe with a strong enough identity to not only result in Brexit, but also in the 2019 election win.

But a telltale sign of the future comes from that 2019 election win. Boris Johnson’s manifesto was essentially a bit of everything, sort of business as usual, and without any great rallying points (6). If the great defining point of their tribe up until now has been Brexit, taking back control, railing against the political system and instigating policies for the UK people, where was the definition in this manifesto. Or even currently?

The current cabinet core rose to power through defining themselves as an in-group. Mostly by defining an out-group, and then denigrating them. Lots of ‘they aren’t listening to you’, ‘they didn’t do this’, ‘yes but, no but’. Those defining characteristics are becoming irrelevant. They have reached the top, and now the reasons for the tribe are gone.

Boris Johnson’s response to COVID-19 has been good evidence of this. At times he has been statesmanlike. At others he has been nowhere to be seen. The UK’s outcomes and conduct in fighting COVID-19 will be reviewed in the future, likely with lots of inquiries that result in bugger-all.

Ultimately when the current government has tried to unify the country, in my opinion, he has lacked a methodology. BoJo’s MO is to divide, deny, distract and with Cummings, define a foe.

There are no more internal foes.

Good political leaders are defined by their ability to unite people behind a cause. The greatest, by their ability to unite without criticism or negative connotation. JFK (and to a less public but more politic extent LBJ), Thatcher, Obama… all could bring people together who previously would not have stood so.

The current government has brought people together, but there was no further plan, and the methodology to bring those people together was negative, not positive.

Either we see a re-invention of the Conservative party, into a new political tribe built upon Johnson’s foundation. Or the tribe splinters, to the next strong unifier.

Have a great week,

The Shrink

News:

Opinion/ Blogs:

References:

  1. https://slatestarcodex.com/
  2. https://web.archive.org/web/20200618075102/https://slatestarcodex.com/2014/09/30/i-can-tolerate-anything-except-the-outgroup/
  3. https://news.stanford.edu/2017/08/31/political-party-identities-stronger-race-religion/
  4. https://www.theatlantic.com/international/archive/2016/06/uk-brexit-guide/482730/
  5. http://www.voteleavetakecontrol.org/briefing_newdeal.html
  6. https://www.bbc.co.uk/news/election-2019-50524262
  7. https://www.bloomberg.com/news/articles/2020-06-22/boe-s-bailey-says-he-d-shrink-balance-sheet-before-raising-rates?_gsa=1&usqp=mq331AQFKAGwASA%3D&amp_js_v=0.1#referrer=https%3A%2F%2Fwww.google.com&_tf=From%20%251%24s&ampshare=https%3A%2F%2Fwww.bloomberg.com%2Fnews%2Farticles%2F2020-06-22%2Fboe-s-bailey-says-he-d-shrink-balance-sheet-before-raising-rates
  8. https://www.telegraph.co.uk/business/2020/06/22/andrew-bailey-warns-markets-bank-england-will-reverse-money/
  9. https://www.bbc.co.uk/news/business-53148678
  10. https://www.bbc.co.uk/news/business-53164304
  11. https://www.cnbc.com/2020/06/25/imf-global-financial-stability-markets-disconnect-risks-a-correction.html
  12. https://www.bbc.co.uk/news/business-53183504
  13. https://techcrunch.com/2020/06/23/zopa-granted-full-uk-bank-licence/
  14. https://www.reddit.com/r/UKPersonalFinance/comments/hdax3m/is_there_a_financial_vehicle_that_i_can_use_to
  15. https://life.spectator.co.uk/articles/are-we-heading-for-hyper-inflation-or-deflation/
  16. https://www.vice.com/en_us/article/qj4ka5/covid-19-broke-the-economy-what-if-we-dont-fix-it
  17. https://www.itinvestor.co.uk/2020/06/european-opportunities-trust-whacked-by-wirecard/
  18. https://youngmoneyblog.co.uk/credit-covid19/
  19. https://www.ukvalueinvestor.com/2020/06/quality-companies-sustainable-growth.html/
  20. https://drfire.co.uk/double-down-pivot-or-start-over/
  21. https://sparklebeeblog.wordpress.com/2020/06/25/net-worth-analysis/
  22. https://indeedably.com/inertia/
  23. https://firelifestyle.co.uk/2020/06/26/garden-explosion/
  24. http://fiukmoney.co.uk/the-power-of-mrs-fu-money/
  25. https://simplelivingsomerset.wordpress.com/2020/06/26/priapic-solstice-perambulations-in-pursuit-of-weed/
  26. https://lifeafterthedailygrind.com/is-your-life-getting-better-or-worse/
  27. https://monevator.com/weekend-reading-is-your-isa-keeping-up-with-the-joneses/
  28. https://monevator.com/bond-prices/
  29. https://monevator.com/lars-kroijer-onavoiding-covid-19-losers-ultra-low-interest-rates-and-dividend-cuts/
  30. https://theescapeartist.me/2020/06/26/i-hereby-declare-this-pandemic-over/
  31. http://eaglesfeartoperch.blogspot.com/2020/06/hedge-gap-in-filling-by-underplanting.html
  32. https://gentlemansfamilyfinances.com/2020/06/27/climbing-mount-fi/
  33. https://hustleescape.com/hanlons-razor/
  34. https://www.thefrugalcottage.com/the-next-investing-workshop-is-nearly-here-limited-spaces/
  35. https://medfiblog.wordpress.com/2020/06/26/ethical-investing-fifty-shades-of-green/
  36. http://bankeronfire.com/a-matter-of-time
  37. http://bankeronfire.com/when-your-money-makes-more-money-than-you
  38. http://bankeronfire.com/weekend-bonus-edition-low-risk-corporate-bond-investing

 

The Full English Accompaniment – Racism in the NHS

I think it’s hard to be racist whilst working in the NHS, when a full fifth of your colleagues are from BME backgrounds (1). Many of the friends I’ve made through work are first or second-generation immigrants. We’re all as good as each other. Earlier in my medical training I operated on people from all backgrounds; inside we’re all the same.

Without immigrant workers the NHS would have collapsed during COVID-19. Those individuals have been on the end of racial slurs (2). When you’re employed to provide free care for all it’s difficult to turn people away if they insult you. Discrimination by managers has been reported by 15% of BME staff, and bullying by 29% (1, 3). Sadly BME staff are also more likely to be on the end of disciplinary hearings, and less likely to be in managerial positions (3). There are questions over whether the NHS is institutionally racist, and inquiries are starting as BME NHS workers have born the burden of COVID-19 exposure, and subsequent mortality (4, 5).

When we hear racial insults and discrimination in work we call it out when we can. But sometimes they get missed, or staff let it slide. ‘They’re drunk’. ‘They’re old and out of touch’. ‘It doesn’t matter’.

Reading and hearing from Black Lives Matter, I’ve learnt more about the effects of these words. The effects of turning the other cheek all the time. How we become complicit by not calling it out (6). Listening to the BBC Rugby Union podcast on race really brought it home (7).

Outside of work my exposure to racism is very different. I was fortunate to be born in western country, white, to affluent(ish) parents, with good education. I grew up in a country town. My primary school was all white. My first secondary school had a handful of non-white kids. The second school I went to was even whiter. I remember farmer’s sons perpetuating racial stereotypes. These were kids who had never had interactions outside of their small world. We were the kids playing rugby where racial slurs would fly around. Is that stuff still going on? The BBC podcast suggests so.

I remember my grandmother informing me as a small child I would be disowned if I married a non-white person. She came from another time, grew up with staff, from a family wealthy enough that they didn’t need to work. These are the excuses we make. By making excuses we allow it to continue. That isn’t right.

Have a great week,

The Shrink

News:

Opinion:

References:

  1. http://www.nationalhealthexecutive.com/Health-Care-News/nhs-must-tackle-systemic-racism-as-report-shows-staff-discrimination-on-the-rise
  2. https://www.theguardian.com/world/2020/apr/05/nhs-heroes-and-targets-of-racists
  3. https://www.independent.co.uk/news/health/nhs-staff-racism-bme-ethnic-england-data-a9340601.html
  4. http://www.irr.org.uk/news/institutional-racism-in-the-nhs-intensifies-in-times-of-crisis/
  5. https://medfiblog.wordpress.com/2020/06/19/positives-and-negatives/
  6. https://indeedably.com/complicit/
  7. https://www.bbc.co.uk/programmes/p08gh94p
  8. https://www.ft.com/content/4eda8fe4-a100-4b0c-b38a-7ac9f4df4aa8
  9. https://www.bloomberg.com/news/articles/2020-06-15/morgan-stanley-economists-double-down-on-v-shape-global-recovery
  10. https://www.thisismoney.co.uk/money/pensions/article-8422807/Triple-lock-pension-guarantee-threat-inflation-falls.html
  11. https://www.thisismoney.co.uk/money/markets/article-8419729/Buyers-return-lockdown-fuel-rise-house-prices.html
  12. https://www.cnbc.com/2020/06/18/young-trader-dies-by-suicide-after-thinking-he-racked-up-big-losses-on-robinhood.html
  13. https://www.bbc.co.uk/news/science-environment-53097572
  14. https://www.reddit.com/r/wallstreetbets/comments/h945ly/dddd_retail_investors_bankruptcies_dark_pools_and
  15. https://www.cnbc.com/2020/06/19/the-stock-market-may-be-pricey-but-its-nothing-like-the-genuine-market-bubbles-of-the-past.html
  16. https://moneyweek.com/economy/inflation/601534/a-years-worth-of-inflation-in-a-single-month
  17. https://www.finumus.com/blog/google-skynet-hedge
  18. https://igniting-fire.com/2020/06/14/revisiting-the-race-for-fire/
  19. https://www.onemillionjourney.com/global-index-funds/
  20. https://www.foxymonkey.com/pay-for-cash/
  21. https://www.itinvestor.co.uk/2020/06/scottish-american-investment-company-built-for-resilience/
  22. https://drfire.co.uk/investing-demystified/
  23. https://simplelivingsomerset.wordpress.com/2020/06/16/ermine-egging-on-the-economy/
  24. https://earlyretirementnow.com/2020/06/17/passive-income-through-option-writing-part-5/
  25. http://diyinvestoruk.blogspot.com/2020/06/sse-full-year-results.html
  26. https://indeedably.com/deuce/
  27. https://youngmoneyblog.co.uk/debt-covid19/
  28. https://monevator.com/income-or-capital-growth-us-uk/
  29. https://monevator.com/walter-schloss/
  30. https://monevator.com/negative-interest-rates/
  31. https://awaytoless.com/the-benefit-of-salary-sacrifice-pensions/
  32. https://pathtolife2.com/2020/06/20/unlikely-topic-of-conversation-1-quantitative-easing/
  33. https://gentlemansfamilyfinances.com/2020/06/20/6-months-6-ways-to-save-the-planet/
  34. https://thefifox.wordpress.com/2020/06/18/investing-strategy-the-barbell-approach/
  35. https://firevlondon.com/2020/06/18/how-sustainable-is-your-investing/
  36. https://lifeafterthedailygrind.com/less-choice-not-more-makes-for-a-happy-life/
  37. https://thesavingninja.com/something-happened/
  38. http://bankeronfire.com/how-to-lose-your-job-in-10-years
  39. http://bankeronfire.com/pedal-to-the-metal-how-to-build-wealth-in-your-40s

The Full English Accompaniment – Gamble your COVID days away

Opinion: We’re in a stock market bubble driven by bored amateur traders (speculators)

The market has come a long way since mid-March.

We’re now almost back to post COVID-crash valuations. Some of my investments are actually higher than they were then. Yet our economic situation, though now clearer, are no less dire.

Why?

COVID-19 is not as terrible for the global economy as the markets thought?

QE and other government/ central bank policies have propped things up?

Tech companies are making bank?

Perhaps some of this.

There’s a lot of news and opinion calling the current climb the ‘FOMO rally’. Driven by people who saw others ‘buying the dip’ and don’t want to miss out. Novice investors testing the ‘buy low- sell high’ off the back of the March fall (1). Some of that is new users of trading apps and platforms. Freetrade hit 100,000 users in February (2). By their latest crowdfunding raise they had reached 150,000 (3). Small fry compared to Robinhood’s 13 million active users (4).

Image Credit: /u/theycallmeryan (5)

I have skin in the game with Freetrade, having invested in their crowdfunding and using them for my ISA. If you would like a free share for signing up, drop me an email.

The number of trades per day is shooting up. Small traders, for the first time since 2000, have made more than 50% of the daily trades (6).

Image Credit: /u/theycallmeryan (5)

Some of that money is going into funny places. As bond yields fall people are investing in riskier corporate bonds, (1, 7). Robinhood users are making interesting plays and swapping more. They piled into Hertz (the car rental company) after it declared bankruptcy, sending the stock market sky high (1, 4, 8). See also JC Penney. These weren’t long term purchases to hold. This was pure speculation on the price rising during bankruptcy proceedings, as many economic authors in classic tomes describe.

Image source: (8)

And as people are sat at home, furloughed or out of work, with no sport to watch or bet on, they’re turning their amateur hands to the markets. The number of searches for ‘how to trade options’ has shot up:

Image Credit: /u/theycallmeryan (5)

And the number of small time traders buying options is climbing (6). As a result of delta hedging the price of the underlying securities of the options traded rises (5).

This has the effect of uncoupling market valuations from underlying stock value; the speculative options are irrelevant of value, and as others buy stocks as a hedge against the risk introduced by the speculation the stocks themselves become separate from the value. To make this picture even more complicated, the Fed’s policy of QE this time has also included corporate bond ETFs right the way down to junk bonds, offering direct loans to risky companies, buying dodgy mortgage-backed securities, and buying the debt of the riskiest companies (5, 9). The QE methods taken by international central banks have basically eliminated risk from the equation by supporting those companies which should have bankrupted, in an effort to stop a depression.

This drops interest rates. It drives people to take more risk for returns. The risk averse pay down debt, which explains the falls in consumer credit debt we’re seeing.

Debt is very cheap, and cashflows are uncertain due to Coronavirus, making the Discounted Cash Flow Model and underlying values difficult to calculate (10).

The Buffett indicator; composite market value of the market compared to GDP, is currently back at dotcom levels. Then they were 71%, now they’re 74%, where >30% is overvalued.

So things are likely to remain rocky for a while.

The sensible course of action remains to ignore the movements, and bet on the gradual returns. Drip feed and dollar-cost average.

We live in interesting times.

Have a great week,

The Shrink

N.B. I aim to keep this blog apolitical. Some issues transcend politics. I share my voice as an ally. Black Lives Matter.

News:

Comment:

References:

  1. https://www.marketwatch.com/story/heres-how-investors-think-fomo-could-power-fresh-gains-in-the-stock-market-2020-06-13
  2. https://blog.freetrade.io/there-are-now-100-000-freetraders-c12a27ee2843
  3. https://freetrade.io/crowdfunding-2020
  4. https://www.techradar.com/news/robinhood-growth-is-floating-the-stock-market-despite-pandemic
  5. https://new.reddit.com/r/wallstreetbets/comments/h0ytcy/the_liquidity_trap_how_qe_and_low_rates_might_be/
  6. https://www.bloomberg.com/news/articles/2020-06-09/speculative-fervor-in-u-s-stocks-surges-to-stunning-levels
  7. https://www.cnbc.com/2020/06/11/treasury-yields-fall-after-gloomy-fed-outlook.html
  8. https://uk.reuters.com/article/uk-global-markets-themes-graphic/take-five-pump-it-up-idUKKBN23J1RC
  9. https://www.theguardian.com/business/2020/jun/10/its-not-capitalism-why-are-global-financial-markets-zooming-up
  10. https://new.reddit.com/r/wallstreetbets/comments/gynyi8/dddd_equity_valuations_and_why_they_no_longer/
  11. https://www.bbc.co.uk/news/science-environment-52973089
  12. https://www.theguardian.com/business/2020/jun/10/uk-economy-likely-to-suffer-worst-covid-19-damage-says-oecd
  13. https://www.bbc.co.uk/news/business-52977098
  14. https://www.bbc.co.uk/news/business-53005454
  15. https://moneyweek.com/economy/inflation/601481/ten-reasons-inflation-could-be-set-to-return
  16. https://www.wsj.com/articles/vanguards-new-robo-service-offers-low-cost-financial-and-retirement-advice-11591873200
  17. https://www.theguardian.com/money/2020/jun/13/ethical-investments-are-outperforming-traditional-funds
  18. https://www.independent.co.uk/life-style/motoring/boris-johnson-driving-electric-car-scrappage-scheme-2020-a9558361.html
  19. https://earlyretirementnow.com/2020/06/10/passive-income-through-option-writing-part-4/
  20. https://www.moneyforthemoderngirl.org/black-lives-matter-power-control-and-money/
  21. https://indeedably.com/complicit/
  22. https://cashflowcop.com/policing-without-consent/
  23. http://quietlysaving.co.uk/2020/06/08/goodbye-dogs-2019/
  24. https://theescapeartist.me/2020/06/09/its-in-the-price-the-stockmarket-has-already-taken-that-stupid-internet-article-into-account/
  25. https://thesavingninja.com/the-fire-movement-wasnt-for-me/
  26. https://gentlemansfamilyfinances.wordpress.com/2020/06/13/were-not-going-on-a-summer-holiday/
  27. https://hustleescape.com/open-plan-offices/
  28. https://monethalia.com/matched-betting-with-multiple-accounts/
  29. https://www.moneymage.net/what-is-a-pension/
  30. https://playingwithfire.uk/how-to-not-lose-friends-and-alienate-people-with-fire/
  31. https://sparklebeeblog.wordpress.com/2020/06/12/the-world-of-work/
  32. https://www.firemusings.org/the-memories-in-photos/
  33. http://fiukmoney.co.uk/21-year-old-net-worth-and-fire-plan-update/
  34. https://www.muchmorewithless.co.uk/grow-your-own-veg/
  35. https://moneygrower.co.uk/using-furlough-to-practice-being-fired/
  36. https://simplelivingsomerset.wordpress.com/2020/06/12/a-walk-on-the-wild-side/
  37. https://www.ukvalueinvestor.com/2020/06/dividend-growth-rate.html/
  38. https://monevator.com/new-account-how-to-make-money-in-shares/
  39. https://southwalesfi.co.uk/2020/06/13/learn-from-my-f-i-r-e-mistakes/
  40. http://diyinvestoruk.blogspot.com/2020/06/nibe-industrier-portfolio-addition.html
  41. http://bankeronfire.com/how-people-get-rich-with-real-estate
  42. http://bankeronfire.com/reach-financial-independence-faster

The Full English Accompaniment – Cold turkey interest rates

A few weeks back I considered the deflationary risk weighing on the global economy. A discussion on the This Is Money podcast, and comments from the BoE have taken me in the other direction this week. Why would we end up with high inflation and high interest rates?

First we need to talk about debt. Consumer debt has actually seen a record fall since the start of Coronavirus, something to do with not being able to spend and no need to keep up with the Jones’ (1). The same can’t be said for Government debt. As I write this The Economist’s Global Debt Clock is rising through $61,594,467,000,000 (2). This was a problem before COVID-19. 2019 saw record global debt to GDP ratios (322%), following slight falls in 2017 and 2018 (3, 4). China’s ballooning debt was of particular concern, with plenty of tenuous business loans supporting growth (4, 5).

The word addiction had been bandied about with reference to debt. Below is a favourite short that I use to explain addiction when doing teaching sessions about the dangers of gambling and drugs. You come to rely on the object of abuse to feel normal. Credit cards and lifestyle anyone?

Credit: Andreas Hykade, Filmbilder & Friends (6)

The reasons for increasing debt woes are country specific. In Europe and the US it’s a combination of household spending, QE and zombie companies. There’s the massive junk bond bubble scare brewing; corporations kept going in 2008/9 through borrowed money now being refinanced, on the verge of reaching junk bond status, at the same time low yields push people to riskier bonds in aid of returns (7, 8, 9). Yet people keep buying bonds (10). China is just straight up building infrastructure projects that are getting abandoned or never used, while Japan can’t get it’s GDP to grow (11). Individual investors continue to seek returns. Interest rates on savings are minimal, with decent returns disappearing (12, 13). Bizarre investment structures, like this Buy-to-Let-Cars scheme, hoover up those desperate for income on their holdings (14).

And then there’s COVID-19. The Government were very happy to deny a massive money tree for the NHS/ social care. Then they’ve opened their metaphorical chequebook and are handing round a whole forest of blank cheques. Which is needed. But the cost could be £298 billion in debt for Apr 2020/21 alone (15). Analysis from the Resolution Foundation suggests that currently £80 billion has been raised with no deterioration in cover ratio (16). Predictions therein suggest a further extension to QE in June (16).

Image Credit: Resolution Foundation (16)

So we’ve got a mounting pile of government debt as we borrow our way out of trouble. Low, or even negative interest rates are helpful for the Gov here. Favourable to continue borrowing. As TA at Monevator covered this week, we’re seeing some negative UK bond yields (17). The noise from the BoE is that proper negative interest rates are unlikely, but not impossible (18). Certainly there’s no push towards an interest rate rise (19).

Why should there be. Inflation sits at 0.8% for April 2020,(20) well below the BoE’s goal 2.0%. We’re worryingly close to stagflation; rising prices due to rising demand with static growth (21). There’s an argument that there’s a lot of pent up demand due to lockdown, with limited supply also thanks to lockdown. The QE money creation rears it’s head.  Deflation is a feedback loop international governments definitely do not want (22). It will only increase their debts.

The magic bullet

So what about inflation. Measures of inflation like the CPI may not have spiked since the 2008/9 financial crisis because Joe Bloggs in his northern terrace has practically seen little inflation of prices. Consumer goods have probably decreased in cost. But the high ticket items like sports car, larger houses in certain postcodes, watches, wine, art and even gold have all risen in price.* The QE wealth got stuck on it’s trickle-down in high net worth owner’s assets. It created a high net worth inflationary micro-environment.

How are we getting out of this mess? A survey of top UK economists suggests that they feel there is no need to tackle public debt soon, and tax increases may the best method in the end (23). We can keep borrowing in the short term. In the long term there is the suggestion that inflation is the only sensible answer (24). QE and other factors are likely to push towards inflation anyway (25). Running inflation higher than 2.0% would reduce that Government debt burden. This method has been used before; after the second world war inflation ran at 4-5% for a good couple of decades (26).

My generation is just not used to that sort of inflation. One of my takeaways from The Intelligent Investor is the change in financial policy/climate. Graham wrote in a period where 4-5% inflation was not unheard of, and savings accounts could yield 5-7%. I vaguely remember those sort of numbers from my childhood building society, but I’ve never been conscious of that financial world. The risk of a 1970s/ Weimar Republic style inflation spike is present (27). The fear of that sort of inflation seems greater than the 1950s 4-5%, maybe due to recency bias, or because those with the most to lose are those who remember the 1970s (28).

Ultimately it seems we’re unlikely to see interest rates or inflation change in the short term. But maybe, in the medium-long term, we’ll see 5% interest rates again. We’re preparing for such eventualities (29). We can tolerate up to 12% on our mortgage with some belt-tightening. I’m sure many can’t. Those zombie companies would go to the wall. The BTLs may struggle. Perhaps a period of 4-5% inflation is the economic reset we need.

Have a great week,

The Shrink

*Gold is slightly more interesting because of just how much the price has rocketed, the argument for it’s use as a hedge, and it generally being the ultimate lesser fool’s gambit (30, 31). No-one wants to be left holding the hottest potato.

N.B. Again, as a more involved speculative post, I would love feedback and opinions on these thoughts.

News:

Comment:

References:

  1. https://www.thisismoney.co.uk/money/cardsloans/article-8380019/Consumer-debt-falls-record-7-4bn-April-borrowing-spend-slumps.html
  2. https://www.economist.com/content/global_debt_clock
  3. https://edition.cnn.com/2020/01/13/economy/global-debt-record/index.html
  4. https://blogs.imf.org/2019/12/17/new-data-on-world-debt-a-dive-into-country-numbers/
  5. https://www.ft.com/content/d93a95d0-2ee9-11e9-80d2-7b637a9e1ba1
  6. https://www.youtube.com/watch?v=HUngLgGRJpo
  7. https://en.wikipedia.org/wiki/Corporate_debt_bubble
  8. https://www.independent.co.uk/voices/coronavirus-economy-wall-street-debt-boeing-shares-junk-a9513176.html#gsc.tab=0
  9. https://www.barrons.com/articles/the-corporate-debt-death-spiral-shows-no-signs-of-stopping-51584023200
  10. https://www.cnbc.com/2020/02/07/junk-bond-scare-is-rising-no-one-cares-people-are-buying-everything.html
  11. https://www.forbes.com/sites/peterpham/2017/11/24/why-are-we-addicted-to-debt/#136e4b2515fd
  12. https://www.thisismoney.co.uk/money/saving/article-8381231/Top-fixed-rates-disappearing-Average-account-pays-just-0-3.html
  13. https://www.theguardian.com/money/2020/jun/05/savers-uk-covid-19-lockdown-cash
  14. https://www.buy2letcars.com/
  15. https://www.bbc.co.uk/news/business-52663523
  16. https://www.resolutionfoundation.org/publications/the-economic-effects-of-coronavirus-in-the-uk/
  17. https://monevator.com/negative-yields-bonds/
  18. https://www.thisismoney.co.uk/money/news/article-8357383/BoE-not-remotely-close-decision-negative-rates-Haldane.html
  19. https://moneytothemasses.com/owning-a-home/interest-rate-forecasts/latest-interest-rate-predictions-when-will-rates-rise
  20. https://tradingeconomics.com/united-kingdom/inflation-cpi
  21. https://www.theguardian.com/business/2020/may/31/for-all-his-woes-at-least-sunak-does-not-need-to-worry-about-stagflation
  22. https://foreignpolicy.com/2020/04/29/federal-reserve-global-economy-coronavirus-pandemic-inflation-terminal-deflation-is-coming/
  23. https://cfmsurvey.org/surveys/covid-19-and-uk-public-finances
  24. https://www.independent.co.uk/news/business/news/coronavirus-recession-bank-england-inflation-mandate-change-jim-o-neill-a9539796.html#gsc.tab=0
  25. https://moneyweek.com/economy/global-economy/601179/heres-why-the-coronavirus-crash-is-likely-to-end-in-inflation
  26. https://www.bloomberg.com/opinion/articles/2020-05-07/inflation-is-the-way-to-pay-off-coronavirus-debt
  27. https://simplelivingsomerset.wordpress.com/2011/03/15/when-money-dies-a-1975-cautionary-tale-from-the-weimar-republic/
  28. https://simplelivingsomerset.wordpress.com/2020/06/03/at-some-point-during-this-bear-market-i-realized-that-i-probably-shouldnt-keep-doing-this/
  29. https://www.moneyadviceservice.org.uk/en/articles/how-to-prepare-for-an-interest-rate-rise
  30. https://fee.org/articles/which-is-the-best-inflation-indicator-gold-oil-or-the-commodity-spot-index/
  31. https://pureadmin.qub.ac.uk/ws/portalfiles/portal/120196463/gold_inflation_s.pdf
  32. https://www.thelancet.com/journals/lancet/article/PIIS0140-6736(20)31142-9/fulltext
  33. https://www.thisismoney.co.uk/money/news/article-8372271/Homes-face-14-price-slump-says-Nationwide.html
  34. https://firelifestyle.co.uk/2020/06/01/may-2020-financial-update/
  35. https://firevlondon.com/2020/06/02/may-2020-a-sunny-month/
  36. https://thesavingninja.com/savings-report-23-back-to-break-even/
  37. http://earlyretirementinuk.blogspot.com/2020/06/end-of-month-report-1st-of-june.html
  38. https://playingwithfire.uk/may-2020-savings-and-spending-update/
  39. https://obviousinvestor.com/p2p-lending-portfolio-update-for-may-2020/
  40. https://www.foxymonkey.com/property-partner-coronavirus/
  41. http://quietlysaving.co.uk/2020/05/31/may-2020-plus-other-updates/
  42. https://www.moneymage.net/2020-may-savings-report/
  43. https://awaytoless.com/monthly-spending-may-2020/
  44. https://thesquirreler.com/2020/06/06/may-2020-net-worth-update/
  45. https://asimplelifewithsam.com/2020/06/06/may-review/
  46. http://diyinvestoruk.blogspot.com/2020/06/mcphy-energy-portfolio-addition.html
  47. https://www.itinvestor.co.uk/2020/06/20-global-investment-trusts-compared/
  48. https://lifeafterthedailygrind.com/buying-used-electronics-can-earn-you-money/
  49. https://monevator.com/what-is-behind-the-coronavirus-trading-boom/
  50. http://bankeronfire.com/who-is-smarter-than-the-stock-market
  51. http://bankeronfire.com/it-wont-happen-to-you
  52. https://medfiblog.wordpress.com/2020/06/05/chasing-inflation/
  53. https://monevator.com/weekend-reading-boom/
  54. https://igniting-fire.com/2020/06/05/the-joy-of-creation/
  55. https://drfire.co.uk/building-wealth-in-my-20s-successes-and-failures/
  56. https://money-side-up.com/will-coronavirus-infect-the-fire-retire-early-movement/
  57. https://hustleescape.com/hindsight-bias/
  58. https://www.ukvalueinvestor.com/2020/06/dividends-and-dividend-cover.html/

The Full English – No extraneous opinions

I’m working this weekend, so much like Monevator I’m afraid it’s links only. Usual service resumed next week.

Have a great week,

The Shrink

News:

This image from the FT demonstrates how little of ‘infinite QE’ has actually been deployed (1):

Comment:

This amazing image from the Visual Capitalist (28):

References:

 

  1. https://www.ft.com/content/a1fba7cd-5329-46e6-82a8-57149e409f6c
  2. https://www.ons.gov.uk/peoplepopulationandcommunity/healthandsocialcare/conditionsanddiseases/bulletins/coronaviruscovid19infectionsurveypilot/28may2020
  3. https://www.bbc.co.uk/news/business-52820814
  4. https://www.bbc.co.uk/news/business-52795376
  5. https://edition.cnn.com/2020/05/25/tech/airbnb-hosts/index.html
  6. https://www.thisismoney.co.uk/money/news/article-8351337/Britains-plan-25bn-sovereign-wealth-fund.html
  7. https://www.bbc.co.uk/news/business-52829348
  8. https://www.thisismoney.co.uk/money/cars/article-8365581/Electric-car-owners-PAID-charge-prices-turned-negative.html
  9. https://www.forbes.com/sites/robtoews/2020/05/25/deepfakes-are-going-to-wreak-havoc-on-society-we-are-not-prepared/
  10. https://www.itinvestor.co.uk/2020/05/monks-investment-trust-with-change-comes-opportunity/
  11. https://www.moneymage.net/6-reasons-to-quit-your-job/
  12. https://monethalia.com/monthly-savings-report-may-2020/
  13. https://cashflowcop.com/our-numbers-tax-year-2018-2019/
  14. https://www.mouthymoney.co.uk/would-you-move-into-a-house-youd-never-seen-i-did-and-heres-what-i-learnt/
  15. https://drfire.co.uk/stoicism-financial-independence/
  16. https://hustleescape.com/delayed-gratification/
  17. https://pathtolife2.com/2020/05/30/financial-independence-update-may-2020/
  18. http://fiukmoney.co.uk/may-20-net-worth-and-monthly-update-21-555467-21028/
  19. https://playingwithfire.uk/leasehold-property-explained/
  20. https://the7circles.uk/market-timing/
  21. https://moneygrower.co.uk/may-stock-purchase-corona-virus-rally/
  22. http://thefirestarter.co.uk/priveleged-rule-breakers-dominic-cummings-and-luxury-car-drivers/
  23. https://monevator.com/14-weeks-and-12-numbers-that-have-changed-the-investing-history-books-forever/
  24. https://theescapeartist.me/2020/05/29/are-online-side-hustle-worth-it/
  25. http://bankeronfire.com/the-illusion-of-passive-income
  26. http://bankeronfire.com/the-future-is-tech-or-is-it
  27. https://indeedably.com/changing-gears/
  28. https://www.visualcapitalist.com/all-of-the-worlds-money-and-markets-in-one-visualization-2020/

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 – UK Finance Blog Feed

It’s been a year since I updated my blogroll. I’ve commented in the last few weeks that the number of UK FIRE/ Finance blogs has been ballooning. When I started I was aware of a couple of dozen. The most recent count had made it well over a hundred. I’ve struggled to keep up reading, and along with my own hyperlinks/ lists have relied heavily on /u/reckless-saving’s weekly update on /r/FIREUK.

I’m conscious not all readers are Reddit-savvy. I also wanted to include a couple of big name american blogs, some /u/reckless-saving had missed, and integrate it into my spreadsheet for blog graveyards. I’m building a dataset to analyse a survival curve for FIRE blogs. Nerd that I am.

So here’s The UK FIRE Blog Feed (with added extras):

I’ll be adding this to a dedicated page on the site, so you can check in any time to see if there’s new updates.

I’m also conscious that not all blogs have an RSS feed. I’ll keep checking those that don’t and adding to the Full English Accompaniment.

 

And as a little kicker for your weekend, remember my post a couple of months back about Premium Bonds returns now looking reasonable. They’ve become even more tempting as NS&I have cancelled their rate cut (1).

Keep handwashing, stay home and take care!

The Shrink

COVID-19:

Life goes on:

Comment/ Opinion:

Mostly in the section above this week, with a few exceptions…

References:

  1. https://www.moneywise.co.uk/news/2020-04-17/nsi-scraps-decision-cut-premium-bond-rates
  2. https://www.moneyobserver.com/news/new-tax-year-20202021-tax-rules-isa-and-pension-allowances
  3. https://www.theguardian.com/business/2020/apr/08/fears-of-crisis-in-uk-car-finance-market-as-owners-seek-payments-help
  4. https://www.p2pfinancenews.co.uk/2020/04/09/funding-circle-suspends-secondary-market/
  5. https://www.thisismoney.co.uk/money/buytolet/article-8200609/Buy-let-triple-tax-hit-affects-accidental-landlords-mortgage-interest.html
  6. https://www.theguardian.com/business/2020/apr/14/scrap-triple-lock-uk-pensions-coronavirus-crisis
  7. http://www.scmp.com/magazines/style/celebrity/article/3078306/how-7-self-made-millionaires-who-retired-their-30s-are
  8. https://www.thisismoney.co.uk/money/markets/article-8199801/After-stock-market-crash-like-no-climb-look-lot-different-too.html
  9. https://www.nytimes.com/2020/04/10/upshot/virus-stock-market-booming.html

 

 

 

 

 

 

The Full English Accompaniment – Is COVID-19 the crisis to heal Brexit divisions?

Ever since the swine-fancier-in-chief started on the Brexit linedance the UK has been divided. People were told their opinion mattered, and allowed to express it through a referendum. The voxpops mattered. 6-pints Ken in the pub mattered. Brexit was such a grey area, with so many fake statistics and hollow arguments, that just about any opinion could be aired without hindrance. Families were divided.

Ours was. Even now certain arms of our family won’t speak to each other. The use of the phrase “racist bigots” might have something to do with it.

In such a void battle lines were drawn, and programs like Question Time became copy-paste wars of words. Campaigners, politicians and ‘celebrities’ with nought but strong opinions rose to the top, froth on a slurry pit.

But in the last few weeks, something has changed. Fighting this Coronavirus, defeating COVID-19, requires us to work together. It doesn’t discriminate based on how you voted in 2016 (well…). Experts are called upon. Opinions are surplus to fact. United action across the world is required. There is suddenly a bigger enemy, a bigger battle. A reason to forget the artificial divisions and remember the reasons that bind us. We are all human.

People are reaching out to each other for support. Across borders, generations, timezones, opinions. Picking up shopping, refilling prescriptions, taking the dog for a walk (1, 2, 3). The sense of community that was lost is returning. Kindness, care and altruism will get us through this (4, 5, 6).

Keep handwashing, and take care!

The Shrink

Other News:

Positive news on COVID-19:

You may have missed:

A couple of weeks back the Competition and Markets Authority reported there was evidence of mis-selling and unfair contracts on the sale of new homes by developers (14). This was significantly stronger wording than anticipated, and has been considered a huge victory for leaseholders (15, 16, 17). With that stronger wording, the legal sharks left hungry after PPI dried up have smelt blood, and are already circling for mis-selling class action claims (18, 19).

Life goes on:

Comment/ Opinion:

References

  1. https://www.thecanary.co/uk/news/2020/03/14/city-residents-set-up-aid-group-for-people-struggling-with-coronavirus-measures/
  2. https://www.manchestereveningnews.co.uk/news/greater-manchester-news/amazing-things-people-greater-manchester-17947422
  3. https://www.theguardian.com/society/2020/mar/16/community-aid-groups-set-up-across-uk-amid-coronavirus-crisis
  4. https://www.bbc.co.uk/news/uk-51991566
  5. https://www.greenpeace.org/international/story/29371/11-simple-ways-to-care-for-each-other-during-the-covid-19-coronavirus-pandemic/
  6. https://www.theguardian.com/lifeandstyle/2020/mar/21/like-an-emotional-mexican-wave-how-coronavirus-kindness-makes-the-world-seem-smaller
  7. https://www.theguardian.com/world/2020/mar/18/japanese-flu-drug-clearly-effective-in-treating-coronavirus-says-china
  8. https://www.sciencedirect.com/science/article/pii/S2095809920300631?via%3Dihub
  9. https://www.statnews.com/2020/03/18/who-to-launch-multinational-trial-to-jumpstart-search-for-coronavirus-drugs/
  10. https://www.statnews.com/2020/03/16/remdesivir-surges-ahead-against-coronavirus/
  11. https://seekingalpha.com/article/4332561-gilead-sciences-even-not-counting-covidminus-19-company-significant-potential
  12. https://www.mediterranee-infection.com/wp-content/uploads/2020/03/Hydroxychloroquine_final_DOI_IJAA.pdf
  13. https://www.independent.ie/world-news/coronavirus/irish-developed-kit-confirms-infection-in-15-minutes-39046582.html
  14. https://www.moneywise.co.uk/news/2020-03-02/thousands-leaseholders-have-been-mis-sold-homes-unfairly-charged-developers
  15. https://thenegotiator.co.uk/leasehold-knowledge-partnership-victory/
  16. https://www.lovemoney.com/news/93583/cma-leasehold-buyers-being-taken-advantage-of-by-dodgy-developers
  17. https://www.bbc.co.uk/news/business-51671363
  18. https://www.claimexperts.co.uk/mis-sold-leasehold-property-claims/
  19. https://www.smoothcl.co.uk/site/services/mis-sold-leasehold-claims/
  20. https://www.independent.co.uk/news/business/analysis-and-features/stock-market-dow-jones-index-trump-coronavirus-wall-street-1929-crash-a9412221.html
  21. https://www.thisismoney.co.uk/money/mortgageshome/article-8134443/Has-mortgage-rate-fallen-bank-rate-cut.html
  22. https://www.cnbc.com/2020/03/17/crash-shows-major-corporations-broke-no-1-personal-finance-rule.html
  23. https://ofdollarsanddata.com/lessons-from-coronavirus/
  24. http://quietlysaving.co.uk/2020/03/14/our-hopes-and-expectations/
  25. http://bankeronfire.com/have-no-fear-surviving-and-thriving-in-a-recession
  26. https://monevator.com/weekend-reading-lockdown-links-for-days/
  27. https://firevlondon.com/2020/03/20/manic-month-still-in-progress/
  28. https://southwalesfi.co.uk/2020/03/20/why-your-car-is-making-you-retire-5-years-later-or-longer/
  29. https://obviousinvestor.com/obvious-investor-covid-19-investments-update/
  30. http://thefirestarter.co.uk/and-they-say-timing-is-everything/
  31. https://www.madfientist.com/coronavirus-market-crash/
  32. https://theescapeartist.me/2020/03/20/victory-is-inevitable-part-2/
  33. https://averagemoneymanagement.wordpress.com/2020/03/19/what-is-a-circuit-breaker/
  34. https://www.finumus.com/blog/burn-down-the-disco
  35. https://tuppennysfireplace.com/fast-easy-recipes-with-few-ingredients-5-ingredients-or-less/
  36. https://medfiblog.wordpress.com/2020/03/15/baked-beans-and-shotgun-cartridges/
  37. https://www.foxymonkey.com/coronavirus-special-investing/
  38. https://awaytoless.com/a-way-to-less-one-year-blogging/
  39. https://indeedably.com/isolation/

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Belated) Full English Accompaniment – Ways to skin a bear

Over the course of the next few months, as the news is dominated by ‘OMG CORONAVIRUS TERROR’, I’ll try and stay off the topic. I couldn’t fail to discuss the changes in markets this week though. It’s quite hard to actually get a long term graph to show the progress of the market, so here’s one I knocked up using every week end closing value for the FTSE 100 since it’s inception:

FTSE

At the start of last week, when I started writing this post, there was fear that we were in a correction, that there might be a larger drawdown. The market has moved fast, driven by anxiety. December 2018’s correction is suddenly a distant memory. There were plenty of potential threats, many detailed in SeekingAlpha’s article from last week (1). Everybody was already looking for a reason for recession, eyes peeled for the signs. What they didn’t expect was this viral black swan to come drifting serenely over the horizon before shitting all over the picnic (2, 3). That is the nature of the cause of a bear market; if it was predictable it could be expected and adjusted for. The cause will always emerge from the unknown unknowns.

What’s working now won’t always work

I’m not going to speak to the markers, numbers and hallmarks of a bear market. The figures and data used by investors are better discussed in that same SeekingAlpha article than I ever could (1). As it explains:

“Bull and bear markets are NOT defined by a 20% move. They are defined by a change of direction in the trend of prices.”

There have been times (see below) in the last decade where the long term moving average has trended downwards, but they have not resulted in a bear market. Quantitative Easing (QE) at those times has shored up the market and returned us to the Bull course. So what has changed? Looking at it from my stock and trade, I would have to say anxiety amongst the general public and uncertainty. When looking at data and analysis we often fall prey to cognitive biases; cherry picking evidence to support our decisions, applying selection bias (4, 5). We look for the news we want to see. When anxiety peaked previously amongst market investors the FED/ ECB/ BoE stepped in and applied QE. This reassured investors and dampened anxiety. Joe Public, for whom it was a blip on the road, were fairly nonplussed.

Image credit: Seeking Alpha/ Real Investment Advice

Was the market the boy that cried wolf too many times to central banks? That allegory was being touted last year, with the observation that the commitment from central banks to maintaining asset prices had left them unable to normalise policies without risking recession (6). At some point the propping up would no longer support the fall. This time, as the Fed/ BoE reached once again for the chequebook, it’s not worked. Instead it’s been called ‘misjudged’, and appears to have driven the markets further (7). Fear and anxiety has not been eased, it’s remained high. Anxiety amongst the general population, visible in panic buying and the general hysterical pitch of the news cycle, has infected the markets. The VIX, a measure of the stock markets expected volatility, shot up from a moderate baseline to the mid-70s last week, and is currently sitting around the 78 mark (8). That’s well into expected nosedive territory. 

vix

Is this a reversion to mean – Fed rate cuts usually accompany recessions because declining interest rates suggest wider economic deterioration. Hard nosed market timers have been scoffing at new normals (9).

Image credit: Elliott Wave International

‘All bull markets are the same, all bear markets are different’

So, as I write this on March 15/16/17th, the Fed has slashed the interest rate to 0-0.25% (10). It’s a hallmark of a bear trend, accompanying volatility. We’re seeing 4-12% swings daily. This market is the saw blade, whipping down through your investment logpile. But this market noise covers the underlying drivers; uncertainty and anxiety. The market thrives on certainty and predictable outcomes. COVID-19 is an unknown and can’t be priced into the efficient market. We’ve never had a virus driven recession we have data for (11). The Black Death, Smallpox and Plague of Justinian tell no tales. 

We don’t know when it will end or what the fallout will be. People try to provide structure and certainty by reflecting on what can now be expected (12). They tell themselves it’s cyclical, that we’re in a recession and will bounce back (13). This market is not a response to internal cyclical events, or broad economic fallacies. This is the result of a pandemic threatening millions of lives and requiring a global response. The market won’t be able to price in the outcome until we’re past the peak of the virus, and we’re only just getting started. Leave your speculation at the door. Keep calm and carry on investing (14)As TI/ TA on Monevator intone:

“DO NOT SELL.” (15)

We’ve all got bigger things to worry about.

Keep handwashing!

The Shrink

Thought for the week:
“It is a mark of a mean capacity to spend much time on the things which concern the body, such as much exercise, much eating, much drinking, much easing of the body, much copulation. But these things should be done as subordinate things: and let all your care be directed to the mind” – Enchiridion XLI, Epictetus

Other News:

Covid-19 mini-special:

The History of Pandemics by Death Toll

Image credit: The Visual Capitalist (16)

Capture

Life goes on:

Comment/ Opinion:

References:

  1. https://seekingalpha.com/article/4330865-technically-speaking-on-cusp-of-bear-market
  2. https://en.wikipedia.org/wiki/Black_swan_theory
  3. https://monevator.com/investing-in-the-face-of-a-disaster/
  4. https://en.wikipedia.org/wiki/Cherry_picking
  5. https://en.wikipedia.org/wiki/Selection_bias
  6. https://www.marketwatch.com/story/the-fed-put-on-the-stock-market-may-expire-worthless-because-of-these-mistakes-stifels-bannister-2019-09-19
  7. https://www.telegraph.co.uk/business/2020/03/04/feds-misjudged-pyrotechnics-may-have-brought-us-even-closer/
  8. http://www.cboe.com/vix
  9. https://www.forbes.com/sites/investor/2019/07/27/the-fed-is-going-to-cut-rates-be-careful-what-you-wish-for/#4ed414f560b2
  10. https://www.theguardian.com/business/2020/mar/15/federal-reserve-cuts-interest-rates-near-zero-prop-up-us-economy-coronavirus
  11. https://www.marketwatch.com/story/goldman-sachs-analyzed-bear-markets-back-to-1835-and-heres-the-bad-news-and-the-good-about-the-current-slump-2020-03-11
  12. https://www.forbes.com/sites/simonmoore/2020/03/14/what-to-expect-from-this-bear-market/#4def34e661ff
  13. https://www.cnbc.com/2020/03/14/not-every-bear-market-is-accompanied-by-an-economic-recession-but-chances-are-high.html
  14. https://www.ukvalueinvestor.com/2020/03/coronavirus-stock-market-crash.html/
  15. https://monevator.com/weekend-reading-do-not-sell/
  16. https://www.visualcapitalist.com/history-of-pandemics-deadliest/
  17. https://www.history.com/topics/middle-ages/pandemics-timeline
  18. https://www.theguardian.com/commentisfree/2020/mar/05/even-as-behavioural-researchers-we-couldnt-resist-the-urge-to-buy-toilet-paper
  19. https://markets.businessinsider.com/news/stocks/stock-market-news-today-indexes-plunge-oil-market-coronavirus-selloff-2020-3-1028978137
  20. https://www.independent.co.uk/news/world/americas/coronavirus-cdc-1918-flu-pandemic-death-toll-symptoms-a9389171.html
  21. https://t.co/ZejfSQcO0Y?amp=1
  22. https://www.bbc.co.uk/news/science-environment-51825089
  23. https://www.bbc.co.uk/news/uk-england-york-north-yorkshire-51736395
  24. https://www.mortgagesolutions.co.uk/better-business/2020/03/02/equity-release-is-heading-into-the-eye-of-a-perfect-storm-blackwell/
  25. https://www.ft.com/content/fa038361-1faf-4083-8128-257f83d4b2ed
  26. https://www.bbc.co.uk/news/business-your-money-51841748
  27. https://www.theguardian.com/business/2020/mar/15/prepare-for-the-coronavirus-global-recession
  28. https://investornews.vanguard/a-message-from-vanguards-ceo-on-the-coronavirus/
  29. https://monevator.com/how-to-prepare-for-a-recession/
  30. https://www.cnbc.com/2020/03/01/millennial-millionaire-shares-what-he-refuses-to-spend-money-on.html
  31. https://metro.co.uk/2020/03/07/couple-ditch-jobs-retire-30s-live-greek-island-5000-year-12362827/
  32. https://ofdollarsanddata.com/the-worst-day-of-our-investment-lives/
  33. https://www.ukvalueinvestor.com/2020/03/hunting-for-dividends.html/
  34. https://www.finumus.com/blog/covid-19-and-bonds-no-time-to-die
  35. http://diyinvestoruk.blogspot.com/2020/03/asset-allocation-re-visited.html
  36. http://diyinvestoruk.blogspot.com/2020/03/national-grid-portfolio-addition.html
  37. http://www.retirementinvestingtoday.com/2020/03/lenses.html
  38. http://eaglesfeartoperch.blogspot.com/2020/03/thoughts-on-investment-portfolio.html
  39. http://eaglesfeartoperch.blogspot.com/2020/03/lockdown-in-tenerife.html
  40. https://gentlemansfamilyfinances.wordpress.com/2020/03/09/february-2020-month-end-accounts/
  41. https://awaytoless.com/monthly-spending-february-2020/
  42. http://quietlysaving.co.uk/2020/03/08/ravaged-dogs-of-the-ftse-and-random-shares-update/
  43. https://firevlondon.com/2020/03/10/feb-2020-buy-high/
  44. https://www.thefrugalcottage.com/my-updated-portfolio-march-2020/
  45. https://southwalesfi.co.uk/2020/03/13/innovative-finance-isa-pros-and-cons-ifisa/
  46. http://bankeronfire.com/pension-vs-isa-settling-the-debate
  47. https://pursuefire.com/playing-the-long-game/
  48. https://theescapeartist.me/2020/03/13/victory-is-inevitable/
  49. https://indeedably.com/prison-of-my-own-making/