Weekly Roundup, 11th December 2018

Weekly Roundup 181211

We begin today’s Weekly Roundup in the FT, with Merryn Somerset Webb. This week she was writing about votes for women.

Votes for women

Merryn Somerset Webb

As I’m sure you must have noticed from all the media coverage, it’s now 100 years since women got the vote in the UK.

Merryn notes that not all of the effects have been positive:

The size of government and, by extension, government debt has ballooned – women are more likely to vote for progressive welfare spending than men. Welfare programmes, once in place, are near impossible to roll back. (( Obviously, whether this is a good thing or not depends on your view of big government ))

She quotes a paper from american academics:

Single women, as well as women who anticipate that they may become single, may prefer a more progressive tax system and more wealth transfers to low-income people as an alternative to a share of a husband’s uncertain future income.

Single mothers are particularly susceptible to this trend.

Merryn thinks that stealth taxes like the recent probate fee hike will become more common and that HMRC will become more aggressive towards taxpayers.

She references the employee benefit loans that are now being cracked down upon,.

  • But my recall of these schemes (from more than a decade ago) is that most of those involved knew that they were getting up to something dodgy.
  • Which is not to say that the very belated large tax demands are the best way to deal with the issue.

Merryn recommends that you stick to the regular forms of tax planning available in the UK.

  • We have a relatively benign tax regime for investment, so long as you plan ahead and make regular small steps towards your goals.
Christmas ghosts

Ken Fisher

Ken Fisher was back with his regular stock market pep talk, despite the recent tumble in prices.

  • His focus this time was scare stories, or as he called them, Christmas ghosts.

First up was QE.

  • The scare is that markets can’t rise and economies can’t grow when WE ends.

Ken says that evidence from the US and the UK says the opposite.

  • QE artificially flattens the yield curve (or actually inverts it, as happened this week) and a steeper curve wold be good for growth.
  • He looks forward to Eurozone QE ending, and sees the current false fears as a buy signal.

Next is the Populist ghost.

  • Populists in Greece, France and now Italy are always about to wreck things.

But most movements fizzle out before reaching government, and those that don’t see their politicians replace principle with the more common self-interest and become more moderate.

  • Ken says that political gridlock will usually neuter radical legislation.

Third is the Tariff ghost.

  • Tariff so far amount to 0.3% of global GDP, so can be ignored at this point.
  • Scare stories are another buying opportunity.

Number four is the Budget Deficit ghost.

  • Economies have grown with large deficits for years.
  • Historically low interest rates mean deficits are nothing to worry about.

The final ghost was the Wage ghost.

  • Some people worry that higher real wages are needed for growth, but the experience of 2008 to 2014 says the opposite.
See also:  Weekly Roundup, 14th November 2022

It’s hard not to be impressed by Ken’s relentless cheerfulness when all around are gloomy.


Oliver Ralph

Oliver Ralph reported that Aviva plan to charge existing customers the same for insurance as they charge new ones, doing away with the “loyalty penalty“.

Customers will pay monthly and can cancel at any time. There will be no extra fees for paying monthly nor will there be charges for changing or cancelling the policy.

It’s a step in the right direction, but I can’t help feeling that loyal customers should get a discount.

Climate change models

The Economist wrote about the economic problem behind climate change:

How many resources should be diverted from other, valuable uses—from life-enriching consumer goods to funding for pensions—to the task of limiting global warming?

These calculations are built on weighty moral assumptions, namely, how to value other people’s lives.

The money spent (and taxes raised) will limit current well-being in the hope of saving lives (and increasing economic output) further down the line.

As with all such models, the most important variable is the discount rate.

The discount rate represents how much the value of a present good fades as it is delayed into the future.

With long time horizons, small changes in the rate have big effects:

  • £100 received 100 years in the future is worth only £2 at a 4% discount rate.
  • With a 1% discount rate, it’s worth £37.

Some economists are now arguing that discount rates are inappropriate when it comes to weighing human lives (even hypothetical future ones).

  • This would imply a discount rate of close to zero, allowing only the tiniest rate to account for the chances of an extinction event (a comet strike of supervolcano eruption).

This sounds like nonsense – discount rates exist for a reason, and using those observable from people’s existing preference is fine.

  • Many life and death decisions (eg. medical treatment, disaster relief) involve monetary calculations.

Overweighting the future at the expense of the present makes no sense to me.


Ross Clark

Amongst all the Brexit noise, Ross Clark in the Spectator wrote about the money draining out of Britain in fear of a Corbyn government.

Last month, wealth manager Saunderson House conducted a survey of high-net-worth clients. The most common concern was a change of government, with 42 per cent reporting themselves worried. Brexit hardly featured.

‘Concerns about Corbyn have doubled over the past couple of weeks,’ says Iain Tait, of wealth managers London & Capital. ‘It is now, without a doubt, the first thing that clients ask us: “What can we do to protect our wealth against Corbyn?”

Ross notes that the 2017 Labour manifesto didn’t have much that would scare the horses.

  • It’s more what Corbyn and McDonnell say at the party conferences:

The very richest in our society have had tax breaks, giveaways, and tax havens. I tell you what, they’re on borrowed time – Corbyn

The wealthiest 10% own £4,000 billion. If you took 20% of that you would then have £800 billion and four-fifths of our debt would then be wiped out. So we’re saying just collect the money and make those who created the crisis pay for the crisis – McDonnell (2012).

Holiday loophole

In a second article, Ross reported on the possible closure of a loophole that I never knew existed – rebated business rates on furnished holiday lets (FHLs)

  • The effectively lets the owner dodge council tax, but in the budget Philip Hammond announced a consultation on whether this should be stopped.
See also:  Weekly Roundup, 4th May 2020

It’s not as clear-cut as it sounds – most FHLs are genuine businesses rather than empty second homes.

I have vague plans to buy an FHL in due course.

  • I won’t miss something I didn’t know was there, but I worry this could be the thin end of the wedge on the last-bastion of small-scale private landlording.
Robo advisors

There were a few snippets of robo advisor news this week.

FT Adviser reported that HSBC has launched a service with an initial charge of 0.5% and ongoing fees of 0.46%.

My Investment will recommend one of five HSBC Global Strategy funds – Cautious, Conservative, Balanced, Dynamic, and Adventurous, which will invest in a range of asset types in markets around the world.

The minimum investment is £1K.

Wealthfront has launched a free financial planning service (just in the US, I think):

When you download the Wealthfront mobile app, you can choose to get started by building a financial plan — without any cost or obligation — before opening
an investment account.

They want you to link your accounts to the service, so presumably they are heading down the comparison marketplace route that so many of the new banks seem to be working towards.

Simon Bussy of Altus has said that robos must “evolve or face extinction”.

  • Their advertising is ineffective, and customer acquisition costs too much compared to the fees they can generate.

The average cost of acquisition is £250, and the average fee is £70 pa (0.7% on £10K of assets).

  • So that’s three to four years just to break even.

He expects partnerships with banks, whom customers trust even if they don’t like.

  • He’s probably right, but the wild success of fintechs like Monzo suggest that at least a proportion of under 40s like the new shiny firms.
John Authers

John Authers

A quick mention for John Authers’ daily Points of Return, which has been consistently good for the last week or two.

Recent topics include:

  • False narratives in the markets – too-rapid Fed tightening and US-China trade tensions.
  • The CAPE is back below the 1929 peak, but only then and the dotcom boom had higher readings.
  • Reasons versus excuses for market sell-offs.
  • The inverted yield curve.
Quick links

I have a bumper thirteen for you this week, the first four of which are from alpha architect:

  1. How to use trend following
  2. Trend Following on steroids
  3. A proxy for the global market portfolio, and
  4. Is financial advice conflicted?
  5. The Economist reported that buying nuclear fuel is back in fashion.
  6. Wondered whether the world could produce enough cobalt for electric vehicles.
  7. And concluded that Barclays and Standard Chartered should merge.
  8. Pragmatic Capitalism described the worst narrative in cryptocurrencies.
  9. Musings on Markets looked for a signal in the noise of yield curves.
  10. This Blog is Systematic had two posts on portfolio construction through hand-crafting – motivating
  11. and the method.
  12. Irrelevant Investor looked at the law of large numbers
  13. And Wealth of Common Sense wrote about the Amazons of the fund world.

Until next time.

Mike is the owner of 7 Circles, and a private investor living in London. He has been managing his own money for 39 years, with some success.

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Weekly Roundup, 11th December 2018

by Mike Rawson time to read: 5 min