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Weekend reading: Are we there yet?

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What caught my eye this week.

Are US markets enjoying a bull run of unprecedented longevity? You might think that could be answered by looking at a graph of long-term stock market gains, but the topic is surprisingly controversial.

Michael Batnick explored the debate this week, if you like that kind of thing.

Now, no offence to Michael but my favourite part of his post was this quote from Adam Smith’s classic book, Supermoney.

Here’s how he describes the late stages of a bull market:

We are all at a wonderful ball where the champagne sparkles in every glass and soft laughter falls upon the summer air.

We know, by the rules, that at some moment, the Black Horseman will come shattering through the great terrace doors, wreaking vengeance and scattering the survivors.

Those who leave early are saved, but the ball is so splendid no one wants to leave while there is still time, so that everyone keeps asking “What time is it? What time is it?”

But none of the clocks have any hands.

Wonderful. (Or, as a blogger, ‘well jel’, as the Majorcans would apparently say.)

In a variation on this end of days theme, Vanguard also wrote this week on why it is so hard to predict the next bear market.

But that article’s title misstates reality.

It’s actually very easy to predict a bear market. We’ve seen dozens of high-profile pundits make exactly that prediction over the past decade.

What’s hard is to be right!

Have a great weekend (and praise be to the rain.)

From Monevator

Average active funds have no answer to their weightless index tracking rivals – Monevator

From the archive-ator: A quick guide to asset classes – Monevator

News

Note: Some links are Google search results – in PC/desktop view you can click to read the piece without being a paid subscriber. Try privacy/incognito mode to avoid cookies. Consider subscribing if you read them a lot!1

UK interest rates will stay low for 20 years says outgoing MPC member – Guardian

Home equity release may cost pension firms billions – BBC

How one ‘push’ from bank fraudsters can lose you thousands of pounds [Search result]FT

Pound dives to lowest level against dollar since June 2017 amid Brexit woes – ThisIsMoney

Nationalist president of Turkey appeals to ‘the people’ to halt FX slide – Bloomberg via Twitter

Indices are up, but beneath the surface the US stock market is shrinking – New York Times

Royal Mint estimates £170m of old-style pound coins are still unaccounted for – ThisIsMoney

Pension ‘dippers’ face tax relief shock [Search result]FT

A table showing slowing property price growth or declines in many major world cities.

(Click to enlarge)

Cities house-price index suggests the property market is slowing – The Economist

Products and services

Charles Stanley hikes fees, from 0.25% to 0.35% – Money Observer

Only one in 10 banks have passed on any of the interest rate rise. What to do? – ThisIsMoney

Beaufort Securities investors to access trapped funds “in a few weeks” – CityWire

Ratesetter will pay you £100 [and me a cash bonus] if you invest £1,000 with them for a year – Ratesetter

Is a 95% mortgage a better option than Help to Buy? – ThisIsMoney

Trading apps expose consumers to cyber criminals, report finds [US but relevant]Bloomberg

Investors charged hundreds of pounds for Isa and Sipp exit fees [Search result]FT

New mortgage by L&G enables cash-strapped pensioners to refurbish housing – ThisIsMoney

Comment and opinion

The first rule of Financial Independence club – 3652 Days

How diversification feels in practice [Graphic] (h/t A.R.) – Dan Egan on Twitter

Swedroe: Latest data showing persistent out-performance is super rare – ETF.com

Why investors should care about rising interest rates – The Value Perspective

New favourite word: No – The Humble Dollar

What does the advent of free funds mean for asset management? – T.E.B.I.

The layers of the brain, and how it impacts investing – A Wealth of Common Sense

From emotional to financial, with finances and fitness – Get Rich Slowly

Something for a market (or a mid-life) crisis – A Teachable Moment

Thoughts on the upcoming pension costs and transparency inquiryYoungFIGuy

How to manage a portfolio of shares – UK Value Investor

Elon Musk has some fun with Tesla – Bloomberg

Tips for aspiring professional portfolio managers – Enterprising Investor

Kindle book bargains

Liar’s Poker: From the author of the Big Short by Michael Lewis – £0.99 on Kindle

Nudge: Improving Decisions About Health, Wealth and Happiness by Richard Thaler – £1.99 on Kindle

Freakonomics: A Rogue Economist Explores the Hidden Side of Everything by Steven Levitt & Steven Dubner – £1.99 on Kindle

PostCapitalism: A Guide to Our Future by Paul Mason – £0.99 on Kindle

Brexit

Britain’s populist revolt [Long but thought-provoking read]Quillette

Why I’ve changed my mind on Brexit – Gavin Esler

How the young and old would vote on Brexit now – BBC

Off our beat

From East London to a City job: Knocking door’s changed this boy’s life [Video]BBC

Natural maniacs [On Elon Musk]Morgan Housel

You’ll be alright – Casey Mullooly

And finally…

“Workers work hard enough to not be fired, and owners pay just enough so that workers won’t quit.”
– Robert T. Kiyosaki, Rich Dad, Poor Dad

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{ 30 comments… add one }
  • 1 Matt August 10, 2018, 4:56 pm

    That Quillete article looks excellent, I’ll save that for later.

    I also enjoyed John Stepek’s piece in Moneyweek this week. He’s said in the podcast recently that he’s waiting for the enormous daft deal before calling the top of the market and wonder’s if Tesla might be it. With Turkish Lira plumetting today, it all seemed rather timely.

    https://moneyweek.com/493158/if-elon-musk-takes-tesla-private-thatll-mark-the-top-of-the-market/

  • 2 YoungFIGuy August 10, 2018, 5:31 pm

    Am I the only one who finds all this Tesla and Elon Musk chat rather tedious? Am I missing something?

    (p. s. Thanks for the link TI)

  • 3 Tom B August 11, 2018, 10:36 am

    Have you seen that Charles Stanley have increased their platform fees? Very irritating, from 25bp to 35bp. A huge increase!

  • 4 The Investor August 11, 2018, 11:48 am

    @Tom B — Indeed, in the links above. 🙂 Thanks for the heads up though anyway.

  • 5 Gentleman's Family Finances August 11, 2018, 3:12 pm

    Property prices continue to rise and despite them looking over priced for years and years they continue to climb.
    This seems to mainly be in capital cities or regional hubs.
    Where I live and for swathes of the country prices have gone nowhere for a decade – which is a real problem if your plan for financial success is to find someone to pay you what you paid for your house plus 10% for every year you’ve lived in it.

  • 6 L August 11, 2018, 7:00 pm

    @Gentleman’s Family Finances – The Otter Who Liked to Hold Hands? 😀

  • 7 AndrewM August 11, 2018, 8:26 pm

    I think it’s time to switch the nominal holder of the Slow and Steady platform to Vanguard. Here’s hoping those zero fee funds come to the UK.

  • 8 Gentleman's Family Finances August 11, 2018, 9:26 pm

    Absolutely. Sea otters like to hold hands so they don’t float away.

  • 9 TheFIREShrink August 12, 2018, 9:48 am

    Really interesting article TI, thanks.
    The Plain Bagel, a Youtube financial information channel, covered flattening bond yields this week, and why that might be a marker of storm-clouds on the horizon. (https://www.youtube.com/watch?v=5L_zQGPNXOk)
    The counterpoint to all of this is the previous historically low interest rates and quantitative easing means that prices are likely to be distorted. What implications will it have for a UK economy distorted compared to global trends by storms of our own making?

  • 10 A beta investor August 12, 2018, 12:15 pm

    “I also enjoyed John Stepek’s piece in Moneyweek this week. He’s said in the podcast recently that he’s waiting for the enormous daft deal before calling the top of the market and wonder’s if Tesla might be it. With Turkish Lira plumetting today, it all seemed rather timely.”

    There is no “top of the market”, compound interest never stops.

  • 11 dearieme August 12, 2018, 3:08 pm

    There is no “top of the market”: there can be in one lifetime.

  • 12 Fremantle August 13, 2018, 1:48 pm

    Thanks for the Quillete article. This is not the only forum I’m seeing links to this thought provoking publisher. I was as shocked by the result as any, despite voting Brexit, but the writing was on the wall for some time it seems. This narrative dangerously chimes with my thoughts on the threat of immigration to the open society and I’ll have to seek out some alternative studies to keep the balance.

  • 13 Tony Edgecombe August 13, 2018, 7:14 pm

    I read the Quillete article, I can’t say there was much I haven’t heard already. The point it missed and the reason people like me keep pushing for a softer exit was how close the vote was. If it had been 70/30 or even 60/40 I probably would have grumbled and got on with things but it was very close and could have easily gone the other way, particularly if Europe hadn’t had the migration crisis.

  • 14 The Investor August 14, 2018, 5:43 pm

    @Tony — Agreed. One of the many near-unforgivable decisions by most of the current crop of MPs is that they didn’t say something along the lines of “It is clear that the country is divided, and that there is significant discontent with our relationship with the EU, with a slender majority in this vote favouring leaving the European Union” and taking it from there. Perhaps that ended with Brexit — perhaps given the result of that ridiculous Referendum it should have — but it could have started with the softest Brexit and maybe a view on having another vote in five years to see if we want to go harder or even try to go back (albeit undoubtedly on worse terms than we’re now giving up). Unity cross-party task force, national interest etc.

    Instead it was interpreted as if Jacob Rees-Mogg was the only voter who’d expressed a view, and as if the minority of hardcore Eurosceptic MPs were the only constituency that mattered.

  • 15 Fremantle August 14, 2018, 11:40 pm

    @TI

    I took away from the analysis of long term pre referendum polling that scepticism of the benefits of the EU is widespread. Great of economic disruption convinced a huge slice of otherwise skeptical voters to vote for the status quo. There is no widespread love for Europe amongst British voters.

    How do you propose parliament address those concerns given the path the EU has taken and the failure to deliver anything like the concessions that Cameron sought that could have avoided Brexit? Ever closer union was the EU’s response to British, Greek, Polish, Italian, Austrian, Hungarian and significant minorities in France and Germany doubts about the EU project.

  • 16 Fremantle August 14, 2018, 11:42 pm

    “Great of economic disruption…” should read “Fear of…”

  • 17 Brod August 15, 2018, 9:33 am

    @Fremantle –

    Although of course the UK has an opt out of ever greater union. Negotiated by Cameron, I believe(?)

    We’re not in the Euro.

    We’re not in Schengen.

    We could have just implemented the free movement terms of the EU correctly – if you don’t have a job and no realistic chance of getting a job, you have no right to stay in the UK. You should be deported.

    We could have changed the benefit system so that you needed say 5 years of tax contributions to qualify (include full time education in the UK in that.)

    Child benefit is only paid to those children in the UK.

    Many things could be done but instead we have Brexit.

  • 18 The Investor August 15, 2018, 10:03 am

    @Freemantle — As @Brod says, I don’t think it was all or nothing.

    The Referendum result was close, and the mandate was not clear. Many people were swayed to vote Leave by claims that were evidently not true (it will be easy to leave, trade deals from day one, not a penny to Brussels, £350m a week for the NHS, all of Turkey arriving next Tuesday, etc).

    Set against that it’s a significant vote against the status quo with the EU, in a Referendum labelled “should we leave?” albeit in an advisory capacity.

    Complicating factors are the many motivations to Leave. You personally have interpreted it as serious disquiet with the EU. Others say it was mostly about immigration (even that piece). Others say it expressed a significant protest vote against 20 years of globalization. Etc. We all know the drill.

    Given all that, the appropriate response was to go slow, I believe. I’d have had a cross-party body look at it and make it a multi-year process, but if push came to shove then probably I would have looked for a softest Brexit to start with (stay in customs union, stay in single market) and as @Brod says state categorically that an indication has been given for change, and at that point begun to implement the full measure of regulations we already have to make some changes.

    This would have been a good time to start to put together proper incoming/leaving border checks, tracking, etc. And also to study much more carefully and extensively the impact and distribution of inward migration on different regions / social groups, and perhaps course correct if necessary/possible.

    Then in five years (perhaps timetable this up front) another Referendum saying “enough, or do we go further?” or similar.

    If there’s growing discontent as you say in the EU, this would also give more time to build up a coalition of like minded countries to aim to increase the strictures on free movement or other contentious issues.

    The Labour party allowed the freest movement possible, arguably for party political reasons. The Tories went Hard Brexit on day one, certainly for party political reasons. This is too big a deal to be swayed by the expedients of any one government in power.

    We had a great deal with the EU. This might have dawned on people, with time and some more modest concessions to change.

  • 19 Vanguardfan August 15, 2018, 10:56 am

    What ‘party political’ reasons do you think drove the labour party’s position on A8 freedom of movement? Given that non UK citizens don’t have a parliamentary vote? I’d say it was more driven by a) naivety/idealism, b) inadequate/incorrect analysis re numbers and c) a (probably correct) view that it would be economically beneficial

  • 20 The Investor August 15, 2018, 11:37 am

    @Vanguardfan — Yes, I pretty much agree. I did say “arguably”. 🙂 I agree the main reason was that in those days it was an uncontroversial orthodoxy that it would be economically beneficial.

    (And for the avoidance of doubt in my attempt to see both sides here, I believe it *was* economically beneficial. I think it’s clear there’s been a societal cost one way or another, although I’d freely support a point of view that said that cost has only come about because right-wing politicians/press used the subsequent numbers to whip up scare stories or worse.)

    With all that said it’s hard to remember how almost forbidden the immigration debate really was back then. I remember almost gasping when it was brought up on Question Time. A close family member of mine who resides in a different part of the country / social spectrum told me in the early 2000s that I had no idea about the scale of immigration, and I was dismayed, presuming he was being racist. We live in a different world today.

    So I think it would have been a difficult sell by Blair to the Labour party to put up stricter controls without it being an internal fight (the flip side of the Tory infighting), which I’m sure he was happy not to have to contemplate.

    There’s also the matter that from memory the Blair administration had championed the ascension of the A8 countries, and so this was the next logical step (especially as they only expected 10K people or similar to travel here).

    But they’re weak arguments, I’d agree.

  • 21 Fremantle August 15, 2018, 1:19 pm

    @Brod

    Yes, all those options were possible, but they don’t tend to be popular with UK citizens who do not necessarily appreciate being asked to prove their right to live, work and access government services at every turn.

    I’ve argued here before that Britain is an open society and dismantling that to manage the EU freedom of movement principle for workers would be detrimental to what makes the UK a successful country and a magnet for ambitious hard working migrants. Support for migration requires the complicity of the electorate, and controlling who enters the country and why has proved a popular policy in multiple Western liberal democracies.

    So while I am in support of reductions in barriers to trade in labour (i.e. immigration restriction), it still needs to be managed and controlled to maintain popular support for immigration. Where it has not been controlled, populist leaders with distinct anti-immigration rhetoric have emerged.

    Even if we enacted the tools mentioned, requiring firm job offers, welfare access restrictions, these are reasonably low hurdles for many of the current EU migrants in the UK and I suspect the impact on overall numbers, whilst not insignificant, would not represent the sort of change that would convince much of the electorate that immigration in under control.

    And to be fair, they would not address the other major reason people voted Leave, and that is sovereignty.

  • 22 Fremantle August 15, 2018, 1:37 pm

    @TI

    The EU is unlikely to accommodate a softly, softly Brexit and this is a mistake made by many on both side of sides of Leave/Remain. Any negotiations with the EU have to be made with an understanding of the EU’s position, which they have at every turn have shown to be unsympathetic to UK concerns, both when Cameron went to them trying to secure a deal that would satisfy the Euro-sceptic wing of his party, and when May has tried for Brexit-lite.

    As for a bipartisan cabinet or working group for renegotiation, the whole reason we ended up with the referendum is because parliament could not resolve the Gordian knot that is the EU. As the polling in the Quillete article reveals, the British public was at odds with MPs stated positions on Europe. MPs shouldn’t simply be mirrors of their constituents, in fact it is impossible to be, and this a strength of representative democracy in Burkean terms. Nevertheless, politicians do need to address the concerns of voters and their failure to do so is an abrogation of duty that has harmed British politics. It is a circular argument, I know, and I’d have preferred if Europe could have been resolved without recourse to a referendum. But I also can’t see how we could have resolved it without one.

  • 23 Fremantle August 15, 2018, 1:45 pm

    @TI

    Also, the following polling indicates that a protest vote was not the main reason for voting Leave by Leavers in their own statements:

    http://csi.nuff.ox.ac.uk/wp-content/uploads/2018/05/Carl_Reasons_Voting.pdf

    Top was immigration, second sovereignty, third UK contributions to the EU budget and fourth was a protest vote, by a significant margin.

  • 24 The Investor August 15, 2018, 5:02 pm

    @Fremantle — I think the EU would accept “leave the EU, stay in customs union, stay in single market, pay our bills”. The problem is that it would also want to retain free movement, which seems fair to me given the rules of its club, and it would want our ‘divorce bill’ paid, which is at least now widely recognized.

    So what I’m proposing is we could have taken that as a first step, implement what controls on movement we could have as @Brod/I/others have suggested, implement proper borders and make a far higher effort to track the impact of immigration (reflecting an acceptance that many are hostile) and guarantee another Referendum on whether we should pull out further in say 5 or 10 years.

    That to me would be a sensible way to implement a split Referendum, rather than claiming it was a clear mandate for a radical interpretation (twice, if you include the General Election).

    I’d agree that our open society is being tested by immigration, among other forces. However in practice I don’t think immigration is even near the top of the list. Technological change and displacement / social media / excessive identity politics / more are at least as atomizing in my view.

    Re: The Protest Vote, well I didn’t say it was the main reason. 🙂 I list it as one of several factors. I think it’s a rhetorical trick (perhaps not done consciously) to pick off the factors one doesn’t like in a list of reasons for a vote that was clearly multi-faceted.

    The main point is take any of them out and Leave doesn’t win, and given that at least a few are based on very shaky ground with respect to relevance to our membership of the EU — and given how close the vote was — I think the response to the Referendum should have reflected that, too. (To an extent I think we agree on this, but you seem more pessimistic about the practicality of an alternative potentially phased approach?)

  • 25 The Investor August 15, 2018, 5:06 pm

    P.S. Reading that back and reflecting, I think immigration probably is near the top of the list for testing our society, rightly or wrongly, rather than “not even near the top of the list” as I wrote. That’s over-stating it, so I’d modify that if I may to say “one of several factors”. My point is I think there are multiple forces/tests operating at once, which can all be commandeered by a populist or similar and blamed / scapegoated, in some blend of rightly/wrongly. Here it led to Brexit, in the US Trump, in Italy right now the populists have reportedly turned to a tragic bridge collapse to fuel their agenda.

  • 26 Fremantle August 15, 2018, 8:08 pm

    @TI

    My pessimism is based on the revealed preferences of the EU.

    I’m basically a classical liberal, pro free trade, pro immigration.

    Yes, the EU represented a single market with no internal tariff barriers and only low external tariff barriers. But it came at the cost of centralised control of standards rather than mutual recognition for internal trade and higher non-tariff barriers to external trade. But trade didn’t excite the electorate, and frankly the stories of empty shelves doesn’t have much traction.

    Freedom of movement challenges the ability of governments to respond to demand for services, housing, and displaces lower skilled domestic workers, who through preference and perhaps housing inflexibility, are less mobile and perhaps more selective regarding where they work and what work they do.

    And this is where the challenge lies I think, shaping society to provide respect and reward for work in lower skilled service industries. Here we need to reduce barriers to employment of lower skilled workers, including both income tax and company tax, perhaps going so far as to have regional taxation regimes (and not the Scottish version). But providing the more intangible respect for work will be harder. I suspect this might mean dismantling government subsidies for the new university system and focus on vocational training, provide more tax incentives for on the job training.

  • 27 Learner August 17, 2018, 5:56 am

    We all love to mock the this-time-it’s-different crowd, and with good reason. But how many years does it take before it really is different? 10 years? 20 years – half a working lifetime? A 20 year anomaly can easily shape the full remainder of someone’s life, by which point a reversion to mean is small consolation.

    By all means, quote this back to me when we do finally get “there” 🙂

  • 28 The Investor August 17, 2018, 9:21 am

    @Learner — I don’t really understand your point? 🙂 If you’re saying there will be a bear market in the US again someday I am 100% in agreement. If you’re saying it might take 20 years from 2009 until we see one, I don’t think it’s likely it will take that long but I 100% agree it’s possible, too.

  • 29 Learner August 18, 2018, 8:27 pm

    Er, not much of a point really, and getting well off topic! Just gently poking at the idea that everything is cyclical. This run will surely end but I feel like the longer it persists the more permanent marks it leaves on peoples’ lives. A 5 year cycle is one thing, a 20 year is something else entirely, and we’re half way there.

    I do like Batnick’s point of where we measure a run from, though point of departure from mean makes more sense to me than his preferred previous-peak reference.

  • 30 The Investor August 19, 2018, 10:56 am

    @Learner — Ah, fair enough! 🙂

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