What caught my eye this week.

Markets are routinely being described as having lost the plot in 2020. To me it feels more like it’s the economy – at least the UK economy – that is having a Wile E. Coyote moment.

We know the virus and lockdown knocked economic activity for six. The bald statistics are diabolical. Yet nearly everyone I know is in the same state. Existential dislocation, with a dash of economic suspended animation. But not even metaphorically out on the streets.

Life still feels strange. Our worlds have shrunk. Most of us haven’t seen elderly relatives since February or March. Many of us haven’t been into an office for months. Some are back in quarantine after an ill-judged jaunt abroad. A few spent this week watching their kids’ prefabricated A-Level ‘results’ and futures yo-yo around. All low-level distressing.

But there have been few job losses to-date. So far in my circle it’s only a few of the self-employed and small business owners that have obviously suffered. That’s bad enough of course, but the statistics point to worse to come when the Government support wears off.

Just look over the Atlantic. America’s brutal labour market has taken few prisoners – the unemployment rate was 11.1% as of the end of June. In contrast, despite a 20% contraction in GDP, the UK’s unemployment rate was just 3.9% at the same time. This cannot hold.

Bank of America wonks – quoted this week by Josh Brown – reckon the world just posted its worst period for economic growth in modern times. They have Britain vying for the wooden spoon:

I am a deliberately optimistic person when it comes to the economy and the stock market – not least because the opposite reflex gets so many into trouble and is ruinous for long-term returns.

But boy is it a struggle right now.

London tubes remain near empty outside of rush hour. Shops are frequented but hardly packed. Obviously there’s a lot of activity happening online, but there’s a cost to disruption and displacement.

Tourism and entertainment is in tatters. I’ve Eaten Out to Help Out four or five times now, but to be honest it’s mostly as a taxpayer trying to at least get my share of the petty cash fund while it’s being pissed away in the pub. The unlisted restaurants I’ve invested in say things are better than they expected, but only because of generous government support. And that is due to (and must, eventually) run out.

By way of balance, The Bank of England was more positive last week. Economist Andy Haldane sounded optimistic last week, writing:

 ‘The foundations for an economic recovery – a rapid one – are already in place, hiding in plain sight. Economic activity in the UK is not falling like stone, in fact it has now been rising for more than three months, sooner than anyone expected. It has also recovered far faster than anyone expected.’

But I’m not so sure. Of course we’ll recover – relatively speaking – from a 20% GDP blow, but it seems inevitable only in the same way that a boxer who’s down but not out looks like a champ for stumbling back up onto his feet. If he’s still swaying around like a drunk then your money remains on the other guy.

Some of those who argued for swifter, harder and longer lasting lockdowns predicted a very speedy bounceback when the mandated quarantines ended. A contradiction I saw in their posture was they were often also at the more Covid-phobic end of the spectrum. I think we’re seeing now this inherent conflict play out.

A chunk of the populace remains terrified. Social distancing remains sensible for the rest of us. My girlfriend and I are the only people I ever see under-60 using those hand sanitisers in the shops, but given how quiet the shops are many more phobic people are presumably still bleaching their Amazon deliveries at home. The young are castigated by a segment of society if they so much as raise a pint glass to the idea of getting on with life without a plexiglass screen between them, yet we also expect the economy to bounce back? Not going to happen.

Remember it only takes a few percentage points of economic activity to go from good growth to recession. Tourism and travel alone is worth 7-11% of UK GDP, depending on how you break it down. Switch off half that sector and you have a recession.

Yes, it’s much more complicated than that – offsets abound – but you get the point. HSBC does, predicting this week the UK economy will shrink by 10.3% in 2020 and only post 6.2% growth in 2021. That would leave our economy 4-5% smaller at the end of 2021 than it was at the end of 2019.

Still, it could be worse. We could have failed to negotiate prosperous future economic arrangements with our largest trading partner. As opposed to merely looking on the cusp of doing so, according to Bloomberg:

British and EU officials now talk privately about the prospect of there being no deal. That’s a marked shift in mood from even a month ago when, despite the tough rhetoric in public, people close to the negotiations remained fairly positive.

It’s an outcome that would lead to a complete rupture in cooperation between the two sides in areas from aviation to security and leave businesses and consumers grappling with the return of tariffs and quotas for the first time in a generation.

The good news for most Monevator readers is we have well-diversified global portfolios dominated by strong companies that can thrive when the weaker players are swept away.

The bad news is our friends and family could be among the weaker players. As blogger Ermine says, it looks like winter is coming:

A lot of people are going to lose a lot of jobs in the next few months and a lot of businesses are going to go down, and landlords will evict a lot of tenants.

Fair enough, they aren’t represented on the markets, but they are represented on the streets of our towns and cities.

So I’m still not convinced that this isn’t going to go titsup in a big way.

The ray of hope for me is that I’m fairly optimistic we’ve seen the worst of the virus in the UK. I can’t prove it, and respect the opposite point of view, but to me a second full-on UK lockdown looks unlikely.

But unfortunately we had the first and we have to pay for it.

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I have a friend who got lucky on the stock market. He didn’t know anything about investing so he followed a tip. The tip turned out to be a golden ticket. He made a lot of money quickly.

How much more could he make at this rate? Why hadn’t he done this before?

The strategy was obvious: double down.

He put an app on his phone. Talked about crypto. Gold bars in the house. He’d caught the bug.

If it was exotic, risky, and backed by a get-rich-quick theory then he was into it.

He kept gambling. Kept pushing it. High like a tourist in a casino. On a hot streak.

Until his luck ran out.

He no more understood why he was losing than he had when he was winning.

He hadn’t learned the fundamentals. Couldn’t bear to put it down to dumb luck. Now he had two problems:

• The loss of a paper fortune.
• The loss of his self-identified investing genius.

He was a busted flush. Staring into the ashes like a defeated emperor.

Today he’s in full retreat. Rebuilding is unthinkable because it means facing the facts. Nobody wants to be thought a fool. Least of all by themselves.

He’s just turned the wrong side of 40. It’s past time to get a plan. But moving back up to the start line has turned into a walk of shame – in his head.

You won’t read about him in any newspaper. He’s neither rags-to-riches nor riches-to-rags.

He’s just another guy who wasted time and money on a shortcut.

Take it steady,

The Accumulator

Reader! Do you have an anecdote to share about the perils of (not) getting rich quick? Please share it in the comments below.

What caught my eye this week.

Hey there, thanks for stopping by. I appreciate things are a bit quiet around Monevator the past couple of weeks. We are having a summertime hiatus.

My co-blogger The Accumulator is on holiday. Quite the opposite issue here – I couldn’t do anything for the blog beyond comment moderation until Thursday night, as work has piled up with a particular client.

Meanwhile erstwhile contributors The Details Man, The Greybeard, and Lars Kroijer all seem to have said their pieces for now. Our bench is not so deep these days.

So far so gloomy. The good news is that this could be the calm before the… well, not the storm exactly but at the least what weather forecasters call ‘changeable’ conditions.

Because while I’m busy currently, my professional workload is set to get significantly lighter in a few weeks. I’m not sure how much time will be redirected towards Monevator. But certainly: some.

This is an interesting time for the blog. We’re still standing after 13 years. (Tiny trumpets!) Traffic plateaued years ago though. (Tiny violins!) People come, get the simple message, and leave. Or, starting around 2015, they never leave social media or YouTube to find us at all.

(If you’re wondering where all your favourite independent websites went, it was thataway.)

We’re at a low ebb financially speaking, too. Long-time readers will recall this was always the weakest leg of this operation. Post-Covid-19, that gammy leg has fallen off altogether.

No matter – it all sets the stage for some overdue introspection. (And it means we might FINALLY get our book finished…)

Asset allocation is not the only fruit

I was ruminating about what a passive investing / money blog should aim to do in 2020 and beyond when I came across an interesting post by Robin Powell at Humble Dollar.

In his article Robin outlines what people really pay good financial advisors for. It struck me most of his points could apply equally to our kind of investing website:

Good financial planners will play a number of pivotal roles for their clients, none of which is found on the typical job description.

Here are seven of those roles:

Guide. Most people know what they want or, at least, know what they don’t want out of life. What’s often missing is a sense of how they can get there. A planner provides an independent plan, showing possible pathways and the tradeoffs involved in each.

Teacher. Many people’s sense of what drives investment returns comes from the day-to-day noise in the financial media. It’s all about investment products and short-term returns. A good planner shows clients what drives long-term returns and connects this to their life.

Coach. It’s easy to make financial resolutions—to save more, to spend less, to grow wealth, to leave a legacy. It’s not so easy to keep them. At their best, financial planners will ensure goal accountability, keeping clients on their desired path and talking them off the ledge in anxious times.

Organizer. Our lives are busy. Jobs and family commitments leave little time for dealing with the minutiae of insurance, portfolio analysis, rebalancing, cash flow analysis and so on. A good advisor takes care of this complexity and frees you to focus on what really matters to you.

Filter. The problem right now isn’t gathering enough information. Instead, we’re overloaded with the stuff. The challenge is finding the right information for us in a form we can digest. A good advisor becomes a trusted source and an information filter.

Counselor. Few big choices in life are simple. There are always competing imperatives. Planners who can help you cut through the noise and focus on your underlying values are worth their weight in gold.

Sentinel. The best financial planners are not only looking at your circumstances as things stand today, but also what might be coming over the horizon to change all that. And they are mindful of your legacy—the welfare of future generations and how your wealth can keep working beyond your lifetime.

Go read the full post at Humble Dollar, especially if you’re in the market for financial advice.

And Watch This Space.

This website is much more geared towards evolution versus revolution in its DNA, so don’t fret if you’re already a fan.

It is, however, time for some modest mutations.

Have a great weekend!

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