What caught my eye this week.
A decade ago the UK had barely come down from the buzz of the 2012 Olympics. Riding high on the global stage, we attracted bright young things from across a moribund Europe. A start-up culture was catching fire in London that finally offered an alternative to decamping to Silicon Valley.
The UK was not without problems, but it was easy to feel lucky to live here.
Sadly, for every advance in this life there seems to be a counter-reaction.
Within a few years, the US had followed the triumph of electing its first black President by sending to the White House a dangerous blowhard better suited to the side of a box of fried chicken.
Meanwhile, a slim majority of Britons were convinced by a Band of Bullshitters into voting for Brexit [1] – the most bone-headed policy since that Roman Emperor made his horse a consul.
And slowly, surely, the economic consequences of leaving the EU have been coming through.
Not with a bang, but a whimper.
Falling investment, perpetually slower growth, dire politics, and what is starting to look like the return of Britain’s age-old inflation problem.
Cost of Brexit [2]: over £100 billion a year in lost economic output and counting.
All bad enough. But it seems some people now want to throw our pensions onto the bonfire too.
London’s gurning
Stepping back, there’s been lots of talk recently about the plight of the London Stock Exchange.
The LSE seems unable to win big new listings. Most recently chip design giant ARM said it will float in New York – despite direct pleading intervention from successive UK Prime Ministers.
Other London-homed companies are moving their listings. There appears to be a gloomy acceptance that the LSE should give up on having a listed tech sector at all.
In November [3] the London Stock Exchange’s total market capitalization fell behind Paris for the first time since Bloomberg began crunching the numbers in 2003.
We’re also losing [4] much of the less-glamorous but highly functional activities that helped the City boom for 30 years, with euro banking and clearing operations migrating to the EU.
Brexit fans may snicker at London’s plight. But City salaries help support a higher tax base and more generous welfare state than would be possible if London were “taken down a peg or two”.
As I’ve noted before, Britain is relatively poor for an advanced economy, on a per capita basis.
Yet for nearly a decade we’ve been making decisions like we’ve money to burn.
Dad’s barmy
Faced with this slow puncture draining the vitality from our economy, the rational thing to do would be to try to reverse it.
The Windsor Framework for Northern Ireland was a small step. But as Rishi Sunak revealed in championing that region’s advantages in having a foot in Europe, we’d be better off going whole hog. Reversing our hard Brexit and re-entering some combination of the Single Market and the Customs Union could staunch the bleeding. The politics of EU membership may still be impossible, but we need the economics.
Alas we’re not there yet. Brexit benefits may be as thin on the ground as Brexiteers who haven’t yet left office in disgrace, but the UK isn’t a Mad Max wasteland – which is apparently the high bar set for judging the benighted project.
Instead, in what would be a doubling-down in Britain’s lurch into Banana Republic governance, there is talk of corralling British citizen’s pension assets into investing in British companies.
Apparently some people look at Britain’s diminished status since 2016 and scratch their heads.
What on Earth happened to turn global capital against us?
Has the weather been particularly bad? Was it the death of David Bowie?
Wait! What about Brex… traitorous UK pension funds!
From the Financial Times:
The proportion of all UK pension fund assets invested in equities was 26.4% in 2021, down from 55.7% in 2001, according to the OECD. By contrast, Canadian funds had 40.6% in equities and Australian schemes 47%.
“We have trillions of pounds sitting in pension funds that are not being used to invest in companies, drive growth or do a whole range of things that the economic viability of the country depends on,” says Immuncore’s Sir John Bell. “We need to find ways to release this capital.”
Please read the full article [5]: Britain’s ‘capitalism without capital’: the pension funds that shun risk. It gives a good and balanced take on the malaise.
I pulled the quote above simply to illustrate that there are credible voices – inside government and out – who see your pension not as your buttress against an uncertain old age, but as a pot of loot to be raided in order to prop up an ailing British economy.
I’ve heard it suggested in the past few weeks that pension tax reliefs should be apportioned relative to the share of UK assets that a pension fund is invested in.
And that Local Government Pension Schemes should be compelled to invest in British equities, as well as in expensive long-term infrastructure problems.
This is all bonkers.
Bye Britain
The way to encourage investment into UK assets is to make Britain an attractive place to invest. As opposed to giving the world the impression we’re being run by a bunch of senior prefects at a public school for the banter.
As for British pension funds, we should solely want them to invest for our collective financial futures wherever they see the best risk-adjusted returns.
Not where some government diktat demands they put their money. That’s the economic policy of a military junta, not the birthplace of the industrial revolution.
Perhaps UK pension funds should own more equities. We saw with the LDI crisis during the Mini Budget (yet another showcase [6] for global Britain) that index-linked gilts at all costs is no panacea.
But equally, not owning UK shares was absolutely the right move over the past two decades. British pension fund managers who shunned the UK stock market did their charges a favour. They dodged a market that went nowhere for 16 years, before the Brexit vote tanked the currency to boot.
Now, I happen to think British shares may do better going forward.
That’s not because Britain is about to boom thanks to our bureaucratic borders and crown stamps on pint glasses. More than 75% of FTSE 100 earnings are generated overseas.
Rather, UK shares still look unloved – that is, cheap – and successive mid-sized British companies are being taken over by overseas competitors, helped by a still-weak Sterling.
(No, I don’t recall seeing that in the 2016 literature either. Ho hum.)
At the same time, a more normalised regime for interest rates and inflation would be a better backdrop for the more defensive style companies that remain on the shrinking UK stock market, which could help returns too.
Our pensions are not their playthings
Barry and his mates [7] down the golf club are welcome to invest their own ISA and SIPP money in UK companies if they want to.
No doubt they’ll be buying a round of G&Ts whenever a quality British company they own is acquired by an overseas predator by night, while fuming at breakfast over another story about Britain selling off the family silver in The Telegraph.
Blimps gonna blimp. But they can keep their hands off our life savings, thank you very much.
Have a great weekend.
From Monevator
“How I got mixed up in this FIRE business” – Monevator [8]
When investing is boring – Monevator [9]
From the archive-ator: Never ever respond to a cold call – Monevator [10]
News
Note: Some links are Google search results – in PC/desktop view click through to read the article. Try privacy/incognito mode to avoid cookies. Consider subscribing to sites you visit a lot.
UK food prices rising at the fastest rate for 45 years – BBC [11]
Britain’s middle classes feel the pinch in cost of living crisis [Search result] – FT [12]
BoE said to be considering reform of bank deposit guarantee scheme – Reuters [13]
Losing the plot: huge rent rises for council-owned allotments – Guardian [14]
Half a million landlords to leave sector as Boomers retire – Telegraph via Yahoo Finance [15]
Record numbers of Britons making mortgage overpayments – This Is Money [16]
Latest figures on how much you need for a comfortable retirement – Guardian [17]
Coming soon: QR-style barcodes – Axios [18]
London Stock Exchange set to offer Bitcoin futures and options – Reuters [19]
[20]
How China dominates the electric vehicle market – Semafor [21]
Products and services
11 tips to save on the cost of your subscriptions – Which [22]
UK investors swell money market funds [Search result] – FT [23]
Swap old clothes for vouchers from H&M, John Lewis, and M&S – Be Clever With Your Cash [24]
Open a SIPP with Interactive Investor and pay no SIPP fee for six months. Terms apply – Interactive Investor [25]
HSBC, Natwest, and RBS all offering £200 bank account switching bonuses – This Is Money [26]
Open an account with low-cost platform InvestEngine via our link [27] and get £25 when you invest at least £100 (T&Cs apply. Capital at risk) – InvestEngine [27]
Here’s how much your appliances will cost to run from April – Which [28]
Homes for people who want to downsize in style, in pictures – Guardian [29]
Comment and opinion
The 60/40 portfolio is alive and well – Disciplined Funds [30]
Testing flexible withdrawal strategies – Morningstar [31]
Lump sum investing versus cost averaging – Vanguard [32]
Planning my exit – Humble Dollar [33]
Six tips for tackling investor under-confidence – Best Interest [34]
Thinking fast and slopes – Dror Poleg [35]
Accounting for home ownership in retirement [US CPI but relevant] – ERN [36]
The mansion next door – Accidentally Retired [37]
What if you’re not on the same financial page as your spouse? – White Coat Investor [38]
The golden rule of investing [Gold vs low-vol stocks, research] – SSRN [39]
How well do Monte Carlo models really forecast retirement success? [Nerdy] – Kitces [40]
Naughty corner: Active antics
A provocative perspective on healthcare from a fund manager [Podcast] – FFtFP [41]
So you want to launch a hedge fund? – Net Interest [42]
Finance as entertainment – Jared Dillian [43]
The real lessons of Warren Buffett – Real Returns [44]
Doing nothing beat the S&P 500 over the past three decades – Morningstar [45]
Secure Trust Bank looks shaky as a dividend stalwart – UK Dividend Stocks [46]
Kindle book bargains
The Nowhere Office: Reinventing Work and the Workplace by Julie Hobsbawm – £0.99 on Kindle [47]
Cooking on a Bootstrap by Jack Monroe – £0.99 on Kindle [48]
Money: A User’s Guide by Laura Whateley – £0.99 on Kindle [49]
The Missing Cryptoqueen by Jamie Bartlett – £0.99 on Kindle [50]
Environmental factors
Tidal power’s fickle future – Hakai [51]
Keep your garden green and get a tax cut, suggest scientists – Guardian [52]
(Musical) robot overlord roundup
AI-generated Drake and The Weeknd song goes viral – BBC [53]
Is AI-generated music legal? – Semafor [54]
AIsis, the band fronted by an AI Liam Gallagher – Guardian [55]
Fourteen reasons why AI pop won’t eat itself [Search result] – FT [56]
Bonus: winner refuses award after revealing AI creation – BBC [57]
Off our beat
Journey into sleep [Nice graphics] – Reuters [58]
You can do it. No, really, you can – Klement on Investing [59]
Why do mirrors flip left-and-right but not up-and-down? – Big Think [60]
Dominic Raab forgot rule one: don’t be a massive arse – Marina Hyde [61]
A few things learned over here that apply over there – Morgan Housel [62]
Why do young people think jazz is romantic? – The Honest Broker [63]
Henfluenced – Culture Study [64] [via Abnormal Returns [65]]
What God, consciousness, and physics have in common – Scientific American via Pocket [66]
How to remove a fish hook from your finger [Not a metaphor] – The Art of Manliness [67]
And finally…
“Most of economics can be summarized in four words: “People respond to incentives.” The rest is commentary.”
– Steven E. Landsburg, The Armchair Economist [68]
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