What caught my eye this week.
Josh Brown at The Reformed Broker offered a fresh take this week on what long ago became a hoary debate: the alleged existence of a ‘bubble’ in passive investing.
We’ve covered this ground before, of course, from the misunderstandings in how index funds operate to the impossibility of passive investing distorting prices in a zero-sum game – let alone of active funds in aggregate exploiting any (mostly non-existent) opportunities so created.
Josh now adds that rather than a newfangled mania that’s threatening global capitalism, passive investing is actually what we used to just call ‘investing’ before the 1980s made Wall Street and The City (sort of) sexy:
The popularity of passive investing isn’t new at all, it’s a throwback to the days of people focusing on their own work and careers, not trying to pick managers and become part-time market speculators.
You can never have a bubble in humility, apathy and passivity, which had always been the status quo up until the ’87-’07 period and is the more natural posture for investors to adopt for the future.
I agree. Indeed I’ve mildly argued with my co-blogger over the years when he’s slipped in a reference to alternative – yet still sleepy – strategies such as investing in mainstream global active funds or UK equity income funds for dividends as dangerous or destined to leave you eating baked beans in retirement.
In reality those approaches will probably serve you okay in your accumulation phase. They almost certainly won’t do as well as a pure passive fund strategy – you’ll be buying some fund manager a new sports car for nothing – but if you save enough for long enough in a diversified range of sensible funds, you’ll get there. Just a little poorer.
It’s really the hyper-active, concentrated, ultra-expensive and ‘churny’ approaches to investing that can truly eat up your wealth.
Performance chasing allied to the sort of strategies employed, in fact, by many of the under-performing hedge fund managers who frequently bemoan the rise of index funds.
From Monevator
How will no-deal Brexit affect your investments? – Monevator
From the archive-ator: Learn to get rich from a video game – 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
Away from US large companies, the average global stock is in a bear market – Money Observer
Japanification: investors fear malaise is spreading globally [Search result] – FT
UK’s car manufacturing industry in its longest period of decline since 2001 – ThisIsMoney
Global cities begin to shrink as inner areas empty out [Search result] – FT
A £1,000 a year down in retirement: The women left short on pension credits – ThisIsMoney
Investing in alternative assets via fractional ownership – Wealth Management
Products and services
The cheapest 10-year fixed rate mortgage now charges just 2.29%… – ThisIsMoney
…while Yorkshire BS joins Virgin in offering a 15-year fixed rate loan – Moneyfacts
Ratesetter will pay you £100 [and me a cash bonus] if you invest £1,000 for a year – Ratesetter
Are you sitting on a gadget gold mine? – ThisIsMoney
Rich People’s Problems: Swimming pools — the deep money pit [Search result] – FT
Why the Bank of Mum and Dad should think twice about equity release – ThisIsMoney
Houses for horse-lovers [Gallery] – Guardian
Comment and opinion
How David Swensen’s model passive portfolio performed in practice – Humble Dollar
A down-market survival guide for pre-retirees [US but relevant] – Morningstar
When is enough, enough? – A Teachable Moment
No worries – Humble Dollar
How to make work feel like play – RadReads
The ‘Fire’ movement and the trouble with penny-pinching [Search result] – FT
Getting married on a £1,000 budget – FI Fox
Getting rich… with property – The Escape Artist
Don’t need to downsize yet? Great, start now. – Next Avenue
Tools for portfolio versus the tools we need – FIRE v London
Naughty corner: Active antics
Good writers make better hedge fund managers – Institutional Investor
Risk aversion is the big story, not the inverted yield curve – Calafia Beach Pundit
Skewed expectations – Of Dollars and Data
When will value stocks outperform growth again? – Klement on Investing
Hypothetical value to real value – Fred Wilson
The Permanent Portfolio with bolt-on trend following – Demonitized
Brexit
Boris Johnson’s Brexit prorogation is constitutional cheating [Search result] – FT
“A sick, cynical brutal and horribly dangerous coup d’état” – Stephen Fry
Here’s Michael Gove [previously] on why it’s wrong to suspend Parliament [Video] – via Twitter
Oh, here’s two more cabinet ministers saying same just weeks ago [Video] – Hancock and Javid
Sajid Javid cowers behind net curtains as Cummings ‘gets ready’ for the final act – Guardian
Don’t hold back Hugh: Grant approaches national treasure status Twitter
Reminder: What a no-deal Brexit could mean for Britain [Five charts] – Guardian
Johnson warns MPs: don’t damage chance of Brexit deal/no-deal [Yes, he said both] – BBC
Kindle book bargains
The Asshole Survival Guide: How to Deal with People Who Treat You Like Dirt by Robert Sutton – £1.99 on Kindle
The Winning Formula: Leadership, Strategy and Motivation The F1 Way by David Coulthard – £1.99 on Kindle
Essentialism: The Disciplined Pursuit of Less by Greg Mckeown – £1.99 on Kindle
The Miracle Morning: The 6 Habits that Will Transform your Life before 8AM by Hal Elrod – £0.99 on Kindle
Off our beat
Amazon fires show world heading for point of no return, says UN – Guardian
The story of us – Wait But Why
Next stop, Stockholm: one family’s European rail adventure – Guardian
The only dependable source of happiness – Raptitude
And finally…
“If you wake during the night, any thoughts and feelings you might have are from your Chimp and they are often very disturbing, catastrophic and lacking in perspective. In the morning you are likely to regret engaging with these thoughts and feelings because you will see things differently.”
– Dr. Steve Peters, The Chimp Paradox
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Interesting article regarding equity release.
I do believe it has its place. Many people may not have traditional savings for retirement, such as ISAs or SIPPs, but they could fully own their own properties. Releasing some of this equity to help reach retirement goals or help out loved ones could be suitable in some cases (might be especially helpful to mitigate against IHT?).
However, a lot of the ads that have come out recently for it feel very “scammy” for me. Can’t quite describe it, but something just feels a bit off with a lot of them. Disclaimers warning against the potential of a very large amount of interest would be useful.
I just have visions of another PPI/Defined-benefit pensions cashed in type scandal arising long down the road when children don’t get as much inheritance as expected (or even owe some company money). Hopefully not.
Thanks for the links 🙂
There’s a BJ quote hidden in that bbc Brexit article
“The weird thing is that the more the parliamentarians try to block the no-deal Brexit, the more likely it is that we’ll end up in that situation”
I find it telling that he refers to parliamentarians as an other, not as one of his own.
Perhaps we should start referring to him as a cavalier.
@Ben — I switched the source to the BBC last minute because I thought I had more than enough Guardians this week, but in the Guardian version he’s even more ridiculous, if in a more subtle way (my bold):
https://www.theguardian.com/politics/2019/aug/30/boris-johnson-warns-parliament-dont-damage-chance-of-brexit-deal
This is Alice in Wonderland stuff.
I could have easily written about Brexit again this week but we just did that the other week, and to be honest the seriousness of the political chicanery and machinations on display is getting above my pay grade.
I read this week that passive investing might be the new bubble and certainly if you look at the money that is going into blind trackers – it is a risk that needs to be thought about.
On the other hand – if trackers only buy companies that are already successful and listed and worth £Xm in market cap., what about the growth companies – tomorrow’s googles?
Well, I invest in VCTs and the truth is that these invest in “growth” companies but their performance to date is less than desired and if it were not for the tax rebate, they wouldn’t exist.
So – what can you do in a world of low interest rates? Passive investing is a good way to cut the % steal that the fund takes. If stock price growth is 2.5% per annum and you can can save 0.5% be switching from active to passive – that’s a massive 20% increase in your return. What’s not to like about that?
That US Morningstar link goes to a registration page but you can get it here https://www.morningstar.com/articles/943867/a-down-market-survival-guide-for-preretirees
If you think about the amount of work that goes into running a VCT, the due diligence, the analysis, site visits, board meetings and so on it is a huge amount of manpower.
Yet over three years all that effort in some houses has demonstrably delivered lower returns than passive funds.
Makes you wonder why the VCT guys get up in the morning.
Oh yes, I remember now. It’s their job.
@BillD — Thanks, have replaced with your link but mine was working yesterday so I wonder if something will happen to this one, too?!
What the hell is going on round here? The main reason I visit this excellent blog is for its nuanced and open minded discussion of the Hitlerite barbarity that is Brexit. And yet what do we see? After Parliament only having had a mere three years to debate Brexit, Johnson and his Falange have limited this autumn’s Parliamentary session by as much as six days. They have literally – literally – abolished democracy. Shame on you all for silence in the face of the gravest threat to European freedom since Hitler annexed the Sudetenland. If we don’t fight this Francoist I have no doubt he’ll use the proroguing of Parliament as an opportunity to sign a British equivalent of Fuhrer Order Number 46. There are a couple of vital petitions on Change.org we all must sign to defend democracy. I’ve signed them 238 times and urge you all to do the same. This afternoon I shall be joining Paul Mason outside Parliament with an EU flag and a packet of quinoa raised defiantly aloft chanting, ‘From my cold dead hands!’ Join me.
Talking about buying active managers sports cars, a fund manager of my acquaintance had recently bought an Aston Martin DB11. List price approximately £150,000. Plenty of room for fund fees to come down.
I too was expecting a Brexit article :).
I find it hard to understand the complaints against the proroguing parlement. I mean parlement have passed a bill into law stating that we leave on the 31st October. If that was not the will of parlement they should have passed something else instead. I don’t see the argument that this make BJ a dictator or bypasses democracy. Parlement passed the law. First past the post in a two party system has tended to make the ruling party more of a dictatorship than this proroguing of parlement does.
Then on convention, the only thing I see is the length of time of the proroguing. But both sides have broken convention so I find it hard to have sympathy for this argument either.
But ultimately I guess the courts will decide and we will soon know the answer.
Okay, I concede that’s funny. 🙂 But nevertheless the only reason I’m not writing about Brexit is because we just did it and I don’t want to exhaust the patience of the regulars who’d rather I ignored it.
Obviously I think the proroguing of Parliament is dreadful. It’s true that the October 31st date had been agreed, but it’s specious not to admit that was at a very different time, when the nonsense narrative that we’d “have our cake and eat it” still held sway. It’s also ridiculous to claim that no-deal was anything like the central consensus from what was only an advisory referendum — and hence the democratic mandate that resulted was IMHO to “do something” not “do your worst.”
Let’s all remember that we had a Brexit deal. Brexiteers repeatedly didn’t vote for it. The referendum result didn’t have to be implemented or ignored or overturned. It was an advisory vote, so the Government could choose to do with the information what it wished. The very close referendum result suggested some sort of soft withdrawal (probably Brexit but staying in customs union and single market) and seeing what we thought again in another 5-10 years.
For political reasons May chose a far harder line, pandering to a minority of her party and the country. The very people she supplicated then rejected Brexit multiple times in Parliament.
Now this same crew are proposing to shut down Parliament to Retake Control. It’s embarrassing and shameful, especially for anyone who still supports this farcical project but also for the country generally.
We have an unwritten constitution where precedent is of supreme importance. If someone can’t see what a dangerous precedent suspending Parliament sets in a representative democracy then I’d suggest they’ve either forgotten their history (clue — go back to feudal times) or they need to take a glass of wine and exercise their imaginations. 🙂
When even the preeminently mild and reasonable John Major is taking the Government to court your know you’re out on a limb…
There were a handful of reasonable reasons to vote to Leave, but the most honourable by far was for the sovereignty of Parliament. Which is now being usurped, albeit in a tricksy public school japey kind of way.
Sensible leavers really ought to be having an “are we the baddies?” moment by now.
@Richard. Actually they didn’t pass a law stating we would leave on 31st October, they passed a bill supporting the invoking of article 50. This allowed a 2 year period of negotiation between the EU and the UK to decide the terms of our departure. This was done to respect the referendum result and in the clear expectation that a sensible deal would be struck (because all the Leave campaigners stressed that it would be easy to do a deal and leaving without one would be unimaginable).
Unfortunately, the provisional wing of the Tory party proceeded to demand a more and more extreme version of Brexit and to vote down May’s proposals. Don’t forget May always had a majority (however thin) so the failure of her plan was a result of the actions of the Govt side not the opposition.
The October deadline is a consequence of invoking article 50 and what followed, but it was not the intention of the majority of the House. The House has never had a chance to vote on the proposition “leave on 31 October deal or no deal”, and if it had it would certainly have voted against such an idea.
Which brings us to proroguing parliament. This has been clearly done to stop parliament getting in the way of what Boris and his merry band want to do. Cabinet ministers have publicly admitted as much. If the Queen is Sovereign in Parliament, and don’t forget it was a strong Leave argument that being a member of the EU limited that sovereignty, then the Government have no right to exclude parliament from decisions about a major constitutional change. As a number of constitutional experts have argued. This move is possibly legal, but definitely unconstitutional. Ahh, the pleasures of an unwritten constitution.
For me the original error, apart from the stupid idea of having an advisory referendum but telling voters it was binding, was to rush to invoke article 50 without first going through the tedious business of working through the complexities and figuring out what sort of relationship we wanted. For this both Government and Opposition are to blame, but much more the Tories because they were in charge throughout the process from floating the idea of a referendum to where we stand today.
The challenge now is in part to stop Brexiteers and the Leave-minded popular media constantly rewriting the history to suit their current position. The onslaught of lies and disinformation is astonishing, and threatens democracy very directly.
@Richard
Your erudite musings on what constitutes abuse of the UK’s constitution are somewhat undermined by your repeated inability to spell parliament
Precidence here is surely on BJ side. A new government will shut down parlement to allow a new legislative agenda. It is happening pretty much straight away and it is not extending over the Brexit deadline so other than being longer than normal it seems in line with Precidence. It doesn’t allow BJ to start creating new laws or doing what he wants. He is beholden to the ones already passed by a sovereign parlement and needs parlement back to pass new laws.
As governments control (except where previously MPs have broken with ‘convention’) the legislative agenda, shutting down parlement randomly is usually not something they would do – everything they are working on in that session will be lost. Of course it could create an issue in a coalition where a bill the government didn’t agree with got through – but even then I would expect the government to be so weak as to fall soon afterwards.
This thing needs resolving and soon. A no confidence vote and a general election could break the deadlock. Brois is most likely trying to show a strong hand to Brexit party supporters in advance as he tries to get control of the house and reverse May’s 2017 disaster
@Neverland – 🙂 thank you. I always think it looks wrong. It is the dyslexia (excuse I always roll out in these scenarios). Looking it up, Parlement is the French version so perhaps I am more European than I thought!
@Richard Miller – agree, parliament (spelt corrextly) should not have rushed into Article 50. To assume there would be a deal when TM spent most of her time saying no deal is better than a bad deal was clearly a very stupid mistake. So much so that I am inclined to believe many MPs actually agreed with her.
But where do you go? You ask that question and let’s say that yes, they reject no deal. They have rejected TMs deal, they rejected every other option in the indicative votes. So what are you left with? Remain? Asking the EU for another extension and doing it all again for 3 years? What if they say no, will it matter what MPs have voted for?
I am going to read up on the bill now, so will stop leaving comments on this as I am in danger of taking over these comments.
> It is happening pretty much straight away and it is not extending over the Brexit deadline
The suspension ends two weeks before Oct 31, so the 14 day cooling down period of the FTPA means even if a motion of no confidence is passed, the government will likely remain in power past Brexit day.
In theory an alternative coalition government could pass a confidence vote first, but given the tight timing, other scheduled events, and state of the opposition.. that appears unlikely.
Buckle up.
How a hedge fund manager learned to love index funds.
There once lived a hedge fund manager called Z. The Treasury of an EM country was issuing a new 10-year bond, the Jan-29. Being new and less liquid, it wasn’t yet part of the country’s bond index. As a result of increasing supply (monthly issuance), and a lack of demand (not being in the index), this bond traded at a yield 25bp higher than the current 10-year benchmark bond, the Jan-28. Over a period of a few months, Z went long $50k/bp of the Jan-29, shorting $50k/bp of the Jan-28 to fund this.
On the 20th July, the index provider published the new bond weightings for 1st August index rebalance. The Jan-29 was included for the first time and the weight of the Jan-28 was consequently reduced. Within days, the spread between the two bonds started to move to zero on anticipation of heavy buying by passive funds.
In the days around 1st August, Z utilized the forced buying of the Jan-29 and forced selling of the Jan-28 by these passive funds to take profit, and pocket $1.25mm. From the passive funds’ perspective, the Jan-29 had never traded 25bp cheap to the Jan-28 because the Jan-29 didn’t exist in the index prior to 1st Aug. Returns vs. the index are a net zero sum game, but indices do not replicate the market perfectly due to factors like index rebalancing. Investors like Z now exploit this, effectively reducing the return of the index. Sharpe’s proposition from 1991 that active investing is a zero net sum game is only a good approximation.
Z thinks back to his early days, 20 years ago, building simple index replication strategies for institutional end investors who didn’t want to pay the high fees on active funds. Who would have thought then, that the same now oh-so predictable replication strategies of passive funds, and the price distortions that their size create, would end up being such consistent source of alpha for him. Rather than ponder this too deeply, he takes his 18% cut and buys a sports car.
(note: names were changed to protect the not-so-innocent … he doesn’t even like cars).
FT Politics podcast today is quite good.
I can’t see that Boris’s cunning use of proroguing is much different from various sly actions contemplated by his opponents. The exceptions, it seems to me, are the actions of Mr Speaker: there’s nothing kosher about the way the poison dwarf has done his job these past few years.
Of course, once the matter is bound for the Courts there must be every chance that the judges will continue their rolling coup d’état against elected politicians.
P.S. Apologies to Mr Corbyn’s happy band for daring to us the word “kosher” as a signifier of “not improper, upright”.
P.P.S. Further apologies to Mr Corbyn’s happy band for daring to us the word “upright” with its vile implication that “right” can ever be anything but wrong.
@ Richard – a new government? Damn, I must have missed that election!
All I saw was 100,000 mostly white, mostly male and mostly elderly Tories replace one failed leader with a newer, failing version.
See Government, same manifesto, same fear of UKIP/Brexit Party.
@dearieme
That you can think barring the elected House of Commons from sitting and voting on the most important issue of the day, is equivalent to the Speaker allowing that House to vote on a wider range of questions than you would like, speaks volumes about why we are sliding towards authoritarianism and the disintegration of Britain.
> There once lived a hedge fund manager called Z
I should say that I always enjoy comments from and about all things “Z” in the Monevator comment section, whether they relate to archaic computing equipment, or hedge fund managers, or both!
So how do I exploit such index-fund induced mis-pricing as a retail investor?
Or do I have no choice but to stick to reasonably well-constructed and broad indices with low turnover, pray that my index fund manager has a reasonable handle on spreads and market impacts, accept that there is a small extra cost and be glad that Z can make a living that allows him to pass on interesting comments to Monevator? 🙂
Indeed. Bonds are a different universe to equities of course, mostly arising because they’re not perpetual and also sometimes not particularly liquid when it comes to any particular already issued (‘off-the-run’) bond or as noted new issues. (Note: I’m not an expert!)
Also keep in mind that the sort of activities Z engages in are what overall arbitrage inefficiencies out of the system from the perspective of the average Joe Investor. 🙂
@Faustus — Now that the proto-Barry Blimp (and probably all-time most deleted comment leaver on Monevator, from a very small field) has shown his hand re: Brexit we must surely be approaching end times…
It’s like the ravens leaving the Tower. (In a white van, growling and flapping their feathers at a successful young woman in business suit on her way to work as a high-powered manager of a climate change consultancy.)
Loved the daily mail car production link and the comments section. The article was accurate and should have been a warning to the daily mail readers who basically said it’s got nothing to do with brexit. It’s either a global production issue or those tree hugging greens fault. Global production is quite flat since 2016 but it’s not been quite so precipitous as the graph shown. Let’s hope that UK car workers keep their jobs they’re getting little help at the moment
@TI. Perhaps read Normandy ’44 by James Holland for perspective and Vietnam, Max Hastings.
@MrOptimistic — Please. I’ve read some Max Hastings. (If we’re being patronizing, I’ve *met* Max Hastings…)
I’m well aware of World War 2 and its grim start for Britain. But I’m also very well aware of the precursors to World War 2, specifically the rise of populism and the self-delusions of millions under the sway of liars.
Before anyone jumps up and down (and besides, @MrO started it! 😉 ) I don’t say we *yet* stand on that cliff edge — we’re still far far back in the countryside, trundling along on a train towards the coast and basically smiling at the view despite the increasing delays, our angry fellow passengers, the confused announcements, and the frequent change of drivers — but that’s the direction we’re inexorably headed in.
Bad things begin when the conventions that hold together democratic civil society break down.
p.s. Also, for the record while we generally have a relatively decent discussion about Brexit on this site these days, I will not be allowing the comments to devolve into saying that because it isn’t WW2 or the Blitz, that Brexit is just fine and so opposing its extremes or its mendacious promoters is verboten.
(“Not as bad as World War 2” is not exactly a high bar to clear, so I’m not sure what such comments are meant to prove anyway.)
Edit: I immediately toned down my original language in this comment a tad (changed two words) as it wasn’t helpful, and took the opportunity to correct a typo.
I didn’t intend to be patronising. We are all in this together. Civil society isn’t breaking down. You are worried things aren’t going as you would want. It isn’t going as I would want either. It will work out. I voted remain but have come to despise the remainers and the opportunistic momentum rent a crowd which want anarchy. My reference point is that I am English. Not racist, not xenophobic, just English. I am nothing more than the person I am.
@Mr Optimistic — Fair enough re: patronizing. Re: Things not going my way, I have often voted for parties that didn’t win elections. (Including at least once the Conservative party — I am the archetypal independent voter!) But this is a different kind of “not going as I would want”. Yes, as I said in my reply it will probably work out. But it won’t be *because* of for example blithe leavers and Johnson’s brand of maneuvering. It will be *despite* them.
I have a Leave-supporting relation who often tells me to forget about it, the vote was cast, why am I still talking about it, and so on. Says it all really. These people don’t know what they did. Many of them seem to have taken an interest in politics precisely once, for this vote, and don’t realise that civil society is a constant discussion if not debate or more.
Things aren’t going well but at least I can tell myself I’ve done my tiny bit in the aftermath of the dreadful result. That you could have reached the view of “despising” remainers as the months and years of evidence has stacked up astounds me. But it probably also underlines we’re not going to get any further in this particular discussion, so let’s leave it here.
Fair enough. But life isn’t easy.
Never argue with an idiot.
They will drag you down to their level and beat you with experience.
– Mark Twain
Two things cheered me up today. First the protests about prorogation that took place in many cities around the country. Though God bless the BBC for pointing out that some people were quite happy for Parliament to be prorogued, but they weren’t present at the protests. (Who would have guessed that?)
And secondly via Twitter I came upon an article in a constitutional law magazine written a few months ago, which suggested that the PM’s advice to the Queen may indeed be subject to judicial review, and that the judges might not be too happy about it.
What fun!
Viewing events from outside the UK, I think Mr. Optimistic’s point about perspective is spot on.
My hunch is that the constant catastrophizing is the result of social media and have long thought that the world was a better place before facebook/twitter/etc existed, though it does seem to be a peculiarly Western phenomenon, despite the global spread of social media.
Climate change? OMG, we’ve got 12 years to before the planet is unliveable!
Slight increase in proportion of muslims living in the west? OMG, we’re going to be overrun and living under sharia!
A few fires in the Amazon (at levels about 25% of those in the early 2000’s)? OMG, we’re doomed, the world’s lungs are on fire!
Brexit? OMG, there will be no medicines, no food and all the cows will be slaughtered. Won’t somebody think of the cows!
It’s all so absurd. These problems are all more easily solved in the absence of the hysteria.
@mousecatcher007 – thanks for that!
@TI – this would be the same John Major who prorogued Parliament in 1997 coincidentally when the cash for questions report was due?
And Godwins Law is alive and well across social media and many earnest commentators!
Like @arty I’m out of the country slightly bemused at the shenanigans but there are many ways you could characterise the current controversy (on top of many over the past 3 years). An aggressive political gamble? Yes. A political risk for the PM and Tories? Certainly. A crisis to rank with the last days of the Weimar Republic? Pull the other one.
@britinkiwi
“A crisis to rank with the last days of the Weimar Republic? Pull the other one.” So said Franz von Papen, who was convinced he could control Herr H.
Have a look at https://www.theguardian.com/politics/2019/aug/29/mad-suggestion-how-tory-ministers-once-viewed-call-to-prorogue-parliament.
As Tom Kibasi said about politicians who are willing to sacrifice every iota of any kind of honesty or conviction on the altar of power: “The willingness to engage in bigotry and violate hard-won social norms against racist, homophobic or misogynistic language convinces people that these politicians “speak their mind” and “say what they think”. Paradoxically, their lack of virtue confirms their veracity. Their bigotry is the result of calculation rather than miscalculation.”
This may be the thin edge of a very large wedge.
@The Borderer – proving Godwin’s Law again!
With you on politicians – few have any belief system or principles worth your vote except climbing the greasy pole and taking no prisoners on the way. It’s noting new and you can find evidence on every side.
Who was Tom Kibasi? Did they get him in the Night of the Long Knives? Maybe Titania McGrath knew him? Was he mentioned by Jonathan Pie recently? Asking for a friend…..
*Fingers in ears shouting NA NA NA NA NA* People who I respect arguing about things that stir great and deep seated feelings in both sides. It’s painful and reminds me too much of my childhood weekends. Enough about me.
The balance of evidence is what any investor relies upon before making a decision. Upon examining the evidence available to me prior to the (in my opinion) misjudged referendum I voted to remain. Looking at the evidence since the vote I have not changed my mind.
With investing I can choose not to get involved. With Brexit I cannot. It effects where I live. Simply saying it will work out O.K. without quantifying or explaining this viewpoint will not sway me to your side in the same way I would not trust the word of a broker without my own research into what they are selling.
We are all involved, well read and opinionated people who make up their own minds. I doubt anything written here will change minds without evidence to the contrary. Whilst I enjoy debate, I primarily read this site and it’s comments to find viewpoints and evidence to change my outlook on investing (passive or “naughty”) and respond more often to posts that may broaden my outlook or that excite me.
Thank you @TI for trying to steer away from the “B” word this week. I, for one am sorry it did not quite work out.
Jim
@britinkiwi
I have to ask, given your username, how much skin you actually have in the game?
There is history of ardent Brexiteers moving their assets abroad, and it makes it easier to focus on the ‘benefits’ when you aren’t in the room when the shit hits the fan.
@britinkiwi — You don’t just wake up or vote for a tyrannical regime. It’s a process. The price of freedom is eternal vigilance and all that. If I look at the current drama and who the momentum is with, it’s clear we’re looking at the wedge, the debate is how close to the thin end.
As for Titania McGrath, Jonathan Pie, and even Godwin’s Law, they are all the result of subtle and nuanced thinking that are unfortunately grabbed and wielded like Holy Relics by some on the right to shut down discussion. I think McGrath is hilarious and I’ve been known to forward a tweet or two, but I am very confident the creator would rather have a drink in a pub with me than the average vox-popped Leave voter. 🙂
Fascinating.
As passive investors we take pride in looking down on the bulls and bears slug it out in the bull/bear pit. We see the bigger picture. We are long term thinkers.
Perhaps also we should step back from the fray between ‘xenophobic’ Leavers and ‘supremacist’ Remainers.
In the end, the demonstrations, the name-calling, the use/abuse of Parliamentary convention, revoking Art50, and a 2nd/3rd referendum is for nothing as the next general election will likely return a small, pro-leave majority.
Our concerns should be the bigger picture: negative interest rates and tech driving deflation, the growth of China, the Japanification of Europe – these are tectonic issues in comparison to the micro-seismic of Brexit.
@ZX – does this happen across all bond classes or is it more specific to EM? I ask because I spoke to some of the ETF team at Blackrock last year and they said that they regularly get involved in price concessions if it makes economical sense. I didn’t think to ask at the time whether that applies to all bond classes or just, for example, to Developed Corporates. Would be interested to hear from someone who lives this day-in day-out.
@arty @britinkiwi
With all due respect you know little or nothing about UK economics and your views are irrelevant
What is happening now is a ruthless battle for the future direction of the uk, which could easily leave the uk a damaged dysfunctional democracy like Italy or worse a quasi-dictatorial economic **** up like Turkey on the fringes of Europe
@TDM. Blackrock has always allowed their index funds to go off-index if it allows them to capture a price concession but that flexibility is limited. They may take advantage of an auction concession for a bond already in the index, or imminently about to enter. It may be not be so keen if the bond may take another 6 months to enter. It will have to balance up the price concession vs. tracking error. Morever, not every asset manager is so flexible.
Materiality also plays a key part. For a dedicated EM index fund, a change of 10-year benchmark may be something that’s relevant. If the country sub-index is 10% of their index, they will notice the change and take action. If it’s an agg fund, where the country is say 0.2% of the index, they probably replicate using a very simple replication strategy of holding say the liquid 2y, 5y, 10y benchmarks with no human involved at all. They will do nothing until the 10y changes and then switch it all. For that fund, the impact of that switch is minimal but when you calculate all the switches done by all the agg funds, it can have a marked impact on that bond market. So typically, the magnitudes of these types of effects are seen more in smaller, less liquid markets, such as EM governments bonds or parts of the corporate bond market. In large G3 type government bond markets, the impact will be much smaller since many more funds have a more material exposure to this and replicate more closely.
Thanks as ever ZX!
@Duncurin Thank you. I was at the London protest. It’s my first ever protest, at the grand age of 41, and I went because shutting up parliament like that is not ok. It’s not about EU stay or leave preferences.
Seems you learn something everyday. Godwin’s Law. Please don’t ask for details but in a WhatsApp discussion my wife got the wrong end of the stick. In a conversation about my son’s fiancée’s puppy, my wife pointed out that puppies are cute but what about the dog. She chose to point out that Adolph Hitler was probably a cute baby too. Godwin’s Law applies. Perhaps there is an equivalent for brexit. No matter what the discussion, sooner or later it gets back to the vote.
@RS,TI etc. I wish I shared your confidence, I always have doubt. Are you so sure you are on the side of good ? If you are, do you find you have to ascribe negative attributes to those who oppose you, eg, they were lied to, they are stupid, they are racist? Then, in terms of political manoeuvrings, the side meetings to frustrate leave are legitimate, the prostitrution of the Speakers position is legitimate, but the tacitics of the leavers are a coup? Perhaps you may wonder who are really the anti-democrats in this.
@Mr Optimistic
“Perhaps there is an equivalent for Brexit”
It Mr Optimistic’s law now!
“The prostitution of the Speakers position”
The Speaker of the House is a function of the house, not of the government, its role should be to let the house express itself, not the government, so to me the speaker is doing its intended job. We are in a ‘slightly’ unusual position of there being a minority government trying to push through a deeply divisive policy. Normally the party of government is the party of parliament, so there isn’t much to for the Speaker to do on that front.
Ultimately we are a parliamentary democracy, parliament have the final say. That’s the optic I look at it through anyway.
@MrOptimistic — I’m not 100% confident, I always play a range of probabilities, with investing and everything else. As I’ve repeatedly said since 2016, I see some reasons/scenarios where Leaving makes sense, but they were greatly overwhelmed by the reasons/scenarios to stay. Perhaps I’d get to a 30% vote to Leave, versus 70% to Remain. That made me vote Remain.
I see zero economic benefit on a net basis for Brexit over any sensible time horizon, say 50 years. Almost all the good reasons for leaving were sovereignty related. That casts the appalling state of UK politics into an even deeper shade of black. We have people who repeatedly lied and duped in charge trying to derail the normal process of democracy in this country to get their unpopular vision of Brexit over the line.
Am I 100% confident about this? I suppose there are scenarios where even this turns out to have been correct. Maybe if the EU truly ‘turned bad’, and the UK was better outside it, but even then we’re 30 miles off the coast of Calais. Maybe if they are blocked and there is eventually no Brexit at all then that could be something of a cancer that grows in UK society (though the demographics suggest it’d remain a minority concern.) So I’d say I’m 90-95% confident that the hardcore ultra-Leavers are in the wrong now.
Saying “it’s impossible to be certain, so don’t have an opinion or do anything” is almost worse than “the people have spoken” as a way to shut down discussion. People promising the gullible certainties is one of the reasons we’re in this mess.
Anyone know the name of the company that provide a service to offer best returns on cash that has just dropped its minimum barrier to entry down from 250k down to something < 100k? I was taking a look at them the other day but completely failed to make a bookmark and have now forgotten the name! kicking myself…
Ahh, scratch that – I just had a brief moment of lucidity after prev post and remembered it was Flagstone..
Would Z have been rinsed if the bond didn’t join the index? I see the alpha. I wonder if I don’t see the risk.
I’ve also been wondering what I would do differently if I were a PM intent on leaving the EU in the short term with a deal. I think setting a deadline and scaring absolutely everyone that there might be a no-deal is a dominant strategy, but I’m curious to alternatives. Appreciate not leaving is an answer (and happy to assume that delaying = not leaving for these purposes), but that’s got its own problems, so if you have decided you have to leave, is what Boris is doing the best course of action? Followed by general election before Christmas having neutralised the threat to the right?
@The Rhino
The website is still saying £250,000 , and a quick glance at their news page didn’t contradict that.
@Mathmo. Z isn’t doing some risk-free arbitrage. For example, there is a risk that the Debt Management Office (DMO) of the country decide to switch all their issuance to say 2-year and 5-year bonds at some point in 2019 and the 10-year never gets to a large enough market-cap to enter the index. To be fair though, this is a low risk since most DMOs want their bond issues to reach at least a minimum size to provide reasonable liquidity. The major risk Z takes here is path dependence. Eventually the bond will get into the index, but in the meantime that spread could easily move a lot wider and incur MTM losses. Plus holding bonds, rather than say using derivatives, is balance sheet intensive, and the fund will charge him for that use. So there are limitations on the sizing. That’s the problem with alpha: it tends always to be a limited dollar amount, not an arbitrary scaleable return.
Sounds like Z is working to earn his wedge. 😉
I watched a programme on channel 5 tonight, basically a ‘question time’ forum about ‘what is wrong with British Politics?’
Needless to say, nothing was achieved, but I was particulary dismayed by members of the audience who believed that elected MPs should be their constituents’ mouthpiece.
Don’t they realise that that is precisely what an MP in a parliamentary democracy cannot be, otherwise anyone who didn’t vote for them is automatically unrepresented, and therefore why they are the constituents representative, not spokesperson?
Perhaps it might be wise if the study of the British Constitution should be a mandatory subject in schools.
So legislation to postpone the date. And then don’t agree to a general election until after the date move has been agreed. I do wonder why they don’t try to include a ‘if a deal is not agreed X days before the withdrawal date, article 50 must be withdrawn’. It takes no deal off the table for good. If you look at the indicative votes though, this is about as unpopular as no deal. so back to the original conundrum. We can’t no deal, we can’t remain and all shades of grey in between are not apparently able to command a majority (or really don’t seem desirable, customs union but no voice? Just remain). And so it will go on and on and on. The EU will push us into no deal eventually once they tire of this. Will a GE help – I actually doubt it as each party is fighting in a niche position so no one will win a landslide to break the deadlock.
@Rhino, re Flagstone – I gather the concession (50K instead of 250K) is only available to clients of St James’s Place or Tilney.
Suggestion for weekend reading: https://www.bloomberg.com/news/articles/2019-09-04/michael-burry-explains-why-index-funds-are-like-subprime-cdos?srnd=markets-vp
Character behind ‘big short’ says there’s a similar risk in passives?
‘The S&P 500 is no different — the index contains the world’s largest stocks, but still, 266 stocks — over half — traded under $150 million today. That sounds like a lot, but trillions of dollars in assets globally are indexed to these stocks. The theater keeps getting more crowded, but the exit door is the same as it always was. All this gets worse as you get into even less liquid equity and bond markets globally.’
@young analyst — Thanks for the thought, but that’s the article that Josh Brown is referencing in his blog I link to above.
@ya — Oops, my mistake, the have chased him down for another bunch of quotes, presumably based on the popularity of the article written about his last lot! Cheers, will include.
@ben – with the UK being the 5th largest world economy I’d be foolish not diversify in funds in that market. A half dozen direct shares and a half dozen IT’s adding up to ~ 10% of total portfolio (accepting that many UK quoted companies are multi-national in nature)
@Neverland – an interesting assumption on my knowledge base given 30 years of UK investing and I hadn’t realised that @TI intended insights on this blog to be only UK in origin? Oh wait….
@TI I suspect the creator of JP and TM has some divergent views to yourself on politics which would be great to discuss over a pint (or two). I imagine he would have a jaundiced view of most of the radical remain crowd too being there are awful people in any group. I think he does provide intelligent commentary, whatever your biases, and enjoy catching him on Twitter and online media or Sky.
@The Borderer – yes, the dynamic between direct democracy and a representative or trustee representation has never been clearer. Coming from Bristol as I do, I’m familiar with a certain Mr Edmund Burke who, in his single dalliance with the limited democracy of the time, famously voiced the concept in 1774 (see http://press-pubs.uchicago.edu/founders/documents/v1ch13s7.html). Unfortunately he espoused this after becoming an MP to his constituents who took a dim view of this and was not re-elected at the next election. I came across this commentary (in 2012!) while checking my memory about Mr Burke https://www.telegraph.co.uk/news/politics/9123798/Heres-a-way-to-give-power-to-the-people.html
As a tangential comment what would have happened if the referendum on independence for Scotland in 2014 had split the other way (55% for) and was treated in the same way by the UK government?
@Richard – seems a good summary!
@MrOptimistic — Last week you suggested I was being hyperbolic and pointed me towards Max Hastings.
Here is Mr Hastings today writing in the FT:
Seeing as you evidently (and rightly!) rate Max Hastings’ perspective as a historian over my own observations, perhaps you’ll now revisit your thoughts on this crisis. 😉
@TI – A la Mr AD – take a gander and see where, exactly, you might agree/disagree over that pint – https://www.spiked-online.com/2019/09/10/in-defence-of-democracy/