- Monevator - https://monevator.com -

Weekend reading: May the force be with us

Good reads from around the Web.

The speedy installation of Theresa May into 10 Downing Street and the self-assurance she displayed in reshaping the Cabinet to fit her agenda made the past week was a good one for Great Britain PLC.

Obviously, we almost certainly still face years of heightened uncertainty as a result of Brexit.

But in avoiding an extra two months of front-loaded angst while the world and its money wonders who is even in charge is akin to avoiding initial fees on an investment fund. We’ve dodged even more pain for absolutely no gain.

That it’s May in charge – and not a cabal of unknowns – dampens some of the tail risks, too. Theresa May has her pros and cons, but she’s probably not going to drive us into a cliff out of ideology or inexperience.

Of course, as the The Economist [1] points out, getting a cabinet in place and the optics sorted is only one step on our journey to Brexit:

“These things matter, of course.

But they melt into insignificance compared with the geological scale of the mountain the country must now climb.

In its continent, Britain must now rewrite its relationship with its largest trading partners, extricate itself from four decades of treaties, laws and conventions and negotiate painful trade offs.

Farther afield, it must reconfigure its role in the world and its relations with other countries.

This is not some hermit state, but one of the most globalised and internationally interdependent economies on the planet.

It rises and falls on its relations with the outside.”

I suspect it will be many months – if not years – before we’re even sure what kind of mountain we’re climbing.

Hammond time

Before then, Phillip Hammond, the new Chancellor, might have rocked a few of our apple carts

If May and Hammond are to be taken at their word, this new incarnation of the Tory government has different ideas about the UK economy – certainly post-Brexit – and perhaps, under Hammond, about our personal finances, too.

Wisely in light of how the Brexit vote broke down, May says she wants to govern for everyone. But it’s impossible to please everyone at the best of times, and these are not such halcyon days.

The commitment to an austerity timetable has gone at a stroke. That can only mean higher borrowing. Fine while gilt yields are low – but will they stay low, given the additional borrowing, likely higher inflation, and our huge current account deficit?

Interesting times.

Meanwhile, will Hammond do anything different on the personal finance front as part of this new purportedly inclusive agenda?

If George Osborne had kept the job, I would have expected him to swiftly cut corporation tax and possibly do something radical like suspend capital gains tax and stamp duty in an attempt to encourage investment. It’s not inconceivable he would have abandoned the goal of balancing the books by 2020, too, but I suspect any dividend he gained would have probably gone on cutting income taxes, in an attempt to cheer our animal spirits and keep the country spending.

This kind of Osborne-style agenda sounds far better for the wealthy than the poor though, which seems incompatible with May and Hammond’s stated goals.

Hammond told BBC Breakfast [2]: “It’s not about making the fantastically rich richer”. He went on to pledge rising prosperity for “ordinary people”.

What might that amount to?

I can’t see him ramping up spending on benefits in a significant way. We already have a minimum wage. And he literally can’t afford to be too generous to the masses – there’s masses of them, and the country is still in debt.

Perhaps infrastructural investment biased to the regions is logical choice, but it’ll take years to get going and make a difference.

No, I find myself speculating that in any abandoning the effort to balance the books in favour of trying to rebalance inequality [3] – even a bit – there’s going to have to be a carrot and stick approach to make it politically palatable.

That suggests halting spending cuts, higher taxes on the wealthy, no changes to the likes of capital gains tax or stamp duty, and perhaps an accelerated end to higher-rate tax relief on pensions.

It seems unlikely that they’ll jack up the highest rate of income tax again – perhaps to 50% – when they’re trying to prevent an exodus of City workers, but who knows? (Answers on a postcard in the comments below!)

Back on the front

Finally, to those who – when not swearing – have told me in the past three weeks to “can it”, “shut up”, “stop Remoaning”, or “go back to writing about passive investing or I’m going to stop reading” I say: Do what you like.

Really. Not to be antagonistic, but that’s certainly what I will keep on doing.

I haven’t run this website for eight years to let unhappy strangers start dictating what I write about.

Especially when a sizeable proportion (though definitely not all) of the complainers are of the Barry Blimp [4] sort.

Life is to short to cater to these people – unless you’re one of them yourself.

For example, one of the Blimps’ traits is they can’t seem to handle nuance or uncertainty. They are convinced they are right, but if they are proved wrong then they blame unforeseeable factors for derailing their vision or calculations. (I’ve mentioned before that many seem to have an engineering background – in my experience one of the reliably worst flavours of private active investor. Perhaps there’s a connection, to do with left brains or similar.)

Now, judging by their annoyance at my Brexit posts, I suspect some of them will accuse me of just the same steadfast intransigence.

“Wait and see, you’ll be embarrassed in 10 years when Brexit is proved a huge success!” more than one has said.

But really I won’t be – I’ll be surprised, but not astonished – because I’ve repeatedly talked about uncertainties and probabilities.

In every post I’ve written about Brexit, I’ve allowed that there may be a net positive outcome from the vote to Leave. I don’t think it’s likely, but it’s a possibility.

If you don’t think in those terms – as their blind certainty suggests many don’t – then perhaps you can’t read it in others.

Alternatively, uncertainty for some seems to mean: “Hey, it’s happened, get over it. Come back in five years when there’s certainty”.

In other words, they believe it’s at best futile and at worst confrontational to think about a range of possibilities, especially one where most of your range sits on the wrong side of their own axis of rightness.

Deliberately not speculating about the future like this is a fine approach to bring to your passive investing strategy.

But it’s a terrible way to invest actively (which is what I do [5] for my sins) and to a lesser extent it can be bad for your personal finances.

And it’s a futile way to critique a blogger who is trying to wrap his (inadequate) head around the potential consequences of a nation-shaking event. You might not want to do it but I do, and I am not going to replace my methods with blind faith in people whose reasoning I doubt.

I see a range of possibilities, and as I said at the start, the odds will keep changing.

This was a good week. Theresa May in, Andrea Leadsom not, and a version of Brexit which essentially amounts to “burn the ships [6]” has become much less likely.

For some of you this is blindingly obvious.

I hope you keep reading! 🙂

Brexit containment facility

From the blogs

Making good use of the things that we find…

Passive investing

Active investing

Other articles

Product of the week: I get quite a few emails about ethical investing (especially the options for passive investors) but carbon-free banking is a new one on me. You’d expect to read about it in The Guardian first, and I did [34]. The paper points readers towards the Co-Operative Bank’s Smile [35] account and has other suggestions as to where to put your eco-friendly savings.

Mainstream media money

Some links are Google search results – in PC/desktop view these enable you to click through to read the piece without being a paid subscriber of that site.1 [36]

Passive investing

Active investing

A word from a broker

Other stuff worth reading

Book of the week: I was fortunate to see a presentation recently by Ruchir Sharma, the author of The Rise and Fall of Nations [55]. As head of global markets and chief global market strategist at Morgan Stanley, Sharma travels the world collecting experiences and data that underpin his method for deciding which countries are poised to prosper. (Spoiler: Sharma tips Eastern Europe over the likes of Brazil, and says that post-Brexit the UK went from having an “average” outlook to an “ugly” one. Ouch!)

Like these links? Subscribe [56] to get them every week!

  1. Note some articles can only be accessed through the search results if you’re using PC/desktop view (from mobile/tablet view they bring up the firewall/subscription page). To circumvent, switch your mobile browser to use the desktop view. On Chrome for Android: press the menu button followed by “Request Desktop Site”. [ [58]]