What caught my eye this week.
The serendipity was too perfect. I thought: I’d write about this on Monevator, but who would believe me?
My girlfriend and I were on a visit last week to a picturesque part of Wales. Out of nowhere the blue sky turned into a thunderstorm (because we were in a picturesque part of Wales) and we dashed for cover under a tarpaulin strung up in a car park, allegedly meant for the patrons of a nearby coffee van but surely put there as advanced compensation by the Welsh tourist board.
An older lady appeared out of the storm. All smiles and shaking her head. A few seconds later her even more elderly partner stepped in.
As I often do and she clearly always does, we got chatting.
Golden dears
It turned out that they were in their mid-to-late-80s and had been semi-retired for decades.
They looked fitter than some of my university friends.
“We always walk at least 13km a day!” the lady told me.
“It’s a big world,” her husband added. “You have to get out to see it.”
They’d met and married in Malaysia more than 50 years ago, when she was visiting as an English teacher. Nowadays they spent half the year living in the poshest part of this town, and spent October to March overseas.
“It’s always summer for us!” laughed the man.
He asked me what I did for a living, but then he didn’t particularly listen before he gave me his investing tips. I’ve heard worse.
She said they did part-time work as marriage counsellors for their church. It was important to stay active and engaged when you’re older, she confided.
“I have three pieces of advice!” interrupted the man. “Always forgive the other person. Don’t argue for more than one minute! And never do anything to make your partner unhappy.”
That last one seemed like a reach, I suggested. In my experience it was often out of your hands?
But he was already off telling my girlfriend how he’d got his baseball cap – and most of the rest of his walking clothes – from visits he’d made to his old employer. Waste not want not.
The rain stopped and we shook hands and said our goodbyes. But then it turned out they were actually walking the same way as us.
Faster than us…
Now he was running! The jogging baby steps of an 86-year old, sure, but definitely pulling away.
“He wants to watch the Lionesses,” the lady told me, as she sped into a power walk. Over her shoulder: “Nice to meet you!”
I wished I’d asked them for their sustainable withdrawal rate.
Have a great weekend.
From Monevator
FIRE update: year four – Monevator
The mysterious case of Treasury 2061 – Monevator
From the archive-ator: What’s your financial origin story? – Monevator
News
Rail fares rise by an inflation-busting 5.1% – Guardian
Inheritance tax nets record £6.7bn before Budget raid – City AM
UK house prices rebound as market recovers from June dip – Guardian
…with BoE data pointing to a mini-boom – Yahoo Finance
…and Nationwide says housing is most affordable for a decade – This Is Money
Metlen confirms date for [much needed] £5.5bn London listing – City AM
London commuter towns revealed as Britain’s best places to retire – Standard
City offices ‘regain footing’ as deals tick up and prime rents surge – City AM
A speculative frenzy – Sherwood [with no risk premium on US equities]
Brewdog and its crowdfunders mini-special
‘Equity for punks’ fuelled Brewdog’s rise, and maybe its fall – The Conversation
How private equity swallowed the Brewdog unicorn [Paywall] – FT
Brewdog Britain is dead – The Spectator
Products and services
Cash ISA battle sends Best Buy rates up again – This Is Money
How to pay less for magazines or even get them free – Be Clever With Your Cash
Get up to £1,500 cashback when you transfer your cash and/or investments to Charles Stanley Direct through this affiliate link. Terms apply – Charles Stanley
Should you consider a product transfer for your next mortgage? – Which
Ofgem mulls different energy charges for varying household wealth – Guardian
Get up to £2,000 when you switch to an Interactive Investor SIPP. Terms and fees apply, affiliate link. – Interactive Investor
Pet insurance prices drop. You can pay even less with these tips – Which
The Junior ISA strategy that’s helped some accounts reach £200,000 – Which
Get up to £100 as a welcome bonus when you open a new account with InvestEngine via our link. (Minimum deposit of £100, T&Cs apply, affiliate link. Capital at risk) – InvestEngine
The cheapest ways to watch the Premier League – Be Clever With Your Cash
“We take everything a financial adviser does and automate it” – FT Adviser
Homes for sale in seaside hotspots, in pictures – Guardian
Comment and opinion
One-year state pension delay could cost early-50s over £16,000 – IFA Mag
Index investing is easier on your nerves – Humble Dollar
“Why I’m not paying into a pension” – BBC
Many Britons say they can’t afford to have kids – Independent
Don’t let comfort creep you out – A Teachable Moment
Could time off when young compensate us for retiring later? – The Conversation
“I earn £100,000 a year but I don’t feel rich in London” – This Is Money
The best leading indicator of wealth – Of Dollars and Data
Can we build it? No we can’t – Propegator
Uncommon common sense investing perspectives – Allan Roth
Today’s active managers are more skilled but they still lag… – Larry Swedroe
…and there are risks to passive dominance… [Research] – Alpha Architect
AI capital spend versus tech workers mini-special
Honey, AI capital spending keeps eating…everything – Paul Kedrosky
These charts on the spending boom have something for everyone – Sherwood
What happens if we spend $3tn on data centres that nobody needs? – FT
The have lots and have nots – Spyglass
The Satya of Satya’s layoff memo – Om Malik
Naughty corner: Active antics
Lessons from investing before the Internet – The Onveston Letter
Where do fund managers lose performance? – Klement on Investing
The case for low-volatility equities – CFA Institute
Bitcoin treasury companies: lessons from the 1929 crash – Be Water
Kindle book bargains
What They Don’t Teach You About Money by Claer Barrett – £0.99 on Kindle
Too Big to Fail by Andrew Ross Sorkin – £0.99 on Kindle
50 Economics Ideas by Edmund Conway – £0.99 on Kindle
Mastering the Business Cycle by Howard Marks – £0.99 on Kindle
Environmental factors
Househunters can now search for a home with an EV charger – This Is Money
Sheffield company launches eco-bricks that absorb carbon – BBC
Call to make wet wipe producers pay for UK’s polluted waterways – Guardian
UK’s rarest breeding birds raise chicks for first time in six years – Channel 4
Is indoor salmon farming the future of aquaculture? – Eating Well
Invasive seaweed ‘overwhelming’ Spanish beaches – Guardian
Robot overlord roundup
AI is about to make the public Internet useless – Philip Rosedale
Anything you say to ChatGPT can be used in court, warns Sam Altman – PC Mag
Reddit is even more influential than you think – Finfluential
Not at the dinner table
I coulda made a better deal – Paul Krugman
The great crime paradox [Paywall] – FT
Xi Jinping is the main thing holding China back – Noahpinion
Trump’s tariff disaster [Podcast] – David Frum of The Atlantic
The cost of financing U.S. government debt – Econofact
“We voted for retribution” – The Atlantic [h/t Abnormal Returns]
Off our beat
“I’ve stopped life-saving medication” says man after fight for NHS care – BBC
What ever happened to all the serial killers? – Derek Thompson
How diet can delay chronic illness in old age – Independent
The Red Queen fallacy – The Garden of Forking Paths
Neanderthals weren’t ‘hypercarnivores’. They feasted on maggots – Guardian
This is why we can’t have nice things: ‘dine and dash’ edition – BBC
How bread versus rice moulded history – Uncharted Territories
A nostalgic diesel train ride through Portugal – BBC
And finally…
“Advice is one thing that as freely given away, but watch that you only take what is worth having.”
– George Clason, The Richest Man in Bablyon
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Love the Archive-ator, not seen that one. Very relatable, except my damascene moment was a gradual realisation of a reality/aspiration disconnect. Progressed in fairly short order from interested through hobbyist to addict! Takes me to your great story, @TI – sounds just like me trying to keep up with my parents who I am incredibly lucky to still have; fit active and mid-80s.
Indeed, 2 more years – and interesting to read my response from five years ago in the comments. It’s like a portal into younger self’s mind.
This week’s post reminds me of my Grandad in his early 80s who was happily keeping with my teenage self as we walked a couple of miles to town, and asking where the nearest pub was.
I don’t imagine the paleo diet enthusiasts will be swapping their grass-fed beef for maggots any time soon!
> She said they did part-time work as marriage counsellors for their church. It was important to stay active and engaged when you’re older, she confided
No comment on how to stay engaged when you’re married?
Cymru am byth!
Hope that I might be permitted a slightly longer comment on the AI capex mini special 😉
And sorry in advance if any of this comes across as ‘ranty’ (in my case, a middle aged man ranting against middle aged men shouting at clouds).
So, upfront, they’re all fantastic articles in mini special – in so far as they go. Is there going to be AGI or not and who wins and how to profit from that
No complaints at all there, and many thanks for including this mini special and for the work of complication 🙂
But, and here’s the rub, how does this actually help an investor with a cold sweat looking at US valuations and data centre spend (per the links above, $102.5 billion in just the last quarter – annualised already 1.2% US GDP!), but also with deep FOMO if this really ‘is it’ (a la Mr Tuld, in Margin Call), and ‘AI’ turns into a ‘market rips higher’ paradigm shift.
For that purpose, it’s not enough to point at, describe and raise alarm about these expenditures (and the greater ones still that may be to come), as, additionally to the links in the mini special, Noah Smith over at Noahpinion also does today:
https://open.substack.com/pub/noahpinion/p/will-data-centers-crash-the-economy
Writers have to go beyond that limit, and then address the question of will the expenditure actually pay off or not?
And, in turn, that inevitably means engaging in detail with the technology, and what’s being done with it.
Otherwise, this is just 1994-1999 in replay with every man and his dog pointing to a bubble but nobody addressing if and how and over what time scale the internet would change business – e.g. Open AI and Nividea commentary today feels like that around Cisco and Amazon in 1997-2002, as writers warned of a bubble, and then rejoiced in the bursting (e.g. Amazon up 60x from, split adjusted, 7.5 cents in 1997, to $4.50 in 2000, then falling to 30 cents in 2002), but then missed that Amazon etc really were going to fundamentally change commerce (with the shares now at over $200, nearly 50x their 2000 ‘bubble’ peak).
That’s what we need to know now: i.e.:
– What comes after LLMs?
– Who can pivot first to neuro symbolic approaches?
– How many trillions of capex will this actually end up taking?
– Who will run out of money (or engineers, power, high quality training data etc) first (and who will be the last one standing)?
– If success does appear (in terms of genuine AGI/ASI), will it then be nationalised on national security grounds (and what will investors then get)?
– What’s the most convex way for UK retail investors to get exposure (and how)?
– If it (attempts at AGI) are ultimately going to fail, then should one ride the dragon’s tail as the bubble inflates anyway (Soros – ‘when I see a bubble forming I run towards it’)?
– If not, then where to hide (long bonds, SCV, gold)?
Trump will do as Trump does (tariffs and all the rest) but, just as the Asian currency and Russia default crises of 1997-98 did not end the tech boom, nor the ultimate trajectory of markets (and the emergence of FAANG and the Magnificent Seven), so too, it seems to me, that the Orange one is, in the bigger sweep of history, going to be no more than a bit of a distraction to the more pressing issues for investors of LLM monetisation and the limits of, and successor (if any) to, scaling laws.
[NB, and with my apologies: Typos spotted too late to edit: Mangled my 3rd para: should read “So, upfront, they’re all fantastic articles in the mini special – in so far as they go.” And then, after the 4th para, should read: “But is there going to be AGI, or not, and who wins, and how to profit from that?” with the “But, and” in the next para removed, so that it starts with “Here’s the rub”]. BTW, love the Alpha Architect passive flow piece in the links 🙂
@DH
I just reassessed pension drawdown (and DB plans) and have come to the conclusion I have £100k worth or stranded assets in my sipp (A1Cam definition = pension assets that can’t be accessed without paying 40%tax).
This means I now have a “fun fund” for reckless/adventurous/active/ gambling/investing. So I’m in the market for a 10x 100x punts.
Shame I didn’t realise this earlier and think of bitcoin.
Anyway, where’s the shortlist of potential big winners likely to emerge in the next 5-10 years? I want to be still young enough to enjoy it….
It is this a moguls special “I’ve inherited £100k, how do I turn it into £10m (or zero)?”
@Delta Hedge — I have no idea, it’s probably the most confounding situation I can remember seeing in all my years as an investor. Of course there have been smaller weird things many times, but this is a situation where it’s the biggest companies in the biggest index that have this almost binary uncertainty around their (/humanity’s!) future.
With that said, it’s worth asking what would happen if the capex did turn out to be worthless, the AI push something of a white elephant, and the buzz retrospectively seen as mostly hype.
In that instance all that capex would return genuine free cashflow and shareholders would benefit. The big hyperscalers would still seem somewhat immune to competition — what they’d have lost in their ‘AI scale lock-in’ they’d gain in ‘OpenAI or whoever isn’t going to eat their lunch anyway…
“£100k worth or stranded assets in my sipp”
What if La Reeves were to allow a de minimus exemption of £100k?
Well, she wouldn’t of course. Even if the idea appealed the round number wouldn’t – it would be an £87.5 exemption, to be reduced in later years to …
You could always take some income every year and pay it to a charity, if you can identify an honest, competent, honourable one. Which, I suspect, means one local to you.
@Boltt (7)
Is the plan that your ‘reckless/adventurous/active/ gambling/investing’ will be so successful that you won’t mind extracting the profits at 40% tax?
I’ve also got investments in my SIPP that, as Al Cam so neatly describes, are a hostage. Conversely, I’ve always put the more conservative elements of my overall asset allocation there. My completely irrational reasoning for this is that my SIPP is mainly the repository of various occupational DC pensions contributed to after the DB scheme became deferred. I expected it to provide me a retirement income and, as most of it was accumulated before 2016, probably through an annuity. As a result I am far more tolerant of volatility in my ISA and GIA than in my SIPP. Also, since the SIPP assets became a hostage, I would rather the growth came from assets outside that shelter.
I still live in hope that I shall eventually be able to shelter sufficient of my GIA assets and/or the tax thresholds will in time increase to allow me to extract SIPP money at basic rate.
@David V
Yes, “hostage” sounds and works better, I didn’t recall at the word at the time of writing.
Yes, if the plan/fantasy happens to be very successful then I could stomach the 40% (or disappear abroad..and keep it all)
My sipp is similarly conservative, a 7 year gilt ladder to fill the gap until DB Day. And even more gilts maturing over the next 12 months.
Even allowing for tax thresholds increasing 3% pa starting in a couple of years won’t be enough – being on the stubborn side I can rationalise doing something unusually racy with this “hostage” money that I really wouldn’t do with ISA money.
And there’s also much logic in being bold sooner rather than later – I’ve noticed a lot of my social circle getting older and doing less.
Didn’t Farage say he wanted £20k pa tax free allowance… and Boris said basic tax until £70k. The current incumbents seem to have the exact opposite in mind. Perhaps Reform does make sense…
@Boltt, @DavidV
Seems the hostage idea cut through – which is nice, seeing as it dates from a fair few years back.
IMO it is only really a “hostage” if 40% exceeds the rate of tax relief on your contributions. Having said that, it really is often a bit of a bxxxer and has caught out a lot of folks*. FWIW, I cannot see the link [of tax thresholds to inflation] being restored any time soon. If anything, I see the opposite [fiscal drag dragging on for even more years] as more likely!
@Boltt,
Might a [some might say somewhat overdue?!?] market reset help? And, as @dearieme suggests gifting could work too – although I must admit I do tend to share his general scepticism re charities. And @DavidV’s suggestion as to the type of holdings you keep within your SIPP has IMO merit too. All is not lost, but …
@DavidV,
I had half expected you might just have a few things to add/say about my last two posts about UK inflation at SLS?
*probably including myself; and FWIW I have been tracking that threat for at least a decade now
@TI: yeah.
For the hyperscalars / cloud providers the default path of least resistance is up, regardless of whether or not AGI / ASI shortly arrives.
That probably explains why they’re all seemingly spending like the proverbial drunken sailor at a casino whilst on shore leave in Atlantic City. I mean, why not?
The riskier, but perhaps bigger upside, is with the picks and shovel plays.
If AGI comes then they win, whoever gets there first – but AMD, ARM, TSMC and NVDA surely then get crushed if it doesn’t.
And with passive flows in the S&P/Nasdaq probably exacerbating volatility and momentum in both directions, that’s not going to be good overall, even if, IDC, the cap weights gets somewhat redistributed from the semis to the hyperscalars.
The really big question, as you rightly allude to (“binary uncertainty around their (/humanity’s!) future”), is the seemingly ‘pivot of history point’ that we may have reached.
Either it’s a case of everything changes within our lifetime, or its BAU managed relative DM decline and the finishing touches to the EM catch up.
The Economist covered what a growth explosion under AI might look like last week (leaning heavily on Nordhaus’ seminal 2021 “Are we approaching an Economic Singularity” paper (American Economic Journal: Macroeconomics 2021, 13(1): 299–332)).
Per p15 of 34 of the paper (p313 in the AEJ): “assuming labor is constant, that all technological change is capital augmenting at 10 percent per year, and that the elasticity of substitution between labor and information capital is 1.25” then within 70 years of achieving AGI/ASI global GDP growth goes from under 3% p.a. now to 200% annually and still rising exponentially (extrapolating the model out, the Economist put it at 3,000% annually after 100 years!!)
Of course, even under quite optimistic assumptions, the labour share of output then falls dramatically, even as mass prosperity ensues; and under arguably more plausible ones, almost all the gains accrue to capital.
As you’re on Substack now for the property side hustle, you might want to check out The Curious Mind, which covers this area in free posts on 24th and 31st July.
@Boltt (11), @Al Cam (12), @dearieme (9)
As we have discussed before, Al Cam makes a good point that we should only really be concerned about paying HRT on our SIPP if we did not get HR tax relief on our contributions. That said, one of the selling points of pensions has traditionally been that, even if an employee does get HR tax relief on contributions, he/she is likely to be a BR taxpayer in retirement. Fiscal drag is making this much less of a certainty nowadays.
In my own case I am unclear how much of my pension contributions benefitted from HR tax relief. I always made sure I paid enough into my pension that none of my remaining salary was subject to HRT, but I think that only in the last five years or so was my gross salary above the HRT threshold. This is about the same length of time that I was also able to use salary sacrifice and benefit from NI saving in addition (at a small cost to the S2P or protected pension element of my state pension). Even in these latter years the bulk of my pension contributions would have been from the BR band of my salary.
What is clear now is the remaining headroom I have between my total income and the HRT threshold, and that tells me that virtually any SIPP withdrawals would make me a HR taxpayer. That’s not quite so simple, though, as saying that I would pay 40% tax on these withdrawals. Pensions/earnings form the bottom layer of taxable income, with interest just above and dividends at the very top layer. So the first income to be hit by HRT would be my unsheltered dividends, which currently still have a slightly lower tax rate, even at HR, than other income. This may not last beyond autumn of course!
As suggested by dearieme, charity gifts can be a useful tool for tax management as any gifts, grossed up at basic rate, increase the HRT threshold accordingly. This kept my overall income at BR last year. Most of the gifts are regular amounts but it is not yet quite clear whether they will be needed to keep me out of HRT this year. (HMRC think that they will and have made an adjustment to my tax code this year to give me HR tax relief via the code.)
@Al Cam Re your last two posts at SLS on inflation, I have to confess that, although I read them with interest on the generalities, the technical details of how ONS perform their data gathering and calculations, the applicability to individuals and the impact of covid was at the limit of my understanding. Unfortunately I lacked the motivation to make a further effort to delve deeper on this. Therefore I didn’t think I had anything useful to add to the debate.
@DavidV (#14),
I recognise the eye of the needle situation you describe and understand just how difficult it is to successfully navigate. Good points re the tax layer cake. I agree both posts are rather technical and cover quite a lot of ground. I am sure they could have been written better – but at least they helped improve, at least in part, my attitude towards the possibilities of AI. The most striking thing [for me] from those posts was the realisation that misunderstanding (or mis-interpretating) inflation data could literally be a matter of life or death; although this is somewhat hidden in the comments.
@DavidV (#14),
I should have also said that it is particularly notable that for most of your working life you were not eligible to pay any HRT* but nowadays [as a pensioner] you are having to duck and dive a bit to avoid paying any HRT.
This is the modern world!
*and when you were eligible managed to (in theory at least) delay or (as probably assumed at the time) swerve it via SIPP contributions
They sound a tiny bit annoying to me, not listening and keen to provide wordly wisdom, dangerous combo. As they say, ‘opinions are like assholes, everyone’s got one’. Long and short of it is if you’re fit and healthy in your late 80s then more than anything, you are incredibly lucky – you are a 1%er in genetic terms.
@Boltt:
Is this maybe of some interest to you: https://monevator.com/fire-update-fourth-year-anniversary/#comment-1900164
@A1cam
Yes, interesting.
Perhaps it’s the current climate making a few of us reassess:
Guilt/obligation to help kids financially
Inflation making us think a bit more cash would be useful/necessary
Inflation- feeling of going backwards in real terms
World economic uncertainty – top 1% ain’t a bad place to aim for
Wars/culture wars/loss of England that once was
FOMO on the US tech stock run
Fear of losing (wealth) rank globally
Losing 5% won’t make much difference but + 35% may make a difference
Strange times….
@Rhino — Thanks for the thought, I was a little disappointed almost nobody responded to my homily to this too-perfect couple… 😉 Yes I can see it could come across that way, and while I’d like to say that’s my writerly pen at work the truth is they were more eager to speak than listen. On the other hand, they’ve less time and they’ve got more to say so I didn’t mind at all.
@TI
What was the gist of their investing practices…, as in “.. I’ve heard worse…” ?