Remain or fade

The big day is here. A referendum that should never have happened, forced by a minor extremist party, allowed to happen by intellectual lightweights in government. The EU Referendum decides whether Britain keeps its seat at the table or is pushed outside to listen through the keyhole. So despite my libertarian leanings I’m voting to stay.

This is why. (Note: I have Masters training in finance, statistics, and behavioural economics, so while not a pro, I’m at least an informed amateur). Here we go:

Pretty much everyone believes a Brexit means economic difficulty for a while. Opinions as to how bad it’d be vary, but nobody – Remain or Leave – is pretending it’d be hugs and puppies by Monday. With even Leavers generally agreeing there’ll be a year or two of pain.

Now while we can predict broad economic outcomes a few years out with some accuracy (it’s called the Short-Term Debt Cycle) nobody can predict much beyond that.

So: there is 100% agreement we’ll have a couple of painful years -a timescale we can predict. Versus a 50% belief we’ll grow faster afterwards – a timescale that can’t be predicted.

In other words, Remain’s economic case is grounded in reality, whereas Leave’s is based on wishful thinking.

Someone on the street offers you a choice of £10 today, or a 50% chance of £12 in five years. Which would you take?

If you like Gaussians, then assuming the first guess falls within two SDs and the second within the third, this means there’s over 95% chance the economy is best off with Remain, versus less than a 5% chance it’s best off with Leave.

Based on simple statistics, the economy is better off if we Remain. Because a Remain vote is grounded in solid reality, whereas a Leave vote is wishful thinking. If you’re voting on the economy as I am, Remain is your best choice.

Why should right-wingers support the Living Wage? Try £10bn on GDP

The political map has moved on since French nobles sat to the left or right of the King, but most would still class me as a classic Right-winger. So why do I support a wage floor for the UK – and not just the minimum wage, but a Living Wage and beyond?

Targetting low wage earners...After all, I laugh in the face of unions (economic wrecking balls) who you’d think would be working towards the same goal. And my contempt for the Labour front bench – a mob of jerk-offs and whack-jobs incapable of simple sums – is total. I believe Occupy is shorthand for “Stand and deliver” and that Russell Brand is an overhyped self-indulgent uber-flake, circle-jerking the right-on juice for an audience of Guardian journalists. (Well, no argument there I suppose.)

Yup, the British Left is a joke, and the Conservatives aren’t that much better. I’m a hardcore Libertarian, in the extreme top right corner of the Nolan Chart. High social freedoms and high economic freedoms for all, and the main job of a small government is to protect those rights, not take rights of its own. The rights of society must stem from the rights of the individual, otherwise it’s just masters and slaves.

(As every State that’s ever dabbled in Communism discovers.)

And that’s why my stance is unusual. Isn’t the free market about invisible hands, supply and demand, efficient allocation of capital and all that? Libertarians are supposed to support laissez-faire. A minimum wage is a market distortion, and, the dogma goes, market distortions are always bad.

I still believe that. I’m a Libertarian even among Libertarians. But I also want to live in a civil society. And one of the few arguments against a Libertarian society is that it might not be a civil one.


Just to get things straight: I’m not developing a social conscience here. (Perish the thought.) Don’t worry folks, I remain a self-centred, individualist, rat-racing me-first Social Darwinist who glorifies the I over the We in true Objectivist tradition. Enlightened self-interest is the only personal philosophy that makes any sense, and darling Ayn got everything right, including not liking Libertarians. I enjoy BioShock for all the wrong reasons and Cormac McCarthy’s Judge ranks among my favourite fictional characters. And now we’ve got that sorted…


… anyone working fulltime at the lowest pay grade should be able to afford a decent life.

Let's bang some rocks together. Chris does Content.Not a life of luxury. Not a life of eating out every night – or even once a week. But a roof over your head and cash for Asda, with enough left over for a change of clothes and a broadband connection, isn’t asking much. And that’s all anyone needs to get onto the ladder of self-actualisation. The dignity of work should be matched by the dignity of pay… because those dignities give you the opportunity to pull yourself up.

And a society of 60m people with those opportunities is a successful, economically dynamic one. That’s the kind of place I want to live in.

So let’s look at what really matters to a small-statist: what does it cost?

The answer: a lot less than you’d think. And the benefits are enormous.

Back of envelope: the cost to employers worst-cases 58bn. That’s if Britain’s 12m lowest earners get £9.15 an hour. But many of them work part-time, bringing it down to £26bn or so. And some earn Living Wage already. (Including, to their credit, many local councils – although it’s easy to be generous with other people’s money.)

That brings us down to £22bn on the cost column. And the good news continues.

Because increasing these wages won’t make the jobs go away. Most low-wage jobs are non-exportable. They’re the cleaners, the waiters, the guys who sweep your streets and mix your drinks. You can’t outsource these jobs to Vietnam. A living wage won’t reduce employment.

What’s more, many employers among our EU neighbours already face real costs above this premium: try employing someone in, say, France. Britain’s beyond the economic stage where human labour is a costed commodity; low earners don’t make aircraft engines or devise new drugs. A living wage will have no effect on Britain’s global competitiveness.

Looking for that 360 degree view? Call Chris.Third, most of these extra costs can be recharged directly to customers. Anyone paying £2.50 for a Latte can afford £2.62, and if you begrudge the guy with his hands in your toilet an extra two quid, you need to rethink your priorities. I estimate £15bn of that £22bn moves straight into the revenue column; a living wage carries little real cost to employers.

So we’re down to a £7bn real cost to employers. What else?

Well, surprise surprise: put an extra £400 a month in people’s pockets, and they spend it on stuff. That £15bn charge-out becomes a £15bn economic boost. Which means greater sales for the companies who employ them. Leading to economic growth, higher employment, higher VAT receipts at the Treasury, and an increased feel-good factor among the teeming hordes. Would that cover the £7bn and bring the real cost of this change down to zero? I think so. (And yes, I’m aware how Keynesian this makes me sound. Suck it up.)

There are other benefits. A reduced need for Housing Benefit. A lower bill for income support. And a greater incentive to get into work; that extra £98 a week might, who knows, persuade some lard-assed wasters away from the Sky box. And with the minimum income of a full-time worker – over £18,000 – now significantly greater than most people can score from the Social, the number of people claiming benefits would fall anyway. It’s all good when work pays. An extra £3-4bn boost to GDP?

These positives, of course, also reduce the appalling complexity of Britain’s welfare state. All the edge cases – what percentage of this guy’s rent should we cover? How many hours of this woman’s childcare? – go away, and with them the armies of functionaries who adminster them. (Maybe they can all get jobs in Starbuck’s instead.) A living wage means a smaller State. What’s that, £1bn off the Public Sector payroll?

So there you have it: I estimate a living wage carries a £5-10bn benefit to the UK economy. Not far off a full percentage point on growth. Are you listening, Osborne?

£100k to £10m: a ten-year project

ad73b-37barsinbunkerGiven my modest life goals, I’ve been thinking about how achievable a rich but not ultra-rich level of wealth really is for the average middle-class taxpayer over the course of his working life. So I’m exploring a challenge-to-self: can one individual, operating alone with a job and a bit of capital, build a £10m wealth portfolio in ten years?

It doesn’t involve following some get-rich-quick scheme. (Nobody who gets rich quick ever does.) It’s about doing the right things: developing solid client relationships, doing the right kind of work, understanding your market. Most of all, it’s about the numbers: credit leverage, asset allocation, yields and margins and revenue streams. It sounds like complex financial stuff, but it’s not. Remember there are only two questions in finance, the cost of capital and the return on it. The assumptions below are reasonable: around 5% capital appreciation, 4% cost of capital, reinvested profits and average rental yields.

I’m not the type who employs people (people suck) so owning a big business is out of the question; startups come with such a high risk factor it’s not reasonable to build this strategy on a business anyway. So this is more about what’s possible for a lone wolf. Someone intelligent and self-actuated, but without infrastructure beyond the benefits of living in a stable nation like the UK. I can’t remember a time when I lived without risk (there’s a factor of seven between my worst and best-earning years); the novelty of this strategy is that it takes risk out, aiming for a positive outcome without requiring assumptions multiple SDs from the mean.

Here’s what to do. (As if I needed to say it, this isn’t financial advice; it’s a hypothetical plan I want to follow myself and you should ignore it totally. I don’t really want you competing with me for hot properties.)

Year One: the setup year.

You need a solid income, whatever it’s from: regular salary, sales commissions, client retainers, whatever. It doesn’t need to be a six-figure monster: my plan needs £60-80k. A high-but-not-skyscraping salary for the UK, not even in the top 1% of earners. If you can only hit £40k or so, it’s still possible but it requires a change in mindset. Cancel the Sky subscription, rent your spare room, sell the car and take the bus. Act like the low-income person you now are. People live healthy lives in the world’s priciest cities for under £20k.

Intertwined with this is your credit rating. All the big ratings agencies allow consumer access: Experian, Equifax, CallCredit. Check your score. If it’s low, take active steps to raise it; not much less than a top-decile credit score allows the balance of credit and yield in this plan. Your goal for this year is to have £100k in investable assets in two years, most of which you’ve got already in less investable forms.

Year Two: the savings year.

With discipline a careful worker can save £20-30k/yr. By Year 2 you’re looking to make first use of it. The only longterm asset capable of paying for itself is property; most great fortunes are built on it. My preference is for small freehold houses in secure locations;  land has been a well-regarded asset for 5,000 years, and things like management fees in flats can eat away huge amounts of cashflow. Furthermore, with no-one living above or below to worry about, risk is minimised.

Britain’s property websites allow awesome depth of research; leverage them. My plan involves two shabby but structurally sound 1/2-bedroom homes, on a good street in an up-and-coming area, in a sweet spot like London’s Zone 2 near a Tube. Too fiddly to attract commercial investors, most private buyers get turned off by stale decor, and the market is spotty enough there are bargains at the edges. Find them with a ruthlessly critical eye. It’s not your house to live in, it’s your asset to sweat.

Let’s say costs are around £200k each. Allow a £40k deposit for each plus £20k for stamp duty and solid kitchen and bathroom refurbs, then approach mortgage vendors with your credit rating, income statements, and deposit. Spend two months refurbishing both. Use all the tricks – constant flooring throughout, lots of brilliant white paint, and little touches like making sure all lightswitches and sockets are the same type and free of paint flecks. (I’ve just done this to my own house and it raised the rentable value by £200 a month.)

Two mortgages of £160k carry repayments around £2200/mth. Renting the houses to young professionals brings in around £2600/mth, and capital appreciation another £20k on paper over the first year. Two primary goals are answered: you want capital growth that outpaces inflation (as London’s market is likely to do longterm) and loan repayments covered about 120%. You control a £420k portfolio that pays for itself and your £100k of initial capital has earned a 25% return on paper: you’re on your way.

Year Three: we’re in business.

You’re still saving. And it’s getting easier since you’re pulling in an extra £5k or so from rentals. By December there’s £40k to buy a third Buy-to-Let. (Let’s say it costs £210k.) Your first two properties add £20k to your equity during the year; your portfolio’s past £600k. And we’re just getting started. The biggest risk is to lose sight of the ten-year goal, sell up and splurge: Rule One is that these are long-term assets that grow over time, even while you’re driving a hatchback and watching basic satellite. If you have a surplus, use it to pay down mortage sums to increase your equity.

Year Four: do it again.

The prices are higher, but so are the rents you can extract. (One reason property works as an investment is that it builds in inflation: rents and capital appreciation tend to track.) At the end of the year the portfolio spans four properties and over £1m on paper; it’s producing a solid surplus of over £1000/mth in rent and in the next 12 months will rise £50k in value. The plan is starting to show concrete results. You need to look at tax planning here: your surplus of rental income over interest costs is now significant and the authorities look at this very, very closely. Be open, be honest, but explore all options for carried interest and remortgaging with your financial advisor.

Year Five: that sustainable vibe.

After another year, we’ve reached the halfway milestone: not portfolio size, but a self-sustaining buying strategy. The 40-50k to purchase each additional property is now mostly covered by rent yield: your portfolio is now pulling itself up by its own bootstraps. You’re using money to make money. Portfolio size: around £1.5m, with a third of it equity.

Year Six: the Long 15.

There’s a way to go, and on paper you’re less than 20% of the way there, but there’s a story behind the numbers. Your sixth purchase, taking price rises into account, puts your portfolio in the £2m range with free cashflow of over three grand a month. You’ve been working and earning a long time with few luxuries, but – hey – what are luxuries? The luxury to do what you want each day beholden to no-one: that’s luxury. And you’re better than halfway there.

Year Seven: getting lucky.

By the end of this year you’re at the point where the equity in your portfolio balances your remaining debt, at about a million each way. (If this sounds a lot, remember you’ve funded it to the tune of £350k or so out of your own pocket plus another £350k in reinvested rents: if you neglect capital appreciation for a moment, your return is less than 50% spread over seven years, not much better than a good savings bond.) Of course you DON’T neglect capital growth, which has been around £350k too, and 14% per annum taking it all into account is a far juicier average.

Year Eight: rolling in it.

With your mortgage repayments starting to bite into the capital sums you borrowed, the yield curve is looking good: you’re bringing in twice as much each month in rent payments as cost of capital, with your equity to debt ratio seeing two-to-one on the horizon and you’re comfortably a millionaire after liabilities.

Only one million? Yes – don’t forget tax. Britain has been good to you: it’s the UK’s strong institutions and stable government that gives investors and residents the confidence to come here, supporting your rental market and your capital appreciation. In most places in the world this can’t happen. Look at tax not as a cost, but as your contribution to civil society.

Year Nine: the end in sight.

Portfolio size: over £3.5m. Gross income over costs of over £10,000 every month, with over half your loans paid. With nine properties under your belt by year end, about as many as you’d want to handle working alone, it’s time to start planning the endgame: what you’re going to do in another year or so.

But it’s also time to start congratulating yourself: you may have deprived yourself of Lamborghinis and Breitlings, but let’s face it – they’re just stuff. You’ve probably discovered you don’t need them anyway. It’s time to give up work and concentrate on your portfolio.

Year Ten: the finish line.

No purchase this year, but your portfolio’s valued over £4m and the income allows you to pay down all remaining mortgage amounts. The tax implications here are  sizeable: make sure you make provision for all the tax… your contribution to the social stability that’s enabled your plan to work over the decade.

Outcome: you own £4m of net assets outright, plus a revenue stream of over a quarter of a million pounds a year: another £4m of Net Present Value right there. Over the next year, £250k of revenue plus a further £200k of capital appreciation give you a track record a larger scale investor will look at: an asset delivering stable returns close to £500,000/yr is the sort of thing pension funds get interested in.

All options are open now, from a straightfoward sale to exotic derivatives that securitise your assets and income streams. Remortgaging the lot gives you very high returns over costs (at least six percentage points) due to competitive loan rates now available to you. For the rest of your life, you can enjoy the returns associated with a £10m fortune while steadily accumulating an actual £10m in capital value. The work is done: your portfolio will climb to £10m over the next few years without further work. You’ve made it.

Of course, this plan assumes you find the right properties, capture the right lending deals, keep it rolling and disciplined over multi-year periods. But that’s the point. Not everyone can do it. And for people prepared to put in the work, research the market and sweat the small stuff… there are rewards.

The coming apocalypse: seven billion reasons

705px-Operation_Upshot-Knothole_-_Badger_001Some say I’m cynical. Actually I’m not: all I do is try harder than anyone else to see the world as it really is. Here’s the truth of it: I’m a happy person. I think the UK is the greatest place in the world to sleep soundly, build a business, or be a citizen in.

Which is why if I’m negative on tomorrow, it’s worth a shake.

And I am negative. Not for my personal situation, but for the world as a whole. Because I can’t stop thinking of where the megatrends are going. All the social and economic factors that collectively decide what’s going to happen seem to be pointing one way, and when the streams cross, there’s only one outcome.

We’re heading for another world war, on a 3-5yr timescale.

I’m not talking a regional conflict, or even the assymetries of Iraq and Afghanistan. I’m talking the Hundred Suns scenario, global thermonuclear war, toxic wastelands from Los Angeles to Leningrad and tribal affiliations co-opting civilisation. Consider the evidence… then consider how they interact when they all happen together.

nuclear-explosion1. Our unrepayable debt. The “rich” world owes approximately thirty-two trillion US dollars. And it’s expanding 1.7 percentage points faster than its economies are growing. Britain alone pays nearly a billion pounds a week in interest on its borrowings. You can’t pay back amounts like that in a New Normal of low growth. You can’t inflate it away, either. Not with households throttling back spending, companies hoarding cash, and central banks around the OECD keeping interest rates low. Our trillions of dollars, Euros, pounds and yen in debt are crushing us.

2. The attitudes preventing progress. Despite our debt, the West’s citizenry is clapping its hands over its ears – whole populations with a rising sense of entitlement on both sides of the Atlantic that everyone’s needs must be catered for, without limit, forever, paid from government coffers. (Who fills those coffers? Er, nobody much.) And they won’t vote for anyone who can solve it. Nobody wants to do the right thing, and a billion Westerners do nothing but stand around with their hands out and their mouths open.

3. China is peaking, not rising. It might seem unstoppable; in fact, the big red blot is already on a downward trend. All the IP-stealing, all the Fake Banks, all the new money – nothing there is sustainable or backed by real assets. The Communist Party took a gamble a couple of decades ago, betting they could keep the illusion going for enough years to bootstrap the country to real prosperity: it almost worked, but the West is getting wise to it, and its companies are starting to be recognised for the straw men they are. The tensions this is creating within China – mass unemployment, wealth inequalities, political impotence – will only have one result: a strike outwards by an uncontrolled military. All it’ll take is one sea captain to make an ill-advised landing on an island inside the fantastical nine-dash-line, and NATO gets dragged in. China is the flashpoint, and a billion Chinese will want someone to blame.

4. The Islamic assymetry. The Muslim Brotherhood – a more cohesive and on-message global organisation than Karl Rove’s Republicans in the Bush years – has quietly stepped into the chaos of the Arab Spring, and is putting its people into positions of power across the Arab world. But a day is coming when the West no longer needs the oil that finances our “real” enemies like Saudi Arabia. (The ultimate source of most terrorist financing and investment in mosques and madrassas staffed by imported imams who pour hate into frustrated youth all day, every day.) Meaning this quiet consolidation across the Ummah is happening without schools, without jobs, without prosperity to take the edge off their frustration and rage.  And the Muslim world will start to see extremists as the way out. Terrorism won’t be a few million fanatics, tacitly supported by a few hundred million sympathisers and opposed by the rest. We’re heading for one billion extremists, today’s assymetric war on terror multiplied a thousandfold, pushing political resources beyond reason. A billion Muslims will turn on us, and on each other.

mid-Greenhouse_George_Early_Fireball.ogv5. This angry Earth. Whether or not global warming is inevitable, cyclical, or chaotic, you can’t be pumping a billion tons of noxious gases into our atmosphere each year and expect any good to come of it. 80% of the world’s population lives near coasts; the majority of their homes are beneath the waves with just a few extra metres of sea level. (The amusing thing here is that it’s happened before; we conventionally think civilisation is just a few thousand years old, but there are coherent societal structures – cities – on the ocean floor over eighty thousand years old that used to be on the shores. The only reason this isn’t widely known is that historians aren’t generally scuba trained.) Pressure on the West to do the right thing, while the developing world has a license to keep doing wrong, creates no incentive for anyone to do anything, and a billion Africans who never caused it are already feeling the heat.

6. The end of the rains. There is no Peak Oil, but there is Peak Water. We’re drinking the deserts dry and desalination is too energy-intensive to replace freshwater sources; few cities outside the northern temperate zone are genuinely viable, and those that are are at risk of drowning in brine. Water is a scarce commodity, and billions in the South are already thirsty.

7. The fall of democracy. The compact between citizen and State is broken; with professional politicians inhabiting our Houses and psephology now so advanced a pollster can predict an election with 100% accuracy in every US State, politics is turning ever more polarised – concentrating on the extreme edges, the swing votes, only the few thousand people who can affect the result. The US Capitol is partisan beyond belief; younger democracies in Asia and Africa are just family and tribal businesses working under a pretext. Government has been co-opted by the fringes, and we can’t do anything about it.

When you take all these trends together, there’s only one logical conclusion: it won’t be a crash, but a war.

War is how China’s leaders will deflect attention from their failings. War is how the West will forget its debt. War is how the angry young men of the deserts will fill their time.

There won’t be ground invasions: there’ll be a few days of skirmishing, then someone in China will miscalculate and take it nuclear.

Then there will be blood.

Hundreds of millions will die. Billions more will suffer. Nations will dissolve; tribe will build wall against tribe; family will fight family. Packs of feral children will run naked in the toxic streets, and we shall hunt them for food. Society will be deleted, and there will be no Undo button.

atomic-blast-imagesSome regions may escape. There’s no obvious reason South America will be dragged in, but that continent is at risk of becoming one big narcostate anyway. Australia’s leaders may take the hard decision not to support NATO, and escape the nuclear carnage: Mad Max will tread the fallout everywhere but his homeland. India may go on being India, in all its chaotic complexity, although I expect Pakistan to take its chance once the birds are in the air. But for Europe, North America, the Middle East, and Northeast Asia, decimation is the only outcome.

And maybe – just maybe – it’s for the best. (And not just because a nuclear airburst is the most beautiful thing imaginable.)

We can’t inflate away our debt, stop China stealing, make Muslims respect us. We just can’t. As with every great crisis, the best solution may be to start over.

I’ll survive; probably even prosper, given the opportunities every great upheaval presents. (Chris Worth, Marketer to the Thames Valley Wasteland.) But I worry about the rest. Billions will suffer pain, all because we couldn’t make the few big decisions that really need taking.

Watch this space.

Still an insult, no longer an offence

Finally! The word “insulting” has been removed from the UK Public Order Act’s offence of “threatening, abusive or insulting behaviour”. It’s about time: like all laws written with the best of intentions, it’s been abused time and again to bring people who merely disagreed with a litigious person into a cowed defensive posture.

It’s not far enough – British law still favours people with “beliefs”, constantly letting them off societal and legal obligations simply because they made a big noise about their imaginary friend in the sky. (Witness the way “faith schools” are allowed to discriminate based on what ancient text pupils’ parents prefer, or the way an organisation sending 26 people to the House of Lords is allowed to deny people a certain job rank simply because they’re female.) But it’s a step in the right direction.

Introduced in the 80s, the law’s been abused by countless thin-skinned people who think anyone criticising their beliefs should be jailed. (Interestingly, some of the biggest numbers of both plaintiffs AND defendants in such case have been Muslims. Proving once again that religion is principally a divisive force, something for playing up our differences, not bringing us closer together.)

So at last, UK citizens are once again free to voice nonviolent opinions and concerns as they please. Can I just mention that you are stupid and ugly and your mother dresses you funny?

Goodbye Neil Armstrong

Don’t forget as you read the Sunday obits, folks: all those pictures of the Apollo 11 crew on the Moon are of Buzz. That’s why I thought I’d put a shot of Neil here, reflected in Buzz’s gold visor as he took that famous photo. (“OK Neil, you can take the first step if I can be in the big photo.”- not.) Neil Armstrong reflected in Buzz Aldrin's visor

Despite his military background, Neil wasn’t ultimately a hero or adventurer: he was a scientist. That’s why there aren’t any decent pics of him on the lunar surface: taking holiday snaps just wasn’t part of the mission. A mission that involved over 50,000 people.

Apollo may have been driven by politics rather than rational scientific enquiry. It may have been appallingly uneconomic (taking something like 4% of US GDP.) It may not have done much “good science” – a tradition that, with the near-useless ISS vanity project, continues to this day.

But the outcome was the same: for a couple of glorious years in the 60s and 70s, we walked on the Moon again and again. Goodbye, Mr Armstrong, and – bloody good show.