I am writing this post after ‘the UK changed’ when Queen Elizabeth II (RIP) died. It describes the month of August, which now feels odd to be writing about, so I will keep it very brief.
August is in increasingly holiday month in the UK. French style. Getting work done is difficult, some restaurants close, my hairdresser shuts, and so on.
I didn’t travel abroad at all this summer. And I can’t say I really miss it. I think having the Coastal Folly to explore and Heathrow hassle back in the headlines, not to mention eye watering air fares, seems to have destroyed my travel ‘libido’.
I can’t remember a better month to be ‘stuck’ in the UK though. The UK moved into drought conditions, but the temperatures were lovely. London was markedly hotter than the coast – London was too hot to really enjoy, but the Coastal Folly saw 23-27C for two or three weeks on the trot. Lovely.
Energy worries climaxed in the UK at the end of August, when OFGEM announced the Q4 price cap – which is about 80% higher than the already-high prices. Almost immediately it was clear the government would need to do something about this, but at the end of August we awaited confirmation that Truss was to be the new PM and in the meantime the government sat on its hands.
Meanwhile, elsewhere, markets ended the month down a bit – particularly bonds. FTSE wasn’t too badly off, with energy/mining companies helping to prop it up.
For some reason bonds took a particular beating – especially UK bonds – I think because interest rates are assumed to be going up faster/further than before. This is despite the long term rates remaining lower than short term ones – apparently you can get a 10 year fixed mortgage for about 3.1%, I hear, which still sounds cheap to me. 2 year fixes are a bit pricier, but still don’t sound that expensive.
In any case I didn’t do much with my portfolio in August, which fell about 2%. I didn’t get any windfalls, nor many dividends, so my portfolio loan and my allocations remained broadly unchanged.
I did have a relatively lean month on energy consumption, which I am now tracking almost as carefully as I track my portfolio! Including the electric car, I used about 2k kWh. Historically that would have cost about £200. At the October rates it is going to cost me closer to £800. And winter is coming.
FIRE v London 
2000kwh for 1 month worth of driving!? What are you driving, and where are you driving to? 😆 We’ve reverted back to using the petrol car more often these days. Gas is almost at pre-covid prices in DK now…
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This is two houses, electricity plus gas. Including the EV.
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Oh! My bad 😛
Electricity prices in DK are also 3-4x what it was last year. Now looking into getting solar panels! (Me and everybody else it seems).
On the plus side, this is going to help push people towards more conscious energy spending…
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I was chatting to the dads down at the kids football training last Saturday morning.
One is a surgeon and he’s telling me how he’s started putting spare hot water from the kettle into a thermos and his family have all bought electric blankets so they can lower the thermostat.
Canary in the coalmine I was thinking.. If that’s what’s on a surgeons mind..
PS good god your coastal folly looks nice!
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That photo isn’t the folly, alas!
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Outrageous false advertising 😉
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@The Rhino, I’ve been doing the spare hot water in a flask thing since I’ve been WFH, when I realised how many times I was sticking the kettle on during the day!
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Why are you still bothering about energy costs? As I expected, Truss has put a nice cap on it. Plus she’s going to reverse that NI increase. Splurge-tastic from Liz for the next two years into the election. She’s going to try to buy off those gullible voters. Might just even work.
Plus have you calculated how much the move in GBP/USD this year has made you? Bet it pays for your energy costs for many a decade. We’re only paying for our energy in GBP. It’s not like we are paying for it in a hard currency like the USD.
Turn on all the lights, let the hairdryer run 24 hours a day, run the dishwasher empty just for the hell of it. Just don’t be still in the UK when it’s time to pay the bill. Don’t even think about how we fill Putin’s coffers. No moral hazard to see here.
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Why am I still bothering? Well, first of all, the cap details haven’t been published yet (it’s effectively purdah until the funeral), so we don’t know for sure that the subsidy isn’t limited to the first 10k kwh, for instance.
Secondly, I find it amazing that I was using 4x a typical household’s usage two years ago, without feeling above average at all. So there is a bit of a personal challenge about getting usage down, which even at the summer’s prices is still worth real money. If I care about AUM fees I should care about energy.
As to the GBP/USD move, I’m not sure I follow. If I had been 100% FTSE, measuring in USD, I would be about flat vs being 100% in S&P.
And in the meantime I am now paying almost 400bps for margin in USD. Which is really starting to feel expensive. Grumble grumble. I’ve really cut my USD loan and rotated into GBP and EUR. This feels uncomfortably like FX trading, sigh.
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I’m being rather tongue-in-cheek. The subsidy should be very much limited and above that you pay full whack. This, however, is a Truss government and such “sophistication” may not be forthcoming. There is a danger here. We need the public (consumers/businessses) to feel a huge amount of pain when they consume too much energy. The wholesale price must feed through, otherwise the market link is broken and the result will be that prices take much longer to collapse back.
With regard to GBP. I’m not sure of the details of your portfolio but GBPUSD is down 16% YTD. Measured in GBP, that’s a few million added to my portfolio value. My energy consumption on the primary house was say £4k. If that bill goes to £15k, even £20k, then it’s a drop in the ocean compared to my gains from holding USD. By being long USD, I’m massively overhedged against energy price rises. That’s the point of having wealth – to pay for liabilities like ultra high energy prices. People with assets need to stop complaining about high prices for things. When asset prices explode higher, at some point liabilities will too. You can’t have one without the other.
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Understood, but S&P is down by about the same percentage and I am leveraged to boot. So even measured in GBP I am not winning! And on energy I am definitely losing.
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I think I’ve said this before but in return attribution don’t mix up FX and asset price returns. Sythetically, you are making on 16%+ on your USD deposits funded out of GBP deposits. Yes, in reality you sold those USD deposits and bought S&P with them and that is down 16%. Doesn’t undermine the fact that the FX leg of your portfolio is working well.
If your overall asset portfolio is fairing poorly then perhaps you need to find other asset classes to own that aren’t all correlated the same way. I do find it very hard to understand that people seem to consider an equity-bond portfolio their passive benchmark portfolio. I don’t see how it hedges them that well at all. In times like this you can see how badly it fails. Liabilities up, asset prices down. Of course, for 30-40 years it outperformed and in the last decade massively but that doesn’t change the reality that your portfolio should be there to hedge forward liabilities, not to attempt to maximize returns. I think many people seem to have forgotten that rather fundamental point.
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Energy costs increasing by over 100% feels like enough pain for this consumer!
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