Wednesday, October 10, 2007

Allocating Cash

We are about to receive a refund from Snork Maiden's employer of moving expenses. They've agreed to pay more than originally proposed - a total of more than $A8,000. We will now have about 8% of net worth in cash outside of trading accounts. This is while we are borrowing almost 16% of net worth on an Australian margin loan at just over 9% interest. We only have about 3.5% though in Australian Dollars cash. The options are to:

1. Put most of this refund into a high interest money market account (about 5.5% interest) as an even larger cash buffer than we currently have (about $A7,500 in there currently and dividends and mutual fund distributions pay into this account).

2. Use it to reduce our margin loan. This has a higher certain return. We can always withdraw money from this account later though this probably requires sending a fax.

3. Transfer it to the US, buying US Dollars on the assumption that they are undervalued. This is possibly a high return (4.5% interest plus or minus change in value of the US Dollar) but risky.

Maybe we should do a little of each?

I still haven't placed any trades since we moved here. I now have the model up and running. In September and so far in October the model has underperformed the market. It doesn't do well in strongly overbought rallies as it has a somewhat bearish bias. So this has been as good a time as any not to trade. The last couple of days the model has been long and correct and the potential gain was $US400 per NQ contract. I didn't trade because the NDX seems exceptionally overextended relative to Bollinger Bands (i.e. the index is beyond 2 standard deviations from a moving average of the index) and my older "autoregressive model" is indicating a turning point is near. The model was short last Friday and would have been stopped out. The index rose 2.1%. I am waiting for the first good short opportunity. I have been doing some work on my modelling - continuing my earlier attempts to see if I can get a better edge in placing overnight trades (our daytime). I've come up with some regularities but nothing that seems reliable enough for systematic trading. The overnight sessions are less volatile but less correlated with the model than the intraday sessions. The two - overnight and intraday - have little correlation with each other. Perhaps it is best just to blindly place trust in my model and follow its signals. If I can actually do that.

1 comment:

Anonymous said...

thats funny, i'm buying AUD via FXA.

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