OpenOffice

Following EnoughWealth's suggestion I downloaded OpenOffice. Well, at least it lets me manipulate the shape of the charts in my old Excel files. If you doubleclick on the chart it pops up and the spreadsheet pattern behind it disappears. I could manipulate some but not all of the features of these old charts. Printing to a pdf also resulted in nice images. There are some gains over Excel 2008 but looks like more losses, so I won't be switching, though I really didn't spend much time looking at it. As soon as I found something I couldn't do that I wanted to do, I stopped.

Snork Maiden's Team Gets Another Year of Funding

Good news - the research team that Snork Maiden is part of got some more funding but less than they asked for, so either:

1. They need to find more money from other sources.

2. They have to cut out part of the team.

3. They can use the funding for one year instead of two.

But at least that is a very good start. At the moment I'm thinking it is unlikely that I am going to get a job for the first half of 2010 unless I go outside academia but that will reduce my momentum in getting research done and reduce my chance of getting an academic position. The grants I'm planning on applying for won't provide funding until the beginning of 2011 if I get them. No-one knows whether our current project will get any continuation funding. The whole research centre was funded for 3 years upfront. It looks like I can get expenses to work in Sweden for a month in early 2010 but not clear if I can get any salary. I still have a chance to get an academic position starting in the second half of 2010 which would work out well.

A "Solution"

I have found a temporary solution to my Microsoft Excel woes. I moved Excel 2008 into a folder I labeled "disabled applications" leaving the rest of Office intact. I set my account up things so that Excel 2004 opens on login. This means that if I click on an Excel file it will open in Excel (unless Excel is open already clicking on the file just fails to open anything) and then I instructed Firefox to open downloaded Excel files in Excel 2004. This restores my functionality except I must always have Excel 2004 open or otherwise open it before opening a file. This is all on my laptop. I'm seriously thinking of getting my IT guy to reinstall Office 2008 on my office computer without Excel and get him to reinstall just Excel from Office 2004? Will that work seamlessly? I'll keep my copy of Excel 2004 at work on my own personal external hard-drive in order not to violate the university's licencing issues (they are being audited by Microsoft right now).

The chart problem is not so bad with new charts but it is a total disaster with all charts I previously created in Excel 2004. They just appear as small images in the middle of a big grey area and can't be resized.

I just tried Apple's Numbers spreadsheet program and it also screwed up charts in an old file I opened. So it's not a solution.

P.S.
"Zoom to selection" in Excel 2008 kind of does something similar to "View Sized with Window" in Excel 2004, but I still can't find a way to reshape the the dimensions of the chart created - the grey area on the left and right sides of the chart stays there and covers the extra area of your chart so now you have to scroll backwards and forwards with your mouse to see the whole thing...

Microsoft Office 2008

Because the equation feature in Word 2004 wasn't entirely compatible with with Macintosh OS 10.5 (some notation appeared incorrectly though it is fine using OS 10.4) I "upgraded" today on my university computer to Office 2008. Wo"rd seems to be fixed and looks manageable, but I found that Microsoft have completely mangled the charts feature in Excel. When you want to create a chart you no longer get a dialog box but instead the "elements gallery" expands from the top of the window you are working in. It seems that the default now is to insert the chart into the worksheet that is currently open (something I never do, I always put the chart in its own sheet). So then you have to move it to its own sheet. That is still tolerable though annoying. But then I found that Microsoft have disabled the "size with window" command. The menu item is still there but does nothing and is slated to be removed. Trying to expand the chart myself by dragging its border resulted in a mangled mess. I'm going to have to go back to Excel 2004. Seems I'm stuck with Entourage 2008 though and I may as well use Word 2008 on my laptop and office computer. So I'm going to have to run Office 2004 and 2008 together. Trouble is my laptop is not recognizing my Office 2004 CD and unfortunately I already (stupidly) deleted it from my laptop. Hopefully, my office computer has no issues with the disk (my laptop has a temperamental CD drive).

Snork Maiden's Taxes 2008-9

I just completed Snork Maiden's tax return. As it is pretty straightforward and I have a spreadsheet set up from last year as well as last year's return to refer to it only took me 3/4 hour to do. See last year's figures for a comparison.



Last year's salary was much lower due to us only moving to Australia after the tax year started. Snork Maiden's non-salary income increased as her savings built up. Unfortunately, for the first time ever she owes money on her tax return :( I don't understand how this can be. 2/3 of the way through the year we started making salary sacrifice contributions to superannuation which should have lowered our total tax bill for the year. That means that tax should have been withheld at too high a rate for the first eight months of the year. I expected that to roughly cancel out with the tax due on investment income. But apparently her employer withheld too little tax all year.

Her average tax rate was 23.56%. Her marginal tax rate is 31.5%. This covers all taxes as there are no state income taxes in Australia.

Asset Class Update

Time for an update on recent asset class and target portfolio performance:



This chart is in USD terms with all investments as they would appear to a US investor without any currency hedging. Australian and international shares have seen the nicest rebound as might be expected. The Australian Dollar has also risen (this series includes interest as well as exchange rate movements) and hedge funds and bonds have performed positively albeit a lot weaker than stocks. Managed futures, real estate, and gold have seen a negative performance in this period. The levered portfolio consists of:

17% MSCI
30% Australian stocks
14% Hedge funds
14% Managed futures
10% US Real Estate
10% International Bonds
5% Cash

Then it is hedged so that 63% of the portfolio is exposed to the Australian Dollar and then 50% is borrowed against the equity to lever up the portfolio. That is our target portfolio. It has also bounced back nicely and is currently at the levels of late 2006.

This is what things look like for an Australia based investor. The hedge funds and managed futures are hedged into Australian Dollars but the other asset classes are unhedged. The target portfolio is the same levered portfolio exposed 63% to the Australian Dollar:



The impact of the GFC was offset by the fall in the Australian Dollar. The subsequent rise in the Australian Dollar has resulted in a loss in the foreign bonds, accentuated falls in foreign real estate and gold, and slowed the rise in foreign stocks. As a result the target portfolio that declined gradually into the GFC hasn't recovered much either yet. This is why I wanted to have only 50% exposure to the AUD but haven't managed to keep things that low.

Dividend Imputation to Continue

The head of the Australian Treasury Department, Ken Henry, said that his tax review will not abolish dividend imputation. Dividend imputation passes on credits for corporation tax paid by companies on profits earned in Australia to shareholders. Only New Zealand still has a similar scheme. Foreign shareholders are not supposed to be eligible for the credits and profits earned outside of Australia don't generate credits. The system ensures that there is no double taxation of profits as long as those profits are paid out as dividends. But if the company reinvests them and shareholders end up with capital gains then double taxation does result. Dividend imputation, therefore, introduces several distortions:

• Discouraging foreign investment in Australian companies as long as share prices reflect the credits that foreigners don't get.
  
  
• Discouraging investment overseas by both Australian companies and shareholders.
  
  
• Encouraging the payout of dividends instead of reinvestment in the business. Or encouraging debt as a source of investment after paying out the profits.

Despite all this I like dividend imputation as an investor, especially when using margin loans. Margin interest can be deducted from the value of dividends resulting in surplus credits that can be used to offset tax on other income. If you had enough investments that paid "franked" dividends you could avoid paying any income tax at all.

Final Hedge Fund Performance for July 2009

HFRI: 2.62%
Credit Suisse/Tremont: 2.54%

Inefficient Markets

With all the talk about the supposed negative effects of the "efficient market hypothesis" that supposedly caused the GFC it's worth pointing out how the markets are often blatantly inefficient. Oceania Capital Partners (previously Allco Equity Partners) has a big stake in iSOFT (ISF.AX). Based on my calculations it is currently worth $A3.10 per share. The company also had 43 cents per share of cash as at 30th June and 24 cents of "realisable securities". Liabilities were 7 cents per share. That totals $A3.70 per share. Yet the stock trades for $A2.77. We'd have to believe that their two private equity holdings have a negative value of almost a dollar a share instead of the $A1.25 per share that they claim for that to be a rational price. Yeah, we should probably take something out for the cost of future management fees but still the stock trades at a ridiculous discount.

I've persuaded myself not to sell any yet :)

Fund Purchases

I just put in a bid to buy 2000 shares in the Challenger Infrastructure Fund (CIF.AX). The annual results came out and they seem OK to good to me. This will take our holding to 5000 shares which is 2% of net worth. The NAV is $A2.89 per share and the share price is $A1.59. This will reduce our borrowing capacity by less than the cost as the fund is marginable with CommSec. I'm also thinking of adding to our holding in the Aurora Sandringham Dividend Income Fund (AOD.AX). I received a letter to buy more units as an existing shareholder without paying commission direct from the fund. Their strategy has held up well through the GFC. The fund has a low correlation with my portfolio (0.14). I'd look to move that one towards 2% as well. Eventually, some of our other alpha oriented single-manager funds are going to have to come down towards the 2% mark I think. OCP.AX, CAM.AX, TFSMX, and PMC.AX are all above 2% of net worth currently. I'll be prepared to keep TFSMX and PMC.AX at 3% or so or more as these managers have proved themselves through the GFC to be pretty robust. I'm also thinking of doing some buying in my US based account soon too.

What People are Looking for on Moomin Valley?

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EAIT Withdrawal Offer

In the ongoing Everest Financial Saga the next event is the EAIT withdrawal offer. Everest will allow investors to withdraw part of their investment in the EAIT fund of hedge funds that was once listed on the ASX. Like many unlisted hedge funds you cannot redeem units any time you like from the fund but only at specific windows and only then in specified amounts. This is due to lock-ups in the underlying funds. This is an additional early withdrawal offer in addition to the previously announced December 2009 withdrawal. However, any withdrawal you make now in September will be deducted from your December 2009 maximum withdrawal allocation. The maximum number of units you can withdraw is 22% of your holding. A decision must be made by 7 September. The September offer is at a 5% discount to NTA while the December offer is at a 7.5% discount.

EAIT is currently our biggest hedge fund holding as shown in this table of shares of gross assets:



Any fund that engages in hedging exposure to the stock market is classified as a hedge fund here whether the manager classifies it as such and whether the manager receives performance incentives or not. Our total hedge fund allocation is below our 14% target. Whereas TFS, Hussman, and Platinum are all single manager funds, EAIT is a fund of hedge funds invested in a variety of strategies. Our biggest exposure to a single manager is Platinum. Given that the stock market is beginning to recover and we don't have a need for cash I'm inclined to at least wait till December and probably longer. I don't see why we should redeem units below NTA. Offers in coming years will be at NTA.

There is also a 7.6 cent a share income distribution to be paid in September. I'm really not going to be able to do my 2008-9 taxes until the last minute I think.

P.S.
EAIT has reduced there leverage to 31% and so our exposure is lower than in the above table and our total hedge fund exposure is down to 12.6%. It's time to look for new hedge fund investments :)

Spendthrifts and Tightwads

Snork Maiden and I are complementary in spending attitudes to some degree. I am more "tightwad" and she is more "spendthrift". On the other hand, she is more frugal in some areas where I am willing to pay for convenience. Overall though I don't think our attitudes are that far apart - generally we can compromise.

Research Discussions

I had the meetings with the potential collaborators and they went well though there are no definitive outcomes yet. The first meeting I found that though we are both interested in similar questions our approaches to how to address them seem a long way apart. We'll continue to discuss things but not sure if much practical will come out of it in the long term. The second meeting with the more senior (in position) person I think went well. Most of the time it seemed like he was telling me about his research. He's happy for me to use his model and for a student in his unit to work with me on it potentially. Looks like I can get involved with his research network and maybe down the road submit a proposal (to the government research agency) to be located in his unit which is where really the only program in my area in the country really is located. This seems to make sense, but I'm not sure about the politics of the whole thing. I'll have to continue to take it step by step. In the next couple of days I want to improve my proposal further and then I really need to get back to work on the project I'm supposedly being paid to do. I'm going to have to do that as full time as possible from now on.

Psycho-Economic Environment in Australia

Following up on the comments on a recent post things feel a lot different here than in the US.

EDIF

In the ongoing Everest Financial saga, the "direct investments" in the EAIT fund of hedge funds is being separated out into a standalone fund as of 31 July. 62% of this new fund is invested in Babcock and Brown European Ports Investments and the other investments are also in infrastructure or real estate. Therefore, I'm classifying this as a real estate investment as well as a "passive alpha investment" and as the investment is in my understanding hedged I'm going to continue to count it as an Australian Dollar investment.

July 2009 Report

It was a great month. The MSCI World Index gained 8.84% in USD terms and the SPX gained just 7.56%. The Australian Dollar again appreciated against the USD from 80.54 US cents to 83.36 US cents. We gained 13.00% in USD terms (9.38% in AUD terms and 10.57% in currency neutral terms). Our spending was at the baseload level.

The following is based on the available data as a couple of funds as usual won't report till near the end of the month. As usual everything is in US Dollars unless otherwise stated.

We spent $3,173 ($A3,806), which is approximately our "baseload" level of spending:



Net worth reached $308k ($A370k). Asset allocation moved away from our target but there were no dramatic changes this month:



Australian stocks moved further above target while foreign stocks remain considerably below target. The target is a very long term target, I don't plan on selling Australian stocks soon, but I do plan to keep adding to foreign stocks as much as possible. We added to private equity investments (3i) during the month. The following is estimated performances for this month (net of forex movements) by asset class:



Oceania Capital Partners (formerly Allco Equity Partners) performed very nicely driving the private equity return. All stock classes did well. The above market returns this month boosted estimated alpha and beta. Alpha measured against the USD MSCI was 4.3% with a beta of 1.22 currently. Beta remains very high and will have to come down at some point:

Meetings Lined Up

I have meetings lined up now to discuss my research and potential for collaboration on grants with a couple of people next week. One of them is one of the top economists in Australia by any measure. Hopefully, something productive will come of it.

Hedge Fund Performance for July 2009

The HRFX gained 1.59% in July. Convertible arbitrage continued to outperform with a more than 6% gain:

The Recession Must be Over :)

Both of Snork Maiden's investment accounts - retirement and non-retirement - are now showing a profit. Given that the former started in November 2007 and the latter April 2008, that's not too shabby. The effect of dollar cost averaging... And Commonwealth Bank sent us a letter suggesting we increase our credit card credit limit from $A6,000 to $A10,000! Of course, I * took the opportunity, I can't see a downside (?).

* The account is officially in Snork Maiden's name but I do all the financial management in our household.

Unisuper Still Not Quite Right

So Unisuper finally managed to put me into the accumulation plan (defined contribution) but for some unknown reason 54.51% of the account is in the "Balanced" option and the remainder in the "Growth" option. I originally requested to be in the "Growth" option. Well actually it depends on which page on the website you look at. On a different page it says 100% of my account is in "Growth"

Another Paper Rejection

Had a paper rejected again today - this was the second attempt on this one. The good thing is that they only took 1 1/2 months to reject it, which is lightning speed in the economics world. One of the reviewers was clearly one of the same people who reviewed it at the first journal. His comments really don't make sense as everything he wants is already in the paper. The other reviewer was this time someone who seemed very knowledgable about the methods, which is good. Hopefully this will make the paper, which I am about to start revising, somewhat stronger. The first two journals I submitted to were in my specialised subfield of economics. After ending up with the same obtuse reviewer twice I am this time going to submit to a more general journal. It might help that one of the editors (based in NZ) is a coauthor of two of the papers I cite. Unfortunately, the journal is lower down the ranks in terms of how often its articles get cited, but that should increase my chances.

So, since trying to get back into academia since last November I've made six journal article submissions (five distinct papers). I've had three rejections and three are still in process. At this rate I'm going to be lucky to get anything published in 2010 even :(

Moominmama Report July 2009

July was another great month in the World's stock markets with the MSCI World Index gaining 8.84%. Moominmama gained 4.3% overall with the best gains coming in non-US equities. The US Dollar declined and these returns are measured in USD so it's not surprising. As you can see Sterling Cash gained 1.67%. The portfolio beta is estimated at 0.47 so this result is right in line with expectations. After losing 31% from peak net worth in June 2008 to the low in February 2009, net worth has bounced back by 23% which results in being exactly half way back to the top in Dollar terms.

On the other side of the world in Moomin Valley we gained something around 12.5%. A full report coming in the next few days. Our net worth fell 62% from the peak in May 2008 to the low in February 2009 in USD terms. We've now bounced back 68% from the bottom. In this case we're not quite half way back yet...

Canberra is Like Tuscany with Nicer Weather :)

Most Australians seem to hate Canberra and think it is terribly cold. They'd probably be surprised to learn that the average temperatures (daily high and low) in the coldest winter month are pretty much exactly the same in Canberra as in Florence (Firenze) in the heart of Tuscany, Italy. Our hottest summer month has about the same temperatures as Firenze's June, so we miss out on the hottest extreme. We also get less rain, particularly in the winter.

I was just writing an e-mail to someone in Italy who wished me good holidays (they were going on holiday for all of August) noting it was winter here. I said it was probably like northern Italy but I was wrong. It's cold there. Here it is more like Tuscany