Transfer to HSBC Australia Didn't Work

I transferred USD 1,000 from Interactive Brokers to the HSBC Everyday Global Account. I was surprised to find that they converted it to Australian Dollars. I am confused about whether I did something wrong or not. I posted a question about it in the mobile chat and the app said it was still learning and didn't understand and a consultant would get back to me.

P.S. 30Aug22

So, the consultant explained that first you have to add the US Dollar "product" to your account before you can transfer US Dollars to your account. I now applied and was approved.

Even if I get this working properly this is a slow method of converting currency. First I need to transfer money to IB, then wait before I am allowed to withdraw it again, then wait while the transfer to HSBC happens, then do another transfer. Of course, we could simply have lots of US Dollars lying around at HSBC just in case, but there is an interest cost to doing that... So all this might be too much hassle.

For September's investment in Unpopular Ventures, I'm planning to sell some shares at IB and then transfer US Dollars to HSBC and see how it goes.

P.P.S. 30Aug22 

So now I know when you get the 2% cashback on debit card purchases. You need to deposit at least $2,000 a month into the account. That is a tremendous rate of return compared to passing that spending money through our offset account - about 5 times the rate of return. So, I am going to get Moominmama's salary deposited to this account in future. I'm not sure about opening one myself as I have a lot lower rate of spending on a debit/credit card.

 

HSBC Everyday Global Account

Back at the beginning of 2021 I opened an HSBC account for Moominmama because Plus 500 refused to send money to an account in our joint names. Moominmama has just been using it for shopping getting 2% cashback some months. I just realised that it can hold foreign currencies. So, instead of using OFX to convert and transfer money to the US to invest in Unpopular Ventures and Masterworks I could convert the money at Interactive Brokers at the best exchange rate, transfer it to HSBC and then transfer it to the recipient from there for an AUD 30 fee. OFX have about a 1.4% exchange rate cost plus an AUD 15 fee for small orders. And one day when there are distributions from Unpopular Ventures we could transfer the money back to HSBC without converting it.

Currency Exposures

 I took a more granular look at currency exposures:

So, actually I still have less than 50% exposure to the Australian Dollar. This probably still exaggerates Australian Dollar exposure. I couldn't find any information on the Australian vs. international bond exposure in any of four Australian balanced funds we are invested in. So I ascribed all their bond exposure to Australian bonds. I am always frustrated by the low level of disclosure regarding investments by most Australian funds in comparison to American funds.

Asset Allocation Since October 2018

Since October 2018 when we nominally received the inheritance, the total allocated to cash, futures, gold, and bonds has remained fairly constant at 50%. There have been big shifts into bonds and to a lesser degree gold and I have bought Australian Dollars and sold US Dollars. But on net I haven't deployed money into real estate, private equity, hedge funds, and shares. Again, there has been some change in the mix of those "risk assets". Some of my bonds have also turned out to be quite risky...

Now it is looking more and more likely that there will be a recession and opportunities to buy risk assets cheaper. Though, if I really knew that I would have sold a lot of risk assets or shorted the market. So, I don't really know. Mainly I'll be watching the yield curve. The long-run target allocation to all these risk assets is around 70% and 30% in gold, bonds, and futures.

I am planning to increase purchases of Australian Dollars from AUD 10k per week to maybe AUD 15k per week in the short term.

Save 4% on Transferring Money to Australia

My brother is planning sending me my share of the proceeds of selling my mother's apartment. If we sent the money in Falafeland currency to our account at Commonwealth Bank in Australia we would lose around 5% of the value relative to the exchange rate on the forex market (representative rate). The spread between their buying and selling rates is around 10%. This is just crazy. I can think of another word that starts with "cr". I checked the rates of other Australian banks. HSBC and Macquarie are better, but not that much better.

My brother got a quote from his bank in Falafeland to convert the money to Australian Dollars and then send to Australia. The cost is about 1% relative to the representative rate. Online, I found that TorFX is recommended for such transfers. I now have a quote from them which is about 1.2%. So, we will go with the Falafeland National Bank.

You can get much, much better rates by trading in the forex market yourself using a broker like Interactive Brokers. But I can only hold currency in AUD, USD, GBP, and EUR at IB. So, I can't make a conversion from Falafeland money to AUD.

Restrictions on Withdrawing Cash at Interactive Brokers

If you move money to Interactive Brokers through the American banking system, they put a hold on your money so that you can't withdraw it to another bank for 44 days. This works in a very strange way. If you have more than the amount on hold in US dollars you can obviously withdraw that excess money in US Dollars. But if you want to withdraw money in Australian Dollars you also have to have more than that amount in Australian Dollar cash! Well, this is what an IB representative just told me to explain why I can't withdraw any money in Australian Dollars despite having cash in that account, including cash I received from dividends that absolutely wasn't transferred from a US bank.

This will slow down my financial restructuring plan. I don't want to buy that many Australian Dollars all at once, though I could use futures contracts to retain exposure to the US dollar... but for psychological reasons I find that harder to do. And I would have to sell the US corporate bonds I bought to do it. The only thing that I really want to do that is time bound is to make a non-concessional contribution to superannuation before the end of the financial year. I guess I will sell some Australian managed funds to come up with the money.

Insane Moves in Australian Dollar and Yen This Morning

Moves this big never happen in currencies. It's like one month's worth of moves in 5 minutes. Yen did the same thing in the other direction, other currencies not so much. No idea what sparked this. I managed to buy AUD24k...

This is being called a "flash crash".

Long Term Investing Trends

The Australian Dollar tends to be high relative to the American Dollar during economic booms and low during economic crises. The recent low point in 2015-16 is related to a fall in commodity prices and slowdown in the World economy, especially in China. I think China probably slowed down by much more than the government admitted. During 2015 US stock markets went sideways or declined. The Australian market started 2015 optimistically but then had a steep fall:

There is now a lot of talk of renewed growth in the World Economy. On the other hand, US interest rates are rising as the Federal Reserve tries to reduce its balance sheet and with the Fed not buying US government bonds, but the US Treasury trying to issue even more after Trump's tax cut, the Treasury will need to offer higher interest rates, which makes government bonds an unattractive investment as rising yields implying falling prices for existing bonds. That is likely to both have negative effects on growth in the short run and make Australian Dollars less attractive in terms of interest yields. So, I'm a bit skeptical about the Australian Dollar rising strongly from here.

The US stock market is also very highly valued based on corporate earnings over the previous 10 years (Shiller's measure of stock market valuation, CAPE):

Historically, that has meant negative returns in the US market going forward. On the other hand, it is possible that something has changed and the risk premium for stocks has declined so that the stock market won't return to PE's as low as in past bear markets. It's unlikely that inflation would get as high as it did in the 1970s, which both raised the required rate of return and compressed growth profit. CAPE in Australia was 18.4 at the end of January, which is much more reasonable.

The best indicator of an oncoming recession is the yield curve. If short-run interest rates are higher than long-run interest rates, usually a recession follows. There is no sign of that at the moment in the US:

Transferring Money to China

Snork Maiden wants to give money to her parents in China to help them out with medical bills. I've been telling her that all I need is bank account details and I can transfer the money there either using our regular bank account or a service like Ozforex. She is also going to open a new bank account in China because she thinks her mother's account is up to the task of handling transfers or they can't get the necessary details. A Chinese colleague recommended using a company called Superforex instead. The set up is pretty weird - first you transfer the money to their account - then send them an e-mail with a scan of your transfer receipt and then they'll allocate the money to you to transfer on. Ozforex's rate is only 6.4353 Yuan per AUD while Superforex claim to offer 6.5685. Anyone heard of them?

Sydney is the 7th most expensive city in the world to live in and 50% more expensive than New York. As Melbourne is 8th, I'm sure Canberra is also in the top 10. To bear in mind when reading my blog and comparing to US costs and prices :)

Sovereign Credit Ratings

With all the talk about the U.S. credit rating possibly being lowered to AA from AAA due to the debt ceiling debate debacle, I was wondering what the credit ratings of other countries were as a point of comparison. Wikipedia, helpfully has a list. According to Standard and Poors, other AA countries include:

Belgium
Bermuda
China
Japan
Kuwait
New Zealand
Qatar
Saudi Arabia
Slovenia
Spain
Taiwan

Not such a bad club to be in. Some are countries with un-democratic governments but low debt like China and others democracies with very high debt levels like Japan. Apart from the U.S., the AAA club currently includes:

Australia
Austria
Canada
Denmark
Finland
France
Germany
Guernsey
Hong Kong
Isle of Man
Liechtenstein
Luxembourg
Netherlands
Norway
Singapore
Sweden
Switzerland
UK

These are democracies with reasonable debt levels and good track records or tax havens. Yes, Hong Kong is a tax haven. I don't think that Singapore counts as a tax haven and isn't a democracy really (despite having elections) but it does seem to have very good and reliable financial regulation.

HSBC Gave Me a Lousy Exchange Rate

I did a wire transfer of AUD 10,000 from my Australian to my US HSBC bank account. The exchange rate turned out as USD 0.9808 per Australian Dollar. That's about 3 cents from where the official exchange rate was. That's really bad I think. Maybe I should have done the conversion to US Dollars at the Australian end. Would that have given me a better exchange rate?

What am I Going to Do with the EAIT Money?

As I mentioned I just got paid out $A7,500 or so from EAIT. With that and my next paycheck I'm going to buy $10,000 worth of US Dollars. i.e. move the money to America. I'll probably end up investing some more in GTAA when the move is over.

Payment Methods

I've recently done two small consultancies - one for an agency of the Cyprus government and one for a US government agency. The Cyprus people asked for my banking details and will make an electronic payment to my account (which happens to be in the US). This is the normal way of doing business in most of the developed world. The US people ask me to submit an invoice which doesn't include any banking information. So I guess they will send me a paper check all the way to Australia, which I will then have to mail all the way back to the US to my bank in New York. Two opportunities for it to get lost in the mail. Here in Australia, paper checks (or cheques in British) are very rarely used. Electronic payment through a number of methods is standard. While the US is on the cutting edge with many communications technologies this definitely doesn't apply to payment methods. Why is this? It seems that Americans think that asking for bank details is a sign of potential fraud. But I can't take money out of an account with just the account and branch number. So why would that be? And why aren't Australians worried about that?

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.

Challenger Infrastructure Fund Removes FX Hedging

Challenger Infrastructure Fund (CIF.AX) announced today that it has closed its foreign currency hedges yielding a profit. As it is now unhedged and invested entirely outside of Australia (mainly in the UK) I will now regard this investment as part of my "global currency" investments (not AUD or USD). This is good as our AUD exposure is rising (though the investment is just 1.3% of net worth). The investment is included in our "real estate" investments and under the "passive alpha" category as I don't expect it to be highly correlated with the stock market in the long run.

Currency Allocation

Our currency allocation is getting really out of whack as the Australian Dollar rises and Australian shares perform well and we spend USD. We currently have 60% roughly in AUD associated investments and 20% in USD and 20% other. The goal was to be 50:50 exposed to the AUD and other currencies. It makes sense to try to find foreign investments and maybe stop spending USD, but the AUD seems near fair value, so despite the imbalance we won't be selling AUD investments and buying foreign exposed ones yet.

It's the same with our stock exposure. It's way above the long-term target, but with stocks probably still undervalued it doesn't make sense to sell, I think.

U.S. Cheque Funds Available

We were told that there would be a 21 day hold on the proceeds of the U.S. cheque we deposited. But today (the first time I checked) the Commonwealth Bank site says that all that money is included in our "Available Funds". So I transferred $A1000 to our CBA credit card. The site didn't object to the move. The other moves I have planned are to Commonwealth Bank subsidiaries too. In line with the savings policy I plan to transfer another $A1000 to my margin loan, $A1000 to Snork Maiden's Colonial First State account and $A1000 to my CFS account. I plan to invest her contribution in a bond fund for two reasons: 1) To allow some liquidity in the account in case we need to withdraw some money; 2) A bond fund will move the allocation in the account a bit nearer our planned overall target allocation. After this move the planned allocation in her account will be:



In other words: 60% in stocks with double the allocation to Australian stocks as to foreign stocks and the remaining 40% split between hedge funds, real estate, and bonds. This allocation will be achieved by the following allocation to funds:



You won't get the asset allocation by adding up the percentages in each fund as the first two funds are geared. Overall the account effectively borrows 20 cents for each dollar of equity. I'll submit a new regular savings plan on this basis too soon. The new plan will also increase the regular savings amount to $A500 per month following an increase in her salary.

I'll put my contribution in the CFS Geared Global Share Fund. This makes sense as though we are at target weighting in non-US foreign stocks we are underweight US stocks and we're very overweight large-cap Australian stocks.

Depositing a U.S. Check in Australia?

We received a check for just over $US3,000 for Snork Maiden's costs getting to and attending the conference in China in October. I'd like to turn it into Australian Dollars if possible. Tomorrow I'm going to see if Commonwealth Bank can do this at a reasonable cost and delay. Otherwise we'll have to mail it to her account in the U.S. But the only way to convert it to Australian Dollars is for her to then write me a US check which I would then mail to the US and then I'd do a transfer to one of my brokerage accounts and then finally I could do a wire transfer back to Australia. I don't think TD Banknorth HSBC would agree to do a wire transfer to Australia with us the account owners not present in the U.S. Or maybe they would? Anyway, let's see what CBA have to offer first.

Gold and the Australian Dollar

It's commonly believed that there is a strong relationship between the Australian Dollar and gold. But is this true? I computed the monthly returns on gold (percent change in the gold spot price) and the AUD (percent change in the exchange rate to the dollar plus the monthly interest at the Reserve Bank of Australia cash rate) for the period from October 1996 to the present:



The correlation is 0.3 (equivalent to an R2 of 0.09). This isn't that high. The correlation between the returns on the Australian Dollar and the MSCI World Index is around double this. You would get more diversification from investing in a mix of gold and Australian Dollars than in investing in shares and Australian Dollars! The total return indices look superficially correlated:



(R2 is 0.90) but it is a somewhat spurious relationship.