Changing the Model Back and Researching the Model

I'm not happy with this model rule that I added on 27th April. It's not very systematic. So, I dropped it, while keeping rules added more recently. The stock market switches between two states - trending and cycling - and the model uses different indicators in each state. Deciding what state we are in is a little problematic. So, I am going to have another look at the rules for that and also possibly smoothing out very small moves, which are noise. The rule I just dropped was ad hoc - it switched to the indicator for the cycling state when we are in a trending state based on one period lagged positive performance.

Monday is a good test of the two algorithms - the simpler model is short and the model with the "ad hoc" rule is long. Let's see which wins.

I also thought of using the volatility indices, VIX and VXN, as indicators. The basic idea is that volatility is highest at bottoms in the market. But I couldn't see a way to do this. This graph shows why:

VXN (and VIX) rose throughout January while the stock market rose too. This was a warning sign that a correction was coming. But a model that shorts the market when VXN is expected to increase would have lost money all January. Also, my existing forecasting model is no good here...

Gold 2048: The Future of Gold

This report seems bullish for the price of gold over the next 30 years. Continued growth in India and limited gold discoveries recently seem bullish. On the other hand, some regions haven't been explored much and technology could enhance extraction, though the latter likely balanced by increased environmental restrictions.

Mercantile Makes Offer to Take Over IPE

Mercantile Capital (MVT.AX) has made an offer to take over IPE.AX at AUD 0.0775 per share. I've discussed Mercantile's interest in IPE before and bought shares as a result. I had 1.5 million shares. My only regret is I didn't buy more. People selling even below 6 cents discouraged me from buying more.

I had 500,000 on offer for sale and they sold just now at 0.075 up from 0.063 yesterday. I will wait and see with the remaining million. I should at least hold it into the next tax year, next month. If I sell now, it will wipe out my existing tax losses and more. So better to defer tax for another year.

Tax Optimization for Trading

I still have some capital losses left over from the financial crisis. I will probably use them up for this tax year ending 30 June. After that, trading profits would be taxed at my marginal rate of 47% (and even higher if Labor get back into power and implement their tax policy). So, I am opening an account at Interactive Brokers for Moominmama (formerly Snork Maiden). Trading in her account will only attract a marginal rate of 34.5% initially and then higher if we make lots of profits. This will reduce our overall tax bill and is totally legitimate in Australia.

Actually, given that franking credits are fully refundable, even if they exceed your tax bill (but Labor wants to change that too), it also would make sense to have other investments in Moominmama's name. The reason we don't, is that up to a couple of years ago, when my income went over AUD 180k per year and she went part-time we were in the same marginal tax bracket. But perhaps I should direct new investments to her account?

In somewhat related news, the minimum wage in Australia has just been raised, so that someone working full time at the minimum wage earns just over AUD 37k a year (about USD 14.25 per hour). This means that the marginal rate for such workers is now also 34.5%! That really seems crazy to me.