PAYG Installments

I received a letter from the Australian Tax Office that I need to pay quarterly estimated tax payments. However, if the total estimated tax is less than AUD 8,000 you can pay the installments annually. If you self-prepare your tax this means apparently that you don't actually need to pay any installments. So, I selected that option online.

On the other hand, I think Moominmama is going to need to make quarterly payments.

October 2019 Report

This month we "inverted" our mortgage, paying off the mortgage and then redrawing it for investment purposes. As a result the mortgage interest should now be tax deductible. I carried out quite a lot of trades and money shuffling to carry this out.

The Australian stockmarket fell a bit in October and the Australian Dollar rose, but overseas markets rose. The Australian Dollar rose from USD 0.6752 to USD 0.6894. The MSCI World Index rose 2.76% and the S&P 500 2.17%. The ASX 200 fell 0.35%. All these are total returns including dividends. We lost 0.20% in Australian Dollar terms but gained 1.90% in US Dollar terms. The target portfolio lost 1.03% in Australian Dollar terms and the HFRI hedge fund index is expected to have gained 0.83% in US Dollar terms. So, we out-performed our target portfolio, the HFRI, and the ASX, while underperforming compared to the MSCI World Index and the S&P 500 (a bit). Updating the monthly AUD returns chart:

Hmmm... It is looking like my performance is an average of the MSCI and the target portfolio in recent months.

Here is a report on the performance of investments by asset class (futures includes managed futures and futures trading):

Private equity, real estate, and gold did well while hedge funds and futures did poorly. The largest positive contribution to the rate of return came from private equity and greatest detractors were futures and hedge funds. The returns reported here are in currency neutral terms.

Things that worked well this month:

• Pengana Private Equity and Bluesky Alternatives did very well, gaining AUD 8.7k and AUD 10k, respectively. Hearts and Minds gained AUD 5.3k.
• Gold gained (AUD 7.3k).

What really didn't work:

• Winton Global Alpha lost significantly, reversing recent gains.
• Pershing Square, Cadence Capital, and Tribeca Natural Resources all lost money.

Trading: We started the month closing a winning trade in Bitcoin, but then there were six losing trades in a row before a winner. We also lost money trading palladium. Using a narrower definition including only futures and CFDs we lost 0.96% on capital used in trading. Including ETFs we gained 0.89%. Using the narrow definition, we are now behind where we were at this point last year. This graph shows cumulative trading gains using the broader definition year to date:

Using this definition we are still ahead of where we were at this time last year.

We moved further towards our new long-run asset allocation.

The table shows how leverage increased this month as we moved the mortgage into the investment portfolio. Cash and bonds fell and all other asset classes increased their shares.

On a regular basis, we invest AUD 2k monthly in a set of managed funds, and there are also retirement contributions. Other moves this month:

• USD 21K of Kraft-Heinz bonds were called early and we didn't buy any new bonds So, our direct bond holdings declined by USD 21k.
• We traded at a small loss, as discussed above.
• I sold 100k of Domacom (DCL.AX), 40k of Tribeca Global Natural Resources (TGF.AX), and 79k of Cadence Capital (CDM.AX) shares to harvest tax losses and obtain cash for the mortgage inversion. I subsequently bought back 40k of Tribeca and 80k of Cadence. I now have the funds which are marginable and/or are likely to pay large franking credits in my account and the non-marginable funds, which mostly also are likely to pay out fewer franking credits in Snork Maiden's account. As franking credits are applied to the tax bill it doesn't actually matter which account they are in, but I like to see my larger tax bill cut more :) I have a margin account with Commonwealth Securities, while Interactive Brokers don't offer margin loans to Australian customers.
• I bought 20k shares of Hearts and Minds (HM1.AX) before the upcoming annual Sohn Conference. The fund is currently winding down the investments in the stocks recommended at the last conference and will invest in new recommendations following this year's conference. The share price is very close to NAV and I think following the conference there could be a boost in price. The fund has done very well since inception.
• I went to Regal Fund's presentation here and was impressed and bought 20k more shares of RF1.AX.
• I sold 50k of Pengana Private Equity (PE1.AX) shares because the price seemed unsustainably high but then bought back 50k at lower prices. This is not looking like a good move given the tax implications
• We bought AUD 40k of Australian Dollars.
• We moved around AUD 1/4 million to our offset account and paid off the mortgage. We then redrew AUD 1/2 million and sent it to my CommSec account and Moominmama's Interactive Brokers account. This reduced my margin loan a lot and increased the cash in her account a lot. The latter is deemed to be "futures" in the pie chart above. Cash in our offset account fell to AUD 40k.

Passed-in at Auction

There was an auction today for the house next door to us. It is almost identical though it is in better condition inside (our house will probably need AUD10-20k of refurbishment to put on the market I reckon). It doesn't have as good views/surroundings. The highest bid was AUD 690k from a bidder in another state on the phone and it passed in. Unless there was a post-auction negotiation, I guess we will see it on the market next week at a fixed price. Next week we should also hear from HSBC on how much their valuer values our house at.

P.S. 7 November 
This house is now for sale at $829,500. In the meantime, the bank's valuer valued our house at $850,000. I guess they want to sell fast.

Mortgage Refinancing: Reality Check

I met today with a "Premier Relationship Manager" at HSBC. We are going ahead with the mortgage refinancing. They will send a valuer to value our house tomorrow...

So, she first checked whether I could service the loan based on the data I submitted. Based on just my salary of AUD 176k per year and our spending and a AUD 500k loan the answer was no. Given my salary is supposedly in the top 5% or higher, our house value is only a bit above the median price for houses here, and lots of people drive luxury cars etc. and we don't, you'd think this wouldn't be a problem. She said our spending was "very high". Either government income data is too low (but the banks ask for tax returns), or people somehow hide spending from the banks (but the banks ask for bank statements), or what? It's hard to reconcile what I see with the data.

Our net worth is in the top 300,000 or so of households and my income in the top 400,000 of taxpayers according to this official data.

By the way, five plus years ago, when we were looking to buy a house, the banks were willing to lend us much more money. Lending standards really have tightened.