Margin Guide

The Great Unwinding: Why WSB Will Keep Losing Their Tendies

The Great Unwinding: Why WSB Will Keep Losing Their Tendies
I. The Death of Modern Portfolio Theory, The Loss of Risk Parity, & The Liquidity Crunch
SPY 1 Y1 Day
Modern portfolio theory has been based on the foundational idea for the past 3 decades that both equities and bonds are inversely correlated. However, as some people have realized, both stocks and bonds are both increasing in value and decreasing in value at the same time.[1] This approach to investing is used pretty much in everyone's 401K, target date retirement plans, or other forms of passive investing. If both bonds and equities are losing value, what will happen to firms implementing these strategies on a more generalized basis known as risk-parity? Firms such as Bridgewater, Bluecrest, and H2O assets have been blowing up. [2,3]
Liquidity has been drying up in the markets for the past two weeks.[4] The liquidity crisis has been in the making since the 2008 financial crisis, after the passage of Dodd-Frank and Basel III. Regulations intended to regulate the financial industry have instead created the one of the largest backstops to Fed intervention as the Fed tried to pump liquidity into the market through repo operations. What is a repo?
A repo is a secured loan contract that is collateralized by a security. A repo transaction facilitates the sale and future repurchase of the security that serves as collateral between the two parties: (1) the borrower who owns a security and seeks cash and (2) the lender who receives the security as collateral when lending the cash. The cash borrower sells securities to the cash lender with the agreement to repurchase them at the maturity date. Over the course of the transaction, the cash borrower retains the ownership of the security. On the maturity date, the borrower returns the cash with interest to the lender and the collateral is returned from the lender to the borrower.[5]
Banks like Bank of New York Mellon and JP Morgan Chase act as a clearing bank to provide this liquidity to other lenders through a triparty agreement.[6] In short, existing regulations make it unfavorable to take on additional repos due to capital reserve requirement ratios, creating a liquidity crunch.[7,8,9] What has the Fed done to address this in light of these facts?
In light of the shift to an ample reserves regime, the Board has reduced reserve requirement ratios to zero percent effective on March 26, the beginning of the next reserve maintenance period.[10]
II. Signs of Exhaustion & The Upcoming Bounce is a Trap, We Have Far More to Go
A simple indicator to use is the relative strength index (RSI) that a lot of WSB is familiar with. RSI is not the be all and end all. There's tons of indicators that also are indicating we are at a very oversold point.
SPY 1 Y1 Day RSI
Given selling waves, there are areas of key support and resistance. For reference, I have not changed key lines since my original charts except for the colors. You can check in my previous posts. 247.94 has been critically an area that has been contested many times, as seen in the figure below. For those that bought calls during the witching day, RIP my fellow autists. The rejection of 247.94 and the continued selling below 233.86 signals to me more downside, albeit, it's getting exhausted. Thus, I expect the next area in which we start rallying is 213.
SPY 10 Day/30 min
Another contrarian indicator for buying calls is that notable people in finance have also closed their shorts. These include Jeffery Gundlach, Kevin Muir, and Raoul Pal.[11,12,13]
III. The Dollar, Gold, and Oil
As previously stated, cash is being hoarded by not only primary banks, but central banks around the world. This in turn has created a boom in the dollar's strength, despite limitless injections of cash (if you think 1 trillion of Repo is the ceiling, think again) by the Fed.
Despite being in a deflationary environment, the DXY has not achieved such levels since 2003. Given the dollar shortage around the world, it is not inconceivable that we reach levels of around 105-107. For disclosure, I have taken a long position in UUP. However, with all parabolic moves, they end in a large drop. To summarize, the Fed needs to take action on its own currency due to the havoc it's causing globally, and will need to crush the value of the dollar, which will likely coincide with the time that we near 180.
If we are indeed headed towards 180, then gold will keep selling off. WSB literally screams bloody guhhhhhh when gold sells off. However, gold has been having an amazing run and has broken out of its long term channel. In times of distress and with margin calls, heavy selling of equities selling off of gold in order to raise cash. As previously noted, in this deflationary environment, everything is selling off from stocks, to bonds, to gold.
/GC Futures Contracts 5 Y1 Wk
What about oil? Given the fall out of the risk parity structure, I'm no longer using TLT inflows/outflows as an indicator. I've realized that energy is the economy. Closely following commodities such as light crude which follow supply and demand more closely have provided a much better leading indicator as to what will happen in equities. Given that, oil will also most likely hit a relief rally. But ultimately, we have seen it reach as low $19/barrel during intraday trading.
/CL Futures Contracts 1 Y1 D
IV. The Next 5 Years
In short, the recovery from this deflationary environment will take years to recover from. The trend down will not be without large bumps. We cannot compare this on the scale of the 2008 financial crisis. This is on the order of 1929. Once we hit near 180, the Fed crushes the dollar, we are in a high likelihood of hitting increased inflation, or stagflation. At this point the Fed will be backed into a corner and forced to raise rates. My targets for gold are around 1250-1300. It may possibly go near to 1000. Oil could conceivably go as low as $15-17/barrel, so don't go all in on the recovery bounce. No matter what, the current rise in gold will be a trap. The continued selling in the S&P is a trap, will bounce, forming another trap, before continuing our painful downtrend.
I haven't even mentioned coronavirus and unemployment until now. I've stated previously we are on track to hit around at least 10,000 coronavirus cases by the end of this month. It's looking closer to now 20-30,000. Next month we are looking to at least 100,000 by the end of the April. We might hit 1,000,000 by May or June.
Comparison of the 2020 Decline to 1929
Chart courtesy of Moon_buzz
tl;dr We're going to have a major reflexive rally starting around 213, all the way back to at least to 250, and possibly 270. WSB is going to lose their minds holding their puts, and then load up on calls, declaring we've reached a bottom in the stock market. The next move will be put in place for the next leg down to 182, where certain actors will steal all your tendies on the way down. Also Monday might be another circuit breaker.
tl;dr of tl;dr Big bounce incoming. Bear trap starting 213. Then bull trap up around 250-270. We're going down to around 182.
tl;dr of tl;dr of tl;dr WSB will be screwed both left and right before they can say guh.
Hint: If you want to get a Bloomberg article for free, hit esc repeatedly before the popup appears. If it doesn't work, refresh the article, and keep hitting esc.
Remember, do not dance. We are on the cusp of a generational change. Use the money you earn to protect yourselves and others. Financial literacy and knowledge is the key to empowerment and self-change.
Some good DD posts:
u/bigd0g111 -
u/scarvesandsuspenders -

Update 1 3/22/2020 - Limit down 3 minutes of futures. Likely hit -7% circuit breaker on the cash open on Monday at 213 as stated previously.
Do not think we will hit the 2nd circuit breaker at 199.06. Thinking we bounce, not too much, but stabilize at least around 202.97.
Update 2 3/23/20 9:08 - Watching the vote before making any moves.
9:40 - sold 25% of my SPY puts and 50% of my VXX calls
9:45 - sold another 50% of SPY puts
9:50 - just holding 25% SPY puts now and waiting for the vote/other developments
11:50 - Selling all puts.
Starting my long position.
11:55 - Sold USO puts.
12:00 - Purchased VXX puts to vega hedge.
2:45 - Might sell calls EOD. Looks like a lot of positioning for another leg down before going back up.
It's pretty common to shake things out in order to make people to sell positions. Just FYI, I do intraday trading. If you can't, just wait for EOD for the next positioning.
3:05 - Seeing a massive short on gold. Large amounts of calls on treasuries. And extremely large positioning for more shorts on SPY/SPX.
Will flip into puts.
Lot of people keep DM'ing me. I'm only going to do this once.
That said, I'm going back into puts. Just goes to show how tricky the game is.
3:45 - As more shorts cover, going to sell the calls and then flip into puts around the last few min of close.
Hope you guys made some money on the cover and got some puts. I'll write a short update later explaining how they set up tomorrow, especially with the VIX dropping so much.
3/24/20 - So the rally begins. Unfortunately misread the options volume. The clearest signal was the VIX dropping the past few days even though we kept swinging lower, which suggested that large gap downs were mostly over and the rally is getting started.
Going to hold my puts since they are longer dated. Going to get a few short term calls to ride this wave.
10:20 - VIX still falling, possibility of a major short squeeze coming in if SPY breaks out over 238-239.
10:45 - Opened a small GLD short, late April expiration.
10:50 - Sold calls, just waiting, not sure if we break 238.
If we go above 240, going back into calls. See room going to 247 or 269. Otherwise, going to start adding to my puts.
11:10 - Averaging a little on my puts here. Again, difficult to time the entries. Do not recommend going all in at a single time. Still watching around 240 closely.
11:50 - Looks like it's closing. Still going to wait a little bit.
12:10 - Averaged down more puts. Have a little powder left, we'll see what happens for the rest of today and tomorrow.
2:40 - Closed positions, sitting on cash. Waiting to see what EOD holds. Really hard trading days.
3:00 - Last update. What I'm trying to do here posting some thoughts is for you guys to take a look at things and make some hypotheses before trading. Getting a lot of comments and replies complaining. If you're tailing, yes there is risk involved. I've mentioned sizing appropriately, and locking in profits. Those will help you get consistent gains.
Bounced off 10 year trendline at around 246, pretty close to 247. Unless we break through that the rally is over. Given that, could still see us going to 270.
3/25/20 - I wouldn't read too much into the early moves. Be careful of the shakeouts.
Still long. Price target, 269. When does the month end? Why is that important?
12:45 - out calls.
12:50 - adding a tranche of SPY puts. Adding GLD puts.
1:00 est - saving rest of my dry powder to average if we still continue to 270. Think we drop off a cliff after the end of the quarter.
Just a little humor... hedge funds and other market makers right now.
2:00pm - Keep an eye on TLT and VXX...
3:50pm - Retrace to the 10 yr trend line. Question is if we continue going down or bounce. So I'm going to explain again, haven't changed these lines. Check the charts from earlier.
3/26/20 - Another retest of the 10 yr trendline. If it can go over and hold, can see us moving higher.
9:30 - Probably going to buy calls close to the open. Not too sure, seems like another trap setting up. Might instead load up on more puts later today.
In terms of unemployment, was expecting close to double. Data doesn't seem to line up. That's why we're bouncing. California reported 1 million yesterday alone, and unemployment estimates were 1.6 million? Sure.
Waiting a little to see the price action first.
Treasuries increasing and oil going down?
9:47 - Added more to GLD puts.
10:11 - Adding more SPY puts and IWM puts.
10:21 - Adding more puts.
11:37 - Relax guys, this move has been expected. Take care of yourselves. Eat something, take a walk. Play some video games. Don't stare at a chart all day.
If you have some family or close friends, advise them not to buy into this rally. I've had my immediate family cash out or switch today into Treasury bonds/TIPS.
2:55pm -
3:12pm - Hedge funds and their algos right now
4:00pm - Don't doubt your vibe.
For those that keep asking about my vibe... yes, we could hit 270. I literally said we could hit 270 when we were at 218. There was a lot of doubt. Just sort by best and look at the comments. Can we go to 180 from 270? Yes. I mentioned that EOM is important.
Here's another prediction. VIX will hit ATH again.
2:55pm EST - For DM's chat is not working now. Will try to get back later tonight.

Stream today for those who missed it, 2:20-4:25 -
Thanks again to WallStreetBooyah and all the others for making this possible.

9:10pm EST Twitter handles (updated), thanks blind_guy
Not an exhaustive list. Just to get started. Follow the people they follow.
Dark pool and gamma exposure -
Wyckoff -
Investopedia for a lot. Also links above in my post.

lol... love you guys. Please be super respectful on FinTwit. These guys are incredibly helpful and intelligent, and could easily just stop posting content.
submitted by Variation-Separate to wallstreetbets [link] [comments]

How the TFSA works

(Updated August 9th, 2020)


You may have heard about off-shore tax havens of questionable legality where wealthy people invest their money in legal "grey zones" and don't pay any tax, as featured for example, in Netflix's drama, The Laundromat.

The reality is that the Government of Canada offers 100% tax-free investing throughout your life, with unlimited withdrawals of your contributions and profits, and no limits on how much you can make tax-free. There is also nothing to report to the Canada Revenue Agency. Although Britain has a comparable program, Canada is the only country in the world that offers tax-free investing with this level of power and flexibility.

Thank you fellow Redditors for the wonderful Gold Award and Today I Learned Award!

(Unrelated but Important Note: I put a link at the bottom for my margin account explainer. Many people are interested in margin trading but don't understand the math behind margin accounts and cannot find an explanation. If you want to do margin, but don't know how, click on the link.)

As a Gen-Xer, I wrote this post with Millennials in mind, many of whom are getting interested in investing in ETFs, individual stocks, and also my personal favourite, options. Your generation is uniquely positioned to take advantage of this extremely powerful program at a relatively young age. But whether you're in your 20's or your 90's, read on!

Are TFSAs important? In 2020 Canadians have almost 1 trillion dollars saved up in their TFSAs, so if that doesn't prove that pennies add up to dollars, I don't know what does. The TFSA truly is the Great Canadian Tax Shelter.

I will periodically be checking this and adding issues as they arise, to this post. I really appreciate that people are finding this useful. As this post is now fairly complete from a basic mechanics point of view, and some questions are already answered in this post, please be advised that at this stage I cannot respond to questions that are already covered here. If I do not respond to your post, check this post as I may have added the answer to the FAQs at the bottom.

How to Invest in Stocks

A lot of people get really excited - for good reason - when they discover that the TFSA allows you to invest in stocks, tax free. I get questions about which stocks to buy.

I have made some comments about that throughout this post, however; I can't comprehensively answer that question. Having said that, though, if you're interested in picking your own stocks and want to learn how, I recommmend starting with the following videos:

The first is by Peter Lynch, a famous American investor in the 80's who wrote some well-respected books for the general public, like "One Up on Wall Street." The advice he gives is always valid, always works, and that never changes, even with 2020's technology, companies and AI:

The second is a recording of a university lecture given by investment legend Warren Buffett, who expounds on the same principles:

Please note that I have no connection to whomever posted the videos.


TFSAs were introduced in 2009 by Stephen Harper's government, to encourage Canadians to save.

The effect of the TFSA is that ordinary Canadians don't pay any income or capital gains tax on their securities investments.

Initial uptake was slow as the contribution rules take some getting used to, but over time the program became a smash hit with Canadians. There are about 20 million Canadians with TFSAs, so the uptake is about 70%- 80% (as you have to be the age of majority in your province/territory to open a TFSA).

Eligibility to Open a TFSA

You must be a Canadian resident with a valid Social Insurance Number to open a TFSA. You must be at the voting age in the province in which you reside in order to open a TFSA, however contribution room begins to accumulate from the year in which you turned 18. You do not have to file a tax return to open a TFSA. You do not need to be a Canadian citizen to open and contribute to a TFSA. No minimum balance is required to open a TFSA.

Where you Can Open a TFSA

There are hundreds of financial institutions in Canada that offer the TFSA. There is only one kind of TFSA; however, different institutions offer a different range of financial products. Here are some examples:


Your TFSA may be covered by either CIFP or CDIC insuranceor both. Ask your bank or broker for details.

What You Can Trade and Invest In

You can trade the following:

What You Cannot Trade

You cannot trade:

Again, if it requires a margin account, it's out. You cannot buy on margin in a TFSA. Nothing stopping you from borrowing money from other sources as long as you stay within your contribution limits, but you can't trade on margin in a TFSA. You can of course trade long puts and calls which give you leverage.

Rules for Contribution Room

Starting at 18 you get a certain amount of contribution room.

According to the CRA:
You will accumulate TFSA contribution room for each year even if you do not file an Income Tax and Benefit Return or open a TFSA.
The annual TFSA dollar limit for the years 2009 to 2012 was $5,000.
The annual TFSA dollar limit for the years 2013 and 2014 was $5,500.
The annual TFSA dollar limit for the year 2015 was $10,000.
The annual TFSA dollar limit for the years 2016 to 2018 was $5,500.
The annual TFSA dollar limit for the year 2019 is $6,000.
The TFSA annual room limit will be indexed to inflation and rounded to the nearest $500.
Investment income earned by, and changes in the value of TFSA investments will not affect your TFSA contribution room for the current or future years.
If you don't use the room, it accumulates indefinitely.

Trades you make in a TFSA are truly tax free. But you cannot claim the dividend tax credit and you cannot claim losses in a TFSA against capital gains whether inside or outside of the TFSA. So do make money and don't lose money in a TFSA. You are stuck with the 15% withholding tax on U.S. dividend distributions unlike the RRSP, due to U.S. tax rules, but you do not pay any capital gains on sale of U.S. shares.

You can withdraw *both* contributions *and* capital gains, no matter how much, at any time, without penalty. The amount of the withdrawal (contributions+gains) converts into contribution room in the *next* calendar year. So if you put the withdrawn funds back in the same calendar year you take them out, that burns up your total accumulated contribution room to the extent of the amount that you re-contribute in the same calendar year.


E.g. Say you turned 18 in 2016 in Alberta where the age of majority is 18. It is now sometime in 2020. You have never contributed to a TFSA. You now have $5,500+$5,500+$5,500+$6,000+$6,000 = $28,500 of room in 2020. In 2020 you manage to put $20,000 in to your TFSA and you buy Canadian Megacorp common shares. You now have $8,500 of room remaining in 2020.

Sometime in 2021 - it doesn't matter when in 2021 - your shares go to $100K due to the success of the Canadian Megacorp. You also have $6,000 worth of room for 2021 as set by the government. You therefore have $8,500 carried over from 2020+$6,000 = $14,500 of room in 2021.

In 2021 you sell the shares and pull out the $100K. This amount is tax-free and does not even have to be reported. You can do whatever you want with it.

But: if you put it back in 2021 you will over-contribute by $100,000 - $14,500 = $85,500 and incur a penalty.

But if you wait until 2022 you will have $14,500 unused contribution room carried forward from 2021, another $6,000 for 2022, and $100,000 carried forward from the withdrawal 2021, so in 2022 you will have $14,500+$6,000+$100,000 = $120,500 of contribution room.

This means that if you choose, you can put the $100,000 back in in 2022 tax-free and still have $20,500 left over. If you do not put the money back in 2021, then in 2022 you will have $120,500+$6,000 = $126,500 of contribution room.

There is no age limit on how old you can be to contribute, no limit on how much money you can make in the TFSA, and if you do not use the room it keeps carrying forward forever.

Just remember the following formula:

This year's contribution room = (A) unused contribution room carried forward from last year + (B) contribution room provided by the government for this year + (C) total withdrawals from last year.


Say in 2020 you never contributed to a TFSA but you were 18 in 2009.
You have $69,500 of unused room (see above) in 2020 which accumulated from 2009-2020.
In 2020 you contribute $50,000, leaving $19,500 contribution room unused for 2020. You buy $50,000 worth of stock. The next day, also in 2020, the stock doubles and it's worth $100,000. Also in 2020 you sell the stock and withdraw $100,000, tax-free.

You continue to trade stocks within your TFSA, and hopefully grow your TFSA in 2020, but you make no further contributions or withdrawals in 2020.

The question is, How much room will you have in 2021?
Answer: In the year 2021, the following applies:
(A) Unused contribution room carried forward from last year, 2020: $19,500
(B) Contribution room provided by government for this year, 2021: $6,000
(C) Total withdrawals from last year, 2020: $100,000

Total contribution room for 2021 = $19,500+6,000+100,000 = $125,500.

Say between 2020 and 2021 you decided to buy a tax-free car (well you're still stuck with the GST/PST/HST/QST but you get the picture) so you went to the dealer and spent $25,000 of the $100,000 you withdrew in 2020. You now have a car and $75,000 still burning a hole in your pocket. Say in early 2021 you re-contribute the $75,000 you still have left over, to your TFSA. However, in mid-2021 you suddenly need $75,000 because of an emergency so you pull the $75,000 back out. But then a few weeks later, it turns out that for whatever reason you don't need it after all so you decide to put the $75,000 back into the TFSA, also in 2021. You continue to trade inside your TFSA but make no further withdrawals or contributions.

How much room will you have in 2022?
Answer: In the year 2022, the following applies:

(A) Unused contribution room carried forward from last year, 2021: $125,500 - $75,000 - $75,000 = -$24,500.

Already you have a problem. You have over-contributed in 2021. You will be assessed a penalty on the over-contribution! (penalty = 1% a month).

But if you waited until 2022 to re-contribute the $75,000 you pulled out for the emergency.....

In the year 2022, the following would apply:
(A) Unused contribution room carried forward from last year, 2021: $125,500 -$75,000 =$50,500.
(B) Contribution room provided by government for this year, 2022: $6,000
(C) Total withdrawals from last year, 2020: $75,000

Total contribution room for 2022 = $50,500 + $6,000 + $75,000 = $131,500. that $75,000 that was left over from your 2021 emergency that didn't materialize, you still have $131,500-$75,000 = $56,500 of contribution room left in 2022.

For a more comprehensive discussion, please see the CRA info link below.

FAQs That Have Arisen in the Discussion and Other Potential Questions:

  1. Equity and ETF/ETN Options in a TFSA: can I get leverage? Yes. You can buy puts and calls in your TFSA and you only need to have the cash to pay the premium and broker commissions. Example: if XYZ is trading at $70, and you want to buy the $90 call with 6 months to expiration, and the call is trading at $2.50, you only need to have $250 in your account, per option contract, and if you are dealing with BMO IL for example you need $9.95 + $1.25/contract which is what they charge in commission. Of course, any profits on closing your position are tax-free. You only need the full value of the strike in your account if you want to exercise your option instead of selling it. Please note: this is not meant to be an options tutorial; see the Montreal Exchange's Equity Options Reference Manual if you have questions on how options work.
  2. Equity and ETF/ETN Options in a TFSA: what is ok and not ok? Long puts and calls are allowed. Covered calls are allowed, but cash-secured puts are not allowed. All other option trades are also not allowed. Basically the rule is, if the trade is not a covered call and it either requires being short an option or short the stock, you can't do it in a TFSA.
  3. Live in a province where the voting age is 19 so I can't open a TFSA until I'm 19, when does my contribution room begin? Your contribution room begins to accumulate at 18, so if you live in province where the age of majority is 19, you'll get the room carried forward from the year you turned 18.
  4. If I turn 18 on December 31, do I get the contribution room just for that day or for the whole year? The whole year.
  5. Do commissions paid on share transactions count as withdrawals? Unfortunately, no. If you contribute $2,000 cash and you buy $1,975 worth of stock and pay $25 in commission, the $25 does not count as a withdrawal. It is the same as if you lost money in the TFSA.
  6. How much room do I have? If your broker records are complete, you can do a spreadsheet. The other thing you can do is call the CRA and they will tell you.
  7. TFSATFSA direct transfer from one institution to another: this has no impact on your contributions or withdrawals as it counts as neither.
  8. More than 1 TFSA: you can have as many as you want but your total contribution room does not increase or decrease depending on how many accounts you have.
  9. Withdrawals that convert into contribution room in the next year. Do they carry forward indefinitely if not used in the next year? Answer :yes.
  10. Do I have to declare my profits, withdrawals and contributions? No. Your bank or broker interfaces directly with the CRA on this. There are no declarations to make.
  11. Risky investments - smart? In a TFSA you want always to make money, because you pay no tax, and you want never to lose money, because you cannot claim the loss against your income from your job. If in year X you have $5,000 of contribution room and put it into a TFSA and buy Canadian Speculative Corp. and due to the failure of the Canadian Speculative Corp. it goes to zero, two things happen. One, you burn up that contribution room and you have to wait until next year for the government to give you more room. Two, you can't claim the $5,000 loss against your employment income or investment income or capital gains like you could in a non-registered account. So remember Buffett's rule #1: Do not lose money. Rule #2 being don't forget the first rule. TFSA's are absolutely tailor-made for Graham-Buffett value investing or for diversified ETF or mutual fund investing, but you don't want to buy a lot of small specs because you don't get the tax loss.
  12. Moving to/from Canada/residency. You must be a resident of Canada and 18 years old with a valid SIN to open a TFSA. Consult your tax advisor on whether your circumstances make you a resident for tax purposes. Since 2009, your TFSA contribution room accumulates every year, if at any time in the calendar year you are 18 years of age or older and a resident of Canada. Note: If you move to another country, you can STILL trade your TFSA online from your other country and keep making money within the account tax-free. You can withdraw money and Canada will not tax you. But you have to get tax advice in your country as to what they do. There restrictions on contributions for non-residents. See "non residents of Canada:"
  13. The U.S. withholding tax. Dividends paid by U.S.-domiciled companies are subject to a 15% U.S. withholding tax. Your broker does this automatically at the time of the dividend payment. So if your stock pays a $100 USD dividend, you only get $85 USD in your broker account and in your statement the broker will have a note saying 15% U.S. withholding tax. I do not know under what circumstances if any it is possible to get the withheld amount. Normally it is not, but consult a tax professional.
  14. The U.S. withholding tax does not apply to capital gains. So if you buy $5,000 USD worth of Apple and sell it for $7,000 USD, you get the full $2,000 USD gain automatically.
  15. Tax-Free Leverage. Leverage in the TFSA is effectively equal to your tax rate * the capital gains inclusion rate because you're not paying tax. So if you're paying 25% on average in income tax, and the capital gains contribution rate is 50%, the TFSA is like having 12.5%, no margin call leverage costing you 0% and that also doesn't magnify your losses.
  16. Margin accounts. These accounts allow you to borrow money from your broker to buy stocks. TFSAs are not margin accounts. Nothing stopping you from borrowing from other sources (such as borrowing cash against your stocks in an actual margin account, or borrowing cash against your house in a HELOC or borrowing cash against your promise to pay it back as in a personal LOC) to fund a TFSA if that is your decision, bearing in mind the risks, but a TFSA is not a margin account. Consider options if you want leverage that you can use in a TFSA, without borrowing money.
  17. Dividend Tax Credit on Canadian Companies. Remember, dividends paid into the TFSA are not eligible to be claimed for the credit, on the rationale that you already got a tax break.
  18. FX risk. The CRA allows you to contribute and withdraw foreign currency from the TFSA but the contribution/withdrawal accounting is done in CAD. So if you contribute $10,000 USD into your TFSA and withdraw $15,000 USD, and the CAD is trading at 70 cents USD when you contribute and $80 cents USD when you withdraw, the CRA will treat it as if you contributed $14,285.71 CAD and withdrew $18,75.00 CAD.
  19. OTC (over-the-counter stocks). You can only buy stocks if they are listed on an approved exchange ("approved exchange" = TSX, TSX-V, NYSE, NASDAQ and about 25 or so others). The U.S. pink sheets "over-the-counter" market is an example of a place where you can buy stocks, that is not an approved exchange, therefore you can't buy these penny stocks. I have however read that the CRA make an exception for a stock traded over the counter if it has a dual listing on an approved exchange. You should check that with a tax lawyer or accountant though.
  20. The RRSP. This is another great tax shelter. Tax shelters in Canada are either deferrals or in a few cases - such as the TFSA - outright tax breaks, The RRSP is an example of a deferral. The RRSP allows you to deduct your contributions from your income, which the TFSA does not allow. This deduction is a huge advantage if you earn a lot of money. The RRSP has tax consequences for withdrawing money whereas the TFSA does not. Withdrawals from the RRSP are taxable whereas they are obviously not in a TFSA. You probably want to start out with a TFSA and maintain and grow that all your life. It is a good idea to start contributing to an RRSP when you start working because you get the tax deduction, and then you can use the amount of the deduction to contribute to your TFSA. There are certain rules that claw back your annual contribution room into an RRSP if you contribute to a pension. See your tax advisor.
  21. Pensions. If I contribute to a pension does that claw back my TFSA contribution room or otherwise affect my TFSA in any way? Answer: No.
  22. The $10K contribution limit for 2015. This was PM Harper's pledge. In 2015 the Conservative government changed the rules to make the annual government allowance $10,000 per year forever. Note: withdrawals still converted into contribution room in the following year - that did not change. When the Liberals came into power they switched the program back for 2016 to the original Harper rules and have kept the original Harper rules since then. That is why there is the $10,000 anomaly of 2015. The original Harper rules (which, again, are in effect now) called for $500 increments to the annual government allowance as and when required to keep up with inflation, based on the BofC's Consumer Price Index (CPI). Under the new Harper rules, it would have been $10,000 flat forever. Which you prefer depends on your politics but the TFSA program is massively popular with Canadians. Assuming 1.6% annual CPI inflation then the annual contribution room will hit $10,000 in 2052 under the present rules. Note: the Bank of Canada does an excellent and informative job of explaining inflation and the CPI at their website.
  23. Losses in a TFSA - you cannot claim a loss in a TFSA against income. So in a TFSA you always want to make money and never want to lose money. A few ppl here have asked if you are losing money on your position in a TFSA can you transfer it in-kind to a cash account and claim the loss. I would expect no as I cannot see how in view of the fact that TFSA losses can't be claimed, that the adjusted cost base would somehow be the cost paid in the TFSA. But I'm not a tax lawyeaccountant. You should consult a tax professional.
  24. Transfers in-kind to the TFSA and the the superficial loss rule. You can transfer securities (shares etc.) "in-kind," meaning, directly, from an unregistered account to the TFSA. If you do that, the CRA considers that you "disposed" of, meaning, equivalent to having sold, the shares in the unregistered account and then re-purchased them at the same price in the TFSA. The CRA considers that you did this even though the broker transfers the shares directly in the the TFSA. The superficial loss rule, which means that you cannot claim a loss for a security re-purchased within 30 days of sale, applies. So if you buy something for $20 in your unregistered account, and it's trading for $25 when you transfer it in-kind into the TFSA, then you have a deemed disposition with a capital gain of $5. But it doesn't work the other way around due to the superficial loss rule. If you buy it for $20 in the unregistered account, and it's trading at $15 when you transfer it in-kind into the TFSA, the superficial loss rule prevents you from claiming the loss because it is treated as having been sold in the unregistered account and immediately bought back in the TFSA.
  25. Day trading/swing trading. It is possible for the CRA to try to tax your TFSA on the basis of "advantage." The one reported decision I'm aware of (emphasis on I'm aware of) is from B.C. where a woman was doing "swap transactions" in her TFSA which were not explicitly disallowed but the court rules that they were an "advantage" in certain years and liable to taxation. Swaps were subsequently banned. I'm not sure what a swap is exactly but it's not that someone who is simply making contributions according to the above rules would run afoul of. The CRA from what I understand doesn't care how much money you make in the TFSA, they care how you made it. So if you're logged on to your broker 40 hours a week and trading all day every day they might take the position that you found a way to work a job 40 hours a week and not pay any tax on the money you make, which they would argue is an "advantage," although there are arguments against that. This is not legal advice, just information.
  26. The U.S. Roth IRA. This is a U.S. retirement savings tax shelter that is superficially similar to the TFSA but it has a number of limitations, including lack of cumulative contribution room, no ability for withdrawals to convert into contribution room in the following year, complex rules on who is eligible to contribute, limits on how much you can invest based on your income, income cutoffs on whether you can even use the Roth IRA at all, age limits that govern when and to what extent you can use it, and strict restrictions on reasons to withdraw funds prior to retirement (withdrawals prior to retirement can only be used to pay for private medical insurance, unpaid medical bills, adoption/childbirth expenses, certain educational expenses). The TFSA is totally unlike the Roth IRA in that it has none of these restrictions, therefore, the Roth IRA is not in any reasonable sense a valid comparison. The TFSA was modeled after the U.K. Investment Savings Account, which is the only comparable program to the TFSA.
  27. The UK Investment Savings Account. This is what the TFSA was based off of. Main difference is that the UK uses a 20,000 pound annual contribution allowance, use-it-or-lose-it. There are several different flavours of ISA, and some do have a limited recontribution feature but not to the extent of the TFSA.
  28. Is it smart to overcontribute to buy a really hot stock and just pay the 1% a month overcontribution penalty? If the CRA believes you made the overcontribution deliberately the penalty is 100% of the gains on the overcontribution, meaning, you can keep the overcontribution, or the loss, but the CRA takes the profit.
  29. Speculative stocks-- are they ok? There is no such thing as a "speculative stock." That term is not used by the CRA. Either the stock trades on an approved exchange or it doesn't. So if a really blue chip stock, the most stable company in the world, trades on an exchange that is not approved, you can't buy it in a TFSA. If a really speculative gold mining stock in Busang, Indonesia that has gone through the roof due to reports of enormous amounts of gold, but their geologist somehow just mysteriously fell out of a helicopter into the jungle and maybe there's no gold there at all, but it trades on an approved exchange, it is fine to buy it in a TFSA. Of course the risk of whether it turns out to be a good investment or not, is on you.
Remember, you're working for your money anyway, so if you can get free money from the government -- you should take it! Follow the rules because Canadians have ended up with a tax bill for not understanding the TFSA rules.
Appreciate the feedback everyone. Glad this basic post has been useful for many. The CRA does a good job of explaining TFSAs in detail at

Unrelated but of Interest: The Margin Account

Note: if you are interested in how margin accounts work, I refer you to my post on margin accounts, where I use a straightforward explanation of the math behind margin accounts to try and give readers the confidence that they understand this powerful leveraging tool.

How Margin Loans Work - a Primer

submitted by KhingoBhingo to CanadianInvestor [link] [comments]

Long-Term Falling Interest Rates and the Rise of Neofeudalism

Historian Paul Schmelzing recently published an exceptional working paper on eight centuries of global real and nominal interest rates, from 1311 to 2018.
Nominal rates graph
What he discovered surprised me: nominal and real rates over very long periods of time are in "suprasecular decline" and that the fall in real and nominal interest rates over the last forty years are merely a reversion to long-term historical trends. When I say "interest rates", I mean both literal rates (paid for debt servicing), as well as effective rates (i.e., at what earnings multiple stocks trade). Schmelzing is more limited in his definition but I will use the term "falling rates" to mean both lowering bond yields and rising equity multiples. What's more surprising, the rate of decline is fairly "rapid" across human history at about 2 basis points (.02%) a year. In 100 years, interest rates will be a full 2% lower in expectation. If this phenomenon is reliable and persists into the future, what will the world look like when interest rates are near-zero or negative? Allow me to engage in some rank speculation.
1). Outsized wealth creation will no longer be possible by professional "asset compounders" like Warren Buffett because there's not a lot of "compounding" one can do when rates are so low. I mean this very literally: since expected human lifespans are only getting a little bit longer, and the Rule of 72 remains true for all non-relativistic finance we literally can't live long enough to compound enough money to move the needle. Instead, capitalism will heavily favor "asset gatherers" and "money-raisers" that invest in direct capital projects -- people who raise a lot of money to do something low-return and (legally) skim a bit off the top, because there's going to be simply so much more money floating around and the return hurdle is so much lower. Insofar as this is already painfully true of capitalism by the early 2000s and 2010s, it will be even more the dominant reality for our grandchildren's grandchildren. Someone like Warren Buffett was truly born in the right decade: a time when, at the midpoint of his life, interest rates were unusually high (i.e., assets were unusually cheap) and began a long decline, driving outsized returns for "professional capitalists" and especially for value investors who correctly assigned a very high cost of capital to earnings. The dominant model of wealth creation has shifted from squirrely hoarders like Buffett to either bombastic asset gatherers like Adam Neumann, or to extremely talented builders like Elon Musk, in part because interest rates are much, much lower.
2). Monopolies will be more valuable than ever and non-monopolies will trade at more significant discounts. As required returns lower, capital will flow toward non-monopolistic, competitive industries (think Quip, Boll & Branch, and whatever other favorite podcast sponsor you have) and reduce returns in those industries even further than where they are now. What really matters isn't how much money a company is making per se, but the certainty that they will earn those returns in the future. This certainty in maintaining pricing, margins, and market share enables investors to capitalize businesses at very high multiples because there's "nothing else left to invest in". More on this later.
3). Commodity-capital industries become particularly bad industries over time. Finance (all of it: main street banking, investment management, insurance) becomes even more commoditized than it already is. Funnily, I think investment banking is a service and will be excluded from this implosion, and the high-end firms should remain well-insulated as capital raising and valuation-setting activities from IPOs remain a fairly sensitive activity. Real estate cap rates should continue to decline and so should their associated capitalization requirements and costs of capital: one day we'll commonly start to get 100% debt financed apartment complexes that only cost 3% to service (China is perilously close to this phenomenon already).
4). The rise of what I can only describe as Neofeudalism. Imagine a world where a "typically risky" asset has a 2.5% nominal return: a. If you can build an income stream, it will trade at 40x earnings. b. If you fail to build an income stream, you need 40x the money to replicate the same-sized income stream. c. If your parents were rich and frugal, you will be rich, because they amassed all of the asset increase benefits from when interest rates were high and dropped. Inheritances, in some weird reversion to the mean, will once again become a greater determinant of wealth. d. It will be almost impossible to become independently wealthy as a wage-worker, because if you save money, you'll only be earning a 2% nominal return. e. "High-certainty assets" will be seen as even more valuable than before, relative to peers. This is due a weird intersection of behavioral finance and arithmetic: an investor being willing to accept a company valued at 1% cap rate instead of 2% will go from valuing a company at 50x earnings to 100x earnings. In low interest rate worlds, the value of securitizing and financializing income streams only grows, because the equivalent capital required to generate those equivalent streams becomes very high. This is why payments startups make so much more sense today than ever before: their revenue streams are incredibly reliable, on an ever-growing churn of economic activity. Even if their profits are low now, the certainty of the growth of future cash-flows is extremely high, and being certain as interest rates asymptote to zero enables the biggest and best valuations.
Why do low future rates bring about Neofeudalism? Interest rates are like a very long lever. As rates go lower, the lever gets longer, and the more valuable income streams become. At some point the lever itself becomes a sort of king-maker: if you are able to build a perpetual-income business of any kind, you will effectively control an economic fiefdom, because that income stream will be considered incredibly valuable. And if you fail to create that perpetual income stream, you'll be a serf, forced to either deplete your savings (since returns aren't high enough) or work forever.
This also re-calibrates our understanding of Baby Boomer wealth. They entered the job market when interest rates were at their very highest in recent human history. If you were a reasonably competent young person who could secure a job, you could compound an unbelievable amount of wealth over the ensuing 5 decades.
submitted by bunnydoge to investing [link] [comments]

Deutsche Bank - On the Brink of Insolvency

Deutsche Bank - On the Brink of Insolvency
On this week's edition of DDDD (Data-Driven DD; yes this is what I'm going to be calling this), we'll be looking at Deutsche Bank. Once one of the largest banks in the world, it's now a shell of its former self after the 2008 financial crisis.
Disclaimer - This is not financial advice, and a lot of the content below is my personal opinion. In fact, the numbers, facts, or explanations presented below could be wrong and be made up. Don't buy random options because some person on the internet says so; look at what happened to all the SPY 220p 4/17 bag holders. Do your own research and come to your own conclusions on what you should do with your own money, and how levered you want to be based on your personal risk tolerance.
A Brief History of Deutsche Bank (and Deutschland)
Let’s first start with some background around Deutsche Bank, because it has some very interesting history behind it. In particular, it’s somehow taken part in causing some of the worst crises and scandals in world and economic history ever since its founding in 1870. Here’s a brief timeline:
  • Founded in Berlin in 1870 with the original mission to facilitate trade between Germany and foreign nations
  • Rapidly expanded overseas in the late 1800s, opening branches in London, Shanghai, and South America
  • Financed the Holocaust in the 1930s, including the construction of the Auschwitz concentration camp and the Gestapo
  • Broken up to 10 smaller banks after Germany’s defeat in WWII by the Allies, but those banks later merged back together less than 10 years later
  • Acquired a bunch of overseas banks, including banks in the UK and the US, during the 80s and 90s, growing to become one of the largest money management firms in the world
  • Drove the market for CDOs in 2007 and even created CDOs consisting of their bad subprime mortgages, somehow got an A-level rating on them from the rating agencies, and aggressively marketed the CDOs to investors while knowing that their CDOs were shit. Their head of CDO trading, Greg Lippmann, knew about this and told everyone that CDOs were effectively a Ponzi scheme, even shorting CDOs himself through Credit Default Swaps. He then went around to different funds in Wall Street and told them that CDOs were going to collapse and sold them Credit Default Swaps as a way to short the CDO market, creating synthetic CDOs, the asset on the other side of that trade, with them to sell to other investors. This entire scheme was the inspiration for The Big Short, in case you didn’t realize this by now.
  • Also the bank that finances businesses of the current President, which might be worth considering for political motives / implications if something bad happens to Deutsche Bank
  • Today, they focus on Corporate Banking, Investment Banking, Private Banking, and Asset Management
Let’s see how $DB’s performance has been the past few years
$DB, 2002-2020, Monthly
Yikes, it went from an all time high of $140 in 2007 to $6 today in 2020. In terms of their market cap, it went from $70B from its 2007 peak to $13B today. So, what happened? Let’s look at their 2019 SEC annual filing.
10-K Deep Dive
Income Statement (omitted boring parts)
Revenue € 22.4B (Net Interest = 13.7B, Credit Losses = -723M, Commission & Feed = 9.5B)
Expenses € 25.1B (mostly Compensation and G&A)
Net income after taxes €-5.3B (includes 2.6B of losses from taxes)
From their interest income, 19% comes from Corporate Banking, 39% from Investment Banking, 30% from Private Banking, and the rest comes from some other various operations.
So in a good year, in a period of “high” interest rates in the US (at least relative to the past decade), Deutsche Bank is still somehow losing billions. In fact, it states that their slight 4% YoY increase in net revenue income was driven by the fact that the US had a more favorable interest rate environment during that year, and their reduction of deposits in Germany, where they were experiencing negative interest rates.
German Interbank Rates
Negative interest rates mean that banks need to pay the central bank to safely store their reserves with them, making it really hard to make a profit for banks. Luckily they had the relatively high interest rates of the US to make up for it in 2019. With interest rates cut to 0% again, this will be a very different story for 2020, and they’ll likely see even larger losses for this year.
Balance Sheet (omitted boring parts)
Assets € 1.3T
Cash & Central Bank Deposits € 147B
Financial Assets € 531B (Trading Assets - €110B, Derivatives with a positive value - € 333B)
Loans € 430B
Liabilities € 1.2T
Deposits € 572B
Financial Liabilities € 404B (Trading Liabilities - € 37B, Derivatives with a negative value - € 317B)
Long Term Debt € 136B
Equity € 62B
So there’s a few very interesting things here. First, is the fact that their book value is €62B, or $67B USD, giving them a leverage of 26, which is way higher than literally every bank in the United States.
Top 100 US banks, sorted by leverage
What does a bank leverage ratio mean? It’s a quick way to see how well capitalized a bank is, and its ability to withstand negative shocks to its balance sheets without becoming insolvent. It’s harder to think of a more severe shock to the economic systems and people’s ability to pay back loans than a complete worldwide lockdown.
Another thing fishy with their book value is that their market cap is sitting at 13B USD. Even in January, before the stock market crashed it was sitting at 17B USD. That’s a big red flag, because theoretically if Deutsche Bank’s assets were all liquidated today, investors should theoretically be left with €62B, or $38 per share, which is way higher than the stock’s current $6 share price. This should especially be easy because the vast majority of their balance sheet consists of liquid assets or assets that should be easy to liquidate… or are they?
Let’s take a closer look at their derivatives. In their annual statement, they mentioned that they were trying to discontinue their derivatives business, which already helped cause one banking crisis a decade ago. They restructured and put all their “bad” capital, like their derivatives, in its own entity, called the “Capital Release Unit”, with the goal of liquidating these assets to release capital and de-leverage themselves. In 2019, their Capital Release Unit lost a total of €3.9B and held the €333B of derivatives. It also looks like they’re doing a bad job of releasing this specific class of capital, because their derivative assets and liabilities actually increased since 2018. That’s because a lot of these derivatives are not traded in exchanges, but instead over-the-counter with parties that have an ISDA agreement. As anyone who’s watched The Big Short can tell you (so literally everyone else on this subreddit), these OTC derivatives tend to be illiquid and difficult to value due to lack of price discovery.
This is why Deutsche Bank’s book value is more than their market cap, even before COVID-19. There’s doubt as to what some of the OTC derivatives are actually worth. They have a book value of €62B with derivatives supposedly valued at €333B, meaning if the actual net value of these derivatives are 19% or more lower than what they say they are, they become insolvent. This is the bank equivalent of buying SPY puts on margin in Robinhood (yes I know you can’t do that), but not knowing how much your puts are worth until you try selling. If you were like most of wallstreetbets you probably bought SPY puts when SPY was at 220. You know if you tried to sell your puts you might find out that they’re now worth a lot less than you originally bought them for (in the case of OTC derivatives, they can actually have a negative value!), realizing your portfolio value (equity) is below zero and you get a margin call (insolvent). In fact, they’ve allegedly done something similar in 2008 by failing to recognize losses related to the explosion of super senior tranches of CDOs, which may have led to joining Lehman Brothers in the bank graveyard if they did.
Let’s take a closer look at these derivatives, specifically the ones that mature in 2020.
Derivatives maturing in 2020 by nominal value
Type Bilateral Central Counterparty Exchange Traded
Interest €2.5T €8.7T €4T
Currency €4.3T €95B €17B
Equity €98B 0 €184B
Credit €39B €63B 0
Commodity €2.7B 0 €31.9B
First a few things to clarify. Bilateral Clearing is an agreement between some party with an ISDA agreement with the bank, where the bank acts as the counterparty to the derivative being sold. Central Counterparty Clearing is when an institution facilitates an OTC derivative transaction by ensuring both sides of the transaction are financially sound enough and have enough collateral to not default on the derivative, and if any party defaults on the derivative, the central counterparty is now financially responsible for their side of the trade. This was put into place after 2008 when the risk of counterparties like AIG defaulting on credit default swaps became a huge systematic problem.
Also, a nominal value is different from a derivative’s actual price. For example, if you bought a SPY 4/20 220p, the nominal value of your derivative is $22000 (100 shares * $220 per share) but the actual value of your put is $0.
We know that since Dec 2019
  • Interest rates got cut all around the world
  • Currencies exchange rates have dramatically changed since December with oil-exporting countries. For example USD / CAD went from $1.30 to $1.42 during this time period
  • Equity values exploded, even with the bull run we’re currently in
  • A lot of BBB-rated companies got downgraded, and we might see defaults come in, even with the Fed buying bonds
  • Oil is fucked
These recent events will probably change the valuation of these derivatives by a lot, some of which are going to be realized on their balance sheets immediately (eg. exchange traded derivatives) because their valuations can easily be calculated. The key here is that the net losses needs to be below €62B or they become insolvent.
Now, we’re in the age of too-big-to-fail businesses and the US government and Fed bailing out everyone, which is a real risk of taking a short position against $DB, especially considering how connected they are with other US financial institutions by acting as the counterparty or the central counterparty clearing house to many derivatives that they hold. If Deutsche Bank goes under, a lot of other financial institutions are going to have problems. The problem with Deutsche Bank is that it is not a US company and can’t be hence bailed out by the US government. In fact, they weren’t eligible for TARP, the last government-funded bank bailout back in 2008, which is partially why they’ve been a financial mess ever since.
Their Q1 earnings call is on April 29, so we’ll find out how much trouble they are then.
TLDR; DB 5p 10/16
submitted by ASoftEngStudent to wallstreetbets [link] [comments]

Everything You Always Wanted To Know About Swaps* (*But Were Afraid To Ask)

Hello, dummies
It's your old pal, Fuzzy.
As I'm sure you've all noticed, a lot of the stuff that gets posted here is - to put it delicately - fucking ridiculous. More backwards-ass shit gets posted to wallstreetbets than you'd see on a Westboro Baptist community message board. I mean, I had a look at the daily thread yesterday and..... yeesh. I know, I know. We all make like the divine Laura Dern circa 1992 on the daily and stick our hands deep into this steaming heap of shit to find the nuggets of valuable and/or hilarious information within (thanks for reading, BTW). I agree. I love it just the way it is too. That's what makes WSB great.
What I'm getting at is that a lot of the stuff that gets posted here - notwithstanding it being funny or interesting - is just... wrong. Like, fucking your cousin wrong. And to be clear, I mean the fucking your *first* cousin kinda wrong, before my Southerners in the back get all het up (simmer down, Billy Ray - I know Mabel's twice removed on your grand-sister's side). Truly, I try to let it slide. I do my bit to try and put you on the right path. Most of the time, I sleep easy no matter how badly I've seen someone explain what a bank liquidity crisis is. But out of all of those tens of thousands of misguided, autistic attempts at understanding the world of high finance, one thing gets so consistently - so *emphatically* - fucked up and misunderstood by you retards that last night I felt obligated at the end of a long work day to pull together this edition of Finance with Fuzzy just for you. It's so serious I'm not even going to make a u/pokimane gag. Have you guessed what it is yet? Here's a clue. It's in the title of the post.
That's right, friends. Today in the neighborhood we're going to talk all about hedging in financial markets - spots, swaps, collars, forwards, CDS, synthetic CDOs, all that fun shit. Don't worry; I'm going to explain what all the scary words mean and how they impact your OTM RH positions along the way.
We're going to break it down like this. (1) "What's a hedge, Fuzzy?" (2) Common Hedging Strategies and (3) All About ISDAs and Credit Default Swaps.
Before we begin. For the nerds and JV traders in the back (and anyone else who needs to hear this up front) - I am simplifying these descriptions for the purposes of this post. I am also obviously not going to try and cover every exotic form of hedge under the sun or give a detailed summation of what caused the financial crisis. If you are interested in something specific ask a question, but don't try and impress me with your Investopedia skills or technical points I didn't cover; I will just be forced to flex my years of IRL experience on you in the comments and you'll look like a big dummy.
TL;DR? Fuck you. There is no TL;DR. You've come this far already. What's a few more paragraphs? Put down the Cheetos and try to concentrate for the next 5-7 minutes. You'll learn something, and I promise I'll be gentle.
Ready? Let's get started.
1. The Tao of Risk: Hedging as a Way of Life
The simplest way to characterize what a hedge 'is' is to imagine every action having a binary outcome. One is bad, one is good. Red lines, green lines; uppie, downie. With me so far? Good. A 'hedge' is simply the employment of a strategy to mitigate the effect of your action having the wrong binary outcome. You wanted X, but you got Z! Frowny face. A hedge strategy introduces a third outcome. If you hedged against the possibility of Z happening, then you can wind up with Y instead. Not as good as X, but not as bad as Z. The technical definition I like to give my idiot juniors is as follows:
Utilization of a defensive strategy to mitigate risk, at a fraction of the cost to capital of the risk itself.
Congratulations. You just finished Hedging 101. "But Fuzzy, that's easy! I just sold a naked call against my 95% OTM put! I'm adequately hedged!". Spoiler alert: you're not (although good work on executing a collar, which I describe below). What I'm talking about here is what would be referred to as a 'perfect hedge'; a binary outcome where downside is totally mitigated by a risk management strategy. That's not how it works IRL. Pay attention; this is the tricky part.
You can't take a single position and conclude that you're adequately hedged because risks are fluid, not static. So you need to constantly adjust your position in order to maximize the value of the hedge and insure your position. You also need to consider exposure to more than one category of risk. There are micro (specific exposure) risks, and macro (trend exposure) risks, and both need to factor into the hedge calculus.
That's why, in the real world, the value of hedging depends entirely on the design of the hedging strategy itself. Here, when we say "value" of the hedge, we're not talking about cash money - we're talking about the intrinsic value of the hedge relative to the the risk profile of your underlying exposure. To achieve this, people hedge dynamically. In wallstreetbets terms, this means that as the value of your position changes, you need to change your hedges too. The idea is to efficiently and continuously distribute and rebalance risk across different states and periods, taking value from states in which the marginal cost of the hedge is low and putting it back into states where marginal cost of the hedge is high, until the shadow value of your underlying exposure is equalized across your positions. The punchline, I guess, is that one static position is a hedge in the same way that the finger paintings you make for your wife's boyfriend are art - it's technically correct, but you're only playing yourself by believing it.
Anyway. Obviously doing this as a small potatoes trader is hard but it's worth taking into account. Enough basic shit. So how does this work in markets?
2. A Hedging Taxonomy
The best place to start here is a practical question. What does a business need to hedge against? Think about the specific risk that an individual business faces. These are legion, so I'm just going to list a few of the key ones that apply to most corporates. (1) You have commodity risk for the shit you buy or the shit you use. (2) You have currency risk for the money you borrow. (3) You have rate risk on the debt you carry. (4) You have offtake risk for the shit you sell. Complicated, right? To help address the many and varied ways that shit can go wrong in a sophisticated market, smart operators like yours truly have devised a whole bundle of different instruments which can help you manage the risk. I might write about some of the more complicated ones in a later post if people are interested (CDO/CLOs, strip/stack hedges and bond swaps with option toggles come to mind) but let's stick to the basics for now.
(i) Swaps
A swap is one of the most common forms of hedge instrument, and they're used by pretty much everyone that can afford them. The language is complicated but the concept isn't, so pay attention and you'll be fine. This is the most important part of this section so it'll be the longest one.
Swaps are derivative contracts with two counterparties (before you ask, you can't trade 'em on an exchange - they're OTC instruments only). They're used to exchange one cash flow for another cash flow of equal expected value; doing this allows you to take speculative positions on certain financial prices or to alter the cash flows of existing assets or liabilities within a business. "Wait, Fuzz; slow down! What do you mean sets of cash flows?". Fear not, little autist. Ol' Fuzz has you covered.
The cash flows I'm talking about are referred to in swap-land as 'legs'. One leg is fixed - a set payment that's the same every time it gets paid - and the other is variable - it fluctuates (typically indexed off the price of the underlying risk that you are speculating on / protecting against). You set it up at the start so that they're notionally equal and the two legs net off; so at open, the swap is a zero NPV instrument. Here's where the fun starts. If the price that you based the variable leg of the swap on changes, the value of the swap will shift; the party on the wrong side of the move ponies up via the variable payment. It's a zero sum game.
I'll give you an example using the most vanilla swap around; an interest rate trade. Here's how it works. You borrow money from a bank, and they charge you a rate of interest. You lock the rate up front, because you're smart like that. But then - quelle surprise! - the rate gets better after you borrow. Now you're bagholding to the tune of, I don't know, 5 bps. Doesn't sound like much but on a billion dollar loan that's a lot of money (a classic example of the kind of 'small, deep hole' that's terrible for profits). Now, if you had a swap contract on the rate before you entered the trade, you're set; if the rate goes down, you get a payment under the swap. If it goes up, whatever payment you're making to the bank is netted off by the fact that you're borrowing at a sub-market rate. Win-win! Or, at least, Lose Less / Lose Less. That's the name of the game in hedging.
There are many different kinds of swaps, some of which are pretty exotic; but they're all different variations on the same theme. If your business has exposure to something which fluctuates in price, you trade swaps to hedge against the fluctuation. The valuation of swaps is also super interesting but I guarantee you that 99% of you won't understand it so I'm not going to try and explain it here although I encourage you to google it if you're interested.
Because they're OTC, none of them are filed publicly. Someeeeeetimes you see an ISDA (dsicussed below) but the confirms themselves (the individual swaps) are not filed. You can usually read about the hedging strategy in a 10-K, though. For what it's worth, most modern credit agreements ban speculative hedging. Top tip: This is occasionally something worth checking in credit agreements when you invest in businesses that are debt issuers - being able to do this increases the risk profile significantly and is particularly important in times of economic volatility (ctrl+f "non-speculative" in the credit agreement to be sure).
(ii) Forwards
A forward is a contract made today for the future delivery of an asset at a pre-agreed price. That's it. "But Fuzzy! That sounds just like a futures contract!". I know. Confusing, right? Just like a futures trade, forwards are generally used in commodity or forex land to protect against price fluctuations. The differences between forwards and futures are small but significant. I'm not going to go into super boring detail because I don't think many of you are commodities traders but it is still an important thing to understand even if you're just an RH jockey, so stick with me.
Just like swaps, forwards are OTC contracts - they're not publicly traded. This is distinct from futures, which are traded on exchanges (see The Ballad Of Big Dick Vick for some more color on this). In a forward, no money changes hands until the maturity date of the contract when delivery and receipt are carried out; price and quantity are locked in from day 1. As you now know having read about BDV, futures are marked to market daily, and normally people close them out with synthetic settlement using an inverse position. They're also liquid, and that makes them easier to unwind or close out in case shit goes sideways.
People use forwards when they absolutely have to get rid of the thing they made (or take delivery of the thing they need). If you're a miner, or a farmer, you use this shit to make sure that at the end of the production cycle, you can get rid of the shit you made (and you won't get fucked by someone taking cash settlement over delivery). If you're a buyer, you use them to guarantee that you'll get whatever the shit is that you'll need at a price agreed in advance. Because they're OTC, you can also exactly tailor them to the requirements of your particular circumstances.
These contracts are incredibly byzantine (and there are even crazier synthetic forwards you can see in money markets for the true degenerate fund managers). In my experience, only Texan oilfield magnates, commodities traders, and the weirdo forex crowd fuck with them. I (i) do not own a 10 gallon hat or a novelty size belt buckle (ii) do not wake up in the middle of the night freaking out about the price of pork fat and (iii) love greenbacks too much to care about other countries' monopoly money, so I don't fuck with them.
(iii) Collars
No, not the kind your wife is encouraging you to wear try out to 'spice things up' in the bedroom during quarantine. Collars are actually the hedging strategy most applicable to WSB. Collars deal with options! Hooray!
To execute a basic collar (also called a wrapper by tea-drinking Brits and people from the Antipodes), you buy an out of the money put while simultaneously writing a covered call on the same equity. The put protects your position against price drops and writing the call produces income that offsets the put premium. Doing this limits your tendies (you can only profit up to the strike price of the call) but also writes down your risk. If you screen large volume trades with a VOL/OI of more than 3 or 4x (and they're not bullshit biotech stocks), you can sometimes see these being constructed in real time as hedge funds protect themselves on their shorts.
(3) All About ISDAs, CDS and Synthetic CDOs
You may have heard about the mythical ISDA. Much like an indenture (discussed in my post on $F), it's a magic legal machine that lets you build swaps via trade confirms with a willing counterparty. They are very complicated legal documents and you need to be a true expert to fuck with them. Fortunately, I am, so I do. They're made of two parts; a Master (which is a form agreement that's always the same) and a Schedule (which amends the Master to include your specific terms). They are also the engine behind just about every major credit crunch of the last 10+ years.
First - a brief explainer. An ISDA is a not in and of itself a hedge - it's an umbrella contract that governs the terms of your swaps, which you use to construct your hedge position. You can trade commodities, forex, rates, whatever, all under the same ISDA.
Let me explain. Remember when we talked about swaps? Right. So. You can trade swaps on just about anything. In the late 90s and early 2000s, people had the smart idea of using other people's debt and or credit ratings as the variable leg of swap documentation. These are called credit default swaps. I was actually starting out at a bank during this time and, I gotta tell you, the only thing I can compare people's enthusiasm for this shit to was that moment in your early teens when you discover jerking off. Except, unlike your bathroom bound shame sessions to Mom's Sears catalogue, every single person you know felt that way too; and they're all doing it at once. It was a fiscal circlejerk of epic proportions, and the financial crisis was the inevitable bukkake finish. WSB autism is absolutely no comparison for the enthusiasm people had during this time for lighting each other's money on fire.
Here's how it works. You pick a company. Any company. Maybe even your own! And then you write a swap. In the swap, you define "Credit Event" with respect to that company's debt as the variable leg . And you write in... whatever you want. A ratings downgrade, default under the docs, failure to meet a leverage ratio or FCCR for a certain testing period... whatever. Now, this started out as a hedge position, just like we discussed above. The purest of intentions, of course. But then people realized - if bad shit happens, you make money. And banks... don't like calling in loans or forcing bankruptcies. Can you smell what the moral hazard is cooking?
Enter synthetic CDOs. CDOs are basically pools of asset backed securities that invest in debt (loans or bonds). They've been around for a minute but they got famous in the 2000s because a shitload of them containing subprime mortgage debt went belly up in 2008. This got a lot of publicity because a lot of sad looking rednecks got foreclosed on and were interviewed on CNBC. "OH!", the people cried. "Look at those big bad bankers buying up subprime loans! They caused this!". Wrong answer, America. The debt wasn't the problem. What a lot of people don't realize is that the real meat of the problem was not in regular way CDOs investing in bundles of shit mortgage debts in synthetic CDOs investing in CDS predicated on that debt. They're synthetic because they don't have a stake in the actual underlying debt; just the instruments riding on the coattails. The reason these are so popular (and remain so) is that smart structured attorneys and bankers like your faithful correspondent realized that an even more profitable and efficient way of building high yield products with limited downside was investing in instruments that profit from failure of debt and in instruments that rely on that debt and then hedging that exposure with other CDS instruments in paired trades, and on and on up the chain. The problem with doing this was that everyone wound up exposed to everybody else's books as a result, and when one went tits up, everybody did. Hence, recession, Basel III, etc. Thanks, Obama.
Heavy investment in CDS can also have a warping effect on the price of debt (something else that happened during the pre-financial crisis years and is starting to happen again now). This happens in three different ways. (1) Investors who previously were long on the debt hedge their position by selling CDS protection on the underlying, putting downward pressure on the debt price. (2) Investors who previously shorted the debt switch to buying CDS protection because the relatively illiquid debt (partic. when its a bond) trades at a discount below par compared to the CDS. The resulting reduction in short selling puts upward pressure on the bond price. (3) The delta in price and actual value of the debt tempts some investors to become NBTs (neg basis traders) who long the debt and purchase CDS protection. If traders can't take leverage, nothing happens to the price of the debt. If basis traders can take leverage (which is nearly always the case because they're holding a hedged position), they can push up or depress the debt price, goosing swap premiums etc. Anyway. Enough technical details.
I could keep going. This is a fascinating topic that is very poorly understood and explained, mainly because the people that caused it all still work on the street and use the same tactics today (it's also terribly taught at business schools because none of the teachers were actually around to see how this played out live). But it relates to the topic of today's lesson, so I thought I'd include it here.
Work depending, I'll be back next week with a covenant breakdown. Most upvoted ticker gets the post.
*EDIT 1\* In a total blowout, $PLAY won. So it's D&B time next week. Post will drop Monday at market open.
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How Argentina learnt to stop worrying and combat coronavirus

As anyone who hasn’t spent the last month under a rock knows, the COVID-19 coronavirus is a big deal to the global economy, and governments have taken a number of potentially disruptive measures to contain it. The aim of this post is to look somewhat closely at the likely impact to the economy of this famously unstable country, and to briefly weigh the policy actions of the Alberto Fernández administration against their costs.

A little context

Argentina and economic collapse, name a more iconic duo. In the past decade, the inflation rate went from the twenties to the fifties, and 2019 had the highest recorded figure in almost thirty years: 53.8%. The country has not grown for two consecutive years in an entire decade, and official figures for most relevant variables, including unemployment and production, are unreliable (to put it kindly) since the official statistics agency was intervened by politicians and pretty much faked its data for ten years.
In 2015, the reign of a faction of Peronism (the dominant political ideology/party in Argentina, an economically left, nationalistic, autarchic, anti-globalization movement) known as Kirchnerism, with more ties to the hard left and more socially progressive than the rest of the party, came to a close after 12 years of dominance: their prefered Presidential candidate, Daniel Scioli (an unpopular, unexciting, uncharismatic Governor who lost an arm in a boat racing accident) narrowly lost a runoff to the center-right Mauricio Macri, the mayor of the country’s capital. Macri ran on a platform of change (his coalition of centrist parties was literally named Cambiemos, or Let’s Change) and promised to lower taxes, reduce regulations, open the economy, and lead Argentina into a new era of market-based prosperity. This did not pan out: after a rocky first year, where the lifting of currency controls and sky high raises in public utilities led to a 40% inflation rate, nearly 15 point above the previous year’s, 2017 looked bright: GDP grew, wages increased, inflation returned to its prior levels and seemed to be going down, and the government scored a double-digit win in the midterms.
2018 was even more promising, until May: following a series of policy and communications missteps by the government, investors became more bullish on the nation’s ability to repay its significant dollar-denominated debt; when the Fed raised rates in May, capitals bled out of the country and the peso began depreciating for months, more than doubling from 19 pesos per dollars to over 40 by the end of the year; the economy took a beating, with GDP collapsing and completely erasing the previous year’s gains. 2019 was tougher: Macri became, obviously, increasingly unpopular - but still stood a chance because his likeliest rival, the divisive and corrupt former President and sitting Senator Cristina Fernández de Kirchner, appeared to be an even less palatable candidate - and voters going to moderate Peronist economist Roberto Lavagna looked more like Macri than Kirchner supporters. In an unexpected, risky gambit, Kirchner picked her former Chief of Staff, the little known and more moderate Alberto Fernández (no relation, it’s a common surname) to run for President, with her being his running mate. This bet paid off: Fernández united the entire Peronist party (no easy task, since Kirchner wasn’t particularly popular with Peronist Governors) and surpassed all expectations: while polling had him in dead heat against Macri, the high number of undecided voters made the race extremely volatile. After two hours of delays, the results of the national primaries (basically a trial election) came in: Fernández had beat Macri by nearly 20 points, 49 to 32, and was, by all intents and purposes, the next President. The markets did not take this well, since the winning candidate was notoriously vague and tight lipped in his positions: in a single day, stocks and bonds plummeted by 55%, and the peso depreciated another 33% - to 63 pesos. Macri performed better in the October elections, getting 40% to Fernández’s 48% due to higher turnout, but still lost. 2019 was another bad year: GDP shrank by 2.2%, unemployment soared to 9.7% (it later came down to 8.9%), and poverty rose from 25.4% (a historic low) in 2017 to 35.4% in the first semester; the only positive figures are the fiscal deficit, which went from 4% in 2015 to 0.5% in 2019, and the trade balance, which reversed sign and was an astounding 19 billion surplus; the current account deficit was reduced from a staggering 31 billion in 2017 to 3.4 billion in 2019, the lowest since 2012 and mostly caused by the positive trade and service balances.
The Fernandez administration, meanwhile, surprised in its moderation: efforts have been made to somewhat maintain fiscal balance, while also increasing welfare payments without committing “populist excesses”, to somewhat speak. The fiscal balance has been weak, though, with Economy Minister Martín Guzmán only vowing a surplus in 2023 and returning to the much dreaded “gradualism” of the Macri era. Fernández seemed mostly interested in one issue: restructuring the country’s substantial debt (nearly 90% of GDP), which included a record breaking program by the IMF and the products of a previous restructuring, in 2005, after the country defaulted in 2002 (it would partially default again in 2014) - Guzmán himself is an academic focusing on the issue, and a disciple of the “heterodox” Nobel Laureate Joseph Stiglitz at Columbia.

The healthcare system

Argentina’s healthcare system is complex, heterogenous, and very poorly supervised - public health is not mentioned in the Constitution, putting it under the purview of provinces, except for some compromises between jurisdictions to make it run smooth.
Considering the demand side of healthcare, the age structure of Argentina is not particularly concerning: only 15% of the population is over 60, and, on average, 88.5% of those over 60% have some kind of health insurance. Speaking of, 60% have any kind of insurance, according to census data - higher with age. Although 35.4% of the country lives in poverty, this number plummets to around 10% in older groups - providing a better safety net for the most vulnerable groups (children, by comparison, have a 52.5% rate). The country is only worryingly densely populated around the nation’s capital, the City of Buenos Aires, whose metro area comprises 13 million people and an expanded definition is inhabited by almost 20.
On the provider side, the country’s hospitals are mostly run by the provinces, except a handful in the orbit of the national government. According to the government, the country spent 9.8% of GDP on healthcare - 6.6% by the public sector, and 2.8% by private companies. The country seems to have a low number of physicians, hospital beds, and nurses - yet the larger provinces with a higher number of cases seem better prepared. Still, the glaring inequalities in the country make it clear that being ill in the wealthy City of Buenos Aires or the oil producing, sparsely populated Santa Cruz would be highly preferable to Chaco or Misiones. Another notable issue is the disparity between systems: private insurers (“prepagas”) offer extremely high quality care, as does PAMI, Argentina’s equivalent to Medicare (it is, in fact, a state-run public insurer for the elderly). The problem comes with the public system, which is much higher quality in richer provinces, especially in the less populated Patagonia.
The country, despite not being at such apparent risk, has taken measures extremely early: a full quarantine was announced roughly 20 days after the first confirmed case. The main situation is the country has only really tested those who either traveled abroad recently or were in close contact to those who did - meaning that official statistics of 500 infected, 8 dead aren’t particularly meaningful, and the number of tests administered isn’t publicly available.

Employment, poverty, and consumption

The country being under a quarantine poses a significant risk: 35% of the labor force works in the informal sector, and another 15% is self-employed. This means that, under a lockdown, nearly half of the population wouldn’t receive any income. The Catholic University of Argentina's Observatory for Social Debt (sworn enemies of mine, if you’ve read my previous post on poverty) estimates that 32% of people don’t receive any kind of formal salary, and that just two thirds of those families don’t even collect welfare checks - so 10% of homes will be deprived of all forms of income during a lockdown. The government has tried to mitigate this: bonuses for welfare recipients and the poorest retirees were announced, a $10.000 bonus for the unemployed,and some self-employed people was enacted, and the steps have been taken to ensure that people don’t lose access to basic necessities: a temporary ban on eviction and loss of utilities, a freeze on housing credits and rent, and price controls. The Social Development Minister, Daniel Arroyo, recently declared that 11 million people are receiving nutritional assistance, 3 million more than before - and 3.5 million of whom are children.
The consulting firm IDESA paints an even bleaker picture: they claim 45% of all Argentinians live off of informality, meaning the quarantine, on this basis alone, could deal a crippling blow to nearly a majority of families. Others have gone further: a recent report claims that 5.5 million people are at “very high” risk of losing their jobs based on their employment status (self employed of informal) and at slightly lower risk depending on the sector they work in, even if they are registered. The government responded to this by banning firings and suspensions by decree, which will obviously negatively affect job creation (which is at historic lows anyway, according to Ministry of Labor data).
Consumption has also been negatively impacted, since the incomes of those newly unemployed will obviously decrease; some retailers have experienced decreases of 50% in sales, and many have estimated that people simply won’t be able to afford their living expenses or their credit card bills (which were recently postponed until after the quarantine is over).

Economic activity and output

Economists estimate that each day of the quarantine reduces GDP by 1 to 1.4 billion, although there is a massive caveat - their projections are all based on national holidays and workers’ strikes, which are quite different because they are both scheduled in some advance, aren’t particularly long (the longest national holiday lasts about 3 days), and national holidays in particular have much higher “entertainment” (cinemas, theaters, restaurants, vacations, etc.) spending than usual.
The aim of government policies so far seems to be to mitigate the loss of income on poor families, while not spending too much - the public sector has an extremely limited margin of action, given that current commitments make up 0.6% of GDP with revenue in free fall due to lower activity (VAT, income tax, and export taxes have been particularly deteriorated lately). The demand shock to some sectors will be highly negative: tourism, entertainment, non-basic goods, etc. As you can see here,the largest sectors of the economy (Industry, construction, and retail) will be hardest hit.
Starting with construction, things are not looking good: work has ground to a halt, while it has already had its worst performance in decades. The sector also has a very high demand for labor, some of the highest rates of labor informality, and is the third largest sector of employment (360k workers in December) which makes it a ticking time bomb of lost income that has to be addressed as soon as possible - and the government has announced new credits for construction, and a 100 billion public works plan. The sector has already registered its lowest employment levels ever this year, and in an omen for things to come, the massive multinational company Techint has already laid off 1500 workers based on estimates that their profits in April will be 0.
Regarding industry, after it has the worst indicators for production in since 2002, only the food and pharmaceutical industries seem to be trending upwards - and they only account for a third of industrial workers, which make up themselves a fifth of all workers.Industrial Union figures claim that just 20% of manufacturers are currently active - and that the entire sector is having difficulties paying salaries or acquiring components. Car manufacturers have shut down production until April, and expect to sell fewer than 200 thousand units this year; and the electronics sector has followed suit. While industry does not have the same level of informality construction does, some issues may arise. The main complication will be supply chains, since many key components for industrial production are imported - and most major manufacturers (notably China) are dealing with the aftermath of their own coronavirus responses. And lower projections for growth in Brazil could especially hurt the automotive industry, where 50% of units sold are destined for the Latin American country, and whose growth has a large impact on Argentina’s manufacturing sector (note: even if the article is old, it still very clearly illustrates the close relations between the countries).
Retail is the biggest problem: after a 30% surge in sales in the days leading up to the lockdown (mostly in large chain supermarkets and wholesalers), sales collapsed as people became more frightened to leave their homes: restaurants have reported a 55% drop in sales, bakeries an 80% decrease, and 70% of small shops have already shut down until people are back in the street, since their sales decreased by 50% as well. Retailers in most sectors express concern, and most restaurants, bars, and “proximity businesses” (drugstores, corner shops, and small convenience stores known as “Chinese supermarkets” because their owners are generally Asian immigrants) have seen their income go from a steady stream to a small trickle, mostly due to online shopping and home deliveries - amd 20% of these smaller stores have closed their doors for the duration of the quarantine. Small business owners have already expressed their concern with the situation, with most expecting steep losses in revenue and some even reducing their staff. The sector is the second largest employer in the economy, with nearly 20% of the workforce as well, and a retail recession, so to speak, could collapse into a vicious circle where a crash in demand is reflected in sales, which forces firms to downsize, leading to even more drops in revenue, which starts the cycle all over again.
Regarding other sectors: hotels, tourism, transportation, etc: have seen their income fall by billions, and combined employ as many workers as the construction construction. Agriculture and other primary activities are probably mostly affected by second order factors, such as lower international demand and lower prices - which puts them in a secondary position for aid; their main issue at the moment is the paralysis in activity affecting docks and trucking due to the lockdown. “Personal services”, the tech sectors, and other highly skilled workers can probably move home and still receive full compensation; some firms, such as “Latin America’s Amazon” Mercadolibre or companies that specialize in consulting or telecommunications, could even thrive in this context. .
All in all, the economy looks like it will take a big hit from the lockdown: experts have estimated that each day in March had a 30% reduction in activity (which could be estimated by the observed drops in the demand for electricity, fuel, and transportation), and some go even further and assume a 45% daily drop in April, due to higher baselines because of seasonal factors. Goldman Sachs predicts GDP would drop by 5.4% in 2020, the largest decrease in 18 years (it was 10.9% in 2002) and more than the previous for years combined.

Trade and the external sector

To begin with, Argentina is basically cut off from financial markets at this point: country risk (the premium the country must pay to borrow) skyrocketed to 4500 points at a maximum, before settling in the high 3000’s, and the country seems to be on the verge of its 9th debt default- restructuring offers are basically dead now, with Guzmán and Fernández previously intending to negotiate during March and April. There is no clear consensus on the specific consequences of a debt default, although this publication by the IMF seems to imply it both causes tremendous damage to a nation’s reputation and cuts off growth by weakening the banking sector (which has taken a pummeling in the last year), even if defaulting itself does not cause degrowth. Since most companies are expected to have difficulties paying salaries due to low liquidity, and most people are also expected to not pay some of their obligations, a financial crash could send shockwaves into an already weak economy. In the longer run, a weak financial sector (like the one Argentina most definitely has) can constrain the access to credit necessary for investment - which is a prerequisite for sustained growth, and which already is at its lowest share of GDP in decades. The government remains adamant that its official position is not to default, but the chances of an offer that both sides are content with are slim - the IMF itself has recently weighed in and supported large haircuts for the sovereign debts of emerging economies.
Secondly, trade: most of Argentina’s leading trading partners (Brazil, the EU, the US, China, South Korea) have been negatively affected by coronavirus - China’s GDP is probably going to plummet in the second quarter, and exports to Asian markets have already decreased by 30%. China alone is responsible for almost a third of all industrial exports, which will surely affect global supply chains negatively, as well as reducing imports. Argentina has mostly been a commodity exporter (they made up 40 of the 65 billion dollars in exports during 2019) and commodity prices have plunged during March - soybean, wheat and corn prices will affect the trade balance most harshly, and oil (which is key to national investment in the Southern provinces) has nearly halved in price, making the U$S 15 billion investments that were planned probably unprofitable. The agricultural sector in particular may be heading to a crisis of its own soon, since restrictions on labor and movement, issues with transportation, and blockages to roads and docks have negatively impacted production and sales - and April is the beginning of the most productive part of the year. Regarding Brazil, Argentina’s largest trading partner, relations have been tense due to the personal and political inminity between presidents Fernández and Bolsonaro (who at one point threatened to leave the Mercosur trade bloc) - and growth and industrial production projections for the neighbouring giant have steeply declined lately, which doesn’t bode well for Argentina at all: those indicators, due to the large entanglements between the two nations, are some of the strongest predictors of Argentinian growth (and vice versa: the Brazilian stagnation and manufacturing recession of these last few years have negatively impacted on its partner, which has also entered a recession of its own to the detriment of Brazil itself).
Another major issue for the government is the peso becoming “overvalued”: due to the high volatility in international capital markets (almost 60 billion fled out of developing countries/, most emerging currencies have been battered, rapidly depreciating with regard to the US dollar. The Argentinian peso became one of the strongest currencies of such category (honestly surprising news) because the high rates of inflation mean that any devaluation will be offset by higher national prices; as a result, any gains in competitivity done after the massive devaluations of 2019 have already been lost, since the real exchange rate is, in fact, lower than it was in August. As a result, the country will lose many of its trade advantages over its competitors, which will negatively impact the trade balance (fewer exports + more imports, despite more rigorous controls) and possibly create difficulties in acquiring the hard currency in such high demand in the economy.

Deficits, debt, and the money printers

Argentina’s government has been quick to take action on the healthcare front, declaring a quarantine not even a month before the first cases were confirmed, and extending it for nearly a full month. Their political resolve in handling the pandemic was widely praised, with leaders across the political spectrum working together and Alberto Fernández himself soaring to 90% approval, with 95% of the population approving of his actions.
On the economic front, things have moved way more slowly. The government has mostly taken actions on the demand side, as was previously detailed, by increasing transfers to individuals on the basis of need and with a means-tested mechanism to ensure that nobody “with too much” gets aid. This logic may be questionable, but it is widely accepted that aiding those most in need is correct; so far, these programs have cost about 0.6% of GDP, doubling the public sector’s deficit (from 0.5% in 2019) amid slumping revenue, due to the ongoing recession (lowering income from VAT and, to a lower extent, payrolls and income) and the collapse in foreign trade (hurting export and import taxes). This will surely create difficulties all over the country, since the government will lose its margin of action concerning any future developments; provincial and municipal governments, extremely dependent on sales taxes, administrative charges, and central government remittances, will take an even larger hit (especially some, such as Buenos Aires, Chubut, and La Rioja, which are having serious difficulties with their external debt).
On the supply side, on the other hand, the government has been extremely slow in offering any real support to struggling businesses. 80% of small businesses don't think they could stay in business if the lockdown continues for an entire month, and 70% of companies are planning on cutting costs. Only some sectors (such as tourism and entertainment) received tax cuts, albeit in homeopathic proportions, and some plans to help the construction sector, such as the Procrear credits and a $100 billion infrastructure plan, will take their time. Companies have shown concerns regarding how to pay their employees’ salaries, since the collapse in sales has surely impaired their liquidity - and the Central Bank took measures to inject up to $280 billion into the economy, which has led to much lower rates in short-term borrowing. The government has also recently announced two new programs: government assistance of up to a minimum wage of salaries for companies with under 100 employees, a doubling of unemployment subsidies, and a 95% postponement in payroll taxes for smaller companies (up to 60 employees). This seems to make sense, until you consider that the largest companies have been hit just as hard by the recession in the past year, and that companies with over 100 employees have bled jobs for the last 12 months; this is without even getting into the sector-by-sector measures that almost all those affected (from construction, to cinemas, and small retailers) have already demanded. The fact that this expansion to spending seems to mostly come from into aggregate demand has not put experts at ease: this will not increase revenue at a time of crisis, but it could also be insufficient to protect firms from bankruptcy.
One of the biggest problems concerning an enlarged deficit is that almost all avenues of financing it are unavailable: reducing the deficit itself is impossible, as has been specified, and Argentina (as previously explained) is teetering on the verge of default, so it’s not like the financial sector is dying to lend. So the only remaining alternative is seigniorage: in March, the Central Bank assisted the Treasury to the tune of $125 billion, and has printed nearly $400 billion in this regard since December. Even if, yes, money printer go brr (for example, former Central Bank President and inflation hawk Guido Sandleris has defended the expansion as necessary, with some caveats, during a conference) many economists have recently rung alarm bells: the government's massive expansion of the monetary base (some say 62% in all of 2020, and it has recently reached the record high of 2 trillion pesos) could become a factor for inflation to still go up, from the 54.8% 20-year record in 2019 to the 60’s or even 70’s (since the exchange rate is under steep controls and the monetary base contracted massively in the previous two years, nobody serious is forecasting hyperinflation yet). The inflationary tax being a way to raise revenue in this dire context could be acceptable in the short term - the Central Bank gave $125 billion for the government, while overall emission was at nearly half a trillion and was mostly justified with measures to keep firms liquid and not allow the chain of payments to break - or force companies to not pay their taxes to stay solvent. And in another positive development for inflation doves, the demand of money has risen recently - since people and companies are having trouble paying their bills, their employees, or even buying groceries. This makes it unlikely the new pesos will go to the currency market (a leading preoccupation of policy makers), since that could put pressure for a devaluation and boost inflationary expectations - which generate inflation of their own.
Concerning debt, the government has taken all available steps to create confidence - despite being at ideological odds with the organism, it was recently announced that they would accept a U$S 3.5 billion dollar SDR that was previously refused, added to smaller loans of a couple hundred billion by the IDB and the World Bank to finance the new spending caused by the crisis. The IMF itself has expressed support for emerging markets giving large “haircuts” to their sovereign debts, which Minister Guzmán seems to have taken at heart: he looks set to offer big cuts to interests and principal, a grace period, and maybe even unorthodox instruments like a GDP based bonus. Bonds recovered slightly, and country risk went slightly down; the problematic aspect could be that part of the recovery in bonds could be by “vulture funds” trying to gobble up obligations for cheap to later sue the country and get the full amount from a more friendly government (as Paul Singer famously did in 2019). While Guzmán’s good intentions were appreciated, bondholders did not accept the offer - and countered with a proposal for a 6 month break in payments and negotiations out of mistrust of the government and the options it presented.


Summing up, 2020 is shaping up to be a tough year for Argentina - or even tougher than expected. All indicators seemed to point at the economy being somewhat on the path to a recovery, with a milder recession, less inflation, and a public sector with a small deficit and a friendly (as possible, at least) debt restructuring. Coronavirus came as bad news (where didn’t it, though) at the worst possible moment.
Despite the obvious political differences of most readers with the Fernández administration, it is clear that his handling of the healthcare side of the issue received wide acclaim, even if Latin America’s standards for it are depressingly low. On the economic front, Fernández acted within the bounds of the mainstream and still focused his efforts on the poorest segments of society. In the immediate context, it could seem like a positive - nevertheless, it’s clear that all actors in the economy will be heavily affected by the crisis, and not providing aid to all of them would be inadequate. The government has also undertaken some deeply populist measures that will have no meaningful effect: a list of maximum prices, enforced by AFIP (the tax collection agency) inspectors which has mostly resulted in crackdowns for the small businesses that can’t actually afford to sell at those values.
The authorities could provide the necessary stimulus to the economy, putting those least affected on the back burner until the worst of the crisis has passed; unfortunately, taking coronavirus as an opportunity to enact even stronger controls on market mechanisms out of ideological purity would do a huge disservice to the country at a crucial time.
submitted by mrmanager237 to neoliberal [link] [comments]

I know that someone on /r/dataisbeautiful, /r/askmath or something similar to these will figure out how much fuel consumption may be avoided by getting American Policeman off of Bounty Hunt for traffic offenses and back directing traffic; additionally- the problem, square one, is... in the relationship between the people of Western Nations, Primarily, the United States, though, not exclusively, and I mean: the Haute Bourgeoisie down the Proletarian mind you...
...and their own government, and the distortions to reality, ebbing out from great and artificial hardships imposed upon people who are not, necessarily, Calvinist Puritans and yet must live like them and succeed in these endeavors in order to have the survivable, never-mind self-sustainable....though do consider the gulf in question....and I'm trying to spit out, the survivable position to take stock of one's circumstances and the relative circumstances and have some kind of an informed opinion about any of it that's awful prose, but, I think that we know what that means.
Now: The Concept of Commodities Trading, and the 19th Century Apothecary and the informal this-and-that which led to any particular pharmacist having an indigenous topical anesthetic on hand, Connecticut, never-mind London, but, literally, do consider that also...
...and Now, take one quick glance at wallstreetbets, what commodities trading, "means."
It's Oil, it's High Market Cap, Huge Volume, Hugely, artificial, to such a degree that I've got this internal-metaphor-imagery, when I contemplate it where it's this gigantic indoor swimming pool, roof overhead, painted like the sky and the official line is that it's a natural harbor developed into yadda yadda and the oil tankers are shifted around twice an hour going toot-toooooot, toooot-toooooot, but it's totally fucking fake and the whole point is to allow low-margin traders to absorb the price fluctuations in overseas oil by buying and selling the theoretical title to oil in a pipe in Oklahoma 50 times over before the final sale to distributors benefiting down the whole damn traincrash, and this is all so literal you can take a look at the discourse surrounding negative oil price imbroglio in the reddit archives for more info Record-ɥɔʇɐɹɔS-pɹoɔǝɹ-ʎzooɔs-skritchy-Scratch back up,
Whatever official-networks-approved-by-an-Anglo-Saxon-patriarch and unofficial networks of people being exterminated by these same Anglo-Saxon Patriarchs that a topical anaesthetic may have traveled through to reach a Connecticut Pharmacy, never-mind one in London although please do consider that on a more literal level, two things are certain,
One, It was Never Cocaine, Cocaine is an irresponsible propagandistic slur with devastating, ethnicity-exterminating consequences, in fact, so, it isn't Cocaine, or it wasn't; tense-wise, ˙ɔʇǝ 'ɐᴉqɯnloƆ 'nɹǝԀ uᴉ snouǝƃᴉpuᴉ ǝɥʇ ɟo ʇlnɐɟ ǝɥʇ ʇou ǝɹɐ sǝssǝullI punoq-ǝɹnʇlnƆ uɐǝdoɹnƎ-uɹǝʇsǝM ʇɐɥʇ ʇɔɐɟ ǝɥʇ sɐ llǝʍ sɐ 'oslɐ 'ƃuᴉɹǝpᴉsuoɔ ɥʇɹoʍ sᴉ sᴉɥʇ puɐ ʇɥƃᴉɹ ʇǝs ǝɔuo 'ɯsᴉlɐᴉɹǝdɯᴉ ɟo ǝƃɐɯɐp ɔᴉɯouoɔǝ ǝɥʇ ɟo ǝɯos ʇɔǝɹɹoɔ uɐɔ ʇɐɥʇ ǝɔɹǝɯɯoɔ snouǝƃᴉpuᴉ-oʇ-ʇɥƃᴉɐɹʇs ɐ sᴉ sᴉɥʇ 'ʇnoqɐ ʞlɐʇ oʇ ǝsuǝʇ ǝɹnʇnɟ ɐ ʇoƃ ǝʌ,ǝʍ ɟᴉ 'ɥƃnoɥʇ but we probably, in fact, Do Not Have a Future Tense Situation On Our Hands and in fact that's why, we're, here, well and probably like 7 narcs and/ostasi of some sort whoever could be thick enough to read through the discourse and see the dangerous attempt to destabilize an Euthanize us All the Hard Way Jim-Jonesy-Scenario etc. et alia
Two,It was Testable on the Front End Market Place for Purity, Adulterants and that this was such an efficacious, popular, and adult way to handle, the dangers of medicine; or, ˙˙˙˙sᴉ sᴉɥʇ ǝǝɹɟuǝɥsoƃ ʎlloƃ ǝǝǝl-ɥɐƃ ǝɹnʇɔᴉԀ llnℲ ǝɥʇ ɟo uoᴉsɹǝʌqo pǝpuǝʇsᴉp sᴉɥʇ ɥʇᴉʍ ǝɹǝH uoᴉʇɐɹʇsnɹℲ ʎɯ ǝʇɐʇᴉƃoƆ no⅄ op ʎɐʍʎu∀ sƃuᴉɥʇ ɥɔnS ʇnoq∀ ʎɹɹoM oʇ sǝʇɐʇS pǝʇᴉu∩ ǝɥʇ uᴉ uoᴉʇnqᴉɹʇsᴉp ǝuᴉɔᴉpǝɯ ɟo ʞɹoʍʇǝu lɐɯɹoɟuᴉ ǝɥʇ puɐ sǝᴉʞunɾ ʇsuᴉɐƃɐ ɹɐʍ ǝɥʇ ɥʇᴉʍ ʎsnq ooʇ ǝɹ,ǝʍ puɐ ǝᴉʞunɾ ɐ uɹǝɔuoɔ ʇ,usǝop ǝƃuɐɥɔ ǝʇɐɯᴉlɔ os suolǝɟ ɹoɟ sǝʇoʌ ou ɹosɹnɔǝɹd ǝuᴉɯɐʇǝɥdɯɐɥʇǝW puɐ lʎuɐʇuǝɟɹɐƆ ɹoɟ noʎ ɥɔɹɐǝs uɐɔ I ʇɐɥʇ os ɐuᴉƃɐʌ ɹnoʎ uǝdo ʍou sǝᴉʇᴉpoɯɯoɔ ɥʇᴉʍ op oʇ ƃuᴉɥʇʎuɐ uɐǝɯ oʇ 'uɐq ƃnɹp ɐ ɟo ʎǝsooƃ-ǝsool ǝɥʇ ɹǝɟuᴉ plnoʍ looɟ lɐɔᴉuʎɔ ʇɐɥʍ os ʎʇᴉlɐɹoɯ ɹo ɥʇlɐǝɥ ƃuᴉpɹɐƃǝɹ ʇǝƃ ɹǝʌǝ ll,noʎ uoᴉʇɔɐ ʇuǝɯuɹǝʌoƃ ǝuo ɹnoʎ sᴉ sᴉɥʇ puɐ ǝʇoʌ ɹnoʎ pɐɥ noʎ 'sǝuᴉɔᴉpǝɯ ǝsǝɥʇ 'ɯǝɥʇ ɹoɟ ʇunH oʇ pǝǝN ǝq oʇ IqℲ ɹoɟ ǝʇoʌ noʎ pᴉp ʎɥʍ os ʞuᴉɥʇ ʇ,upᴉp noʎ ɟᴉ puɐ oslɐ uᴉs ɐ s,ʇᴉ puɐ ǝq llǝʍ sɐ ʎɐɯ ǝɹǝɥʇ ʎllɐɹǝʇᴉl oʇ ǝsolɔ os ʇnq sʇlɐs ǝuᴉɔᴉpǝɯ uᴉɐʇɹǝɔ uᴉ sǝɥɔʇᴉʍ ʎlǝʌᴉʇɐɹnƃᴉɟ ǝɹɐ ǝɹǝɥʇ puɐ ɥƃᴉɥ noʎ ʇǝƃ llᴉʍ ǝdop 'ǝǝɹƃ∀ llᴉʍ ʎǝuɯoɹ ʇʇᴉW puɐ ssǝlǝɯoɥ ɹɐɔxoq ɐ sɐ 'ɹo ;ʎʇǝᴉɹɐʌ ɔᴉɹʇɐᴉɥɔʎsd lɐᴉɔos-oɹd ǝɥʇ ʎllɐᴉɔǝdsǝ puɐ ɥo 'pǝɹǝʇsᴉuᴉɯpɐ ɥɔɹɐᴉɹʇɐԀ 'ɐɹʇuoɔ ' pǝɹǝʇsᴉuᴉɯpɐ ɟlǝs ǝɥʇ ɟo ǝuᴉɔᴉpǝɯ ƃuᴉpɹɐƃǝɹ uoᴉuᴉdo s,uoɯɹoW ɐ oʇ ǝɹǝɥpɐ oʇ pǝllǝdɯoɔ ʎllɐƃǝl ǝɹɐ ʎǝɥʇ ʇɐɥʇ uɐǝɯ I ɥɔᴉɥʍ ʎq ʎʞɔnl os ǝq plnoɥs ǝuo ɯƃᴉpɐɹɐd ʇuǝɹɹnɔ ǝɥʇ oʇ pǝɹɐdɯoɔ ǝlɔɐɹᴉɯ pǝuɯɐppoƃ ɐ ǝq plnoʍ ɥɔᴉɥʍ ʇᴉsᴉʌ ʎɹǝʌǝ ɥʇᴉʍ sʇuᴉɐS ʎɐp ɹǝʇɐ˥ ɟo ʞooq ɐ noʎ puɐɥ ʎlǝʌᴉʇɐɹnƃᴉɟ oʇ pǝllǝdɯoɔ ʎllɐƃǝl sɐʍ uɐᴉɔᴉsʎɥԀ pᴉɐs ssǝlun ʎɔɐɯɹɐɥd ɐ ɹoɟ ƃuᴉɥʇǝɯos ƃuᴉsɐɥɔɹnd uᴉ suoᴉʇɐpuǝɯɯoɔǝɹ puɐ ǝɔᴉʌpɐ sɹoʇɔop ɐ ɹǝɟǝɹd ʇ,uplnoʍ ʇlnpɐ ƃuᴉʞɔnɟ ʇɐɥʍ
Two, Squared, Diarrhea kills 2,195 children every day—more than AIDS, malaria, and measles combined. Diarrheal diseases account for 1 in 9 child deaths worldwide, making diarrhea the second leading cause of death among children under the age of 5 and this is because the United States, more specifically, Harry Anslinger, and More Overtly A Pogrom against Indigenous and Other Polychronic Individuals More Generally, as well as-also-People-of-Color, which, is fucking remarkable, considering that the other guy tortured Billie Holiday to death and wrote a book about it, and why this, those articles, aren't an information hazard to agents of the FBI DEA and Local-Bank-Branch Fuzz guaranteeing war crimes court and die in prison I do not know but as you can gather I'm a bad Calvinist when it comes to holding my tongue about this sort of behavior and feel free to find out if it works, at any stage of such a proposition, by which I mean Court and Prison and War Crimes for Genocide and Knowingly doing one Richard Nixon, engineered the Unthinkable in Pliny-the-Elder's Day reality of Urban Water supplied to families without reliable access to Paregoric, and real talk: we've all heard of a cytokine storm, now, this is that, it's the body's nervous system trying to kill itself because it's freaking out too hard for a child to survive unless,
A. Paregoric
B.I.V. Fluids
C. Live in First World And Have a First World Water Supply and thus access to both
D. Comfortable with the death of a martyred saint at a conspicuously early age INRI DIISMANES etc et alia
E. Oh and it's a noteworthy expectorant¯\_(ツ)_/¯sometimes people look fine when they need really strong medicine when they've been raised in a Calvinist Lunacy go figure at least we learned something from this experiment neat stuff, I understand that some of you are like, "this is too complex and too off topic it will never work yadda yadda but listen to me: it must be complex, it must be transformative, the Anglo-Saxon Patriarchy does not do this whole Zen-Idiocy Late-Victorian-Child-Idealizer Routine because it's an efficacious method of organizing adults to heroic self-motivated salvation of their society, or, their highest-best-selves more generally, no, 'ʎɐʍʎuɐ ǝɹǝʍ ɹǝʌǝu ʎǝɥʇ SℲℲ ǝɟᴉ˥ uɐqɹ∩ ʇlnpɐ uɐ ɟo ǝɔuɐuɹǝʌoƃ ǝɥʇ uᴉ ǝɯoɔlǝʍ ʇou ǝɹɐ ʎǝɥʇ ɹǝʌᴉɹ ǝɥʇ ʎq oqoH opuɐq ɹo 'uʍoʇ ɟo ǝƃpƎ 'ssǝlǝɯoH ɹɐɔxoq ǝpᴉɔǝp oʇ pǝǝu ʇɐɥʇ op oʇ ƃuᴉllᴉʍ ʇ,uǝɹɐ oɥʍ ǝldoǝd puɐ sʇlnpɐ ǝʞᴉl ʇɐɥʇ ɥʇᴉʍ lɐǝp ɐʇʇoƃ ǝʍ ǝɔɐld ʞɹɐp ɐ sᴉ plɹoʍ ǝɥʇ ɥɐʎ uospuɐɹפ s,ɹǝʞɔnɟɹǝɥʇoW ʇɐɥʇ sᴉ ᴉɾɐH/ᴉɹᴉפ uᴉ xƎ s,ʎǝupoɹ puǝʇǝɹd ʇuǝɯuoɹᴉʌuƎ pǝɔɐldsᴉW ɐ uᴉ ǝpnǝɹɟuǝpuɐɥɔS ǝɯos lǝǝɟ ɐuuɐʍ no⅄ poפ ƃuᴉʞɔnℲ pooפ 'spuɐᴉɹℲ 'spuɐᴉɹℲ 'spuɐᴉɹℲ 'ƃuᴉʇɐɹǝƃɐxǝ ɯ,I ǝɯ llǝʇ puɐ ɹǝʞnɟɹǝɥʇoɯ sᴉɥʇ oʇ uǝʇsᴉl noʎ puɐ 'ɥʇnɹʇ-ǝɟᴉl-lɐǝɹ sᴉ ʇɐɥʇ 'ʎlǝʇɐl ǝɹoɯ 'ǝɯɐɥs oslɐ puɐ pnolɔ sɐƃ uosᴉod ɐ uᴉ ǝᴉp ʎǝɥʇ sɐ ƃuᴉʇɐqɹnʇsɐɯ ʎlpǝɯɐɥsɐ ʎlʍols oʇ ǝldoǝd pǝɯɐɥsɐ ɟo lɐqɐɔ ɐ ǝzᴉuɐƃɹo oʇ sɐ llǝʍ sɐ 'ʎɥʍ sᴉ ʇɐɥʇ 'ɯǝɥʇ ɟo pǝɯɐɥsɐ ǝq oʇ ƃuᴉoƃ sᴉ ǝuoʎɹǝʌǝ uǝɥʇ puɐ ʞɐǝɹɟ ʇɹǝʌɹǝd ƃᴉq ɐ ǝʞᴉl dǝǝp ooʇ punos-ɹo-ʞɔɐɹɔ oʇ ƃuᴉoƃ sᴉ ǝɔᴉoʌ ɹᴉǝɥʇ ǝʞᴉl slǝǝɟ ɯǝɥʇ ɟo ǝuo-ǝlƃuᴉs-ʎɹǝʌǝ ʇɐɥʇ os ǝuop s,ʇᴉ No: Do Greta the good manners of listening to what she's telling you, the Channels Do Not Work, you lobotomize real life down to the level of institutional discourse, you taxonomize it in their terms, into their monochronic, procrustean, absolutely, disqualifying-by-virtue-of-it's-unsurvivable-nature discourse, and it Will Not Change Anything, the nature of their discourse is designed that way on purpose.
Only, Only, by changing the terms of this conflict to reject the horrendous, inhumane and demoralizing asceticism accompanying any argument in favor of the Petro-Dollar, Consumer-Capitalism and, in-point-of-fact, the permanent state of auto-occupation which apparently, and invariably, apparently, accompanies these are you going to find an unexpected route down the mountain pass; the patriarchs of this system have all embraced this asceticism so thoroughly that an instance of decadence on camera can ruin them; I am in favor of decadence, individual, communal, Aesthetic and experiential decadence when that means Ukiyo over decades of opportunity to meet the man who burnt it down at Chilis; I wish that Nogi Marasuke had Killed McNamara, personally, with a fucking knife, just as much as I wish that John Brown had killed Andrew Jackson in such a fashion if-not-more and that's all I'll say about that; nope, that's not true, I'm also going to add that i wrote a short story where Macnamara shows up at a dinner party, plops, immediately, soon as the door is closed, what appears to be a red velvet cake on the carpet and over the course of several hundred words spits out in that raspy-ass voice, it's goose, and, crucially, though much auto-biographical context later, the goose had a prion, and there isn't much time, we've got decisions to make, right now; these people are fucking con-men I'm telling you, fucking con-men in a world where people like Nogi Marasuke once lived and inasmuch as they, Did What They Did Proved that Selfish, Petty, Scammy, Fake-ass Ruinous behavior is a sin and wrong and a choice, the stories of martyrs are so much more important to study if you are not otherwise religious, and I would strongly encourage all of you to take the time and know the stories of men and women who inspire you to courage.
It's the predicate virtue enabling all of the others, and if you've got the courage, then, a complex fight like this, all it takes its patience, and an attitude of certainty, that, well, it's got to happen, so, how we gonna do it?
Do not, under any circumstances, be a Puritan, not if you want this to work; a puritan looks good, on the outside, in the contemporary environment and that means both that they are not prepared, not dressed, for change, and that their rationalism only extends so far as the optics of them self, to the enemy, do I seem like a real-deal environmentalist; not if you're hearing about the scourge of white nationalism, and not thinking, someone needs to tell these (I agree: despicable, people who would fucking kill me if they could) motherfuckers to stop fighting over a dying earth and start demanding that the executives of American and Dutch Oil Companies Die on a Gallows Like Wodin Would Want them to, would he not want them to- that's rhetorical, yes he would, go tell them if you're white enough, literally, Odin the God Of Gallows Wants their necks Strung Up and Until then Racial Strife is Suicide.
It is when it's in the wrong, e.g. white, direction, and in more ways than I see anyone taking any account of; NSFW, what does this mean, more than Not Safe For White Protestant, sexually weird about stuff and cautiously culturally conservative Boss, it makes the presumption that working people may be adults, but that they will invariably work for an FBI Mormon in 1970 and that is not at all an innocuous presumption; to speak like myself, as I am doing many opportunities have I given an aggressively literal, monochronic monoculturalwhite anglo-saxon protestant as such and proud of it individual to delete this post and ban me from reddit; for saying that, alone, attached to an implication that a second look at the C.V. such individuals are wont to brag about may be in order- and my mother's fathers' mother was anglo-saxon but she was from Gothenburg ¯\_(ツ)_/¯ blood quantum is a lie, also, another component to this multi-fronted assault on nature humanity and the enjoyment of life; she's another one, another hero of mine, look,
If you think that commodities markets, especially, low-cap high margin commodities that are not improved by scale, e.g., epicurean amphetamine made of locally grown ephedra is far more appealing than adderall anything pfizer can sell on an open market, the same as untreated local tobacco cigarettes and micro-brews and small-vineyard wines are always better; on an open market, which we do not have, by any stretch of the imagination; let me say this again,
Do Not Be A Puritan this is a Fight Every Liberatarian and Free Market Idealist and White Power Jackass and Every Weird Sex Person and Every Boring Person Should Be On Board with, the fight that makes it radical to be a patriot and demands that a patriot be a radical, so to speak, and if an issue could be back burnered for wwii then both sides of wwii could and should back burner for this, as despicable as one side of it was I'm not afraid of being called out as-being-one-when-I-know-that-I'm-no-Nazi and neither should you: the White Power gangs are horrifically dangerous people to fuck with and they are in the police and if they want to survive the 21st century with their racial incest scenario then, kinda, gotta join forces on this one, and there are no 'sides' when it comes to the survival of the planet, full stop
My Heart tells me that they're isolated and lonely people, and that being comrades with a more attractive and more diverse and more smart crowd is probably enough to convert them which is the only other choice but kill them, and so it is one, considering the other, worth exploring, anyway, bluntly, hopefully, as I can feel it...
...if you do not think this is the same conflict, and that this conflict is the same as was fought and still is being fought against the indigenous population of the united states, than you push them on this subject and watch what they say; you tell them 2,195 children are dying in an humiliating and painful way every day and that only something which gets them, "high," can make their intestines numb enough to hold water, that the poorest communities on earth need accessible, inexpensive paregoric as if that was your prime political issue you see if they push back, say no, not ever, that's impossible- I mean the same, exact same, problematic actors as are involved in the oil industry and plastic pollution and neoliberal apocalypse more generally, those same people who want economies open and children going to schools where everyone knows that some will get sick and that some will die; people like my fucking Governor, Mike Parsons, these same patriarchs will tell you that we can't passively allow 2,195 children an ancient roman medicine because Middle Aged Middle Class Americans will drink that Diarrhea medicine irresponsibly, like it's plainly, obviously, the right answer- it is fucking absurd, and that, this, is or should be proof to you that this is the same fight and it is all related; look up what Mike Parsons said today, for real, I am being absolutely, completely serious.
I want to organize an international project to get it legally sold out of the old courthouse in downtown saint louis; all banned substances, and make Saint Louis the Capital of a New Way, would be ideal, but breaking the embargo with the support of medical professionals from around the world would gut and slay the ascetic legal paradigm causing the end of the world and I think it's the right thing to do and a good strategy to do it; tl;dr, that, the preceding statement; I want roads paved with self-healing paving succulents and a town full of electric model t's for free and our trolleys back deeply sad face these would work too but I'd prefer these or these or these, borderline, Guys:
Lee Gum Ja was right; you know exactly who she is, Lee Gum Ja, Lady Vengeance,what did she teach us; she is, this is where the old gods came from; remember what she taught us?
...she is, this is holiness, these words are fucking wings to me; anyway, that's Euripedes, anyway,
She taught us: everything must be beautiful
We are living in a hideous shadow of what we're capable of, and it's remnants are screaming at us to stop disrespecting ourselves; the Capitalists' numbers don't even make sense anymore and the puritans are fucking insane and to be clear I'm pointing out that both the Facebook's Multi-channel nature and 'double predestination' are described as being an inducer, the induction-of Schizophrenia by the son of the man who named genetics and in the paper where he provided the first concrete evidence that it was a discrete syndrome which can be disambiguated from simply talking funny, and stuff, anyway.
Raise the Bar, all of this is complicated but Luckily, whether or not this struggle is genuinely important, is not, it's simple, and so all of this nuance and complexity is a Weapon, not a vulnerability, never-and-not-in-no-way an insurmountable hurdle; nothing could be farther from one, when the other side is so lazy, and so willfully, deliberately fucking stupid, anyway,
...and f.r. my hometown is a great place to lead the way because it is so fucked up and I'm not just a patriot, I also mean that, like, this guy should be helping Roosevelt High-school) Do a whole knew paradigm by giving, essentially, the elected school board permission to assert itself, especially Natalie she's great; this is a colony, she lives up there and she was briefly viral for her second $5,000 house's craiglist ad but as a friend of hers who isn't trying to be a liability I can tell you she really means it and she's an American Christian I actually very much fuck with anyway; someone Big Deal can allow her make it a modern program, that's how it works and Double Works Since he's Big Deal British-also, and making this world worth-surviving for people like my neighbors is just as important as the other steps, also, I live in af fucking funeral surrounded by 100,000 houses of usher and true horror literally 2 graves one barrel fire and I saw it before I read the headline and I fucking did I did see it and there was a guy warming himself up to it, and, I'm not sure that I could emotionally sustain myself if I knew what life was like in Britain, really, if it's as nice as it sometimes seems like I spent a day weeping in a hotel room when I last went to Chicago because of how nice-day Lincoln Park was with all of the happy people I thought it was fucked up there too but it wasn't, also, no not the band, also, so does Natalie, she lives in the funeral too and that's my point and I don't want it rich I want it free from the fucking samsara of personal-level capitalism we all owe it to the world to at the very least allow one city full of people capitalism will-kill to live outside of it, as a control, don't we, I hope you think so too, really, truly, also
Regarding the Headline:

Yes, Maths and Charts Experts?

Could you kindly put together some graphics and mathematics about, either, the fuel economy variable between a driver-active and driver-passive paradigm, regarding, traffic lights, police directed traffic, etc.?
It occurred to me while sitting in traffic how stupendously inefficient traffic lights are, and how this was certainly preferred by both Traffic Light Manufacturers and Oil Companies when them Mfer's Rolled out, and, Maybe you've missed it, but, Having Police Do Other Stuff is Working Out Rather Poorly, IMHO, other people's too.
...if you've got some other good ideas, or, anything, remember what another hero of mine said,
You must do all the good you can in the present day, e.g., right now?
We're awake, this is the present and we're awake, and in this exact-moment, wherever we find ourselves, whenever you are when you read this, that is the only tense-or-time we'll ever have to change anything in our entire lives; we may, or, may not be conscious in the future, in the past, but if you are right now: better act like it, Calvinists are wrong, the Test that this life is could not be more obvious:
Courage, now, or husk-of-meat-and-it-all-dies-in-you; You must do all the good you can in the present day, and look at this, Doesn't that break your heart?
This is the Low Context, Low Information, Low Brow You're expected to compromise with, in an ounce of historical hindsight; Yes He Was a government minister, in the U.S., that first guy, but, probably, fucking all of them; guessed that, didn't you?
It's my country, now, I would be dead if I wasn't an American.
I wouldn't ever have been, but, now I am an American, too, and I'm not about to die sitting down.
It Breaks Mine, to fucking bits,
Jonathan Phillip Fox
You can do a Nelson Blockade on any American City, and most likely any Modern City, by the tactical ditching of-borrowed-from-a-sister-or-brother-or-forgiving uncle cars,
Slow to a stop, three cars deep, the latter two drivers hop out, get in the getaway car ahead of the others and boogie; those cars will be cleared but that's why you have two layers of getaway and ditch cars, which is not apparent until the cars ahead have been forcibly cleared, wait, wait, no it's three, it is three layers, is it more?
Well, at that point, any, and I mean, any-ring-circle highway city has been shut-absolute-the-fuck down because people have ditched-and-walked and only the protesters know which cars belong to property-suicides; see, that's the beauty of it: and think about it, hospitals have helicopters for a number of reasons and surely this is one of them, and sometimes the greater good really is the greater good, look:
This is a wondrous Tactic because the Police will Fuck Up Those Vehicles, they will blow them up, probably, with a bomb squad even though they know they don't have to and they will shoot them and they will beat them but with no protesters physically present they can not hurt people.
They might catch you, and if they catch you, they will fucking beat you and may be they will beat you to death but they can not make you regret bringing your mom or your sister to a peaceful march for the rest of your life by beating the motherfuck out of a car she reported stolen in clean conscience.
She may suspect it was you, but I have a hunch that if this tactic is deployed for an important reason, she will not ask; rhetoric is even more important than people take it for, it is the lifeblood of everything which we do on purpose and Someone Really Needs to Fucking Study the Meter of Modern Proetry like it's probably magic, it is probably magic, but when I say:
Attitude like it is going to happen, so, how is it going to happen?
This is the kind of thing that I mean; ˙lɐǝɹ ɹoɟ ˙sʎnƃ ʇɥƃᴉɟ ǝuo uᴉ llɐ ǝɹ,ǝʍ 'ɹǝɥʇᴉǝ 'ǝslǝ ʎpoqʎuɐ uɐɥʇ W˥q ɥʇᴉʍ op oʇ ǝɹoɯ pɐɥ I ʇɐɥʇ ʎɐs oʇ ƃuᴉoƃ ʇou ɯ,I ʇnq uᴉʇndsɐɹ ƃuᴉʞɔnɟ ɯ,I 'ƃuᴉʎɐs ɯ,I 'uoǝlodɐu ƃuᴉʞɔnɟ ɯ,I 'ʎɐʍʎuɐ ˙ʞɔnɟ sɐ ɥƃnoʇ ǝɹɐ ǝldoǝd llɐ ;ʞɔnɟ sɐ ɥƃnoʇ ǝɹɐ ʎǝɥʇ dlǝɥ ɹoɟ ʞsɐ ʇou op ʎǝɥʇ 'ǝɟᴉl lɐǝɹ uᴉ 'sǝuoɥd ɹᴉǝɥʇ ƃuᴉlloɹɔs ʎlǝʇᴉlod ǝlᴉɥʍ uoᴉʇɔǝɟuᴉ ƃunl ɐ ɯoɹɟ ǝʇɐɔoɟɟns uɐɔ ǝldoǝd :ɹǝqɯǝɯǝɹ ;ǝɔuɐɯɹoɟɹǝd pǝuoᴉɥsɐdɯᴉ ʎlǝʇɐɹnɔɔɐ uɐ ɥʇᴉʍ ɯǝɥʇ ǝpᴉʌoɹd noʎ ɟᴉ ʎluo puɐ noʎ ɹoɟ uᴉɐldxǝ ʇ,uop noʎ ɟᴉ ʎluo ʇnq 'noʎ ɹoɟ suᴉɐldxǝ sʍǝu ǝɥʇ 'ʇᴉ ʇǝƃ -ʎʇᴉuɐɯnɥ ʇsuᴉɐƃɐ ǝɯᴉɹɔ ɐ ǝɹɐ sopɐɔoʌɐ ǝnuᴉʇuoɔ ʎʇsǝʌɐɹʇ ƃuᴉʞɔnɟ sᴉɥʇ ʍollɐ uɐɥʇ ǝᴉp ɹǝɥʇɐɹ plnoʍ I ǝɹɐp noʎ ɟᴉ ǝW ʇsǝɹɹ∀ 'no⅄ ʞɔnℲ 'ON 'ǝʞᴉl 'uoᴉʇɐuɐldxǝ ou ɥʇᴉʍ 'ɹǝpɹnɯ ʎpoolq ǝʞᴉl ƃuᴉɯɐǝɹɔs ɹᴉǝɥʇ puɐ 'ʇsǝq ɹnoʎ 'sɹǝʌǝᴉlǝq ǝnɹʇ ǝldnoɔ ɐ 'ǝɹoʇs ʎɹǝɔoɹƃ ǝlɐɔsdn uɐ uᴉ ʎɐldsᴉp opɐɔoʌɐ ǝɥʇ oʇ ɟlǝsɹnoʎ ƃuᴉuᴉɐɥɔ ʎq s,ʇᴉ 'ou 'ƃuᴉʇʇǝlɟɐǝl ʎq ʇou sᴉ ǝpɐɹʇ sopɐɔoʌ∀ ɟo loɹʇuoƆ lǝʇɹɐƆ ʇnoqɐ ssǝuǝɹɐʍɐ pɐǝɹds oʇ ʎɐʍ ʇsǝq ǝɥʇ 'ʎɐs 'ʇnoqɐ sᴉno˥ ʇuᴉɐS ɟo ɟlɐɥ ploʇ oɥʍ ʎnƃ ǝɥʇ ɯoɹɟ ƃuᴉɯoɔ sᴉ sᴉɥʇ puɐ I spelled impashioned wrong but I am not ashame.
sigh; I really, truly, would be happy to see this go through the gate checks but I am not hopeful
Didn't edit because it probably needs more work than I can muster a.t.m. and we've got what, five years; it's an ocean of time, but none for delayed-or-deferred first-tries.
submitted by MyGreatGrayRainbow to ExtinctionRebellion [link] [comments]

$AMZN - Why Amazon Is Going to Dominate the Next Decade

$AMZN - Why Amazon Is Going to Dominate the Next Decade
EDIT: TLDR - Buy AMZN get Tendies - See comments for Trash Talk - Thanks for the Silver!
EDIT 2: Thank you u/Dmillehe spending his money on Platinum instead of AMZN stock. You're the real autist.
Amazon is going to dominate the next decade. It's a wonderful business trading at a discount to it's true ability to create cash earnings. My thesis is that traditional methods of valuation that work for most companies don't work for Amazon. This misunderstanding between market 'conservatives' or 'traditionalists' .. so called value oriented investors (of which I consider myself a part) is currently reflected in the share price today, and it's a mistake. Second, the firm has reached a point of inflection, where scale will now provide growth of earnings far in excess of growth in sales. This multiyear catalyst provides a fundamental basis for significant share price appreciation.
To understand why Amazon presents such a compelling investment opportunity, one must understand what is currently transpiring in two specific and unique business segments. E-commerce and Cloud Computing. Many of you are probably familiar with at least the former. The latter is foreign territory to most.
E-Commerce: Why Amazon is prepared to conquer the next decade in retail.
Traditional retail or brick and mortar (B&M from here on out) is still the dominant form of consumer spending in the U.S. and will be for some time. As of Q3 2019, total retail spend amounts to $5.4 Trillion dollar for the prior 12 months. E-commerce amounts to merely 11.2% of this amount (on a run rate basis.) While the size remains relatively small, e-commerce is growing in the mid-teens year over year, or now 5% quarter to quarter and the rate of growth is accelerating. The rate of E-commerce growth has doubled in 12 months.
To understand why this is the case, a qualitative evaluation of the differences between the two is critical. B&M requires physical space that is expensive to build and maintain. It requires uniformed, reliable, friendly and knowledgeable staff. It requires the deliberate presentation of inventory and restocking, amounting to a unique challenge to the retailer of determining layout of shelf space, product mix and promotion.
It's costly for the consumer too. They have to drive there, walk in, and find what they are looking for. This requires owning a car or putting up with public transportation. This can take a significant amount of time. There are some hidden costs too, without E-commerce, price discovery is a pain in the ass. Something retailers are keenly aware of. Here's something interesting about humans and economics. In economics, for a long time, we've modeled humans like they're these perfect rational beings. Ideally.. they'll drive down the road to a different store to get 3% off of whatever they're buying. Ideally. And you will do that for a car. But in reality, if it's 3% off a bag of chips, it's not worth the hassle. It's too expensive to go get $.14 of savings when you have to drive another 10 minutes to another grocery, walk in to figure it out if you're actually saving the most money.. consumers don't do that.
Consumers don't engage in price discovery on most of their small dollar purchases, they don't do that with traditional retail, because it's too costly in time and effort. There's too much friction in the trade-off.
The value proposition of E-commerce is that it saves consumers time and money. Getting in the car, loading the kids in the back, driving, parking, and then hunting for what you want, making sure you are getting a fair price, E-commerce throws all of that out the window. The value proposition for retailers too, is that it saves them time and money. There are plenty of retailers currently taking an omni-channel approach to retail, those who want to shop in person get to, those who shop online can do that too.. everybody wins. E-commerce takes the friction out of price discovery on small dollar purchases.
Given the advent of mobile computing more than a decade ago, many big box retailers also adopted a price match strategy, if you can find it online for the same price? Best Buy, Micro Center etc. they'll match it to keep you as a customer. But that's the extent of it, try going to Kroger and arguing with the cashier about Albersons having a 3/$5 deal on Frito Lay Potato Chips.. that ain't happening.
Amazon isn't Ecommerce, they are a part of it. Their strategy is different than the whole. They are technically omni-channel. However the little B&M they've done mostly as R&D experiment, more on Whole Foods in a minute. The Amazon E-Commerce thesis is this: At the end of the day, most consumer purchases are commodity purchases. They are small dollar items that are easily replicated. This segment of retail has yet to be disrupted by E-Commerce until now. It overlaps with specialty retail and big box items almost seamlessly from a logistical standpoint. The revenue streams are more stable than specialty retail, and it presents a massive opportunity in the long run.
I had the chance to speak with a finance manager at Frito-Lay (subsidiary of PepsiCo) years back after Amazon bought Whole Foods. Amazon had been attempting for years to get the same products you see in any Kroger or Albertsons onto their platform. For a variety of reasons, PepsiCo would not play ball with Amazon. It amounted to channel conflicts between the big established players vs. the disruptive incumbent. What Pepsico had done to Amazon, had been done by Proctor and Gamble, Nestle, Kellogg, and many more.
The purchase of Whole Foods was a big F U, a "we'll do it live" moment.. a Leeroy Jenkins. So you won't let us into your club? Fine, we'll do it ourselves. Grocer's panicked and for good reason. They were the reason Amazon had been held at bay for so long. They'd used their absolute size for many years to prevent E-commerce retailers from getting the same product mix at the same price online. Amazon responded by entering their territory, in buying a physical grocery chain. Grocer's fear was real and warranted, however the truly brilliant component of this purchase was that Amazon purchased for themselves a supply chain for grocery and private label products (365 brand.) Fast forward a couple years and Amazon now has over four hundred private label brands, more than twenty three thousand individual SKUs and 1.4 Million reviews of these products/brands. That entire article is worth a thorough read. Each product line represents a moonshot where amazon can collect both sides of margin on a private label product that disrupts traditional brands. Often it goes well, sometimes it does not, but the platform allows them to poke holes in each product category, and cannibalize the producer surplus of other more expensive branded product in the process. They don't have to advertise, market or promote any of this either.. yet it's already getting plenty of attention.
Here is a compelling example of how Amazon can undercut a premium brand with it's store brand knock off. And there's nothing Allbirds can do about it.
Amazon has built out an infrastructure of warehouses (which are relatively cheaper to maintain on a $/sf basis than traditional B&M retail space) and delivery drivers to meet the daily needs of consumers accustomed to B&M retail. They've disinter-mediated the entire process. You do not need a car, you don't have to be nice to the person behind the counter, or go hunting for that specific product you need on aisle 9, or check to see if the price is competitive or on deal. You can just type it in to your phone in 5 seconds, and see quickly who has the best deal. Turns out (and this is from experience) 9/10 times Amazon has the best deal and they'll ship it that day or the next.
For the consumer, it amounts to savings in both time and money. What the data shows is that we are experiencing rapid change in slow motion. E-commerce is growing explosively here in the U.S. however it's still of relatively small scale, that it will take some time before eclipsing B&M retail. Second, the data shows this rate of growth is accelerating, and has doubled in the last year or so. Traditional retail is not going to disappear entirely either. There are plenty of Amazon proof businesses for now. Hair salons, vets, dentists, nail salons, along with restaurants and apparel to a certain extent.
This online E-commerce platform has allowed Amazon to build out a peripheral advertising business in search. The search component allows Amazon to promote it's own store brand product alongside the branded counterparts. Second, it's able to sell web page space to branded products. Google currently dominates the search game, but Amazon is in 2nd place and stealing market share.
Finally, Amazon has rolled out a wonderful product called Subscribe and Save. Within this platform, Amazon is able to offer 15%-20% savings on everyday commodity items in exchange for a commitment to purchase at a monthly frequency (and it can be cancelled at any time.) What Amazon has discovered is that subscription purchases are relatively sticky. In exchange for a soft commitment from consumers that is relatively stable and predictable, Amazon can actually lower the cost of goods to the consumer. In turn, they are also able to optimize logistically for these sales as they can plan far in advance for them. Second, this allows them to relay demand information to other merchants as well. Example: Amazon can remit data to Tide, and let them know how many pods they expect to need in the coming months based on subscription commitments. Both Tide and Amazon are able to lower CoGS because they have more time to plan for those costs.
Furthermore, if you have an Amazon Credit Card through Chase bank, you get an additional 3%-5% all purchase at Amazon & Whole Foods.
The combination of all of these benefits as a platform amounts is an incredibly compelling value proposition to consumers. As of June this year Amazon has accumulated 105 Million Prime Memberships in the United States, and it is the largest paid subscriber base of any company in the United States period.
One of the luxuries I enjoy in my occupation is that my employer has a very long investment time horizon & high risk tolerance. What this allows is for us to kick back, put our feet on the table and think about what the world will look like in 10 years and how we'd consider being a part of it.
So here's a thought experiment, what do you think the retail experience for consumers looks like in a decade? Here's my prediction. Consumer's buy the vast majority of the things they need online, and they receive it within a few hours to a day, and they're spending less than ever before on what they need. This is already happening, and It's grabbed the attention of people like Jim Cramer, as well as Fed Chairman Jerome Powell. Albeit, E-Commerce is relatively small for now, but the rapid transformation is already causing ripple effects across retail. In 10 years, my thesis is that E-commerce becomes the largest component of total retail sales and Amazon remains the largest component of that segment, as it is today. Additionally, they probably steal share and grow at a faster pace than E-commerce as a whole, as they have done over the last several years.
Personal anecdote:
I'm sitting here in my home office wearing Amazon branded Jeans. I've got 10+ Amazon branded undershirts upstairs, along with 5+ pairs of Amazon Synthetic Golf Shorts. In my house, we've got Amazon branded batteries, note cards & printer paper, detergent pods, echo devices, cameras and more all over the place. There's more too, but I'm not going to list it all. In my experience, what they make is just as good if not better than the branded counterpart, and they do it for less, often a lot less. And I got tired of hyperlinking, so if you're curious, go to and start looking around for these products.
Even more, as of now my wife and I spend +$250/mo on subscribe and save items we need for our household, this includes baby formula, diapers and wipes, detergent, shampoo and soap, trash bags, dog food, paper towels and more. We use the 5% back credit card and blended save close to 20% on these daily items we need.
In conclusion, on E-Commerce, I expect Amazon to dominate the next decade in retail. They have a massive competitive advantage over other retailers engaged in an omni-channel strategy, therefore it's their game to lose. Furthermore, their competitive edge today will compound into the future and amount to further share gains and a wider moat in years to come.
Cloud Computing: What is this industry, how does Amazon fit in the picture, and why is it such a big deal?
Again, to understand Amazon you'll have to understand what Cloud Computing is. This is not an everyday consumer product/service, therefore it's foreign to most individuals. Second, because the transactions and services are business to business (B2B) it's relatively difficult to determine detailed industry characteristics. What may come as a surprise to you, is it's the most profitable business segment (on a NOPAT basis) and it's also their fastest growing segment.
Cloud computing is the service of providing storage, services, databases, software, security, analytics, artificial intelligence and infrastructure through the internet. There was a time when most businesses built their own server racks, and maintained their own infrastructure. Amazon too did this for themselves in building out their own infrastructure to maintain their E-Commerce platform. In time, they naturally sold this service to other firms.
So where does Amazon fit in now? From all indications cloud computing appears to be an arms race. The most recent estimates for market share vary depending on the research provider. The differences lie in what is being measured. There are multiple components of Cloud: PaaS, IaaS, and SaaS. By all accounts, Amazon Web Services is the clear market leader, but they aren't growing as fast as some of their well funded peers like Microsoft and Google.
The available literature on Cloud Computing as a whole is vague. There are important questions to answer regarding structural advantage or lack thereof, who has the competitive edge, or what kind of moats have been built. Amazon's slowing growth rate in Cloud is concerning. Ramped spend in R&D + SG&A during the 2019 fiscal year is encouraging, and these investments will reduce erosion of market share.
While Cloud remains Amazon's most profitable business segment for now, by revenue it's just ~12.5% of sales. Admittedly I am troubled by the amount of information I cannot obtain without significantly paying out of pocket. Nevertheless, given the relative size of this business, I'm comfortable putting the pencil down on AWS for now, and watching the industry closely going forward.
Other Business Segments:
Amazon has other business segments like their own B&M retail stores including Whole Foods, it's 4 star retail chain as well as it's cashierless Amazon Go stores. All of these combined are worth little compared to the market cap, while interesting.. they are insignificant in determining Amazon's value as a business.
What is Amazon worth today?
Herein lies the problem for analysts when the look at Amazon. The most commonly used methods for determining value are off the charts, for the most part Amazon looks like lighting money on fire.
A simple value oriented investor looks at a trailing P/E of 84.19 and thinks why would I wait 84 years to get paid back?
Of course, that's too myopic, and value oriented investors who take that approach, quickly learn trailing P/E is the key to building a portfolio of value traps. More sophisticated investors like Joel Greenblatt might recommend using something like ROIC to gauge how much Amazon benefits from reinvesting and building out it's own business.
The problem with that approach is that ROC, ROCE, and ROIC all use some form of GAAP earnings (either NOPAT or EBIT) to backsolve for this return number. If you look at Amazon's Income Statement, and dissect why net income is what it is there's a good reason why most value metrics/ratios don't work for Amazon. They are investing ~3x NOPAT and 60% of Gross profit into R&D. SG&A tells a similar story. What is R&D anyways? One time costs to develop and build out a business. What is SG&A, variable manpower with a significantly lagged ROI when ramped more than 20% YoY.
What dawned on me months ago is this.. what if Amazon cut it's R&D to 0, and didn't touch SG&A? P/E TTM drops to ~20x. What happens to sales growth then? It slows.. and eventually converges with GDP, and then falls beyond that. The story of what Amazon's business is, especially E-Commerce, helps shed light on how long it'd take for Amazon's growth to converge with GDP, when they're on the cutting edge of the knife, and most other competitors remain far behind.
What do other institutions believe Amazon is worth?
There are 45 Wallstreet Analysts covering the stock. On average, their price target is 2170. Based on the share price today, if they're right, you can expect a 15% return. What if the bears are right? You'll lose ~2% rounding down. And the bulls? the highest estimate is 2550, and represents a 35% premium on the stock.
Here's what Morningstar thinks:
Keep in mind, the last price is a bit dated. Let's pretend Morningstar is right, I like them more than most analysts. You can expect a 22% return.
I don't like wall street analysts, if I did, I wouldn't do this, and I'd just follow their guidance. They are often right, but can be very wrong at times. The problem with wall street analysts is that they are subject to herding, as well as many other behavioral biases and sometimes conflicts of interest.
But assuming they're right, this is an asymmetric long to take, with significant upside today.
I have an estimate for fair value as well. This involves taking the current growth rate for amazon as well as the mean estimate of earnings two years out. However, instead of earnings, I like mean cash flow per share, because it remains undistorted by GAAP adjustments.
Here are the current cash flow per share estimates:
Here is my valuation model:
Bottom left in yellow: that is the implied value of AMZN shares today, based on the discounted free cash flows.
Bottom middle with a red circle around it, those are my assumptions for long term growth rate and EPS 2 years out.. so TTM 2021 cash flows.
This would imply a 63% upside on the share price today.
Now, I don't think anyone is getting 63% today, for AMZN shares. Admittedly I'd be surprised if you got ~$3100 for AMZN shares in a year. Unfortunately.. this business will probably continue to be misunderstood like it has been for many years until they're done reinvesting a significant portion of their gross profit into building the infrastructure that expands their business. However, that cash flow number will become remarkably close to EPS with R&D turned off. When it does, share price will rocket. Instead of this becoming a one time event, I expect convergence will be gradual over time, which makes it a long term hold.
More on valuation:
I was disappointed but not surprised to find I'm not the only one thinking about valuation in this way. The authors take is similar to mine, and he comes to a similar conclusion as well: ~20x P/E TTM. I've gone through everything the VIC has to say about AMZN and most everything should be available to you as non-members as it is dated. I found message 109 especially compelling:
In Conclusion: I recommend Amazon stock as a long term investment. I believe this is one of the best value propositions available in this market. Regardless of the broader stock market, the secular trends within retail are significant tailwinds to Amazons largest business segment.
Disclaimer: This document is entirely my own work, outside of linked/pictured information above which has been cited. I own a significant amount of AMZN stock personally. I am not responsible for your gains or losses. I may add more information to this document in the future.
Addendum (1/14/20): The most significant risk to this business is political. The election of either Warren or Sanders in November of this year would most certainly affect valuation for this business in the near term. Whether Amazon is actually harmed by political interference is another story. For now, it appears the odds that either of these candidates receives the nomination is significantly below 50%, furthermore, as of now it appears they would be significantly disadvantaged against the orange man. Consider this tail risk.
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FRM: Commodity futures margin accounts COMMODITY MARGIN MONEY & LOT SIZE - YouTube Understanding Margins 2 - Span & Exposure Margin COMMODITY TRADING-TYPES OF MARKET ORDER EXPLAINED USING ODIN PLATFORM Span Margin Calculator

Commodity trading has the reputation of being a highly risky endeavor. It is true that a high percentage of traders eventually lose money. Many people have lost substantial sums. There is a famous old line about the best way to make a small fortune trading commodities . . . start with a big one. Commodity margin (PDF) ... Commodity NRML Margin MIS Margin Price; ALUMINIUM. Lot size 5 MT 67825: 33912 146.65: Calculate: COPPER. Lot size 2.5 MT ... IN-DP-431-2019 Commodity Trading through Zerodha Commodities Pvt. Ltd. MCX: 46025 – SEBI Registration no.: INZ000038238 Registered Address: Zerodha Broking Ltd., #153/154, 4th Cross, Dollars ... • For intra commodity spread one have to pay less margin (60-70%) moneywhiletakingthepositions • Same as Bull spread prices of any commodity depends on its demand –supply situation. So for bear spread if trader has an idea that the supply will be less in March while more in April then higher supply will pressurize the prices in far month. commodity trading operations are clear, and many of the world’s biggest oil and gas and mining majors have set up international trading structures to win competitive advantage. W. ith an international commodity trading company, a corporate group can manage its global trading and marketing activities within one or a few specialized Contract * Last Move Spec Init Spec Mnt Sprd Init Sprd Mnt CBOT - Chicago Board of Trade Agriculture C - CORN * 07/24/20 $935 v$850 $193 ^ $175 v YC - CORN - MINI * 07/24/20 $187 v$170 v $39 ^ $35 S - SOYBEAN * 05/26/20 $1650 $1500 $220 v $200 v YK - SOYBEANS - MINI * 06/19/20 $330 $300 $44 v$40 06 - SOYBEAN MEAL * 08/17/20 $1100 v $1000 v $468 ^ $425 ^ 07 - SOYBEAN OIL * 08/17/20 $770 v$700 v ...

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FRM: Commodity futures margin accounts

Like many derivative products, futures can be confusing when you’re trying to understand how changes in the underlying security affect changes in futures pri... This IBKR short video will discuss: • The mechanics of commodities margin trading. • The margin requirement for commodities. Visit Traders' Academy: Learn how to use the Span Margin Calculator. In this video we will show you how you can calculate exactly how much margin is required to trade your desired position, all within a few clicks. Visit ... Online Commodity trading Tips Advice and technical analysis for daily market. Daily Market outlook for MCX Crude Oil Trading, MCX Copper Trading, MCX Natural gas Trading, MCX Zinc Trading, MCX ... Commodity Trading Zerodha - Part 2 - Duration: 6:10. Invest Function 71,230 views. ... COMMODITY MARGIN MONEY & LOT SIZE - Duration: 11:30. RAMAN YADAV INTRADAY TRADER 83,374 views.