Margin Trading: Understanding How To Invest on Margin
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The dollar standard and how the Fed itself created the perfect setup for a stock market crash
Disclaimer: This is neither financial nor trading advice and everyone should trade based on their own risk tolerance. Please leverage yourself accordingly. When you're done, ask yourself: "Am I jacked to the tits?". If the answer is "yes", you're good to go. We're probably experiencing the wildest markets in our lifetime. After doing some research and listening to opinions by several people, I wanted to share my own view on what happened in the market and what could happen in the future. There's no guarantee that the future plays out as I describe it or otherwise I'd become very rich. If you just want tickers and strikes...I don't know if this is going to help you. But anyways, scroll way down to the end. My current position is TLT 171c 8/21, opened on Friday 7/31 when TLT was at 170.50. This is a post trying to describe what it means that we've entered the "dollar standard" decades ago after leaving the gold standard. Furthermore I'll try to explain how the "dollar standard" is the biggest reason behind the 2008 and 2020 financial crisis, stock market crashes and how the Coronavirus pandemic was probably the best catalyst for the global dollar system to blow up.
Tackling the Dollar problem
Throughout the month of July we've seen the "death of the Dollar". At least that's what WSB thinks. It's easy to think that especially since it gets reiterated in most media outlets. I will take the contrarian view. This is a short-term "downturn" in the Dollar and very soon the Dollar will rise a lot against the Euro - supported by the Federal Reserve itself.US dollar Index (DXY)If you zoom out to the 3Y chart you'll see what everyone is being hysterical about. The dollar is dying! It was that low in 2018! This is the end! The Fed has done too much money printing! Zimbabwe and Weimar are coming to the US. There is more to it though. The DXY is dominated by two currency rates and the most important one by far is EURUSD.EURUSD makes up 57.6% of the DXY And we've seen EURUSD rise from 1.14 to 1.18 since July 21st, 2020. Why that date? On that date the European Commission (basically the "government" of the EU) announced that there was an agreement for the historical rescue package for the EU. That showed the markets that the EU seems to be strong and resilient, it seemed to be united (we're not really united, trust me as an European) and therefore there are more chances in the EU, the Euro and more chances taking risks in the EU.Meanwhile the US continued to struggle with the Coronavirus and some states like California went back to restricting public life. The US economy looked weaker and therefore the Euro rose a lot against the USD. From a technical point of view the DXY failed to break the 97.5 resistance in June three times - DXY bulls became exhausted and sellers gained control resulting in a pretty big selloff in the DXY.
Why the DXY is pretty useless
Considering that EURUSD is the dominant force in the DXY I have to say it's pretty useless as a measurement of the US dollar. Why? Well, the economy is a global economy. Global trade is not dominated by trade between the EU and the USA. There are a lot of big exporting nations besides Germany, many of them in Asia. We know about China, Japan, South Korea etc. Depending on the business sector there are a lot of big exporters in so-called "emerging markets". For example, Brazil and India are two of the biggest exporters of beef. Now, what does that mean? It means that we need to look at the US dollar from a broader perspective. Thankfully, the Fed itself provides a more accurate Dollar index. It's called the "Trade Weighted U.S. Dollar Index: Broad, Goods and Services". When you look at that index you will see that it didn't really collapse like the DXY. In fact, it still is as high as it was on March 10, 2020! You know, only two weeks before the stock market bottomed out. How can that be explained?
Global trade, emerging markets and global dollar shortage
Emerging markets are found in countries which have been shifting away from their traditional way of living towards being an industrial nation. Of course, Americans and most of the Europeans don't know how life was 300 years ago.China already completed that transition. Countries like Brazil and India are on its way. The MSCI Emerging Market Index lists 26 countries. Even South Korea is included. However there is a big problem for Emerging Markets: the Coronavirus and US Imports.The good thing about import and export data is that you can't fake it. Those numbers speak the truth. You can see that imports into the US haven't recovered to pre-Corona levels yet. It will be interesting to see the July data coming out on August 5th.Also you can look at exports from Emerging Market economies. Let's take South Korean exports YoY. You can see that South Korean exports are still heavily depressed compared to a year ago. Global trade hasn't really recovered.For July the data still has to be updated that's why you see a "0.0%" change right now.Less US imports mean less US dollars going into foreign countries including Emerging Markets.Those currency pairs are pretty unimpressed by the rising Euro. Let's look at a few examples. Use the 1Y chart to see what I mean. Indian Rupee to USDBrazilian Real to USDSouth Korean Won to USD What do you see if you look at the 1Y chart of those currency pairs? There's no recovery to pre-COVID levels. And this is pretty bad for the global financial system. Why? According to the Bank of International Settlements there is $12.6 trillion of dollar-denominated debt outside of the United States. Now the Coronavirus comes into play where economies around the world are struggling to go back to their previous levels while the currencies of Emerging Markets continue to be WEAK against the US dollar. This is very bad. We've already seen the IMF receiving requests for emergency loans from 80 countries on March 23th. What are we going to see? We know Argentina has defaulted on their debt more than once and make jokes about it. But what happens if we see 5 Argentinas? 10? 20? Even 80? Add to that that global travel is still depressed, especially for US citizens going anywhere. US citizens traveling to other countries is also a situation in which the precious US dollars would enter Emerging Market economies. But it's not happening right now and it won't happen unless we actually get a miracle treatment or the virus simply disappears. This is where the treasury market comes into play. But before that, let's quickly look at what QE (rising Fed balance sheet) does to the USD. Take a look at the Trade-Weighted US dollar Index. Look at it at max timeframe - you'll see what happened in 2008. The dollar went up (shocker).Now let's look at the Fed balance sheet at max timeframe. You will see: as soon as the Fed starts the QE engine, the USD goes UP, not down! September 2008 (Fed first buys MBS), March 2009, March 2020. Is it just a coincidence? No, as I'll explain below. They're correlated and probably even in causation.Oh and in all of those scenarios the stock market crashed...compared to February 2020, the Fed balance sheet grew by ONE TRILLION until March 25th, but the stock market had just finished crashing...can you please prove to me that QE makes stock prices go up? I think I've just proven the opposite correlation.
Bonds, bills, Gold and "inflation"
People laugh at bond bulls or at people buying bonds due to the dropping yields. "Haha you're stupid you're buying an asset which matures in 10 years and yields 5.3% STONKS go up way more!".Let me stop you right there. Why do you buy stocks? Will you hold those stocks until you die so that you regain your initial investment through dividends? No. You buy them because you expect them to go up based on fundamental analysis, news like earnings or other things. Then you sell them when you see your price target reached. The assets appreciated.Why do you buy options? You don't want to hold them until expiration unless they're -90% (what happens most of the time in WSB). You wait until the underlying asset does what you expect it does and then you sell the options to collect the premium. Again, the assets appreciated. It's the exact same thing with treasury securities. The people who've been buying bonds for the past years or even decades didn't want to wait until they mature. Those people want to sell the bonds as they appreciate. Bond prices have an inverse relationship with their yields which is logical when you think about it. Someone who desperately wants and needs the bonds for various reasons will accept to pay a higher price (supply and demand, ya know) and therefore accept a lower yield. By the way, both JP Morgan and Goldmans Sachs posted an unexpected profit this quarter, why? They made a killing trading bonds. US treasury securities are the most liquid asset in the world and they're also the safest asset you can hold. After all, if the US default on their debt you know that the world is doomed. So if US treasuries become worthless anything else has already become worthless. Now why is there so much demand for the safest and most liquid asset in the world? That demand isn't new but it's caused by the situation the global economy is in. Trade and travel are down and probably won't recover anytime soon, emerging markets are struggling both with the virus and their dollar-denominated debt and central banks around the world struggle to find solutions for the problems in the financial markets. How do we now that the markets aren't trusting central banks? Well, bonds tell us that and actually Gold tells us the same! TLT chartGold spot price chart TLT is an ETF which reflects the price of US treasuries with 20 or more years left until maturity. Basically the inverse of the 30 year treasury yield. As you can see from the 5Y chart bonds haven't been doing much from 2016 to mid-2019. Then the repo crisis of September 2019took place and TLT actually rallied in August 2019 before the repo crisis finally occurred!So the bond market signaled that something is wrong in the financial markets and that "something" manifested itself in the repo crisis. After the repo market crisis ended (the Fed didn't really do much to help it, before you ask), bonds again were quiet for three months and started rallying in January (!) while most of the world was sitting on their asses and downplaying the Coronavirus threat. But wait, how does Gold come into play? The Gold chart basically follows the same pattern as the TLT chart. Doing basically nothing from 2016 to mid-2019. From June until August Gold rose a staggering 200 dollars and then again stayed flat until December 2019. After that, Gold had another rally until March when it finally collapsed. Many people think rising Gold prices are a sign of inflation. But where is the inflation? We saw PCE price indices on Friday July 31st and they're at roughly 1%. We've seen CPIs from European countries and the EU itself. France and the EU (July 31st) as a whole had a very slight uptick in CPI while Germany (July 30th), Italy (July 31st) and Spain (July 30th) saw deflationary prints.There is no inflation, nowhere in the world. I'm sorry to burst that bubble. Yet, Gold prices still go up even when the Dollar rallies through the DXY (sadly I have to measure it that way now since the trade-weighted index isn't updated daily) and we know that there is no inflation from a monetary perspective. In fact, Fed chairman JPow, apparently the final boss for all bears, said on Wednesday July 29th that the Coronavirus pandemic is a deflationarydisinflationary event. Someone correct me there, thank you. But deflationary forces are still in place even if JPow wouldn't admit it. To conclude this rather long section: Both bonds and Gold are indicators for an upcoming financial crisis. Bond prices should fall and yields should go up to signal an economic recovery. But the opposite is happening. in that regard heavily rising Gold prices are a very bad signal for the future. Both bonds and Gold are screaming: "The central banks haven't solved the problems". By the way, Gold is also a very liquid asset if you want quick cash, that's why we saw it sell off in March because people needed dollars thanks to repo problems and margin calls.When the deflationary shock happens and another liquidity event occurs there will be another big price drop in precious metals and that's the dip which you could use to load up on metals by the way.
Dismantling the money printer
But the Fed! The M2 money stock is SHOOTING THROUGH THE ROOF! The printers are real!By the way, velocity of M2 was updated on July 30th and saw another sharp decline. If you take a closer look at the M2 stock you see three parts absolutely skyrocketing: savings, demand deposits and institutional money funds. Inflationary? No. So, the printers aren't real. I'm sorry.Quantitative easing (QE) is the biggest part of the Fed's operations to help the economy get back on its feet. What is QE?Upon doing QE the Fed "purchases" treasury and mortgage-backed securities from the commercial banks. The Fed forces the commercial banks to hand over those securities and in return the commercial banks reserve additional bank reserves at an account in the Federal Reserve. This may sound very confusing to everyone so let's make it simple by an analogy.I want to borrow a camera from you, I need it for my road trip. You agree but only if I give you some kind of security - for example 100 bucks as collateral.You keep the 100 bucks safe in your house and wait for me to return safely. You just wait and wait. You can't do anything else in this situation. Maybe my road trip takes a year. Maybe I come back earlier. But as long as I have your camera, the 100 bucks need to stay with you. In this analogy, I am the Fed. You = commercial banks. Camera = treasuries/MBS. 100 bucks = additional bank reserves held at the Fed.
Revisiting 2008 briefly: the true money printers
The true money printers are the commercial banks, not the central banks. The commercial banks give out loans and demand interest payments. Through those interest payments they create money out of thin air! At the end they'll have more money than before giving out the loan. That additional money can be used to give out more loans, buy more treasury/MBS Securities or gain more money through investing and trading. Before the global financial crisis commercial banks were really loose with their policy. You know, the whole "Big Short" story, housing bubble, NINJA loans and so on. The reckless handling of money by the commercial banks led to actual money printing and inflation, until the music suddenly stopped. Bear Stearns went tits up. Lehman went tits up. The banks learned from those years and completely changed, forever. They became very strict with their lending resulting in the Fed and the ECB not being able to raise their rates. By keeping the Fed funds rate low the Federal Reserve wants to encourage commercial banks to give out loans to stimulate the economy. But commercial banks are not playing along. They even accept negative rates in Europe rather than taking risks in the actual economy. The GFC of 2008 completely changed the financial landscape and the central banks have struggled to understand that. The system wasn't working anymore because the main players (the commercial banks) stopped playing with each other. That's also the reason why we see repeated problems in the repo market.
How QE actually decreases liquidity before it's effective
The funny thing about QE is that it achieves the complete opposite of what it's supposed to achieve before actually leading to an economic recovery. What does that mean? Let's go back to my analogy with the camera. Before I take away your camera, you can do several things with it. If you need cash, you can sell it or go to a pawn shop. You can even lend your camera to someone for a daily fee and collect money through that.But then I come along and just take away your camera for a road trip for 100 bucks in collateral. What can you do with those 100 bucks? Basically nothing. You can't buy something else with those. You can't lend the money to someone else. It's basically dead capital. You can just look at it and wait until I come back. And this is what is happening with QE. Commercial banks buy treasuries and MBS due to many reasons, of course they're legally obliged to hold some treasuries, but they also need them to make business.When a commercial bank has a treasury security, they can do the following things with it:- Sell it to get cash- Give out loans against the treasury security- Lend the security to a short seller who wants to short bonds Now the commercial banks received a cash reserve account at the Fed in exchange for their treasury security. What can they do with that?- Give out loans against the reserve account That's it. The bank had to give away a very liquid and flexible asset and received an illiquid asset for it. Well done, Fed. The goal of the Fed is to encourage lending and borrowing through suppressing yields via QE. But it's not happening and we can see that in the H.8 data (assets and liabilities of the commercial banks).There is no recovery to be seen in the credit sector while the commercial banks continue to collect treasury securities and MBS. On one hand, they need to sell a portion of them to the Fed on the other hand they profit off those securities by trading them - remember JPM's earnings. So we see that while the Fed is actually decreasing liquidity in the markets by collecting all the treasuries it has collected in the past, interest rates are still too high. People are scared, and commercial banks don't want to give out loans. This means that as the economic recovery is stalling (another whopping 1.4M jobless claims on Thursday July 30th) the Fed needs to suppress interest rates even more. That means: more QE. that means: the liquidity dries up even more, thanks to the Fed. We heard JPow saying on Wednesday that the Fed will keep their minimum of 120 billion QE per month, but, and this is important, they can increase that amount anytime they see an emergency.And that's exactly what he will do. He will ramp up the QE machine again, removing more bond supply from the market and therefore decreasing the liquidity in financial markets even more. That's his Hail Mary play to force Americans back to taking on debt again.All of that while the government is taking on record debt due to "stimulus" (which is apparently only going to Apple, Amazon and Robinhood). Who pays for the government debt? The taxpayers. The wealthy people. The people who create jobs and opportunities. But in the future they have to pay more taxes to pay down the government debt (or at least pay for the interest). This means that they can't create opportunities right now due to the government going insane with their debt - and of course, there's still the Coronavirus.
"Without the Fed, yields would skyrocket"
This is wrong. The Fed has been keeping their basic level QE of 120 billion per month for months now. But ignoring the fake breakout in the beginning of June (thanks to reopening hopes), yields have been on a steady decline. Let's take a look at the Fed's balance sheet. The Fed has thankfully stayed away from purchasing more treasury bills (short term treasury securities). Bills are important for the repo market as collateral. They're the best collateral you can have and the Fed has already done enough damage by buying those treasury bills in March, destroying even more liquidity than usual. More interesting is the point "notes and bonds, nominal". The Fed added 13.691 billion worth of US treasury notes and bonds to their balance sheet. Luckily for us, the US Department of Treasury releases the results of treasury auctions when they occur. On July 28th there was an auction for the 7 year treasury note. You can find the results under "Note -> Term: 7-year -> Auction Date 07/28/2020 -> Competitive Results PDF". Or here's a link. What do we see? Indirect bidders, which are foreigners by the way, took 28 billion out of the total 44 billion. That's roughly 64% of the entire auction. Primary dealers are the ones which sell the securities to the commercial banks. Direct bidders are domestic buyers of treasuries. The conclusion is: There's insane demand for US treasury notes and bonds by foreigners. Those US treasuries are basically equivalent to US dollars. Now dollar bears should ask themselves this question: If the dollar is close to a collapse and the world wants to get rid fo the US dollar, why do foreigners (i.e. foreign central banks) continue to take 60-70% of every bond auction? They do it because they desperately need dollars and hope to drive prices up, supported by the Federal Reserve itself, in an attempt to have the dollar reserves when the next liquidity event occurs. So foreigners are buying way more treasuries than the Fed does. Final conclusion: the bond market has adjusted to the Fed being a player long time ago. It isn't the first time the Fed has messed around in the bond market.
How market participants are positioned
We know that commercial banks made good money trading bonds and stocks in the past quarter. Besides big tech the stock market is being stagnant, plain and simple. All the stimulus, stimulus#2, vaccinetalksgoingwell.exe, public appearances by Trump, Powell and their friends, the "money printing" (which isn't money printing) by the Fed couldn't push SPY back to ATH which is 339.08 btw. Who can we look at? Several people but let's take Bill Ackman. The one who made a killing with Credit Default Swaps in March and then went LONG (he said it live on TV). Well, there's an update about him:Bill Ackman saying he's effectively 100% longHe says that around the 2 minute mark. Of course, we shouldn't just believe what he says. After all he is a hedge fund manager and wants to make money. But we have to assume that he's long at a significant percentage - it doesn't even make sense to get rid of positions like Hilton when they haven't even recovered yet. Then again, there are sources to get a peek into the positions of hedge funds, let's take Hedgopia.We see: Hedge funds are starting to go long on the 10 year bond. They are very short the 30 year bond. They are very long the Euro, very short on VIX futures and short on the Dollar.
This is the perfect setup for a market meltdown. If hedge funds are really positioned like Ackman and Hedgopia describes, the situation could unwind after a liquidity event:The Fed increases QE to bring down the 30 year yield because the economy isn't recovering yet. We've already seen the correlation of QE and USD and QE and bond prices.That causes a giant short squeeze of hedge funds who are very short the 30 year bond. They need to cover their short positions. But Ackman said they're basically 100% long the stock market and nothing else. So what do they do? They need to sell stocks. Quickly. And what happens when there is a rapid sell-off in stocks? People start to hedge via put options. The VIX rises. But wait, hedge funds are short VIX futures, long Euro and short DXY. To cover their short positions on VIX futures, they need to go long there. VIX continues to go up and the prices of options go suborbital (as far as I can see).Also they need to get rid of Euro futures and cover their short DXY positions. That causes the USD to go up even more. And the Fed will sit there and do their things again: more QE, infinity QE^2, dollar swap lines, repo operations, TARP and whatever. The Fed will be helpless against the forces of the market and have to watch the stock market burn down and they won't even realize that they created the circumstances for it to happen - by their programs to "help the economy" and their talking on TV. Do you remember JPow on 60minutes talking about how they flooded the world with dollars and print it digitally? He wanted us poor people to believe that the Fed is causing hyperinflation and we should take on debt and invest into the stock market. After all, the Fed has it covered. But the Fed hasn't got it covered. And Powell knows it. That's why he's being a bear in the FOMC statements. He knows what's going on. But he can't do anything about it except what's apparently proven to be correct - QE, QE and more QE.
A final note about "stock market is not the economy"
It's true. The stock market doesn't reflect the current state of the economy. The current economy is in complete shambles. But a wise man told me that the stock market is the reflection of the first and second derivatives of the economy. That means: velocity and acceleration of the economy. In retrospect this makes sense. The economy was basically halted all around the world in March. Of course it's easy to have an insane acceleration of the economy when the economy is at 0 and the stock market reflected that. The peak of that accelerating economy ("max velocity" if you want to look at it like that) was in the beginning of June. All countries were reopening, vaccine hopes, JPow injecting confidence into the markets. Since then, SPY is stagnant, IWM/RUT, which is probably the most accurate reflection of the actual economy, has slightly gone down and people have bid up tech stocks in absolute panic mode. Even JPow admitted it. The economic recovery has slowed down and if we look at economic data, the recovery has already stopped completely. The economy is rolling over as we can see in the continued high initial unemployment claims. Another fact to factor into the stock market.
TLDR and positions or ban?
TLDR: global economy bad and dollar shortage. economy not recovering, JPow back to doing QE Infinity. QE Infinity will cause the final squeeze in both the bond and stock market and will force the unwinding of the whole system. Positions: idk. I'll throw in TLT 190c 12/18, SPY 220p 12/18, UUP 26c 12/18.That UUP call had 12.5k volume on Friday 7/31 btw.
Edit about positions and hedge funds
My current positions. You can laugh at my ZEN calls I completely failed with those.I personally will be entering one of the positions mentioned in the end - or similar ones. My personal opinion is that the SPY puts are the weakest try because you have to pay a lot of premium. Also I forgot talking about why hedge funds are shorting the 30 year bond. Someone asked me in the comments and here's my reply: "If you look at treasury yields and stock prices they're pretty much positively correlated. Yields go up, then stocks go up. Yields go down (like in March), then stocks go down. What hedge funds are doing is extremely risky but then again, "hedge funds" is just a name and the hedgies are known for doing extremely risky stuff. They're shorting the 30 year bond because they needs 30y yields to go UP to validate their long positions in the equity market. 30y yields going up means that people are welcoming risk again, taking on debt, spending in the economy. Milton Friedman labeled this the "interest rate fallacy". People usually think that low interest rates mean "easy money" but it's the opposite. Low interest rates mean that money is really tight and hard to get. Rising interest rates on the other hand signal an economic recovery, an increase in economic activity. So hedge funds try to fight the Fed - the Fed is buying the 30 year bonds! - to try to validate their stock market positions. They also short VIX futures to do the same thing. Equity bulls don't want to see VIX higher than 15. They're also short the dollar because it would also validate their position: if the economic recovery happens and the global US dollar cycle gets restored then it will be easy to get dollars and the USD will continue to go down. Then again, they're also fighting against the Fed in this situation because QE and the USD are correlated in my opinion. Another Redditor told me that people who shorted Japanese government bonds completely blew up because the Japanese central bank bought the bonds and the "widow maker trade" was born:https://www.investopedia.com/terms/w/widow-maker.asp"
Since I've mentioned him a lot in the comments, I recommend you check out Steven van Metre's YouTube channel. Especially the bottom passages of my post are based on the knowledge I received from watching his videos. Even if didn't agree with him on the fundamental issues (there are some things like Gold which I view differently than him) I took it as an inspiration to dig deeper. I think he's a great person and even if you're bullish on stocks you can learn something from Steven!
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. 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. 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.
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. 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.
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. DXY 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 -https://www.reddit.com/wallstreetbets/comments/fmshcv/when_market_bounce_inevitably_comesdont_scream/ u/scarvesandsuspenders - https://www.reddit.com/wallstreetbets/comments/fmzu51/incoming_bounce_vix_puts/ 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. https://preview.redd.it/uvs5tkje1ho41.png?width=2470&format=png&auto=webp&s=c6b632556ca04a26e4e08fb2c9223bfcb84e0901 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. https://preview.redd.it/ag5s0hccxmo41.png?width=2032&format=png&auto=webp&s=aad730db4164720483a8b60056243d6e4a8a0cab 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. https://preview.redd.it/yktrcoazjpo41.png?width=1210&format=png&auto=webp&s=2d6f0272712a2d17d45e033273a369bc164e2477 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. https://preview.redd.it/9qiqyndtivo41.png?width=1210&format=png&auto=webp&s=55cf84f2b9f5a8099adf8368d9f3034b0e3c4ae4 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 - https://youtu.be/S74rvpc6W60?t=9 3:12pm - Hedge funds and their algos right now https://www.youtube.com/watch?v=ZF_nUm982vI 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 - https://www.twitch.tv/videos/576598992 Thanks again to WallStreetBooyah and all the others for making this possible. 9:10pm EST Twitter handles (updated) https://www.reddit.com/wallstreetbets/comments/fmhz1p/the_great_unwinding_why_wsb_will_keep_losing/floyrbf/?context=3, thanks blind_guy Not an exhaustive list. Just to get started. Follow the people they follow. Dark pool and gamma exposure - https://squeezemetrics.com/monitodix Wyckoff - https://school.stockcharts.com/doku.php?id=market_analysis:the_wyckoff_method MacroVoices 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.
What is yield farming? Most broadly, it means getting some benefit for providing capital, usually in the form of tokens. Currently, there are three major different schemes:
Staked funds aren't utilized in any way and tokens are distributed proportionally to what's staked (may be dai, weth, ycrv, or other tokens). Token price risk: zero. Token accrues, but even if it falls to zero you lose nothing. Smart contract/protocol risk: depends on the staking contract, usually low to zero. Contracts are usually simple modification of the first contract used by yearn (taken from synthetix), making analysis easy by only looking for differences. APR: may start high, but usually collapses fast to relatively low values as funds pour in.
Providing liquidity in trading pools. Tokens are gained in return for providing liquidity for requested tokens on uniswap, balancer, curve, mooniswap. Token price risk: medium to high, depends on pool weights. See these two articles for details on how liquidity providing works: Uniswap - pool weight is always 50%/50% Balancer - arbitrary pool weights, down to 2% for one token. Can be multitoken, not just two. Smart contract security risk: medium to high. In addition to checking the (usually simple) staking contract, requires security analysis of the token contract. If it's possible to mint a very large amount of token, or someone has a hidden enormous stash, the attacker could clean the pool by dumping them at once. I'm aware of one scam called "YYFI" that did this - you can see the attacker successively getting DAI from the balancer pool. Fortunately for the victims, he wasn't very competent and did everything manually, giving time for people to withdraw. A more competent attacker would automate the pool cleaning process in a smart contract. APR: usually very high - upper three digits or four. It's rarely realized APR because it's calculated assuming that token price stays constant. If you think the token being distributed is undervalued definitely the best option to farm.
Depositing and borrowing funds for defi. Currently utilized by compound and cream (a compound clone). Users get rewarded with tokens for lending and borrowing tokens. Token price risk: zero. Security risk: the most complex to analyze option of all, although Compound itself is definitely the safest defi dapp on ethereum.
Warning: gas fees are high. $10k is probably the minimum amount that makes sense for active manual farming, which still only makes sense for a more long-term farms like COMP or CRV, at the cost of not maximizing APR. I have spent over $3k in gas during the last two months by farming very actively. Below $100k, or if you don't want to spend a lot of time on this, it's probably best to deposit your funds into one of yearn vaults that yield farms for users. https://yearn.finance/vaults A partial list of current yield farms (feel free to comment with more farms! I can edit and add them to this list):
COMP farming, the oldest one (I think?). Relatively low returns (58% on DAI), safe, no price risk. Efficient way to farm is to supply and borrow the same asset (can be done via instadapp) up to maximum leverage possible (with some margin for interest payments).
YFV finance, one of the many clones of YFI. The seed pool is safe IF you withdraw before the staking period ends (see the security part). Current APR on stablecoins: 121%
CRV farming, providing liquidity to curve pools. Mostly safe - curve smart contracts tself are safe, but keep in mind if one of tokens in the pool collapses (renBTC is probably the riskiest) other tokens are going to get drained. You can see the current APR on https://dao.curve.fi/mintegauges. As of now, the highest APR is for compound pool - 105.27%. It's varying and there's complicated game with CRV voting that impacts it.
Zombie, meme token. Current APR is abysmal (33.5%) but token may unexpectedly pump, increasing it. There's a smart contract bug that, as long as rewardDistribution and owner aren't set to zero, potentially allows rewardDistribution to lock all staked funds (not steal). Makes zero sense as of today.
Analyzing security. Yield farms come and go. The key to earning high returns is to be agile and to jump fast into new farms, which requires manual analysis of security. Of course it's possible to yolo in without any analysis, but I don't recommend it. I'm going to show an example on two recent farming contracts (of the first type - funds just sit in contracts). Original yearn staking contract. GRAP staking contract. Let's load two codes into a text diff tool, like this site. What interests us on the code level are changes relating to the withdrawal capability, which in the original code are limited to the withdraw() function. We can see that the only substantial change is the addition of the checkStart modifier which prevents both deposits and withdrawals if it's too early. As startime is set directly in source code and can't be modified anywhere, that change is safe - if it doesn't throw on deposit it's not going to throw on withdraw. The next step is switch to the 'read contract' tab on etherscan and look at two variables: owner and rewardDistribution. In Grap's case, they lead to a timelock contract that requires all changes to wait for at least 24.5 hours - which makes any fund lockup extremely unlikely. At worst, we only have to look at the rewardDistribution contract once a day to see if there's any pending change. GRAP farming is now finished with no security incidents. Second example: YFV. This one is still active. Contract link. After comparing them we can see that changes are much more extensive. The withdrawal function also has the checkStart modifier, but that part is fine (ctrl-f to check if starttime can be modified somewhere else - it can't). What's the problem is the checkNextEpoch modifier. There's a lot of things there and three external contract calls (mint calls). If anything in there throws, withdrawal would become impossible. Dangerous. However, that only happens after the staking period ends, so withdrawing before block.timestamp >= periodFinish is relatively safe. Another check is to look at the owner and rewardDistribution variables. Owner is set to zero, but where's rewardDistribution? Unfortunately, contrary to GRAP, it's private. It's possible to read it with the getStorageAt web3 api (although finding the index is more work - it's 3). However, the team has provided a link to the transaction in which they set rewardDistribution to 0 so it's fine. In conclusion, as long as you don't hold the funds after the locking period ended there's no security risk here. The current period ends on Tue Sep 1 14:02:29 2020, UTC.
Conservative Margin Lending - A tool to use, and a reason to invest outside of Super
Hi AusFinance, i thought i would write on a topic i'm rather passionate about, and hopefully offer some 'food for thought' and an alternative to the standard answers of 'Super is the best environment for your money'. Disclaimers:
this is not financial advice, i am merely trying to offer some food for thought
these examples are greatly simplified, they do not take into account interest rate risk, legislation risk (both on super, on changes to tax, etc..).
The case study below does not take into account the ability to margin lend inside super. the ability is there, such as Bell Potter's Equity Lever platform, but this is not available to your average retail/industry super, hence it is excluded.
Margin lending for the uninitiated: For those of you unaware, margin loans are borrowing to invest. Your shares/fund units act as security that let you borrow money to buy more shares/fund units. These are given different levels of "Loan to Value Ratio" aka LVR. a 75% LVR means you can make up a total investment with a minimum of 25% your money, and a maximum of 75% borrowed money. So with $2,500 you'd be able to borrow up to $7,500 (Making up a total portfolio of $10,000). Why borrow to invest? Simply put, Margin lending amplifies your gains and your losses. I have included a table below to demonstrate what a margin loan will do to a $25,000 investment at an 8% p.a. return at different LVRs. I am using Leveraged Equities variable 4.24% interest rate on their direct investment loan as the interest cost - the product offers access to the vast majority of funds and shares that an investor needs, it's just lacking advanced features like options trading (who cares!) https://preview.redd.it/42p6co191lb51.png?width=786&format=png&auto=webp&s=764b15d0695792766367cc05b5adae78f3af840a Here we can see the return improve from the standard 8% all the way to 11.8% if using 50% LVR. But in my opinion, 50% LVR is too risky for many investors appetite here, even if it is my ideal point. Instead, i would direct your attention to 35% LVR. Why 35% LVR? a 35% LVR comes with a number of benefits to an investor doing standard VAS/VGS/VDHG style etf investing.
Increased returns - as we can see it takes an 8% return and increases it to a 10.1% return
Returns slightly understated - The return is not factoring the effect that the interest will have on your tax return - it is tax deductible.
Low chance of a margin call.
Let's talk about #3. Margin calls are without a doubt the scariest part of margin lending, and i don't blame you for being afraid of them. Many people who leverage too aggressively and fly too close to the sun get hit with a nasty cycle where:
Their investment falls into margin call territory because it has dropped
They are forced to sell their assets at the worst points in the market to get out of the margin call
they miss out on the recovery because their excess cash was used covering margin calls on the way down.
But this is where a 35% LVR is so appealing. the calculation to figure out where your margin call will happen is: 1-(Loan/(Lending Value + Buffer)). So if we take a standard favourite of Ausfinance such as VAS, VDHG etc, we can see that they have a LVR of 75%. Industry standard buffer is 10%. so let's figure out a margin call on a $25,000 investment, with $14,000 borrowed funds (35% LVR): 1-($14,000/(($39,000*0.75)+($39,000*0.10))) = 58% it would take a 58% drop in the portfolio to bring it to a margin call. This is the portfolio dropping from $39,000 to $16,470. This requires a staggering drop before you experience a margin call, and if you are concerned reducing your LVR to only 25% will still improve your return and increase your chance of never being margin called. You have time to add to your holdings with equity only (buying a dip + decreasing your overall LVR). the important thing is you can manage your risk and it requires truly a cataclysmic level of decline before you experience a margin call ,and at that point that may not be your biggest concern. Why all the fuss? What's the point of risking being margin called? It's all in that % return. in the following example i will use ASIC's compound calculator, along with the following parameters: $25,000 initial deposit (your capital), $0 regular deposits, annual compounding, and a 30 year time horizon. The only assumption is that as the portfolio grows in capital value, the 35% LVR is maintained. Case 1 - 0 LVR (AKA [email protected]%) - after 30 years of compounding at 8% you end up on $251,566 Case 2 - 35% LVR (AKA compounding at 10.1%) - after 30 years of compounding at 10.1% you end up on $448,291 Verdict - Case 2 ends up being $196,725 better. a 78% superior return Every % matters so much in a long term strategy, it is truly impossible to overstate how important it is to long term outcomes. Case Study: Super Showdown As a final demonstration of the power of a low leverage strategy we will put two different cases head to head. Let us assume that a 30 year old intends to retire at age 65, and has the option of either having $50,000 in super, or invested at a 35% LVR. After retirement, they will either 1. Take the money tax free in pension phase or 2. pay capital gains tax by cashing out their own 'pension' each year, with their marginal tax rate being 30% (using the currently legislated but not implemented rates). Case 2 will overstate their tax slightly, as i will not scale it, i will just hit the whole thing at 30%. https://preview.redd.it/86c7xcrc7lb51.png?width=530&format=png&auto=webp&s=045a1774106ac8d8ac848decb04bec9a142bdc52 We can see that with the CGT discount, paying 15% tax is actually better than paying a 0% tax rate due to the higher return. It's an out-performance of $508,681 But okay, i hear you, CGT discount may be gotten rid of, let's recalculate it with no discount: https://preview.redd.it/yafmmg6p7lb51.png?width=530&format=png&auto=webp&s=d9ae4b0db5de48808ca202f7c6e40d599c34c065 Even without a CGT discount (and 30% flat is more tax than you'd pay on a CGT discounted method on the highest marginal rate currently) there has been an out-performance of $306,102 What do i hope you take away from this? Even if you decide that the risk of margin lending is too much for you, or that i'm absolutely insane to choose an outside of super strategy that relies on borrowing to invest, i hope that i have given you something to think about. the one thing i hope everyone takes away from this just as a general point is the sheer power of small changes in your long term return %. I really strongly believe in conservatively leveraging safe and boring investments to boost that all critical return over the long term to create outstanding long term results. minor edit: fixed up some grammar
Hi Everyone, This is my first post on this subreddit, so go easy on me! *Above all else, this overview does not constitute financial advice of any kind -- always perform your own, independent due diligence before choosing to invest.At the end of the day, it is YOUR hard earned capital and YOUR ultimate decision -- make sure you are treating these decisions with the highest levels of care, and always apply responsibility and proper risk management protocols.\* Project: Axis Protocol Ticker: $AXIS Circulating Supply: 1,800,000 Total Supply: 24,000,000 Market Cap: ~6,000,000 Site: https://axisdefi.com Whitepaper: https://axisdefi.com/wp-content/uploads/2020/08/AXIS-Whitepaper\_Aug13.pdf Twitter: https://twitter.com/AxisDefi Medium: https://medium.com/axis-defi Telegram: https://t.me/axisdefi Coingecko: https://www.coingecko.com/en/coins/axis-defi From the whitepaper: "The mission of AXIS is to bring the rest of the cryptocurrency world to DeFi by building the first interoperable superchain with native, margin enabled, customizable synthetic DeFi assets with built-in risk mitigation. Simply put, a dedicated DeFi protocol with complete Wall Street functionality. With a two-level staking schema to provide flexibility for various risk preferences, up to 16x for highest trade profit level and a customizable risk profile, AXIS is the future of open finance." As far as founding members are concerned, the team has a strong pedigree:
Jinius Tu, the father of interoperability and cofounder of $AION:
$AXIS dubs itself as a DeFi 3.0 interoperable solution, bringing sophisticated trading to DeFi with Wall Street standards, without sacrificing the DeFi ethos. This is a holistic DeFi solution, hosting trading, lending, and synthetics, all in a single platform. What's more notable is that $AXIS will allow for lending and borrowing ACROSS different blockchains. It will also have security features like circuit breakers to prevent the entire ecosystem from collapsing, similar to what happened to the Maker platform back in March 2020. The circuit breaker controls are a first to the DeFi space. In specific, circuit breakers will halt the market (similar to NYSE) to enable more secure trading. The platform also incorporates margin if traders wish to utilize leverage. If your position falls below the 750% maintenance margin level, a margin call will be triggered. In addition to the founding members, Anthony Diorio (aka the cofounder of Ethereum) joins the team as an early investor: https://medium.com/axis-defi/anthony-di-iorio-cofounder-of-ethereum-joins-axis-defi-as-an-early-investor-e86f8c179899 Finally, $AXIS is currently listed on 3 centralized exchanges outside of Uniswap: Bithumb, Gate.io, and as of earlier today, the #13 exchange per CMC, BCEX. Tokenomics / token release schedule: *10% for private sale, community building and marketing (no lockup). *Team 24 months linear vesting schedule. *Foundation is 30 month linear vesting. *60% yield farming and collateralization; only unlockable after main net launch. (30% of pool is available for first year staking after launch. 15% of the pool for second year. 7.5% for the third year and so on.) Please feel free to share your thoughts and provide as much feedback as possible. While it is easy to FOMO into a project, being objective can highlight major risks / red flags and mitigate financial loss!
Pre:TLDR - it’s super long, if you aren’t full retard and want to understand this, read it. If you don’t have the brainpower, there a TLDR. I'm a Loan Officer for one of the larger retail lenders. Here’s an overview of how the Fed gone and fucked over mortgage lenders. Credit for the content below should go to Barry Habib of MBS Highway. THE CORONAVIRUS MELTDOWN The current coronavirus crisis is having a critical impact on the mortgage industry, which could potentially make the 2008 financial crisis pale in comparison. The pressing issue centers around capital that's required by Mortgage Lenders to be able to function and meet covenants that are required for them to continue to lend. HERES HOW THE MORTGAGE MARKET WORKS Let's begin with the mortgage process. A borrower goes to a Mortgage Originator to obtain a mortgage. Once closed, the loan is handled by a Servicer, which may or may not be the same company that originated the loan. The borrower submits payments to the Servicer, however, the Servicer does not own the loan, they are simply maintaining the loan. This means collecting payments and forwarding them to the investor (Fannie/Freddie/Ginnie), paying taxes and insurance, and answering questions, etc. While they maintain or "service" the loan, the asset itself is sold to an aggregator or directly to a government agency like Fannie Mae, Freddie Mac, or Ginnie Mae. The loan then gets placed in a large bundle, which is put in the hands of an Investment Banker. The Investment Banker converts those loans into a Mortgage Backed Security (MBS) that can be sold to the public. This shows up in different investments like Mutual Funds, Insurance Plans, and Retirement Accounts. The Servicer's role is very critical. In order to obtain the right to service loans, the Servicer will typically pay 1% of the loan amount up front. The Servicer then receives a monthly payment or "strip" equal to about 30 basis points (bps) per year. Because they paid about 1% to obtain the servicing rights and receive roughly 30 bps annual income, the breakeven period is approximately 3 years. The longer that loan remains on the books, the more money the Servicer makes. In many cases, the Servicer may want to use leverage to increase their level of income. Therefore, they may often finance half the cost of acquiring the loan and pay the rest in cash. SERVICER DILEMMA As you can imagine, when interest rates drop dramatically, there is an increased incentive for many people to refinance their loans more rapidly. This causes the loans that a Servicer had on their books to pay off sooner…often before that 3-year breakeven period. This servicing runoff creates losses for that Mortgage Lender who is servicing the loan. The more loans in a Mortgage Lender’s portfolio, the greater the loss. Servicing runoff, or even the anticipation of it, can adversely impact the market valuation of a servicing portfolio. But at the same time, Lenders typically experience an increase in new loan activity because of the decline in interest rates. This gives them additional income to help overcome the losses in their servicing portfolio. But the Coronavirus has caused a virtual shutdown of the US economy, which has created an unprecedented amount of job losses. This adds a new risk to the servicer because borrowers may have difficulty paying their mortgage in a timely manner. And although the Servicer does not own the asset, they have the responsibility to make the payment to the investor, even if they have not yet received it from the borrower. Under normal circumstances, the Servicer has plenty of cushion to account for this. But an extreme level of delinquency puts the Servicer in an unmanageable position. I'M FROM THE GOVERNMENT AND I'M HERE TO HELP In the Government’s effort to help those who have lost their jobs because of the Coronavirus shutdown, they have granted forbearance of mortgage payments for affected individuals. This presents an enormous obstacle for Servicers who are obligated to forward the mortgage payment to the investor, even though they have not yet received it. Fortunately, there is a new facility set up to help Mortgage Servicers bridge the gap to the investor. However, it is unclear as to how long it will take for Servicers to access this facility. But what has not been yet contemplated is the fact that a borrower who does not make their first mortgage payment causes the loan to be ineligible to be sold to an investor. This means that the Servicer must hold onto the asset itself, which ties up their available credit. And with so many new loans being originated of late, the amount of transactions that will not qualify for sale is significant. This restricts the Lender’s ability to clear their pipeline and get reimbursed with cash so they can now fund new transactions. MARK TO MARKET This week - Due to accelerated prepayments and the uncertainty of repayment, the value of servicing was slashed in half from 1% to 0.5%. This drastic decrease in value prompted margin calls for the many Servicers who financed their acquisition of servicing. Additionally, the decreased value of a Lender’s servicing portfolio reduces the Lender’s overall net worth. Since the amount a lender can lend is based on a multiple of their net worth, the decrease in value of their servicing portfolio asset, along with the cash paid for margin calls, reduces their capacity to lend. UNINTENDED CONSEQUENCES The Fed’s desire to bring mortgage rates down isn’t just damaging servicing portfolios because of prepayments, it’s also wreaking chaos in Lenders’ ability to hedge their risk. Let’s look at what happens when a borrower locks in their mortgage rate with a Mortgage Lender. Mortgage rates are based on the trading of Mortgage Backed Securities (MBS). As Mortgage Backed Securities rise in price, interest rates improve and move lower. A locked rate on a loan is nothing more than a lender promising to hold an interest rate for a period of time, or until the transaction closes. The Lender is at risk for any MBS price changes in the marketplace between the time they agreed to grant the lock and the time that the loan closes. If rates were to rise because MBS prices declined, the Lender would be obligated to buy down the borrower’s mortgage rate to the level they were promised. And since the Lender doesn’t want to be in a position of gambling, they hedge their locked loans by shorting Mortgage Backed Securities. Therefore, should MBS drop in price, causing rates to rise, the Lender’s cost to buy down the borrower’s rate is offset by the Lender’s gains of their short positions in MBS. Now think about what happens when MBS prices rise or improve, causing mortgage rates to decline. On paper the Lender should be able to close the mortgage loan at a better price than promised to the borrower, giving the Lender additional profits. However, the Lender’s losses on their short position negate any additional profits from the improvement in MBS pricing. This hedging system works well to deliver the borrower what was promised, while removing market risk from the Lender. But in an effort to reduce mortgage rates, the Fed has been purchasing an incredible amount of Mortgage Backed Securities, causing their price to rise dramatically and swiftly. This, in turn, causes the Lenders’ hedged short positions of MBS to show huge losses. These losses appear to be offset on paper by the potential market gains on the loans that the lender hopes to close in the future. But the Broker Dealer will not wait on the possibility of future loans closing and demands an immediate margin call. The recent amount that these Lenders are paying in margin calls are staggering. They run in the tens of millions of Dollars. All this on top of the aforementioned stresses that Lenders are having to endure. So, while the Fed believes they are stimulating lending, their actions are resulting in the exact opposite. The market for Government Loans, Jumbo Loans, and loans that don’t fit ideal parameters, have all but dried up. And many Lenders have no choice but to slow their intake of transactions by throttling mortgage rates higher and by reducing the term that they are willing to guarantee a rate lock. Furthering the Fed’s unintended consequences was the announcement to cut interest rates on the Fed Funds Rate by 1% to virtually zero. Because the Fed’s communication failed to educate the general public that the Fed Funds Rate is very different than mortgage rates, it prompted borrowers in process to break their locks and try to jump ship to a lower rate. This dramatically increased hedging losses from loans that didn’t end up closing. EVEN STEPHEN KING COULD NOT HAVE SCRIPTED THIS It’s been said that the Stock market will do the most damage, to the most people, at the worst time. And the current mortgage market is experiencing the most perfect storm. Just when volume levels were at the highest in history, servicing runoff at its peak, and pipelines hedged more than ever, the Coronavirus arrived. Lenders need to clear their pipelines, but social distancing is making it more difficult for transactions to be processed. And those loans that are about to close require that employment be verified. As you can imagine, with millions of individuals losing their jobs, those mortgages are unable to fund, leaving lenders with more hedging losses and no income to offset it. WHAT NEEDS TO BE DONE NOW Fortunately, there are many smart people in the Mortgage Industry who are doing everything they can to navigate through these perilous times. But the Fed and our Government needs to stop making it more difficult. The Fed must temporarily slow MBS purchases to allow pipelines to clear. Lawmakers need to allow for first payment defaults, due to forbearance, to be saleable. And finally, the Fed must more clearly communicate that Mortgage Rates and the Fed Funds Rate are not the same. We have faith that the effects of the Coronavirus will subside and that things will become more normalized in the upcoming months. So, that’s what’s going on - I’d love some input on the best way to use this info for trades. Personally I think that mid-sized loan servicers with minimal diversity are most at risk. Quicken isn't publicly traded, Wells Fargo is too big for their mortgage servicing alone to cripple them. Edit: adding this - There are three main issues: 1.) margin call 2.) inability to sell recently originated loans with a forbearance in place prior to the first payment 3.) a servicer still needs to pay Fannie/Freddie/Ginnie even if someone with an existing loan is in forbearance These can combine to be a huge cash burn. The fix for #1 is just that the Fed stops buying MBS but the second two require legislation. So, what servicers are at risk? EDIT MADE: I’m an idiot and the original post contained some figures for commercial MBS servicing by banks. Originally I proposed a ticker weighted in CMBS and someone pointed out I’m an idiot. A couple people have commented COOP - Mr. Cooper has a $548B servicing portfolio, which is massive. They aren’t a bank and are solely a mortgage lendeservicer, so I do like that play. So, 10/16 COOP 5p TL;DR: If you want to know details of how residential mortgage loan servicers are at high risk due to CARES Act, theres about 20 mins of reading. Or, just know they are at high risk unless the government fixes some shit they broke.
Concern about joining M1 over the account agreement needing signed
So I started signing up for an M1 account, because the service is unique and seems to be a great way to invest, outside of my normal roth account. Going through the process, the terms on the fees reads very shady to me. To compare, I read through the similar terms in my Schwab account, and it does not read anything like this. The full account agreement is here, linked directly from the M1Finance site M1 Account Agreement The bold is what I am worried about, and I am not a lawyer, so not sure how much protection an investment account would have from a company abusing this? Has anyone else looked into this?
15.F E E S & C H A R G E S We do not charge a platform usage fee;however, we may assess your Account with charges to cover our services, or the termination of services, including, but not limited to, an annual household fee, operational & service fees, custodial fees, and transaction fees and commissions.This fee structure may be amended at any time without notification to you, and you agree to pay all applicable fees and charges. You agree that we may debit your Account for any fees or charges that you incur, or any reasonable out-of-pocket expenses we may incur on your behalf.You agree to pay or reimburse us for all applicable state and local excise taxes. Any profit or loss from foreign currency exchange rated transactions will be charged or credited to your Account. Upon our request, you agree to reimburse us for any actual expenses we incur to execute, cancel, or amend any wiretransfer payment order, or perform any related act at your request.We may charge any Account of yours for such costs and expenses without prior notice to you.Please see M1 Pricing and Fees disclosure for additional detail regarding applicable fees and charges. Among other things, please note that we receive fees related to your margin trading (see Section 22 of this Agreement and securities lending (see Section 16 of this Agreement))
Rant: Of late, there’s been too much low-quality, bullshit DD on here. I’ve come to rescue you from your own retardation—a formidable task, I might add. Fortunately, I’m not going to do it alone. I’ll be doing it with the help of Thomas Peterffy, a Hungarian refugee who revolutionized the brokerage industry, and in so doing went from penury to multi-billionaire-hood. Peterffy is the founder of $IBKR, or Interactive Brokers Group, Inc. Here’s a description I definitely did not rip directly from CapitalIQ: “Interactive Brokers operates as an automated electronic broker worldwide. It specializes in executing and clearing trades in securities, futures, foreign exchange instruments, bonds, and mutual funds. The company custodies and services accounts for hedge and mutual funds, registered investment advisors, proprietary trading groups, introducing brokers, and individual investors. In addition, it offers custody, prime brokerage, securities, and margin lending services. Further, the company provides electronic execution and clearing services. It serves institutional and individual customers through approximately 120 electronic exchanges and market centers. The company was founded in 1977 and is headquartered in Greenwich, Connecticut.” Essentially, IBKR is inverse Robinhood. It has a shockingly bad user interface, is not designed to gamify investing, and does not have a retarded userbase. However, it does have better fills, better tech, a wider variety of options (both literal and figurative), more client AUM, etc. This is why you might not have heard of it. But rest assured, it’s a massive company; it is, essentially, the engine mobilizing much of the market machine. I’m bullish for two main reasons:
Upcoming earnings (July 22nd) and July EOM numbers report
Comparable companies have shown huge growth (e.g. $VIRT in Q1, which reported three weeks after IBKR and caught more Covid-trading)
IBKR releases monthly KPIs, the last batch of which came out recently, validated the theories described herein, and sent us on an upwards trajectory
Momentum: this stock is an inverse POS, which recently tends to go up with SPY but not down
TL;DR: IBKR 8/21 $55 C, $60 C for higher risk Business Pros:
High moat business with tons of IP
IBKR releases monthly metrics; these have been very strong as mentioned above:
1,862 thousand Daily Average Revenue Trades (DARTs), 131% higher than prior year and 13% higher than prior month.
Ending client equity of $203.2 billion, 33% higher than prior year and 7% higher than prior month.
Ending client margin loan balances of $24.9 billion, 3% lower than prior year and 7% higher than prior month.
Ending client credit balances of $71.0 billion, including $3.1 billion in insured bank deposit sweeps, 30% higher than prior year and 1% higher than prior month.
876,000 client accounts, 36% higher than prior year and 4% higher than prior month.
487 annualized average cleared DARTs per client account.
IBKR makes most of its money from loans by acting as a quasi-bank
More total client AUM is very good for revenue (see third and second bullet from bottom above)
We’ve just seen banks with a focus on trading outperform, again emphasizing what a large role trading activity is playing in this market
IBKR also be seen tech company—but it’s not above its pre-Covid high unlike most
Serves as a volatility hedge, because volatility is profitable for the company (cheap IV)
This can be seen in part by it’s relatively low market correlation (B = .63)
Volatility will almost certainly increase as we enter earnings season
Great international focus
Recently opened an office in Singapore
69% of their clients are outside the U.S. (international account growth rate at 23% vs 15% in US) which gives broader revenue base
Relatedly, the biggest opportunity driving Net Interest Margin (NIM) income is from key customer segments. There’s only around <0.5% of target asset market (TAM) penetrated in fields of global retail clients through intro brokers, financial advisors and hedge funds.
Peterffy has spoken to the idea that IBKR could capture more TAM and become a high multibagger long term by capturing more TAM.
Major holder of $TIGR, which has done extremely well
$IBKR netted over $1 billion so far off the $TIGR IPO, and the stock has been strong recently
8% short float w/ high days to cover
Not really short-squeeze material, but somewhat squeeze-like conditions existent
Earnings could squeeze this, especially because management owns so much of the stock
Comparables like $VIRT have done super well; IBKR might not be as explosive but certainly should do better than it has been
“The CEO I admire most is Thomas Peterffy of Interactive Brokers. He came to the U.S. penniless and built a massive fortune and, more importantly, a great company. His is a story of innovation; he was one of the first to use computers for market making. Peterffy was smart enough to see the applications of technology to online brokerage, and brave enough to pursue what could effectively kill the market-making business— and he is a great executor. The business has profitably and steadily grown the account base, growing brokerage accounts by 15%+ per year like clockwork. Peterffy still personally owns over 70% of the company, and all but ten of the company’s approximately 1,400 employees own shares. He has built a company with the lowest costs and highest margins, a very long runway for growth, a history of execution, and a highly aligned team.”
CEO explicitly called it a “stay-at-home stock”
Trading volume was 3X normal and account openings were 4x normal back in April—more people have gotten into the game since then!
“Despite markets down about 9% year-on-year, our total client equity rose 9% to $161 billion, the second highest quarterly total in our history.”
The above is only from Q1
Momentum, momentum, momentum. Some of you need to learn that.
They have fuckups, and recently got a ton of bad PR due to the oil contango fiasco!
Not the greatest customer service, certainly (does anyone really give a shit, though?)
Diverse customer base leaves it susceptible to geopolitical and geoeconomic risk
Stock was in a downtrend since 2018 before recent turnaround—who knows where momentum is now
The high (85%) percentage of shares owned by management means that shareholders are effectively a minority interest
To me, this is good, as it indicates a longer term focus, but it might not be good for short term results
Highly valued (possibly fundamentally overvalued) at a PE of 24.9x
Lower interest rates—which will remain for the foreseeable future—are a headwind
That being said, IBKR is less susceptible to them than other brokers
Interest rate risk is lessened as they adopt a relatively fixed net interest margin (NIM) spread.
Client balances receive 50bps below the Fed Funds rate, and excess cash is invested in repos & treasuries, while margin rates are typically 25bps – 150 bps above the Fed Funds, with rates depending on the size of margin.
Most major risks on the downside (refinance, credit risk, interest rate risks etc.) are limited. The main risk is that if they’ve already largely penetrated their TAM and are unable to drive success by broadening appeal to their other market segments valuation is overly rich at these levels.
This market is volatile, and IBKR is in no way immune to volatility in SPY. So you might want to hedge this play.
Summary: Interactive Brokers (IBKR) is a tech-focused, low cost brokerage firm. It is also a quasi-bank, making money through interest on client assets. It benefits when:
Interest rates increase
When account signups increase (they have a paid Pro version); this is minor
When total user AUM increases
When DARTs volume increases
While interest rates have declined, IBKR is comparatively less susceptible than are its competitors. And for various reasons outlined above, we can rest assured items 2 through 4 will continue to rise dramatically. This should result in significant appreciation. Is there room to run? Certainly. The ATH is $79.70, which also arrived after a period of volatility (remember, volatility is good for IBKR!). Of course, there’s a time-lag element to the results of volatility, which I map out below. We’re just getting into the good part now: nut For all of these reasons, I believe that Earnings + EOM KPI updates will pour gasoline on the recent fire. Or, as George Soros crustily uttered between denture fittings: “You want to be long the things that are going up, and short the ones that are going down.” TL;DR: IBKR 8/21 $55 C, $60 C for more risk/reward Positions (wanted to let it run a bit before helping out you tardigrades): https://preview.redd.it/32ru2d00i8b51.png?width=1416&format=png&auto=webp&s=0b592f1b956daa8f1dff04544f4bdb6a27e55d24 Disclaimer: not investment advice! do your own DD. I have a position, obviously. Do not yolo. Hedge your bets.
Rise in margin lending stokes fears of China bubble
Sharp rally in stock market draws comparisons with 2015 downfall Thomas Hale in Hong Kong and Wang Xueqiao in Shanghai Margin loans to buy equities in China have risen to their highest level in five years, prompting fears that speculation on rising prices could lead to a rerun of a notorious stock market bubble that burst in 2015. Total margin finance in China reached Rmb1.27tn ($184bn) on Tuesday after more than a week of consecutive daily increases, according to Wind, a data service. Separate figures show investors rushing to open new accounts that give them access to loans from brokers. The CSI 300 index, a gauge of the country’s biggest stocks listed in Shanghai and Shenzhen, leapt almost 6 per cent on Monday and continued to climb on the following days, after state media extolled the benefits of a “healthy” bull market at a time when the coronavirus pandemic has hit economic activity. But the rally has drawn comparisons with the events of 2015, when state media urged individual investors to pile in to stocks as the economic backdrop weakened. Sustained in part by a crescendo of margin lending, prices doubled over the course of a year before losing more than 40 per cent of their value in a matter of months. “I think people are getting greedy, because liquidity is abundant and there is policy support from the top,” said Hao Hong, head of research and chief strategist at Bocom International. “You can sense the speculative atmosphere.” Image: https://i.imgur.com/JtdHONC.png Trading on margin can be risky, because if the value of collateral falls the borrower may have to deposit more cash or securities. Pledged assets can also be sold without a customer’s consent, perhaps at fire-sale prices. Margin lending is still well below the peak it reached in 2015, when it rose above Rmb2.2tn in June after doubling from its levels in February, according to Wind. But analysts say the momentum resembles the early stages of the previous boom. On Monday turnover in “A shares”, which trade on the two main exchanges, was Rmb1.57tn, according to Morgan Stanley. That marked the highest level since the 2015 correction, indicating “high participation from not only institutional but also retail investors”, the bank’s analysts said. Mr Hong estimates that so far this month about 12 per cent of daily trading volumes are being completed through access to margin finance, compared with 8 per cent in late June. That kind of proportion “tends to raise eyebrows”, he said. Data from the China Securities Finance Corporation, a state-owned company which provides the country’s brokers with funding, showed that over 85,000 new margin trading accounts were opened in June — more than a one-third increase on the average over the previous year. One user on Weibo, a popular social media site, noted that securities companies “that had not been in contact in a long time” were again advertising services offering margin trading. Late on Wednesday, China’s securities regulator published a list of 258 platforms that it said were illegally offering margin finance. Under Chinese law, only approved brokers can provide securities financing. Support for the capital markets has come alongside measures from China’s central bank to reduce the cost of credit as the economy grapples with the consequences of the pandemic. “The government has been gradually loosening its monetary policy, so some of this loosening will find its way into the stock market,” said Nicholas Yeo, head of China equities at Aberdeen Standard Investments in Hong Kong. Despite apparent cheerleading for the market across state media outlets, some suggest the government, wary of the events of 2015, will exercise caution when it comes to allowing investors to bet with borrowed money. Ken Cheung, chief Asian foreign exchange strategist at Mizuho, expects leverage will remain the main driver of the market in the “medium term”, but expects the government to keep it at a “more controllable rate”. He noted that state media “refrained from adding fuel to the fire” after Monday’s rapid move upwards. Morgan Stanley analysts say that margin finance appears moderate for now, equivalent to about 4 per cent of the total capitalisation of the stock market, compared to about 10 per cent at the peak in 2015. New investor registrations, meanwhile, despite rising sharply month-on-month, are a long way from the 700,000 of December 2014. That could indicate that the rally has further to run. Michael Every, global strategist at Rabobank, says China’s market is just one example of a wider trend, also present in the US, where governments seek to boost sentiment while their economies are under heavy pressure. “If you have a strategy of just pumping up asset prices, it’s going to end in tears,” he said. “We would all sleep much better if this was all fundamentals-driven, everywhere.”
Tea Leaves, QE and Int'l demand for the dollar. Why Printing Money won't cause inflation yet and how it delays the next leg. Warning: words, words, words, very boring, tl:dr at bottom.
Previous post: https://www.reddit.com/wallstreetbets/comments/gbsyfk/tea_leaves_and_trade_wars_good_for_a_free_15_just/ This post is long, very long. Tl:dr at the bottom. Where have the daily posts been lately? Well, we're still well within our original parameters, and volume continues to provide choppy earnings, but generally trending our margins of expected up/down. I'm trying to put up posts a couple/few days at a time, unless there is something specifically that needs to be discussed that affects the prediction model. If its a 'nothing special' day, I likely won't be posting. Worth noting, volume continues to be low after getting roused over the weekend, likely a result of Trumps remarks about retaliating against China. The "ups" were at 75-85m before that, and the last two days have been around the same area. Interestingly, today sideways move was very, very low, coming in at only 53.1M as of 0332PM EST, and 72.5m at closing. When volume is low, movement is very choppy, see the pre/post market for good examples. Scalp at your own risk. Something that we need to make clear, is that our debt based economy (which we've had ever since we stopped balancing the federal budget) is based on the very obvious Ponzi scheme of "kick the can down the road", or "we promise we'll balance the debt next year, but we need our stuff now". The balancing never comes, and the can gets a little bigger each time. The United States doesn't make enough in tax revenue to pay its bills, period. In a regular year, without beer flu or killer hornets, we're borrowing every year. Eventually, this was gonna crash if we didn't pay it down and start balancing the budget, which is not an American priority. How is this financed, if we don't pay enough taxes? Each year the USA takes out loans, via the selling of various bond type vehicles, to pay for its missing budget gap. Like a Ponzi scheme, this eventually collapses, as the US Gov't needs to use our tax dollars, which it already doesn't have enough of, to service these bonds. How does it use our tax dollars to service bonds, if it already doesn't have enough tax dollars? Why, just sell more bonds, silly! You know, like using a new credit card to pay last months credit card bill. What could go wrong? We've been doing this for many decades, building up the debt you read about. Bonds are basically payed out two ways. Longer term bonds (like the 30 year) pay out every six months, at some rate that is set based on rates at the time of the issuing (30 year bonds generally have the highest interest rate, because they require the longest investment period). Additionally, they payout face value + any outstanding interest owed on the bond at maturity (expiration) . If the bond doesn't have an as-you-go interest payment, than the holder collects all of the accrued interest of the bond at maturity. There are some other small nuances, but this is the general "how they work". The payments every 6 months are a large portion of what I refer to when I say "servicing the debt". We were at 23T in debt in OCT 2019, and we're taking on 10T+ for this crisis. If we calculated 25T at the current 30 year rate of 1.24% (obviously it'll be not this simple, some is higher, some is lower, and we'll need to see the balance sheet and bond info to calculate properly), that would mean every 6 months we paid: 310,000,000,000 or 310B, or 620B per year, just in interest. It adds up. Why does this matter? Bonds are payed out in US currency. The strength of the US Bond is that it is revered around the world as the safest investment you could make. This gives the USA access to liquidity from other countries, and political power as the 'reserve' currency. It also helps establish the dollar as a "strong" currency, which is actually *not* always a good thing for international trading, for reasons such as it isn't always as profitable for other weaker nations to trade with us when their dollar isn't as good as ours, resulting in unfavorable rates for them. This actually reduces the amount of trade we have access to as a by-product. While we're on topic, the amount of bond selling the USA does to generate liquidity is what you hear about being referred to as the 'debt ceiling'. If we don't raise the debt ceiling, we can't sell bonds (get loans) to other entities to pay our bills. Currently the debt ceiling is suspended, allowing us to go into the hole as much as we want, which further reinforces the Feds "infinite QE" position. If the debt the USA is required to service is too great, than our own tax dollars will be doing nothing but paying interest on these credit card bills. Any anyone that has ever juggled that before can tell you, it eventually fails. What happens if the USA defaults? Many, many bad things. A lot of the value of US currency is specifically tied to the trust that the USA will never default. We'd see an immediate deep depression, if we're not already there, and currency would hyper-inflate in an extremely short amount of time, as demand for the dollar would immediately drop, dropping its value. Trump deciding to "not pay on our Chinese debt in retaliation for CV19" would be disastrous for our economy, and the world economy. We'd be extremely likely to lose our status as the 'reserve' currency of the world, which could fall to any other strong currency. What was discovered, however, in the crash of 2008, is that Quantitative Easing (QE) doesn't cause hyper inflation when the dollar remains strong during a worldwide recession. That is, because the dollar IS the reserve currency, nations in turmoil seek to flock to it for safety, driving up its 'value', and countering the effects of inflation. When currency is hoarded by the nations flocking to it, world trade goes down significantly, driving up prices on goods and services, just as it had the affect here locally when banks hoarded the QE cash in 2008 rather than loaning it out as intended. Simply put, 'too scared to spend, but desperate to hoard' keeps the dollar from inflating. The doubly constrains international trade, as a strong dollar already makes it more difficult for people seeking to import US goods internationally, because their currency conversion rate isn't very favorable, while making it easier for Americans to import other countries goods due to our stronger dollar. Further more, when dollars are hard to get, countries are unwilling to give them to other countries, and other countries only want dollars in exchange for their goods. Vicious cycle. Why does any of this matter to your trading right now? The Bears that keep dying off are the ones that keep trying to find food in the middle of Winter. There isn't any food, you have to wait for spring. The QE process supports local AND international markets, and with the strong demand for the dollar world-wide right now, it won't inflate at nearly the rate you expect, until it just plain crashes. OK, so what causes it to crash? Well, QE works by selling our debt (bonds) to other countries (or large institutions) to generate liquidity, and using said liquidity (formerly for buying various Gov bonds, and since QE began, by buying bonds and other longer term securities from the private sectors) to give to our own country more money to "get the wheels going". The Interest rates on the QE inside the country are going for near 0%-.25% to help spurn the economy, and although the bond market has also has low rates right now (Last Value for a 30 year 5/3/2020: 1.24%), it is still not an equal balance. The USA will owe more to these bond holders than it produces via its loans to the private sector(s). If those other countries stop having revenue to buy our bonds, the process fails to work, because it loses the necessary liquidity. If the Fed attempts to print without getting loans from other countries, thereby "printing" money out of air, the dollar will begin to devalue if enough is printed that worldwide demand for it begins to ease, lowering its demand levels and therefore its price. Why would other countries not have the money to buy our bonds? China: 20% unofficial unemployment rate: https://www.bloomberg.com/news/articles/2020-04-27/china-brokerage-retracts-estimate-that-real-jobless-level-is-20 (ctrl a + ctrl c before the bloomberg pop-up wall to copy the text and paste to notepad to read for free) India: 27% unemployed: https://www.firstpost.com/business/coronavirus-lockdown-indias-unemployment-rate-soars-to-27-11-for-week-ended-3-may-says-cmie-8334891.html Unemployment rates in Europe expected to "near double": https://www.reuters.com/article/us-health-coronavirus-eu-jobs/mckinsey-predicts-near-doubling-of-unemployment-in-europe-idUSKBN2210UZ Simply put, there is gonna be a whole lot of "no fuckin tax money" going around, and a whole lotta people needing money for basics at the same time. This is gonna be a strange thing to dig out when everyone is printing money at the same time. What does this mean to your tendies? Puts are simply not good overall play for the short term, outside of specific target movements (day trades, bad earnings, bankruptcy of an individual company, targeting a specific weak industry). I play straddle variations (and day trade shares) because it plays off of volatility increasing, which is should continue to do, although theta gangs are likely making the best reliable wages of all of us, selling hopes and dreams to dying bears. I'll likely switch to a few upward theta plays this week after my straddles tonight come back . So! This post is already long, lets make it a little longer. If you've been following along, you'll know I don't DD individual companies for you to bet on, but rather the market as a whole: We know chicken, pork, dairy, potato, and onion farming are affected, and in multiple countries. (links in previous threads) We know oil continues to be affected at rock bottom pricing, and oil futures suggest it will stay that way for a while (link in previous threads) We know some types of home-based loans have been affected (HELOCs, and others further defined below). We know unemployment is high, not just here, but world wide, 20%+ in multiple major countries. u/Breezy_t has some great DD regarding the mortgages starting to wobble a bit, another one of our expected indicators. I expect to see this really start to move next month as the 3 delay and 4th month approaches with all of those payments suddenly due. While not all lenders did it this way, enough of them did that it should get ugly. If another stimulus is passed, I would expect this to get delayed, but won't guess how long without seeing the stimulus. https://www.reddit.com/wallstreetbets/comments/ge5nnl/us_households_had_record_debt_when_the/ u/Sufficientlee shows us the Beef Industry, last of the major meat players in the USA has started to creak: https://www.reddit.com/wallstreetbets/comments/ge3p01/1_in_5_wendys_out_of_beef/ u/Phosgene1394 brings us DD about confirmation of the 2nd Strain. I've read there are 19 in total so far, but a particular strain being very infectious, this is important because vaccinations against one may not work against others, like the flu: https://www.reddit.com/wallstreetbets/comments/ge9s6m/beer_virus_mutated_spy_350_bois/ As previously mentioned, I reached out to a friend of mine at a major mortgage lender this weekend. She handles VA, FHA, and Conventional loans for home buyers, primarily. We didn't speak about commercial loans. Here is what she gave me: VA loan minimum fico requirements bumped from 620-660. FHA loan minimum fico requirements bumped from 640-660. Conventional loans require minimum 700 fico or automatic bump to FHA loans, which are less favorable. She also mentioned a couple of things I expected would happen, including the non-official delivery of them (no paperwork) She was told to "use discretion" giving out home equity refi's. She was told to "use discretion about companies/industries applicants work for" IE if your job might be affected by CV19, she might deny you based on "nothing". Because this could be seen as discrimination, you can't tell someone you didn't lend to them because they work for a restaurant, but you can tell them the bank simply couldn't qualify them at this time. She also said the financial lending programs are sending out new guidance basically every day, updating and tightening requirements as we get farther into this and the bigger picture comes out. Now, use your own judgement as to whether I'm making all of that up to fit my narrative, it's not something I can exactly source for you, for obvious reasons. Here's what I can tell you about my straddle test plays over-night, which I've decided to back off on for now: 1st) +$124 for (1) straddle contract, but Trump ruined the test by rattling sabers with China 2nd) Would have broke even (+$) If I'd woke up on time, but instead I ate a small loss with an early retrace to strike eating my gains. 3rd - weekend) +$24 for (1) straddle contract due to a parabolic move overnight sunday reversing the down gap with an upward climb. I believe with the general upward trend that even down gaps will reverse like this moving forward until the bankruptcies / failures start to roll in. 4) -$270 Bought (3) straddle contracts on 5/5/2020 at EOD after that crazy downward plunge and some reversal, strike 287, and once again after hours went parabolic, resulting in the worst possible outcome, opening the next day at 287, almost exactly where I bought it. This is a good example, however, that my worst case scenario resulted in a slightly over 12% loss on the purchase, so this was relatively safe. "What should I buy?" Well, SPY is largely biased towards Tech, which is largely less affected by recession. If you're playing SPY, and you want larger returns than a straddle will give, I'd stick with calls, and don't oversize your bets and get eaten by down-gaps. You will lose some overnights, but you should win more than you lose. You could hedge an OTM Put for some cheap safety for a wide strangle if you're so inclined. I would generally try and use a strike close to a low-volatility low if it bounces down in the mid day, especially if you end up close enough to a high volume strike during the mid-day IV reduction. If you look back, 3/4 of the last gaps were down, but 7/10 of the last gaps were ups. Most importantly, as those last 3 gaps were in a row, they might simply be the 'pull back' of the previous 6 ups. These are the industries I would bet against right now, if I weren't in SPY: -Anything that sells: chicken pork, beef, dairy, potato, and onion as a primary source of revenue. -Anything that is involved in the oil-supply chain, except maybe oil storage, we'll see if OPEC + friends's production reductions (9.7 million barrels per day) are enough to keep these from sky-rocketing. These stocks seem super unstable as their value is artificially super high for the short term until oil is under control again. Note that in the energy markets, non-oil power production has done fairly well. -Mortgage lenders and PMI Companies starting next month. Note, these won't fall right away, so set your dates accordingly. -Car manufacturers, these suffered terribly in 2007/8/9 and eventually had to be bailed out. The same thing is likely to happen again. I'm tightening my expectations of daily movement from 1.5-2.5% up and 1.5% down, to .5-1.25% up, and .5-1.75% down , still not including any overnight gaps. Notably, these gaps have been following trend a bit more often lately. We'll also likely see more 'stall' days (-.5% to +.5%) as we seem to be in a low volume 'plateau' of sorts. If you day trade / scalp, its dicey out there so take your profits a bit early, if your runs start to waver pull out and re-enter if necessary, the downs are spiking hard this last week, and can reset an hour+ of gains in a single 1 minute bar. Don't bet on the next "down" just yet, QE is a strong delay method but it doesn't plant crops. Fundamentals are most likely to win this fight in a big way, but you can't hurry them. QE is like building a 10 foot sandbag wall to stop a tsunami that you're expecting to arrive any day. My positions currently? Cash only day trading again until I have time to figure out my preferred theta plays, although some solar energy earnings are coming in next week and renewables have done very well so far, so I may dip my toe for a few calls there. If you can handle the waves, there is great scalping right now. TL:DR: QE will keep destroying your puts because people don't know how QE works. Play shorts only with great DD, and safer play is avoid shorting tech all together. Short companies according to fundamentals, and be more confident (and riskier) in short term calls. Stop losses are getting chopped through and flash crashed, so try to stick to with-trend plays, not counter-trend. Calls > puts rights now. Good luck autists, +15% tendies for everyone. edited for slightly less shitty formatting.
Review and Observations [SPOILERS]- AEW DARK - Tue., Aug.25
Just finished watching Tuesday's (longest ever?) episode of Dark. The show ran just short of two hours, with thirteen matches on tap. Since Dynamite isn't on until Thursday this week, more action offered to tide you over. Commentary - Veda Scott, Taz, Tony Schiavone 1) Best Friends vs. Storm Thomas & Demetri Jackson A new found anger on display with Best Friends starts the show against two newcomers. Storm Thomas was solid but didn't stand out. Demetri Jackson had a fluid sequence of offense early that shows he's got some skills! He also avoided a bad bump by just tucking his head under in time from Trent's planking rope suplex. Trent did most of the heavy lifting in this one, scowling through much of his attacks. He's obviously still upset over his mom's van. Back-to-back low piledrivers on Jackson allowed Chuck Taylor to get the pin. Orange Cassidy approved. Good workout for all involved. 2) Shawn Spears vs. Jessy Sorensen Two brutes beat the crap out of each other. That sums up this slugfest of strong style, little flash competitors. Spears ultimately hits his Death Valley Driver to secure the win. And yes, he sadistically adds some post match punishment. Spears hits Sorensen's "surgically repaired neck" with a deliberate strike from his loaded left glove. Intro by Justin Roberts made sure to emphasize "legendary Four Horseman member" Tully Blanchard, keeping the tease alive for a new version. Subtle cool when Tully removes his facemask at this moment, inadvertently mimicking an outlaw from the old West like a true horseman would. 3) Red Velvet vs. Mel Mel's mean stare usually means bad things for her opponents. On the receiving end in this dull match was Red Velvet. Mel's size advantage was glaringly apparent. She "rag dolled" Red with a choke slam to win easily. Mel has a "Lance Archer" assassin vibe about her. She needs a little more polish in the ring, but can be a force in the women's division. 4) Lance Archer vs. D3 COMMENTARY MOMENTS Veda Scott, "I talked to D3 before this match. I'm glad because I don't think he'll be available after it." (Awesome!) Taz, "D3 might be D.O.A. in a sec." (!) and, "He almost caught rain on that chokeslam." Archer continues his "Everybody Dies" campaign (second only to MJF's #NotMyChampion campaign) by tossing around Italian newbie D3. Once again, size difference is almost uncomfortable to watch - I said almost! Archer's push in AEW seems to be stuck in limbo since his TNT Championship Tournament run ended. I wonder what storyline he wants to pursue and against whom in the short term. I would like to see him have matches against the likes of Wardlow, Cage, and Hager. But with no audience in attendance yet, that would be wasted for pop. They better do something with him soon as this squash match run is getting old. 5) Luther & Serpentico vs. The Initiative Last week, Cutler's "polyhedral die" roll landed on 15. This week, it landed on a symbol (just above an upside down 14). Is there a non-number symbol on the die? I thought it was just 1-thru-20. I'm sure someone can comment below and inform the masses! Fun match yet again involving our loveable losers The Initiative (Peter Avalon, Brandon Cutler). Avalon emphatically swore (in Monday's "Being The Elite" episode) to do whatever it takes to win! He almost secures that win with a rollup on Luther but only got the "two-and-a-half" count. Luther kept using his partner Serpentico as a bodyslam accent on top of their opponents several times. I'm not sure Serpentico enjoyed that. Avalon's obessesion to get a win comes back to haunt him as he mistakenly strikes Cutler with "the book". Luther holds a dazed Cutler (a la Jim Neidhart of the Hart Foundation) as Serpentico leaps and hits a double-knee to Cutler's face on the way down. 1-2-3. The Intiative's tag streak continues, now 0-and-11. Booooo! 6) Nyla Rose vs KiLynn King Rose and manager Vicki Guerrero come out quite confident as KiLynn King awaits. King is getting many viewers' attention each time she performs. Her sleek build, and long legs lend themselves well to her in-ring style. Her spin kick resembles that of Luchasaurus. She even gets a momentary upper-hand on Rose when she hits a Crucifix (or Samoan drop) on Rose for a close two-count. But ultimately she falls, thanks in no small part to Vicki. As if Rose needs outside interference to win, Guerrero shoves King from the top rope as she set up to jump for a move. Rose distracted referee Aubrey Edwards long enough to let that happen. Rose then hit her devastating power bomb for the pin. Aubrey! Turn around next time! Sheesh. Post match, Vicki gets on the mic (oh no) to coin their alliance, "The Vicious Vixens". Viva la Vixens! 7) Billy and Austin Gunn vs. Frank Stone & Baron Black Not too much to say on this match. The Gunn Club prevailed without dominating their opponents much. Frank Stone looks like an up and comer with good power. Austin Gunn nailed his "quick draw" tuck suplex off the ropes on Black for the pinfall. Not sure where the Gunn Club is going yet, stay tuned? 8) Penelope Ford vs. Heather Monroe A whole lotta platinum blonde goin' on in this match. Ford is strong in her offense yet again. Her opponent, Heather Monroe, the "Killer Bae" in Championship Wrestling From Hollywood, is used to being top of the class. In AEW, she's just getting started. She shows enough in this match on the heels of her Dynamite match against Shida to have confidence. Ford hits her "FisherLady Buster" (thanks Taz!) for the pinfall. (Heather - just lift your free shoulder! No? Why? LOL).Newsflash - Kip Sabian is not only Ford's boyfriend, but also her #1 fanboy. 9) Santana & Ortiz vs. Metro Brothers (Chris & J.C.) Proud and Powerful prevail easily with a thorough dismantling of debuting team Metro Brothers. Highlight of the match was Santana's triple suplex sequence without letting his opponent go during it. They used the same power bomb into a facekick finish for the pinfall. Post match (you knew it was coming), Best Friends came flying out to throw hands with them. Out on the floor, through the ringside table, and up the ramp to the parking lot is where they traded blows. No love lost. I was hoping for a chair shot from Best Friends to repay PnP for the van. Not yet! 10) Ricky Starks vs. Shawn Dean Team Taz in the ring represented by Absolute Ricky Starks. His back is still showing signs of Darby Allin's tacked skateboard. Ouch. Shawn Dean keeps getting good opponents in his matches and shows a bit more each time out, as he does again here. But in the end, Starks hits his rochambeau reverse face down suplex for the win. Strong pin position on display with his full arm extension and weight pressed down on Dean. Excellent technique Ricky! Love the expression too. 11) Jake Hager vs. Marko Stunt I thought wrestling always had weight classes. No? Oh, AMATEUR wrestling - got it. Marko Stunt (120lbs.!), why do you sign these match contracts? Jake Hagar? Oh no. And why are your tag partners Luchasaurus and Jungle Boy never out to support your solo matches? You're always out to support their matches. Mmmmm? Jake doesn't seem eager and confirms with referee Bryce Remsberg that this is a mismatch. He even lets Stunt headlock him once before telling Marko to leave. "You don't belong in this ring with me." Stunt kicks the bottom rope to nutjob Hagar in response. Stunt also does his floss dance to further infuriate the MMA man. That's it. Hagar proceeds to treat Marko like any other man in his way and destroys him. Even chokes him out for the submission win. Oh, NOW Jungle Boy and Luchasaurus come from the back - a little late, guys! "Don't do it, he's a kid," Luchasaurus pleads. Hagar still knees Stunt into next week before fleeing. Dang you Inner Circle! 12) Frankie Kazarian vs. Kip Sabian I was caught off guard with the finish of this one. Members of SCU have been marginalized recently from the tag team division. Scorpio Sky is "concentrating on his singles career". Daniels and Kazarian have been in singles matches separately. And their tag team isn't even in the Gauntlet match this Thursday on Dynamite. I was fully expecting Sabian to take this one, especially with Ford's interference prevalent. Sabian should have pinned Kazarian with a feet-on-ropes added rollup. But surprisingly, Kaz kicked out. Then, he countered Sabian's suplex attempt into a "version of a Scorpion Death Drop" (thanks Taz!) to gain the pinfall. Great form on the winning pin with Kaz close-fisted around Sabian's shoulders and pressed down fiercely atop him. Frankie also gets a closeup shot to say he's "tired of being overlooked, and under appreciated", I think. Respect. New storyline needed for these guys. 13) Sonny Kiss & Joey Janela vs. The Hybrid 2 The main event lived up to its top billing. Both of these tag teams are fluid and quick throughout the multi-move bumps and tumbles. Highlights include Angelico's low ground, multi-limb leg tie-up of Kiss. That was great, and is worthy of a submission win in future for sure! Janela's 1-on-2 move from the top rope also looked sensational. He leaps into a reverse neckbreaker on Angelico, who inadvertently DDTs Evans (who was stuck in his gut after Janela threw him there). Agonizingly, Kiss goes to the top rope one too many times and is punched silly by Angleico. Evans retrieves Kiss from the top buckle, and backslides him into an inverted spider web clamping pin. Excellent form, and greatly believable. Super match for all four performers. Dynamite at 8pm on Thursday night! Take care. [end]
Aave - an open source and non-custodial protocol to earn interest on deposits & borrow assets
Akropolis - an undercollateralised lending protocol aiming at DeFi yield optimisation and interest-rate sharing
Atomic Loans - a lending platform that accepts trustless BTC collateral via custom Bitcoin scripts
bZx - a decentralized protocol that enables lending and borrowing for margin trading
Compound - an open-source money market protocol on Ethereum that lets users lend or borrow assets against collateral
DeFiner - a globally available, decentralized lending marketplace to securely borrow and lend digital assets through smart-contracts
Force Protocol - an open financial platform providing a wide range of financial services including lending, banking and stablecoins
Maker - a decentralized credit platform on Ethereum that supports Dai, a stablecoin whose value is pegged to USD and backed in ETH or BAT
Nitrogen Network - a decentralized P2P network for secured loans
Swap Rate - a DeFi interest rate swap tool built on the Opium protocol
Augur - a decentralized oracle and peer-to-peer protocol for prediction markets on Ethereum that lets anyone create a market around the outcome of any real-world event
ACO - a decentralized and non-custodial options trading protocol
Balancer - a non-custodial portfolio manager, liquidity provider, and price sensor
Bancor - a protocol on Ethereum for non-custodial token exchange using pooled liquidity
DeversiFi - a high-speed, non-custodial Layer 2 exchange built with STARKs technology, allowing for 9,000+ tps with deep liquidity, low fees, privacy and speed.
DEX AG - a trading interface that finds you the best price from 11 different DEXes
dYdX - a non-custodial trading platform on Ethereum geared toward experienced traders
Gnosis Protocol - a fully decentralized trading protocol that allows anyone to add any trading token pair
Hegic - an on-chain peer-to-pool options trading protocol built on Ethereum
Helena - a smart contract platform with gamified prediction markets
Jelly Swap - a peer to peer trading tool across different blockchains using atomic swaps
KyberSwap - a permissionless cross-chain atomic swap protocol, enabling trading of tokens across different chains
Leverj - a secure and decentralized high performance plasma based exchange
Local Ethereum - a non - custodial peer-to-peer ETH marketplace featuring end to end encryption and on -chain escrow.
Loopring DEX - a non-custodial Layer 2 DEX built on top of the Looping protocol
Market Protocol - a protocol on Ethereum which offers tokenized leverage trading of any asset through synthetic pricing
MCDEX - a decentralized derivatives trading platform for perpetuals & futures
MerkleX - a decentralized exchange that uses a decentralized clearing network. Merklex allows traders to set limits on what can happen to their funds.
Nuo Network - a non-custodial platform on Ethereum that provides a decentralized debt marketplace. Users can lend, borrow, or margin trade any supported cryptoasset
Ren - a provider of inter-blockchain liquidity for all decentralized applications
Set Protocol - a protocol designed to create, manage, and obtain baskets of tokenized assets
Synthetix - a decentralized platform on Ethereum for the creation of Synths: on-chain synthetic assets that track the value of real-world assets
Tokenlon - a DEX with off-chain matching, and on-chain settlment via 0x
UMA - a decentralized protocol to enable the creation, maintenance, and settlement of financial contracts for any underlying asset
Uniswap - a fully decentralized on-chain protocol for token exchanges on Ethereum that uses liquidity pools instead of order books
Veridex - a Mesh connected 0x relayer with trading, swap and market making tools
Flexa - a payment network that enables merchants to accept digital currencies without the risk of fraud or volatility through off-chain collateralization.
Fuse - a blockchain payment integration for businesses
Request Network - an open network for transaction requests. It allows anyone to create, store and access invoices and receipts in a universal, decentralized network.
Alpha Wallet - a mobile-based wallet built for Dapps. Do everything with only a few taps.
Argent - a secure smart contract wallet built for simplicity, security and usability.
Ash - a wallet interface focused on DeFi asset management powered by Melon Protocol
Atomex - a multicurrency HD wallet with built-in hybrid atomic swap exchange
Coinbase Wallet - a non-custodial, DeFi enabled mobile wallet that lets you securely store your tokens and collectibles
DEXWallet - a mobile wallet for decentralized finance
Eidoo - a non-custodial wallet that allows users to store, exchange and transact cryptoassets with a wide range of DeFi services and tools
Math Wallet - a multi-chain non-custodial wallet with embedded browser functionality and DApp store
Meet.One - a multi-chain DeFi wallet, non-custodial and easy-to-use
Monolith - a decentralised banking alternative, powered by Ethereum
My Crypto - an easy to use app that helps you create, import, and manage all your wallets
My Ether Wallet - a free, easy-to-use and open-source client-side interface that helps you interact with the Ethereum blockchain
Gnosis Safe - a secure way to manage funds and interact with decentralized applications on Ethereum
HB Wallet - a non-custodial DeFi-enabled wallet available on multiple platforms
Poketto - a wallet that you can actually show to your parents
Bamboo Relay - a 0x relayer built to trade, lend, and borrow tokens directly from your wallet.
Dca.land - an automated & decentralized dollar cost averaging tool
DDEX - Decentralized Margin TradingTrade with leverage and earn passive income in DeFi
DeBank - an all-in-one DeFi wallet with on-chain DeFi stats
DeFi Saver - an easy to use management portal for MakerDAO CDPs and compound protfolios
DeFi Snap - a simple dashboard that helps visualize all DeFi assets and liabilities
dForce Network - a decentralized finance protocol, starting with the first synthetic indexed stablecoin - USDx
Dharma - a peer-to-peer marketplace on Ethereum for non-custodial lending and borrowing of cryptocurrencies built on an extensible open source protocol
EasyCDP - an interface for MakerDAO that vastly simplifies the process of opening and managing a CDP
FiatDex Gateway - a simple browser-based interface to interact with the FiatDex protocol which allows users to trustlessly swap fiat to crypto
Frontier - a mobile interface integrating all DeFi Protocols and Wallets, enabling users to Track, View & Manage positions in real-time without giving away their private keys
InstaDApp - an intuitive interface on top of the MakerDAO protocol that’s optimized for users lacking advanced technical or financial experience
iearn.finance - a simplified aggregator that optimizes lending into the highest yielding protocols
Melon - an open-source, community-run protocol for asset management on Ethereum. Melon lets users create, manage, and invest in decentralized funds composed of ETH and ERC20s
Totle - a decentralized liquidity provider where you can swap and transfer tokens while automatically getting the best prices from decentralized exchanges
Unspent - a dashboard for all crypto and open finance activity: investing, trading, lending & borrowing
Zerion - an easy to use trustless banking interface utilizing popular DeFi protocols
0x - a protocol for p2p exchange of tokenized assets. ZRX is the governance token that allows to vote on protocol upgrades, and earn liquidity rewards shared by liquidity providers.
Ampleforth - a digital-asset-protocol for smart commodity-money.
Augmint - a smart contract platform that issues stable tokens targeted 1:1 to the EUR backed by collateral
Betoken - An open crypto fund managed by code and meritocracy
Connext - a non-custodial layer 2 payment-channel technology that enables off-chain, instant payments with low (or zero) transaction costs, helping scale the Ethereum network and paving the way for use cases like micropayments
DAI - a decentralized stablecoin soft-pegged to the US Dollar
DFOhub - an Ethereum-based Research & Development project that provides a framework for DFO's, on-chain companies with proprietary assets and voting tokens as programmable equities
EPNS - a service that allows dApps, Smart Contracts & Services to send push notifications to their users in a decentralized way
Lightning Network - a Layer 2 protocol on top of Bitcoin that seeks to improve scalability by moving small and frequent transactions off-chain, allowing for fast peer-to-peer transactions and low fees.
Liquidity Network - a Layer 2 scalability solution that enables gas-less, near-instant trustless transactions & token swaps
Loom Network - a DPOS layer 2 scaling solution that allows developers to run large-scale applications on top of Ethereum
Loopring - an open source protocol for decentralized exchanges designed to provide matching-as-a-service, and its orders are unidirectional and do not differentiate takers and makers giving complete control to traders
mStable - a single standard unifying stablecoins swapping and lending that also reduces friction and fragmentation
Neutral - a meta-stablecoin system built using a basket of multiple stablecoins to generate a lower volatility token with a reduced risk profile
Nest - a decentralized and transparent price oracles network
Nexus Mutual - a decentralized insurance platform where people can share risk particularly against smart contract bugs, failure or other black swan events
Opyn - an insurance and risk management layer for DeFi
PhishFort Protect - a crypto open source browser plugin that protects users in the DeFi space from phising
pToken - a trustless and trasparent 2-way peg to teleport tokens across blockchains, without friction
rDAI - a DeFi primitive that splits principal and interest in DeFi investments, and streams accrued interest to chosen addresses
Reserve - a decentralized stablecoin protocol enabling global and frictionless payments
Tokentax - an easy to use cryptocurrency & DeFi taxes calculator
USDx - USDx is a decentralized and synthetic indexed stablecoin introduced by dForce. USDx's underlying stablecoins include USDC, TUSD and PAX
WBTC - an ERC20 token that is backed 1:1 by bitcoin.
xDai - an Ethereum sidechain with 5-second block times, low gas prices, and a native token that’s also called xDai.
0x Tracker - a trade explorer for 0x protocol and decentralized ERC20 token price index
Coin Interest Rate - a dashboard showcasing borrowing and lending rates for USDC and DAI
DefiScan - a read-only DeFi profile explorer for Compound, Uniswap, and SpankChain
Etherscan - a block explorer and muti-purpose analytics platform for Ethereum
Eth Gas Station - a consumer oriented metrics & analytics platform for the Ethereum gas market
Loan Scan - a dashboard showing the best rates to earn passive income or lowest rates to borrow crypto
UniswapROI - a calculator to help you analyze your investments in Uniswap and find the best liquidity pools
Whois0x - a database of wallet addresses and their linked social media accounts that also provides easy to understand DeFi stats for each address
Defi Nerd - a lending & borrowing reviews and rates comparison ressource for crypto assets
DeFi Prime - a list of the best Decentralized Finance Products
Defi Rate - a trusted resource for DeFi research, news and interviews with a strong focus on lending rates
EthHub Weekly Newsletter - a trusted resource on all things Ethereum
Chris Blec - a collection of demos for various DeFi products, targeted to beginner & intermediate users.
Into the Ether Podcast - a podcast focusing on all things related to Ethereum, the leading blockchain for decentralized applications.
Wyre Podcast - a podcast where Thomas Scaria interviews founders of top DeFi projects twice a month. Giving insight to their business as well as the technical challenges that they have overcome.
Bankless - the ultimate guide to crypto finance written by Ryan Sean Adams
DeFi Tutorial - a newsletter focused on teaching and educating readers about DeFi with hands on video tutorials
DeFi Value - a place to better understand and evaluate Decentralized Finance
DeFi Weekly - a weekly in-depth review of technical achievements within decentralized finance
Dose of DeFi - a weekly newsletter that specializes in deep dives on topics in the space
EthHub Weekly Newsletter - a collection of the week's Ethereum and cryptocurrency news curated by the founders of EthHub
The Defiant - a curated list of daily news in the DeFi space explained and conensed down to a digestable level by Camila Russo
Concourse Open Community - an open community of builders, enthusiasts and researchers working towards a free, bountiful and decentralized future for everyone
Dai para principiantes - a spanish-first Dai and Defi educational website, tutorials & active community
DeFi Nation - a DeFi-oriented community featuring discussions, walk-throughs, Q&A calls and more
Ethereum Italia - an Ethereum focused community in Italy with a strong presence on all social media
Hola DeFi - a DeFi product directory for the Spanish-speaking community
Summary Eildon Capital Limited (EDC) is an investor that invests in the real estate sector in Australia across a range of asset categories. The investment objectives of the Company are to build a portfolio of actively managed property investments; hold a portfolio of property investments that deliver a combination of an income stream and capital appreciation by reposition and improvement of the investment prior to realization; provide Shareholders with reliable and increasing returns, and deliver shareholders a return, which includes dividend income franked to the maximum extent possible and the benefits of capital appreciation arising from the growth in net assets. It invests in various sectors, including manufacturing, retail, logistics and real estate. It holds a mezzanine finance loan on a property development in Melbourne; over four senior finance loans on property developments, and an equity investment in a property in Brisbane. Eildon Funds Management Limited is the manager of the Company. Portfolio The portfolio at the end of December consisted of 10 investments including 7 debt positions, accounting for 84% of the portfolio by value. These investments provide a margin of safety in the event that the property market experiences a negative shock. The balance 3 investments represent equity positions that, while asset backed, also provide potential exposure to meaningful capital growth via asset repositioning, planning outcomes or market re-rating. The company has been growing EPS at a very solid rate and its Trailing twelve month EPS growth rate is 34.6% and since its initial float (mid 2017) EDC has paid out 0.255 DPS. EDC Revenue Structure Future growth The real estate lending market totals approximately $271 billion. Previously major Australian Banks have funded approximately 80% of this segment. With changes to security requirements imposed by APRA, Australian Banks have reduced this exposure to approximately 65%. This has seen a growing number of non-banks become active in this segment. Regarding COVID-19, the board issued the following statement "The real estate lending market totals approximately $271 billion. Previously major Australian Banks have funded approximately 80% of this segment. With changes to security requirements imposed by APRA, Australian Banks have reduced this exposure to approximately 65%. This has seen a growing number of non-banks become active in this segment" Currently EDC is trading with a Net Asset Backing of $1.095 (post tax - 22/05/2020) and the SP is $0.97. That's nearly 10% under the current price. I applied a discounted cash flow to the current price using the values as below and its intrinsic value is $2.55 with a growth rate of 14% which is not unreasonable. This represent expected growth of around 262% in the next 5 years and the stock is within margin of safety price. TTM EPS of 0.11 was used as per stockopedia.com Discounted Cash Flow -- DYOR and GLTAH. This is not investment advice EDIT: PS: 7.98% dividend EDIT: To further add to my post, regarding the companies current financial integrity. Piotroski's F-Score (Health Trend) Altman's Z2-Score (Bankruptcy Risk Meter)
PE investor perch: Help me make sense of the s-storm we're seeing in real-time
Long-time lurker, first-time poster. Here are my two-cents as a middle-market private equity investor; it's an interesting perch to watch things unfolding real-time... and which frankly makes me wonder WTH is going on in the public markets. I'm not going to edit this for typos. Earnings: Our investments are relatively resilient (think trains, pharmacies, food supply chain stuff). But our earnings are getting absolutely smoked; I'm talking (20%) to (30%) territory. Our Q1 valuations won't really reflect this as March will have some China noise and 2 weeks of lockdown (the majority of American businesses will feel this on the margin), but Q2 and Q3 will be a mess... for us, we mark-to-market and carry on; but the hit on earnings poses a big covenant and liquidity issue. In the public sphere, mark-to-market is the market. I can only interpret the market as saying your NTM earnings, however risky and unknown (this is without precedent, after all), are irrelevant because the long-term story holds water. Since when did the public markets move from being so short-term and hung up on quarterly earnings to so long-term? I'm lost. Refi wall: Private companies went into Covid-19 with historically levered balance sheets. Granted, a lot of issuances were cov light at higher leverage levels, some are HY and are trading like shit, but even the best private loan terms have fixed charge covenants which will bite borrowers in the ass. There's about $1.5tn of corporate loans maturing over the next 12 months (what we call a refi wall). When that wall hits, companies will be refinancing off of significantly lower earnings (best case) or will be trying to find debt in a market that's seized (which is what we saw in 2009). Imagine you earned $100mm of EBITDA and you were 4x levered heading into Covid. Now it's time to refinance, and your EBITDA is $75mm; you'd be looking to fill a 5x of hole on your balance sheet, and no one is lending at those levels any time soon. Sure, some businesses won't be down (25%), but a lot of industrial, old-world, cyclical businesses will be - and then some. If you're a PE-backed company, you call in your best lending relationships and add some equity to fill the hole (or you say F it). If you're a SMB, I have to imagine you just throw in the towel. What other option do you have? Government stimulus has been a huge boost on this front, but marginal credit heading into Covid-19 will be unfinanceable and businesses will go under en masse, whether it's a liquidity crunch today or an inability to refi tomorrow. Farm crisis: I don't know why it doesn't get more media attention, but there's a storm brewing in the food supply chain. Granted, these points are hearsay, but we have it on pretty good authority that commercial farms will soon be forced to euthanize entire herds of livestock and poultry. The reality is that cows, chickens, and pigs get too old and too fat quickly, and when processors are shut down, there isn't a lot of time to spare. That's the protein story. Produce could also face issues. Again, hearsay, but we've heard that some crops aren't going in during prime planting season. You might already be seeing the food supply chain - particularly truck - screwing things up (noticed any fresh produce missing from the menu of your grocery store or current take-out spot?), but if there's a fundamental supply issue it would spell serious trouble. You thought fighting over the last roll of toilet paper was bad? I would love to be fact-checked on this front. Again, it's coming from sources in the thick of things, but it's quite ominous when food security in North America is a topic of discussion. O&G: The fracking boom has been a massive driver of employment over the last decade or so. As wells shut off, people will be sent home. I don't think I need to go into this more, but too much or too little oil are both huge issues for America. Credit cards & other consumer debt: This one has been getting a bit more traction as the value investor blogs have been all over it. Let's say we are back to normal in a few weeks or months time. And people are now able to go out and start spending again. Notwithstanding the fact that unemployment is insane (26mm?!) and it will take time for those people to re-enter the workforce, there will be a mountain of backdated credit card, mortgage, car, rent, and other loan payments they'll need to service before they buy that BBQ, renovate their house, or take a trip. What card do you guys think the government has up its sleeve to gloss over that? I'm a family of four and I don't want the banks to foreclose on my house (obviously) or my car (to get to work); do we honestly think there's much left over after all that debt service? Maybe mass consumer loan forgiveness or refinancing (i.e., tack missed payments onto the end of the loan). I just haven't seen it. Someone tell me everything above is wrong and I'm just seeing problems where solutions are in the works. I just can't make sense of everything I'm seeing - earnings getting smashed, lenders getting picky, fundamental supply and demand issues - next to a market that's modestly down (relatively) from record-highs. Am I missing something?
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