Margin: Know What's Needed - CME Group

Idol-Rapper Analysis #1 - 4th Gen Boy Groups 1: ATEEZ, Oneus, A.C.E

Hello!
i thought it would be fun to start trying to do some technical analyses of kpop idol-rappers and enough other ppl seemed to enjoy the idea so here i am! Very self centered of me to think you care about my opinion but if you don't care about it you don't have to read this! It costs zero dollars to click away from here!

Ranking system:
I will give a tier ranking using the S / A / B / C / D / F tier system.
Here is a full breakdown of what i consider each tier to represent generally. If you care about how I rank these folks I highly recommend checking it out
I give tiers based on the following aspects technical abilities like speed/breath control/enunciation/dynamics/and complexity of flow, cohesion with the group, creativity/originality, emotional delivery and versatility.
Note: I consider an AVERAGE idol rapper to be around a D or C tier. If you think my ranking is harsh that's what i'm comparing against.

Some Disclaimers:
This post is fxckin long
This post will cover both technical aspects of rapping and some more critical analyses including my own personal opinion. I will try and justify my opinion as best possible but in the end, the opinion belongs to me and only me, if you enjoy a rapper I don't, or if you don't enjoy a rapper I do, that is all ok! Additionally if you are uncomfortable seeing your faves criticized this might not be the post for you! All of our faves have flaws and room for growth and pointing them out does not diminish their talents or hard work.
If you disagree with my analysis I'd love to hear your thoughts! If i get something incorrect please feel free to correct me in the comments! I am open to criticism and correction!
!!!!!! I will do my best to point out both an idols strengths and weaknesses, but I will not water down my opinion to do so. !!!!!!
My preparation for this post was listening to ALL the tracks the group had available on streaming, if the rappers have their own subunit or solo work i looked at that too. I didn't watch all of their live performances, but if there was a track i was referencing and it had a live version i tried to watch that for reference.
Many of these rappers are very limited in the amount of long-form work they've put out. All my analysis should be taken with a grain of salt because of this.

Today's analysis will break down:

ATEEZ: Hongjoong + Mingi

About ATEEZ: Their music is highly dramatic, heavy emphasis on drops and a real "world music" feel with sounds derived from Australia, the Middle East, Latin America, and the Caribbean all with strong trap beats and more recently industrial style beats as a pillar of production. Their songs are usually composed with the focus on the performance and so have longer instrumental sections. Lyrically the majority of ATEEZ songs center around reaching their dreams and one day being the best. Standard stuff for an idol group.
The two rappers of the group are also known for their "tom and jerry" style delivery meaning they often trade off verses one after the other and have two radically different sounds.
Hongjoong: High C/Low B tier
Hongjoong is the leader of ATEEZ and has been involved in writing every song they've released and had a growing production role throughout ATEEZ's time as a group. He has a pretty high timbre and usually prefers well defined stacatto deliveries mixed with a lot of well defined melodic movement in his verses.
Strengths:
Weaknesses:

Mingi: Mid E tier
Mingi is credited as a writer on all the ATEEZ tracks on which he appears. He is considered the lead rapper and leans heavily on his distinctive low vocal timbre.
Mingi's delivery is very centered on a focused and continuous amount of power, occasionally he uses melodic lines but usually he prefers straight delivery with some higher inflections thrown in. He has a very low and throaty tone to his voice and sometimes ranges into an almost spoken delivery.
Strengths:
Weaknesses (this is gonna be a little brutal... Atinys proceed with caution) :

ONEUS: Ravn + Leedo

About Oneus: Before writing this I had not listened to a full Oneus album but i'd really enjoyed their title tracks and was pretty stunned by their RTK performances. I had heard a lot about member involvement in a lot of the elements of their work, overall I was really excited for this post as a prompt for me to go and fully listen to their B-sides. Anyways all that said I am about to trash on Oneus' music a little so ToMoons I'm sorry. I have a lot of good things to say about them too, I promise.
........ ok I know I'm here to review rapping but I promise this is relevant..... the beats to the vast majority of Oneus b-side songs are quite boring and same-y like that vaguely trop-house/dancehall/electro-house sounds with a trap breakdown occasionally thrown in (there are a few exceptions obviously). Looking at the track producers it starts to make sense since most of them are RBW inhouse producers and they stay the same on most of the non-title tracks.
Again I know I'm not here to do a music review but I think a big takeaway from Oneus is how much a good or great beat can elevate even a mediocre rap performance, or really pull the best possible material from its performers, and how, on the flipside boring generic beats can turn what could be a fine rap performance into something totally unremarkable. Oneus tends to have much stronger production on their title tracks but the b-sides keep almost none of that energy and it really hurts their overall ranking and ability.
By FAR the most interesting officially released song they've had from and beat/rapping perspective is Crazy & Crazy which is produced by the Onewe member Cya who honestly impressed a lot, he definitely outdid the other two on that track. But this isn't about Onewe so i'll get on to actually talk about the Oneus members.

Ravn: High C tier
Ravn is the lead rapper for Oneus and has participated as a writer on every single song they've released thus far and participated as a producer on Hero from their debut album. He released a number of songs and projects on Soundcloud under his tag pls9ravn starting in 2017 Some of them are rap tracks, some of them are vocal covers, some instrumentals, and a lot of the originals are alongside the aforementioned CyA of Onewe. The songs tend to be lofi or related genres with a big emphasis on vibe and more laidback delivery.
Ravn's voice is midtone and fairly husky. He often incorporates intentional vocal fry and melody as notable parts of his style.
(On a non-rap not i'm also huge fan of the production on his instrumental SC tracks, i hope Oneus releases a whole track in that vein at some point i feel like it would really fit their vibe)
Strengths:
Weaknesses:

Leedo: High D tier
Leedo is ... apparently the Main Rapper (i assumed that was Ravn but idk) apparently NOT a lead dancer, and also can sing like this!!! Basically the man is full of surprises. He has written lyrics for every Oneus track on which he has appeared and also featured on some predebut soundcloud releases with Ravn and Cya.
He is a deep voiced rapper with about half and half melodic and straight delivery and a powerful but more restrained style.
Strengths:
Weaknesses:

A.C.E: Wow + Byeongkwan

About ACE: First of all this is one of my favorite groups, so if you were wondering whether I'm willing to talk smack on my faves hopefully this section answers that question. ACE has a much smaller discography than others but they also tend to be much less keyed into one particular concept and have gone all over the place in both title and bside tracks
Additionally with only a few exceptions, members have not yet expressed much interest for lyric writing or production. The only song where I saw any writing credit to the members is Wow on Take Me Higher.

Wow: Mid/High D tier
Wow's official position besides main rapper is main performer and that is where much of his strength as an idol lies, he is a really dynamic and talented performer. As a rapper he has a mid to low tone and a pretty straightforward style of delivery usually not melodically driven and usually fairly lowkey.
Strengths:
Weaknesses:

Byeongkwan: E tier
Byeongkwan is perhaps the best representation this post has of "dancer who they made a rapper because they needed a second rapper", he's not outwardly awful... sometimes???, but rapping is clearly not his passion. Byeongkwan is an EXCEPTIONALLY good dancer (put him in your 4th gen top 10 cowards!!!) and he's also a really skilled vocalist, so the rapper role feels especially secondary for him. Still, he's rapped enough times on enough tracks that it deserves comment
Strengths:
Weaknesses:
submitted by franetics to kpopthoughts [link] [comments]

Due Diligence: Toromont Industries Ltd. - Building Together For An Exciting Future

Due Diligence: Toromont Industries Ltd. - Building Together For An Exciting Future
Hi,
This is my first attempt at writing a DD report. I hope it makes sense.
Just a few cautionary words:
  • Grammar (and English in general) is not a skill of mine. There will be a few parts that you might have to decipher, good luck.
  • I tried not to provide too much commentary and stick to the facts. I know you are spending your valuable time reading this and you probably don't want to listen to some random guy on the internet pontificate.
  • For those of you who are easily offended/triggered, can't take a joke, or sarcasm isn't your taste, DO NOT click the spoilers.
Lastly, the following is just my findings, by no means is it a representation of all the information out there. It is just the baseline for me to have confidence in becoming an owner of the Company. Do your own due diligence or talk to a financial advisor to find what is best for you and your financial situation.
Happy reading!

Highlights

  • Over the last 5 years the stock price has more than doubled.
  • Toromont dominates market share over everything east of Manitoba in Canada.
  • Customer base is heavily diversified, giving the Company many opportunities to expand into multiple industries.
  • Dividend has increased for 31 consecutive years. It has been paid for 52 consecutive years
  • The management team is extremely knowledgeable and have a good track record

Introduction

Toromont Industries Ltd. (TSE:TIH) provides specialized equipment in Canada and the United States. The Company operates two business segments: The Equipment Group and CIMCO. The Equipment Group supplies specialized mobile equipment and industrial engines for Caterpillar Inc. (NYSE:CAT). Customers for this business segment vary from infrastructure contractors, residential and commercial contractors, mining companies, forestry companies, pulp and paper producers, general contractors, utilities, municipalities, marine companies, waste handling companies, and agricultural enterprises. CIMCO offers design, engineering, fabrication, and installation of industrial and recreational refrigeration systems.
The Company was founded in 1961 and operates out of Concord, Ontario. As at December 31, 2019, Toromont employed over 6,500 people in more than 150 locations across central/eastern Canada and the upper eastern United States.
The primary objective of the Company is to build shareholder value through sustainable and profitable growth, supported by a strong financial foundation.

Description of the 2 Main Business Segments

  1. The Equipment Group includes the following 6 business units:
  • Toromont CAT: one of the world’s largest Caterpillar dealerships which supplies, rents, and provides product support services for specialized mobile equipment and industrial engines
  • Battlefield Equipment Rentals: supplies and rents specialized mobile equipment as well as specialty supplies and tools.
  • Toromont Material Handling: supplies, rents, and provides product support services for material handling lift trucks
  • AgWest: an agricultural equipment and solutions dealer representing AGCO, CLAAS and other manufacturers’ products
  • SITECH: provides Trimble Inc (NASDAQ:TRMB technology products and services. Trimble is a SaaS company that provides positioning, modeling, connectivity, and data analytics software which enable customers to improve productivity, quality, safety, and sustainability. Target industries: land survey, construction, agriculture, transportation, telecommunications, asset tracking, mapping, railways, utilities, mobile resource management, and government.)
  • Toromont Energy: supplies, constructs, and operates high efficiency power plants up to 50 MW, using Caterpillar's leading power generation technologies. Toromont Energy operates plants that supply energy to hospitals, district energy systems, and industrial processes.
  • Performance in this segment mainly depends on the activity in several industries: road building and other infrastructure-related activities, mining, residential and commercial construction, power generation, aggregates, waste management, steel, forestry, and agriculture.
  • Revenues are driven by the sale, rental, and servicing of mobile equipment for Caterpillar and other manufacturers to the industries listed above.
  • In addition, Toromont is the MaK engine dealer for the Eastern seaboard of the United States, from Maine to Virginia.
  • MaK engine is a marine diesel engine manufactured by Caterpillar
  1. CIMCO is a market leader in the design, engineering, fabrication, installation and after-sale support of refrigeration systems
  • Performance in this segment is dependent on the activity in several industries: beverage and food processing, cold storage, food distribution, mining, and recreational ice rinks.
  • CIMCO has manufacturing facilities in Canada and the United States and sells its solutions globally.
  • CIMCO services the ice rinks of 23 out of 31 NHL teams. So if you are watching a game and the ice is shitty, you know who to blame… the Ice Girls, obviously.
  • For those of you who live in the GTA and have skated on The Barbara Ann Scott Ice Trail at College Park, the trail was created using CIMCO proprietary CO2 refrigeration technology.

Management

CEO, Scott J. Medhurst has been with the company since 1988. He was appointed President of Toromont CAT in 2004 and he came into his current position as President and CEO in 2012. He is a graduate of Toromont’s Management Trainee Program.
CFO, Mike McMillan joined the executive team in March of 2020. His predecessor, Paul Jewer is retiring this year and has been working with McMillan during the transition period.
VP and COO, Michael Chuddy has been with Toromont since 1995.
On average, leaders have 29 years of business experience and have served at Toromont for 19 years. Seeing long tenures, good stock performance, excellent business planning and execution is usually a sign of strong leadership. In addition, insiders hold more than 3% (~$175 million) of the company’s outstanding shares. Medhurst owns more than 170 thousand shares, Chuddy owns just under 100 thousand shares and the former CEO and current Independent Chairman of Board of Directors, Robert Ogilvie owns more than 2 million shares, making him the 4th largest stockholder. High insider ownership typically signals confidence in a company's prospects. Compare this to Toromont’s main Canadian competitor, Finning, where insiders own less than 0.4% ($12 million) of the company (this number varies depending on where you look, I just took the highest one I found).
Recently insiders have been selling stock (Figure 1). I cannot speak to the reasons why insiders are selling but the remaining position owned by the insider is sizable and demonstrates that the executive still has confidence in the company. Some of the reasons insiders sell are: they don't believe in the company’s future, they need money for personal use, they are rebalancing their portfolio, among others.
Figure 1: Buy and selling activity of insiders (the data is from MarketBeat, so take that for what it's worth).
On a somewhat unrelated but still related note, 50% of Toromont employees are also shareholders.

Growth Strategies

Toromont has five growth strategies (expand markets, strengthen product support, broaden product offerings, invest in resources, and maintain a strong financial position). I chose to focus on the following two strategies, as they seemed most prevalent.
  1. Expand Markets
  • Toromont serves a wide variety of end markets: mining, road building, power generation, infrastructure, agriculture, and refrigeration. This allows for many opportunities for growth while staying true to their core competency. Further expansion into new markets doesn't require Toromont to build a whole new business model or learn the intricacies of the new industry because their products stays the same. Thus, the main concern is the application/selection of the products for the customer.
  • Expansion is generally incremental. Each business unit focuses on market share growth and when the right opportunity presents itself, geographic expansion is archived through acquisitions.
  1. Strengthening Product Support
  • In an industry where price competition is high, product support activities represent opportunities to develop closer relationships with customers and differentiate Toromont’s product and service offering from competitors. After-market support is an integral part of the customer's decision-making process when purchasing equipment.
  • Product support revenues are more consistent and profitable.

Growth Through Acquisition

Rapid growth in this industry is generally driven through acquisitions. Toromont has gone through multiple acquisitions since the 90’s:
  • Acquisition of the Battlefield Equipment Rentals in 1996
    • Toromont grew Battlefield from one location to 82 locations
  • Acquisition of two privately held agricultural dealerships in Manitoba to form AgWest Equipment Ltd
  • Acquisition of Hewitt Group of companies in Q3 2017 for a total consideration of $1.0177 billion
    • $917.7 million cash ($750 million of which was finances through unsecured debt) plus the issuance of 2.25 million Toromont shares (equating to $100 million based on the 10 day average share price)
Acquisition of Hewitt Group of companies
This acquisition allowed Toromont to make headway into the Quebec, Western Labrador, and Maritime markets, as Hewitt was the authorized Caterpillar dealer of these regions. Hewitt was also the Caterpillar lift truck dealer of Quebec and most of Ontario and the MaK marine engine dealer for Québec, the Maritimes, and the Eastern seaboard of the United States (from Maine to Virginia).
Toromont had total assets of $1.51 billion before the acquisition, the acquisition added $1.024 billion in assets, nearly doubling the balance sheet (look at Figure 2 for more details about the acquisition).
Figure 2: (all numbers are in thousands) The final allocation of the purchase price was as of Dec 31, 2018, Note 25 of 2018 Annual Report. $1.024 billion was added to the Toromont’s B/S
Large acquisitions like this one can be the downfall of a company. Here are some of the risks highlighted by management at the time of the acquisition:
  • Potential for liabilities assumed in the acquisition to exceed our estimates or for material undiscovered liabilities in the Hewitt Business
  • Changes in consumer and business confidence as a result of the change in ownership
  • Potential for third parties to terminate or alter their agreements or relationships with Toromont as a result of the acquisition
  • Whether the operations, systems, management, and cultures of Hewitt and Toromont can be integrated in an efficient and effective manner
In 2018, the Company started and successfully completed the integration of the Maritime dealerships acquired through Hewitt under Toromont’s decentralized branch model (bottom up approach). Under a decentralized model, regional leadership make business decisions based on local conditions, rather than taking top down mandates. A bottom up approach is an advantage in businesses like Toromont where the customer mix can vary vastly from region to region. It allows for decision-making that is better aligned with customemarket needs and more attuned to the key performance indicators used to manage the business. In 2019, the integration of the decentralized branch model was implemented in Quebec after its success in Atlantic Canada in 2018. Successful integration of Hewitt into the Toromont family shows the depth of industry and business knowledge possessed by the management team. Being able to maintain inherited customer relationships and ensure low turnover is no easy feat. Many companies have completely botched these kinds of acquisitions. One that comes to mind is Sobeys (the second largest food retailer in Canada) acquiring Safeway for $5.8 billion. Three years later, they wrote off $2.9 billion as a loss because they did not anticipate the differences in consumer habits in Western Canada vs Eastern Canada, among other oversights.
The result of the acquisition and Hewitt’s integration with Toromont’s existing business produced a 39% increase in EPS in 2018 and 14% increase in 2019.

Dividend

Toromont pays a quarterly dividend and has historically targeted a dividend rate that approximates 30 - 40% of trailing earnings from continuing operations.
In February 2020 the Board of Directors increased the quarterly dividend by 14.8% to $0.31 per share. This marked the 31st consecutive year of increasing dividends and 52nd consecutive year of making a dividend payment. The five-year dividend-growth rate is 12.09%.
Table 1: Information about the last eight dividends

Risks/Threats and Mitigation

Dependency on Caterpillar Inc.
It goes without saying that Toromont’s future is heavily dependent on Caterpillar Inc. (NYSE:CAT). For those who don't know, Caterpillar is the world’s leading manufacturer of construction and mining equipment, diesel and natural gas engines, industrial gas turbines, and diesel-electric locomotives. It has a market cap in excess of $68 billion. All purchases made by Toromont must be made from Caterpillar. This agreement has been standing since 1993 and can be terminated by either side with 90 days notice.
Given that the vast majority of Toromont’s inventory is Caterpillar products, Caterpillar’s brand strength and market acceptance are essential factors for Toromont’s continued success. I would say that the probability of either of these being damaged to an unrecoverable point are low, but at the beginning of this year, I would have said the probability of the world coming to a complete stop was very low too and look at what happened. Anything is possible. The reason this is a major consideration is because it's a going concern issue. Going conference is an accounting term for a company that has the resources needed to continue operating indefinitely until it provides evidence to the contrary. This term also refers to a company's ability to make enough money to stay afloat or to avoid bankruptcy. If there was irrevocable damage to Caterpillar’s brand, Toromont is no longer a going concern, meaning the company would most likely be going bankrupt or liquidating assets. The whole Company might not go under because the CIMCO, SITECH, and AgWest business units would survive but, essentially ~80% of the business would be liquidated.
In addition to the morbid scenario I laid out above, Toromont is also dependent on Caterpillar for timely supply of equipment and parts. There is no assurance that Caterpillar will continue to supply its products in the quantities and time frames required by Toromont’s customers. So if there is supply chain shock, like the one we just saw, there is the chance that Toromont will not have access to sufficient inventory to meet demand. Which in turn would lead to the loss of revenue or even to the permanent loss of customers.
Again, both of these threats have low a probability of occurring but either could single handedly cripple Toromont’s business. As of now, Caterpillar continues to dominate a large market share (~38% as per Gurufocus) in the industry against large competitors like John Deere, CNH Industrial, Cummins, and others.
Caterpillar's stock has been on a slow decline for a couple years but that is due to reasons beyond the ones that directly concern Toromont’s day-to-day operations. I would say if you don't believe in Caterpillar’s continued market share dominance, investing in Toromont is probably not for you.
Shortage of Skilled Workers
Shortage of skilled tradesmen represents a pinch point for industry growth. Demographic trends are reducing the number of individuals entering the trades, thus making access to skilled individuals more difficult. Additionally, the company has several remote locations which makes attracting and retaining skilled individuals more difficult. The lack of such workers in Canada has caused Toromont to become more assertive and thoughtful in their recruitment efforts.
To combat this threat, Toromont has/is:
  • Recruited 303 technicians to achieve growth targets
  • Created 208 student apprenticeship programs
  • Working with 19 vocational institutions in Toronto to teach about best practices and introduce the Company as a future employer to students
As a result of these initiatives and others, Toromont saw their workforce grow by ~8% 2019. Growing the workforce is one of the primary building blocks for future growth.
Cyclical Business Cycle
Toromont’s business is cyclical due to its customers' businesses being cyclical. This affects factors such as exchange rates, commodity/precious metal pricing, interest rates, and most importantly, inventory management. To mitigate this issue, management has put more focus on increasing revenues from product support activities as they are more profitable than the equipment supply business and less volatile.
Environmental Regulations Affecting Customers
Toromont’s customers are subject to significant and ever-increasing environmental legislation and regulation. This leads to 2 impacts:
  1. Technical difficulty in meeting environmental requirements in product design -> increased costs
  2. Reduction in business activity of Toromont’s customers in environmentally sensitive areas -> reduced revenues
Threats such as these come with a business of this type. As an investor in Toromont, you can't do much to mitigate these kinds of threats because it's out of your hands. Oil and gas, mining, forestry, and infrastructure projects are major drivers of the Canadian economy, so I think there will always be opportunity for Toromont to make money, regardless of government action.
Impact of COVID19
While the company had been declared as an essential service in all jurisdictions that it operates in, Q1 2019 results were lower as a function of COVID19 reducing activity in many sectors that Toromont services. Decline in mining and construction projects lead to a decrease in demand for Toromont products in the latter part of the quarter. Revenues were trending for 5-7% growth for the quarter before the effects of COVID19 were felt.
Management cannot provide any guidance on how to evaluate the impact of COVID19 on future financial results. They are focusing on ensuring the continued safety of employees and working with customers and the jurisdiction they operate in to evaluate appropriate activity levels on a daily/weekly basis. Lastly, management is keeping a close eye on how this crisis has led to an increase in A/R delinquencies and financial hardship for customers.
The Executive Team and the Board of Directors have taken a voluntary compensation reduction. Wage increase freezes and temporary layoffs have been implanted on a selective basis. Management believes that expanding product offerings and services, strong financial position, and disciplined operating culture positions the Company well for continued growth in the long term.
Competition
Toromont competes with a large number of international, national, regional, and local suppliers. Although price competition can be strong, there are a number of factors that have enhanced Toromont’s ability to compete:
  • Range and quality of products and services
  • Ability to meet sophisticated customer requirements
  • Distribution capabilities including number and proximity of locations
  • Financing through CAT Finance
  • E-commerce solutions
  • Reputation
  • Financial health

Main Competitor in Canada: Finning International Inc.

Finning International Inc. (TSE:FTT) is the world's largest Caterpillar dealer that sells, rents and provides parts and service for equipment and engines to customers across diverse industries, including mining, construction, petroleum, forestry and a wide range of power systems applications. Finning was founded in 1933 and is headquartered in Vancouver, Canada.

Toromont Industries Ltd Finning International Inc.
Market Cap $5.84B $3.02B
Price $65.66 $18.49
Dividend Yield 1.87% 4.36%
Number of Employees >6,500 >13,000
Revenues (ttm) $3.69B $7.57B
Trailing P/E Ratio 19x 11x
Price/Book 3.71x 1.35x
Profit Margin 7.71% 3.54%
Places of Operations Manitoba, Ontario, Québec, New Brunswick, Prince Edward Island, Nova Scotia and Newfoundland & Labrador, most of Nunavut, and the Northeastern United States British Columbia, Yukon, Alberta, Saskatchewan, the Northwest Territories, a portion of Nunavut, UK, Ireland, Argentina, Bolivia, and Chile
Table 2: A quick comparison between Toromont and Finning.
I am sure there are some people looking at this table and thinking Finning looks rather promising based on the metrics shown, especially in comparison to Toromont. Finning’s dividend yield, P/E, and price/book look more attractive. Their top line is 2x. Not to mention it operates worldwide and is the only distributor in the UK, while Toromont only operates in half of Canada.>! Before you go off thinking “I need to use my HELOC to buy some Finning,” as some people on this subreddit are prone to do, ask yourself: do you see any cause for concern in the metrics listed above? !<
One glaring question I have is: why is Finning trading at half of Toromont’s market cap given that it operates internationally and has twice the number of employees and revenues of Toromont?

Q1 2020 Financial Results


Figure 3: Q1 2020 Income Statement
Overall operating income, net earnings, and EPS all decreased even though Toromont saw an increase in revenue for the quarter compared to Q1 of 2019.
  • All of these decreases were contributed to COVID19, as the pandemic lead to increases in costs
Historically, Q1 has always been Toromont’s weakest quarter. Q1 accounts for ~20% of yearly earnings and is consistently the least profitable quarter. Toromont’s profit margin generally ranges from 5%-9% progressively increasing into the later half of the year. This is good news for investors with the thesis that the economy will return to "somewhat normal" in the latter half of this year. The majority of the earnings for 2020 are still on the table for Toromont to earn. If current conditions persist, or there is a second wave and lockdown later in the year, we will most likely see a regression in Toromont’s growth to last year’s levels or even lower.
Assuming the world does return to “normal,” many of Toromont’s customers (especially in mining and construction) may try to catch up for lost time with increases to their operational activity, leading to an increase in Toromont’s sales for the remainder of the year. Of course this is a major assumption but it’s a possibility.
Below is a comparison of the last eight quarters. You can see the clear cyclical nature of their business.
Figure 4: Last eight quarters of earnings

Sources of Liquidity

Credit
  • Toromont has access to a $500 million revolving credit facility, maturing in October 2022
  • On April 17 2020 they secured an additional $250 million as a one year syndicate facility
Cash Position
  • Cash increased by 22.6 million for the quarter
  • Cash from operations increased 13% Q1 2020 compared to Q1 2019
  • The company also drew $100 million from their revolving credit facility
  • $4 million dollars of stocks were repurchased during Q1 2020
Given their access to $750.0 million dollars of credit and cash on hand equaling $388.2 million, the Company should have sufficient liquidity to operate if COVID19 and its aftermath persist for an extended period of time.

Financial Analysis

Analysis of Debt
Historically, Toromont has had very low debt levels. The spike in late 2017 was due to the acquisition of Hewitt. Management paid off the debt aggressively in 2018. At the end of December 2019 Toromont had $650 million of debt maturing between 2025 and 2027. As a result of COVID19 the company has taken on more debt. This additional access to debt accounts of the slight uptick in historical debt in 2020 (Figure 5).
Figure 5: Toromont’s historical debt, equity, and cash
The long-term debt to capitalization ratio is a variation of the traditional debt-to-equity ratio. The long-total debt to capitalization ratio is a solvency measure that shows the proportion of debt a company uses to finance its assets, relative to the amount of equity used for the same purpose. A higher ratio means that a company is highly leveraged, which generally carries a higher risk of insolvency with it.
The debt-to-equity ratio is at 47% and debt-to-capitalization ratio is 32%, Toromont has $388 million in cash that could be used to pay down debt by nearly 50% and bring the net debt-to-equity to 23% and net debt-to-capitalization to 18%. As mentioned before, management is holding on to cash to insure sufficient liquidity during these times.
The implication of these ratios is that Toromont does not take on large amounts of debt to finance growth. Instead the Company leverages shareholders equity to drive growth.
For comparison, Finning has a debt-to-equity ratio of ~100% (it differs between WSJ, 99%, and Yahoo Finance, 101%). The nominal amount of their total debt is ~$2.2 billion, which gives them a long-term debt to capitalization ratio 62%. Finning carries $260 million in cash.
Figure 6: Toromont’s debt-to-capitalization and debt-to-equity ratios
Profitability Ratios
Return on equity (also known as return on net assets) measures how effectively management is using a company’s assets to create profits.
Toromont’s return on equity is generally around 20%. Go to Figure 6 to look at the ROE for the last 4 years. In comparison, Finning has had a ROE of ~11% for the last three years, about 3% in 2016 and a negative ROE in 2015 (as per Morningstar).
Return on capital employed (ROCE) tries to find the return relative to the total capital employed in the business (both debt & equity less short-term liabilities). Toromont’s ROCE (ttm) for March 31 2020 was 22%. This means for every dollar employed in the business 22 cents were earned in EBIT (earnings before interest and tax). Finning had a ROCE of 11% as of December 2019.
Liquidity Ratios
Working capital is the amount of cash and other current assets a business has available after all its current liabilities are accounted for. In the last ten years, Toromont’s working capital has fluctuated between 1.6 at its lowest (2018) to 2.8 at its highest (2016). At the end of 2019 it was at 1.8. Meaning current liabilities equate to 60% of current assets.
Interest coverage ratio is used to determine how easily a company can pay their interest expenses on outstanding debt. Toromont has an interest coverage ratio 15x (as per WSJ). Finning on the other hand is at 4x. At this point I feel like I'm just beating up on Finning.
For those of you who made it this far, I have to admit something to you. This whole post is just a facade to ask you a question that has never been asked on this subreddit before: Should I buy BPY.UN? It keeps going down and I'm worried if I buy it, it will keep going down and I'll lose money. I don't want to lose money. Although if you go through my post history, you'll see I've been looking at/buying penny stocks.

Key Performance Measures

Below is a chart with key financial measures for the last four years. A few things I want to highlight:
  • Toromont had large capital expenditure last year (most of it went to increasing inventory) so they have the choice to keep capital expenditure down this year and preserve cash
  • From the start of 2018 (aka end of 2017) to the end of 2018 Toromont stock was down about 3% while the TSX Composite was down more 12% and S&P was down 7%. This stock has a history of out performance not only on the upside but also on the downside. I'll go into a bit more detail in the next section.
Figure 7: Summary of key financial measure for the last four years

Price Chart Comparisons

I don't do technical analysis. To those who do, good luck to you because let's be real, you'll need it. This section is just to get an idea of past performance and evaluate the opportunity cost of investing in Toromont compared to a competitor or a board based index fund.
I thought it would be easier to look at pictures as opposed to reading a bunch of numbers off a table.
For the sake of not creating a picture album of screenshots, I just looked at charts for the last 5 years. If you're interested in looking at different time intervals you can do so on google finance.

  1. Toromont Industries Ltd v. Finning International Inc.
Figure 8: Five year price chart of TIH v. FTT
These are the only two Caterpillar distributors on the TSX, making them direct comparisons. If I was looking for exposure to this industry, I would be choosing between these two companies (on the TSX anyways). There isn't really much to evaluate here. It's like they saying: “A picture is a thousand words,” or in this case, it's 128%. If you have time, go look at the graph from August 1996 to now. I can safely say it hasn't been much of a competition. Toromont has outperformed by ~2500% in stock price appreciation alone. If you're a glass half full kind of person, I guess you could look at this disparity as Finning having enormous upside. LOL

  1. Toromont Industries Ltd v. S&P 500 Index
Figure 9: Five year price chart of TIH v. VFV
If I'm not buying individual stocks, I’m buying the S&P 500 and to a lesser extent a Nasdaq index fund. This gives me a second look at the opportunity cost of my money. The story is not as bad as the Finning comparison. If you had bought $100 dollars of Toromont stock 5 years ago, it would have turned into $207 today, whereas the same $100 dollars in VFV would have became $157.
Just a quick aside, you can see the volatility in Toromont’s stock is much higher compared to the VFV. VFV has a relatively smooth trend upwards while Toromont trends upwards in a jagged path. This is the risk of single stocks, they move up and down more erratically, leading inventors who don't have a grasp of the business or conviction in their pick to panic sell or post countless times on Reddit asking why their stocks keep going down. “I bought the stock last week and it's done 3% already, do you guys think it’s going bankrupt? I thought stonks only go up???”

  1. Toromont Industries Ltd v. S&P/TSX Capped Industrials Index
Figure 10: Five year price chart of TIH v. ^TTIN
The S&P/TSX Capped Industrials Index isn't my favourite comparison for Toromont because its constituents cover many industries ranging from waste management (WCN), to railways (CNCP), to Airlines (AC, lol, had to mention it. I miss the days when there were double digits posts about AC. I wonder where those people have gone, because I can tell you where AC stock has gone... absolutely nowhere). Regardless, I used TTIN because I deemed it a better comparison to Toromont than the entire TSX. The story is on par with the other two comparisons. Toromont’s out performance is significant.
I just threw this bonus chart in here because when I saw it, I was like BRUHHH (insert John Wall meme)… It's completely unsustainable but that's impressive given the vast differences between the two.
  1. Toromont Industries Ltd v. NASDAQ-100
Figure 11: Five year price chart of TIH v. ZQQ
Now, of course, past performance does not dictate future results and all that good stuff, but it really gets you thinking about how the rewards disproportionately favours winners compared to the overall market. People are generally happy getting market returns (i.e. the just buy VGRO people) but being able to pick even a few winners really pays. This reminds me of the Warren Buffet quote: “diversification is protection against ignorance.” The context of the quote is that if you are able to study a few industries in great depth and acquire a wealth of knowledge, you can see returns astronomically higher than those who diversify across the board market. The problem then becomes you put yourself at risk of having all your eggs in one basket. Look at what's happening with Wirecard in Europe right now. This is why the real skill in investing is managing risk.

Analyst Price Targets and Estimates

The prince targets set for by analysts range from $63-$81. The average price target is ~$72, with the majority of targets within the 70-$71 range. Given the current price of $65.66, there is a ~10% upside. These price targets haven't changed much due to COVID19 even though revenues and EPS forecasts have been downgraded for 2020. The consensus estimate on 2020 revenues is $3.36 billion, down from the actual revenues of $3.69 billion in 2019 and the consensus EPS for 2020 is $3.01 down from actual EPS of $3.52 for 2019 and $3.10 for 2018. The fact that revenues and EPS forecasts have been downgraded, yet price targets remain untouched, for the most part, indicates that the effects of COVID19 are expected to be short-lived.
Figure 12: Earnings and estimate ranges for Toromont. Note: EPS numbers in this graphic are diluted EPS numbers.

Valuation

Multiples
Assuming P/E ratio stays the same as it has been for the last 12 months (~19x) and EPS goes down to ~$3.00 (as per analyst consensus), the implied price would be $57.
Using the last 12 months of revenues, the EV-to-Revenues ratio is at 1.56x. Assuming that ratio stays the same and with revenues estimated to be ~$3.36 billion, enterprise value (EV) comes out to $5.2416 billion. Using Q1 2020 figures for shares outstanding (82.015 million), cash ($388.182 million), and debt ($745.703 million), the implied price for a share is $58.94*.
\Note: Enterprise Value is equal to market cap plus total debt minus cash.)
Dividend Discount Model
The dividend discount model (DDM) is a method of valuing a company's stock price based on the theory that its stock is worth the sum of all of its future dividend payments, discounted back to their present value.
The average dividend growth rate is 12% for the last 5 years is 12%. There is no way Toromont can increase the dividend at this pace in the long term, thus, I chose a long term dividend growth rate of 5%. This is the assumed rate in perpetuity. The required rate of return will equal WACC, 6.85% (averaged from 2019 Annual Report). The dividend over the last year is $1.16 (two payments of $0.27 in 2019 and two payments of $0.31 for 2020).
The fair value equals $65.84.
Figure 13: DDM calculation.

Closing Thoughts

There is no doubt that Toromont trades at a large premium. The current P/E is 19x and the CAPE ratio (Shiller P/E) is 26x. The fair value of the Company as per Morningstar research is in the mid $60 range.
Based on all valuations I did and analyst price targets, I would start buying in the high $50 range or maybe the very low $60 range, but my belief in the company has to do with long term thematic trends and how the Company operates, rather than today's price. Although I have to admit, the price does look more attractive now than it did in the beginning of June when the stock hit new all time highs. It seems like the only companies hitting new all time highs these days are tech companies, so it's refreshing to find a non-tech company achieving the same feat.
Toromont is not going to double next year or the year after that. It is a relatively low margin business, with slow growth and a cyclical business cycle. I like that the Company has strong financials, low debt, and good management. They don't take shortcuts or unwarranted risk. Future growth will mostly be driven through acquisition, but management is cautious with acquisitions and don't overextend themselves. One of the biggest problems Finning has been facing for the last couple years is political and social turmoil in South American countries which is affecting their mining clients and thus affecting revenues/margins.
The Q2 earnings are reported on July 22 202. We should have a clearer picture on the prospects of the Company from management. Hopefully we have a better idea of the COVID19 situation by then too. Regardless, I think the company is in a position where its services will always be in demand so short term fluctuations are not something that shake my confidence in this pick.

Limitations and Further Areas of Research

By no means is this an exhaustive due diligence report. This is enough for me to feel confident in the business and its trajectory. Limitations/further areas of the research include:
  • Looking into the growth of each sector Toromont services and extrapolating that growth to calculate Toromont’s future growth opportunity.
    • As per IBIS Research the heavy equipment rental market in Canada is ~$8.3 billion. It grew 1.1% yearly for the last 5 years.
    • The US market is estimated to be $47 billion, with an average growth of 2% for the last 5 years
      • Sorry but I couldn't get my hands on future projections as each report is $750
  • More research into competitors
    • I chose to include Finning only for simplicity’s sake. But there are many other competitors like:
      • United Rentals (NYSE:URI) provides similar services to Toromont/Finning in 49 U.S. states, 10 Canadian provinces, Puerto Rico and four European countries. The only thing being they aren't distributors for Caterpillar.
      • Rocky Mountain Dealerships Inc (TSE:RME) sells, leases, and provides product and warranty support for agriculture and industrial equipment in Western Canada
      • Holt Cat, N C Machinery, Ziegler CAT (none of these companies are publicly traded)
  • Further analysis can be done on the B/S and accounting treatments.
  • The effects of automation in the industry
    • Distributors in the US have started working with industrial automation companies to provide autonomous construction equipment on rent to contractors
      • Sunstate Equipment Co.'s partnership with Built Robotics
  • I was not able to do a discounted cash flow, which would be critical to finding the intrinsic value for Toromont and having true confidence in the company and its trajectory.
  • Further analysis of CIMCO and prospects of future growth
    • Based of the financials, CIMCO seemed like a small part of the business, which is why I mainly focused on the Caterpillar dealership side
These are not all the limitations or areas of further research, they are just the glaring one that came to mind.
>! I know I took a few shots at people in this post. It's all in good jest. If you're offended well.... maybe you should be. I don't know, you have to figure that out on your own or you could make a post on Reddit asking random people on the internet whether you should be offended or not. !<
Remember I'm not an expert, I'm just a random guy on the internet.

Disclosure

I am long Toromont. This information is not financial advice. Please do your own research and/or talk to a financial advisor. All data provided is current prior to the market opening on June 29, 2020. Inconsistencies in data can be due to many reasons, the foremost being that data was spruced from multiple different websites.
submitted by Dr_Sargunz to CanadianInvestor [link] [comments]

When Market Crash Inevitably Comes...Don't Scream "GUH" and Trade Volatility (Part 2 - DD Inside)

When Market Crash Inevitably Comes...Don't Scream
Greetings my fellow clan of delinquent compatriots. I made a post 3 weeks ago regarding how to avoid IV crush during this recent market rally. The link to that can be found here: Don't Scream "GUH", Avoid IV Crush. That trade worked out well, and I am back.
Today, I am back with a follow-up for navigating the road ahead. This post is not about why the market will potentially retest the lows, but rather how to maximize profit and limit downside risk should the move down occur. Just as the vega-neutral post focused on volatility trades, this one explores vol strategies further. I tried to substitute words with pictures for the illiterate inclined.
For solid DD on where the market is going, view u/Variation-Separate or u/scarvesandsuspenders recent posts. I do believe that sitting at either the 50% or potential near term 61.8% retracement will trigger the next leg down, and this post is about how to capitalize on that through volatility.
At best, you will get a trade idea (other than $SPY puts / $SPY straddles). At worst, you will gain some solid understanding of volatility and how it applies to you. My goal in this post is to take a pretty abstract concept and break it down so that we can all become more profitable. Take 5 minutes, read, challenge my strategy, ask questions, and achieve nirvana. Let's begin.
So You Say I Should Trade Volatility, Aye:
Yes. That is exactly what I am saying. While retail traders and WSBers have been yoloing FD on TSLA and SPCE (Jan 2022 calls will print), smart money has been executing the best trade of the past decade. The trade: Short volatility, hedged with volatility insurance. This is done by shorting $VXX (short vol), and purchasing $VIX calls (long vol) on a rolling basis as a hedge. Depending on the time frame of your $VIX calls (weekly, quarterly, monthly), this trade has performed dramatically well.
The strategy is rooted in the belief that volatility will, over time, mean revert and decrease after spikes caused by a "black swan." It is logical - option premiums on the S&P 500 (for which the $VIX tracks) theoretically will never remain permanently inflated as news becomes digested. Take a look at 2008, 2000, etc - the common theme is volatility starts to slowly recede before the lows of the S&P 500 are registered as the catalyst causes an explosion of volatility, and as the market prices in the "black swan," the market naturally performs price discovery causing volatility to come down. That is not to say volatility does not continue to spike during draw-downs in equities - it does, but typically not as dramatically unless the incoming news is categorized as dramatically more significant.
  • u/stonksgodown made a post regarding this phenomenon, but omitted some key factors and made some bold assumptions that I wanted to counter / elaborate on.
Realized Volatility verse Implied Volatility:
Implied volatility for the broader market can be understood through $VIX. IV is forward looking, and gives us an understanding of how much the market is expecting to move over the next 30-day period (this is a simplification, but applies). Realized volatility is actual variance in price movement over a period in time. To compare the two, solve for the realized volatility over the past 30 day period (21 trading days) by taking the standard deviation, adjusted for an annualized reading. I calculated this to get updated data, and the current output is below:
RV / IV 2020
What we can see is that a pretty stark divergence has occurred, with realized vol moving higher than implied vol. This negative spread relationship is counter-intuitive. Think about it. If IV is forward looking, it should be trading at a premium to where RV is currently trading at because we need to account for the uncertainty in the future variance of the markets.
This is not the first time this has happened. It occurred in 2002, in 2008, and in a few periods of high volatility since the GFC.
RV / IV 2008
RV / IV Collection
The important theme is that, over time, the relationship eventually returns to normalcy. That is, overtime either realized vol decreases, implied vol increases, or a combination of the two occurs. This is where our previous author went astray by saying this divergence requires a spike in IV - there are many ways for this imbalance to revert to normalcy.
When RV is below IV, the market is understating the risk of a large loss. When RV is above IV, the market is clearly in distress, and it is overstating the risk of a large loss. Put simply: RV > IV, the market favors option buyers, RV < IV, the market favors option sellers.
This is huge, because it clearly articulates the opportunity cost of purchasing verse selling options. But as I highlighted before, the return to a positive IV / RV spread can occur with a decrease in RV, an increase in IV, or a combination of the two, and the time frame is murky. So, Master Skywalker, what are we going to do?
Let's take a look at the $VIX futures because they can show us what the market is forecasting for expected future movement of $SPX option implied volatility. The term structure for the $VIX futures is showing mad backwardation - that is, the future settlement dates are trading well below the current spot price. In WSB terms, the futures market is implying $VIX will continue to fall over the next 8 months.
$VIX Futures Term Structure
The Volatility Trade, Applied Right Now:
We are presented with 3 potential outcomes:
  • Realized Vol Decreases (requires $VIX to decrease or trade narrowly)
  • Implied Vol Increases
  • A combination of the two over time (most likely outcome)
The issue is - Realized Vol has already happened, so how do we speculate on this? By using a similar concept to a reverse calendar spread. The hypothetical trade:
Short $VIX Futures with Settlement for Sept 2020 - Bet that RV Decreases Over 5 Month Period
  • Or just short $VXX
Long $VIX calls - Bet that IV Increases Over 2 Month Period
Note: I recognize that most of you do not have access to futures or even shorting for that matter, which is why I will also present a solid hybrid hypothetical trade, but hear me out.
What this does: $VIX futures with further settlement dates, while less liquid, are less sensitive to short-term spikes in the $VIX. This trade is a bet that implied volatility through September will be decreasing in aggregate. The $VIX calls with short-term settlement dates are implemented to hedge my short $VIX futures, and capitalize on any potential increase in IV moving forward should we retest the lows in $SPY. This trade let's me bet on a short-term decrease in $SPY (and related spike in $VIX), while hedging with a longer-term bet that volatility will decrease. It is essentially a volatility strangle with different time frames. This requires margin, and excess cash in case of margin call :)
How a Newb With a Robinhood Account Can Do This:
The simple newb approach would be a reverse calendar spread (sell long dated calls, buy short-date calls) on $VXX, but that caps our gains, and we are not here for capped gains. If you are, jump over to investing.
I recognize that RH does not allow $VIX, let alone $VIX futures. So let's reassess the goal of this trade: We expect $SPY to retest the lows, volatility to spike in the short-term, and I want tendies to print because of this. This movement should work toward restoring a positive relationship between RV and IV. But, maybe you, like me, have cautious conviction about this trade given the Fed, US Gov stimulus, and other erroneous factors. So, with the goal of maximizing gains, and limiting losses, we are going to hedge our exposure.
The Hypothetical Hedged Vol Trade:
  • Long $SVXY (inverse volatility ETP) - inverse vol AKA $VIX go down, profit go up - Short Vol Leg
  • Long $VXX calls, $VIX calls , or even $SVXY puts if you really wanted to - Long Vol Leg
    • Can adjust the weightings to amplify exposure to short-term volatility, i.e. for every 100 shares of $SVXY on the short vol leg, purchase 2 option contracts on the long vol leg. Find a combination that satisfies your risk tolerance. Note: $SVXY tracks -0.5x the performance of short-term $VIX futures ($SPVXSP).
  • You can also just do volatility straddles / strangles, but the issue is decreasing vol tends to move very slowly, which is why avoiding theta option decay on the short vol leg is very important.
  • Hedging is for Pussies! If this is you - fear not, you have some options, but if you're wrong, it is really gonna hurt.
  • $SVXY Puts
  • $VXX Calls / $VIX Calls
  • $SPY Puts
  • $SPY straddle / strangle - risk IV crush, narrow trading range, theta decay etc.
  • Note: These are just trade strategies. These are not recommendations, and many combinations of the aforementioned products can be utilized, but be sure to understand what you are investing in.
In this scenario, we are going long $SVXY (short vol) to capture the pullback in RV overtime, and we are long $VXX calls to capture the short-term increase in IV, and to hedge our short vol exposure. What you just did is capture really good upside opportunity while hedging away downside risk, and eliminate the chance of blowing up your account. The reason we are hedging our long vol is because the RV / IV relationship is imbalanced, but that does not mean we are guaranteed higher IV in the short-term.
tl;dr - I expect the market to move in the direction of retesting the lows, but Fed bailout, Fiscal stimulus, and overall complacency could prevent a retest. Thus, instead of trading $SPY, consider trading volatility as the relationship between realized vol and implied vol is fucked up, and will correct itself over time. Because of this, explore going short volatility while hedging with long volatility call options. Long $SVXY, Long $VXX Calls.
As always, discuss, challenge, ask questions and shitpost!
The purpose of this post is to educate people on volatility plays, not recommendations. I will not recommend strikes, expirations, or anything. Use your noodle. This is Not financial advise, just for educational purposes.
  • 🌈🐶
submitted by bigd0g111 to wallstreetbets [link] [comments]

Why we need to think more carefully about what money is and how it works

Most of us have overlooked a fundamental problem that is currently causing an insurmountable obstacle to building a fairer and more sustainable world. We are very familiar with the thing in question, but its problematic nature has been hidden from us by a powerful illusion. We think the problem is capitalism, but capitalism is just the logical outcome of aggregate human decisions about how to manage money. The fundamental problem is money itself, or more specifically general purpose money and the international free market which allows you to sell a chunk of rainforest and use the money to buy a soft drink factory. (You can use the same sort of money to sell anything and buy anything, anywhere in the world, and until recently there was no alternative at all. Bitcoin is now an alternative, but is not quite what we are looking for.) The illusion is that because market prices are free, and nobody is forced into a transaction, those prices must be fair – that the exchange is equitable. The truth is that the way the general money globalised free market system works means that even though the prices are freely determined, there is still an unequal flow of natural resources from poor parts of the world to rich parts. This means the poor parts will always remain poor, and resources will continue to accumulate in the large, unsustainable cities in rich countries. In other words, unless we re-invent money, we cannot overturn capitalism, and that means we can't build a sustainable civilisation.
Why does this matter? What use is it realising that general purpose money is at the root of our problems when we know that the rich and powerful people who run this world will do everything in their power to prevent the existing world system being reformed? They aren't just going to agree to get rid of general purpose money and economic globalisation. It's like asking them to stop pursuing growth: they can't even imagine how to do it, and don't want to. So how does this offer us a way forwards?
Answer: because the two things in question – our monetary system and globalisation – look like being among the first casualties of collapse. Globalisation is already going into reverse (see brexit, Trump's protectionism) and our fiat money system is heading towards a debt/inflation implosion.
It looks highly likely that the scenario going forwards will be of increasing monetary and economic chaos. Fiat money systems have collapsed many times before, but never a global system of fiat currencies floating against each other. But regardless of how may fiat currencies collapse, or how high the price of gold goes in dollars, it is not clear what the system would be replaced with. Can we just go back to the gold standard? It is possible, but people will be desperately looking for other solutions, and the people in power might also be getting desperate.
So what could replace it? What is needed is a new sort of complementary money system which both
(a) addresses the immediate economic problems of people suffering from symptoms of economic and general collapse and
(b) provides a long-term framework around which a new sort of economy can emerge – an economy which is adapted to deglobalisation and degrowth.
I have been searching for answers to this question for some time, and have now found what I was looking for. It is explained in this recently published academic book, and this paper by the same professor of economic anthropology (Alf Hornborg). The answer is the creation of a new sort of money, but it is critically important exactly how this is done. Local currencies like the Bristol Pound do not challenge globalisation. What we need is a new sort of national currency. This currency would be issued as a UBI, but only usable to buy products and services originating within an adjustable radius. This would enable a new economy to emerge. It actually resists globalisation and promotes the growth of a new sort of economy where sustainability is built on local resources and local economic activity. It would also reverse the trend of population moving from poor rural areas and towns, to cities. It would revitalise the “left behind” parts of the western world, and put the brakes on the relentless flow of natural resources and “embodied cheap labour” from the poor parts of the world to the rich parts. It would set the whole system moving towards a more sustainable and fairer state.
This may sound unrealistic, but please give it a chance. I believe it offers a way forwards that can
(a) unite disparate factions trying to provoke systemic change, including eco-marxists, greens, posthumanists and anti-globalist supporters of “populist nationalism”. The only people who really stand to lose are the supporters of global big business and the 1%.
(b) offers a realistic alternative to a money system heading towards collapse, and to which currently no other realistic alternative is being proposed.
In other words, this offers a realistic way forwards not just right now but through much of the early stages of collapse. It is likely to become both politically and economically viable within the forseeable future. It does, though, require some elements of the left to abandon its globalist ideals. It will have to embrace a new sort of nationalism. And it will require various groups who are doing very well out of the current economic system to realise that it is doomed.
Here is an FAQ (from the paper).
What is a complementary currency? It is a form of money that can be used alongside regular money.
What is the fundamental goal of this proposal? The two most fundamental goals motivating this proposal are to insulate local human subsistence and livelihood from the vicissitudes of national and international economic cycles and financial speculation, and to provide tangible and attractive incentives for people to live and consume more sustainably. It also seeks to provide authorities with a means to employ social security expenditures to channel consumption in sustainable directions and encourage economic diversity and community resilience at the local level.
Why should the state administrate the reform? The nation is currently the most encompassing political entity capable of administrating an economic reform of this nature. Ideally it is also subservient to the democratic decisions of its population. The current proposal is envisaged as an option for European nations, but would seem equally advantageous for countries anywhere. If successfully implemented within a particular nation or set of nations, the system can be expected to be emulated by others. Whereas earlier experiments with alternative currencies have generally been local, bottom-up initiatives, a state-supported program offers advantages for long-term success. Rather than an informal, marginal movement connected to particular identities and transient social networks, persisting only as long as the enthusiasm of its founders, the complementary currency advocated here is formalized, efficacious, and lastingly fundamental to everyone's economy.
How is local use defined and monitored? The complementary currency (CC) can only be used to purchase goods and services that are produced within a given geographical radius of the point of purchase. This radius can be defined in terms of kilometers of transport, and it can vary between different nations and regions depending on circumstances. A fairly simple way of distinguishing local from non-local commodities would be to label them according to transport distance, much as is currently done regarding, for instance, organic production methods or "fair trade." Such transport certification would of course imply different labelling in different locales.
How is the complementary currency distributed? A practical way of organizing distribution would be to provide each citizen with a plastic card which is electronically charged each month with the sum of CC allotted to him or her.
Who are included in the category of citizens? A monthly CC is provided to all inhabitants of a nation who have received official residence permits.
What does basic income mean? Basic income is distributed without any requirements or duties to be fulfilled by the recipients. The sum of CC paid to an individual each month can be determined in relation to the currency's purchasing power and to the individual's age. The guiding principle should be that the sum provided to each adult should be sufficient to enable basic existence, and that the sum provided for each child should correspond to the additional household expenses it represents.
Why would people want to use their CC rather than regular money? As the sum of CC provided each month would correspond to purchases representing a claim on his or her regular budget, the basic income would liberate a part of each person's regular income and thus amount to substantial purchasing power, albeit restricted only to local purchases. The basic income in CC would reduce a person's dependence on wage labor and the risks currently associated with unemployment. It would encourage social cooperation and a vitalization of community.
Why would businesses want to accept payment in CC? Business entrepreneurs can be expected to respond rapidly to the radically expanded demand for local products and services, which would provide opportunities for a diverse range of local niche markets. Whether they receive all or only a part of their income in the form of CC, they can choose to use some of it to purchase tax-free local labor or other inputs, and to request to have some of it converted by the authorities to regular currency (see next point).
How is conversion of CC into regular currency organized? Entrepreneurs would be granted the right to convert some of their CC into regular currency at exchange rates set by the authorities.The exchange rate between the two currencies can be calibrated so as to compensate the authorities for loss of tax revenue and to balance the in- and outflows of CC to the state. The rate would thus amount to a tool for determining the extent to which the CC is recirculated in the local economy, or returned to the state. This is important in order to avoid inflation in the CC sector.
Would there be interest on sums of CC owned or loaned? There would be no interest accruing on a sum of CC, whether a surplus accumulating in an account or a loan extended.
How would saving and loaning of CC be organized? The formal granting of credit in CC would be managed by state authorities and follow the principle of full reserve banking, so that quantities of CC loaned would never exceed the quantities saved by the population as a whole.
Would the circulation of CC be subjected to taxation? No.
Why would authorities want to encourage tax-free local economies? Given the beneficial social and ecological consequences of this reform, it is assumed that nation states will represent the general interests of their electorates and thus promote it. Particularly in a situation with rising fiscal deficits, unemployment, health care, and social security expenditures, the proposed reform would alleviate financial pressure on governments. It would also reduce the rising costs of transport infrastructure, environmental protection, carbon offsetting, and climate change adaptation. In short, the rising costs and diminishing returns on current strategies for economic growth can be expected to encourage politicians to consider proposals such as this, as a means of avoiding escalating debt or even bankruptcy.
How would the state's expenditures in CC be financed? As suggested above, much of these expenditures would be balanced by the reduced costs for social security, health care, transport infrastructure, environmental protection, carbon offsetting, and climate change adaptation. As these savings may take time to materialize, however, states can choose to make a proportion of their social security payments (pensions, unemployment insurance, family allowance, etc.) in the form of CC. As between a third and half of some nations' annual budgets are committed to social security, this represents a significant option for financing the reform, requiring no corresponding tax levies.
What are the differences between this CC and the many experiments with local currencies? This proposal should not be confused with the notion, or with the practical operation, of local currencies, as it does not imply different currencies in different locales but one national,complementary currency for local use. Nor is it locally initiated and promoted in opposition to theregular currency, but centrally endorsed and administrated as an accepted complement to it. Most importantly, the alternative currency can only be used to purchase products and services originating from within a given geographical range, a restriction which is not implemented in experiments with Local Exchange Trading Systems (LETS). Finally, the CC is provided as a basic income to all residents of a nation, rather than only earned in proportion to the extent to which a person has made him- or herself useful in the local economy.
What would the ecological benefits be? The reform would radically reduce the demand for long-distance transport, the production of greenhouse gas emissions, consumption of energy and materials, and losses of foodstuffs through overproduction, storage, and transport. It would increase recycling of nutrients and packaging materials, which means decreasing leakage of nutrients and less garbage. It would reduce agricultural intensification, increase biodiversity, and decrease ecological degradation and vulnerability.
What would the societal benefits be? The reform would increase local cooperation, decrease social marginalization and addiction problems, provide more physical exercise, improve psycho-social and physical health, and increase food security and general community resilience. It would decrease the number of traffic accidents, provide fresher and healthier food with less preservatives, and improved contact between producers and consumers.
What would the long-term consequences be for the economy? The reform would no doubt generate radical transformations of the economy, as is precisely the intention. There would be a significant shift of dominance from transnational corporations founded on financial speculation and trade in industrially produced foodstuffs, fuels, and other internationally transported goods to locally diverse producers and services geared to sustainable livelihoods. This would be a democratic consequence of consumer power, rather than of legislation. Through a relatively simple transformation of the conditions for market rationality, governments can encourage new and more sustainable patterns of consumer behavior. In contrast to much of the drastic and often traumatic economic change of the past two centuries, these changes would be democratic and sustainable and would improve local and national resilience.
Why should society want to encourage people to refrain from formal employment? It is increasingly recognized that full or high employment cannot be a goal in itself, particularly if it implies escalating environmental degradation and energy and material throughput. Well-founded calls are thus currently made for degrowth, i.e. a reduction in the rate of production of goods and services that are conventionally quantified by economists as constitutive of GDP. Whether formal unemployment is the result of financial decline, technological development, or intentional policy for sustainability, no modern nation can be expected to leave its citizens economically unsupported. To subsist on basic income is undoubtedly more edifying than receiving unemployment insurance; the CC system encourages useful community cooperation and creative activities rather than destructive behavior that may damage a person's health.
Why should people receive an income without working? As observed above, modern nations will provide for their citizens whether they are formally employed or not. The incentive to find employment should ideally not be propelled only by economic imperatives, but more by the desire to maintain a given identity and to contribute creatively to society. Personal liberty would be enhanced by a reform which makes it possible for people to choose to spend (some of) their time on creative activities that are not remunerated on the formal market, and to accept the tradeoff implied by a somewhat lower economic standard. People can also be expected to devote a greater proportion of their time to community cooperation, earning additional CC, which means that they will contribute more to society – and experience less marginalization – than the currently unemployed.
Would savings in CC be inheritable? No.
How would transport distances of products and services be controlled? It is reasonable to expect the authorities to establish a special agency for monitoring and controlling transport distances. It seems unlikely that entrepreneurs would attempt to cheat the system by presenting distantly produced goods as locally produced, as we can expect income in regular currency generally to be preferable to income in CC. Such attempts would also entail transport costs which should make the cargo less competitive in relation to genuinely local produce, suggesting that the logic of local market mechanisms would by and large obviate the problem.
How would differences in local conditions (such as climate, soils, and urbanism) be dealt with?It is unavoidable that there would be significant variation between different locales in terms of the conditions for producing different kinds of goods. This means that relative local prices in CC for agiven product can be expected to vary from place to place. This may in turn mean that consumption patterns will vary somewhat between locales, which is predictable and not necessarily a problem. Generally speaking, a localization of resource flows can be expected to result in a more diverse pattern of calibration to local resource endowments, as in premodern contexts. The proposed system allows for considerable flexibility in terms of the geographical definition of what is categorized as local, depending on such conditions. In a fertile agricultural region, the radius for local produce may be defined, for instance, as 20 km, whereas in a less fertile or urban area, it may be 50 km. People living in urban centers are faced with a particular challenge. The reform would encourage an increased production of foodstuffs within and in the vicinity of urban areas, which in the long run may also affect urban planning. People might also choose to move to the countryside, where the range of subsistence goods that can be purchased with CC will tend to be greater. In the long run, the reform can be expected to encourage a better fit between the distribution of resources (such as agricultural land) and demography. This is fully in line with the intention of reducing long-distance transports of necessities.
What would the consequences be if people converted resources from one currency sphere into products or services sold in another? It seems unfeasible to monitor and regulate the use of distant imports (such as machinery and fuels) in producing produce for local markets, but as production for local markets is remunerated in CC, this should constitute a disincentive to invest regular money in such production processes. Production for local consumption can thus be expected to rely mostly – and increasingly – on local labor and other resource inputs.

submitted by anthropoz to sustainability [link] [comments]

Video games are the future. ATVI DD inside.

Video games are the future. ATVI DD inside.
What's up fuckers. TSLA fuckboy here writing a post about video games. Go figure. I posted the link about Daddy Elon and legalizing weed last weekend, and got fucking temporarily banned for it because I flaired it with DD. It definitely wasn't DD. Learn from my mistake and don't fuck around with flairs or the mods. In my defense, I have ADHD, was high af, and am likely retarded. I served my sentence, and am here to try to redeem myself with some real DD on Activison-Blizzard (ATVI). I actually wrote this a few days ago when ATVI was $68 (proof attached), but couldn't post it until now. That's ok though, I committed a sin and you all have to pay the price by getting this DD 4 days late (love you mods). Don't fret though (like the market this morning wtf), there is still time for tendies.
I'm long ATVI. They are going to steadily rise for the next 5-10 years. In the paragraphs below, you'll learn why. To be fair, I bought puts on BYND when it was trading at $70 in April, so, I'm pretty fucking smart. Do your due diligence (or fucking don’t, whatever). Obligatory this is not financial advice.
Pictures, positions and TL;DR at the bottom for those of you that don’t know how to read (and let’s be honest, most of you don’t know how to read. Most of you need crayons to eat while you look at pictures. Lookin at you 220p SPY bag holders lmao.) That or you have the attention span of the stock market in March. Either way, enjoy!

Long-Term thoughts

You know that saying, the one that rich-fucks who inherited a bunch of money from their crazy aunt (they've never even met this Aunt obviously) say, “You gotta make your money work for you or you'll never be rich!” Yeah, well fuck those people. I got one better. I make ogres and trolls and wizards and guns (oh my) do the work for me, and it turns out they work really fucking hard, 24/7/365.
Activison-Blizzard is one of the biggest powerhouses of the video game industry and I think they have a tremendous opportunity for growth in the long term. They are also recession/virus/pandemic/protest proof. And in reality, most of these things actually make ATVI more attractive.
Can’t go outside because there's a fucking curfew (we have to be in a simulation), or your downtown is literally on fire from a protest and there’s a deadly virus just hanging out on every corner trying to murder your grandma? Cool. You don’t give a fuck because you’re sitting in your Lovesac (just fucking don't), playing COD while eating your BYND meat fake burger with a non-gmo, organic, gluten-free lettuce wrap with a 42oz Monster at 3 am. Why face reality when video games are so much more fun, AND you don't have to put on pants. Also, the gov is literally handing out money to people on unemployment.
Put on your thinking cap and think really fucking hard for a second. Really hard. Do you think there's a correlation between people that are unemployed (and getting insane unemployment payments + stimulus + more stimulus at the end of July and are basically being ENCOURAGED TO STAY HOME), and the likelihood of that person playing video games? Hmm. FUCKING MAYBE.
Earnings - They make lots of money lol
They have crushed recent earnings (and most other earnings), and they have really fucking solid financials. Boatloads of cash on hand and relatively low debt. They have rock-solid management that has been there for years, and they are devoted to the company. Here's some great info on how they make money.
Also, most importantly, u/fuzzyblankeet said "they are a great company" (proof attached) and that guy doesn't fuck around.
Current and upcoming games
  1. COD - (literally prints fucking money every single release) and the new free-to-play Warzone mode has been insane, taking tons of market share from Fortnite and PUBG. They also have gotten tremendous traction with their COD Mobile game. They will also obviously announce a new COD for the next-gen consoles coming from Microsoft and Sony, Holiday 2020. This holiday season will unquestionably be the most gigantic video game fiesta the world has ever seen, and COD will be the Fucking King. Mark my words.
  2. Overwatch 2 - No date announced yet, but you can bet your allowance (that your wife's boyfriend gives you) that they're gonna try and get it out during the Holiday season. I bet it sells 45-55 million copies, on top of all the micro-transactions, similar to its predecessor).
  3. Diablo 4 and Diablo Immortal - Diablo's fan base are addicts. Blizzard killed it with Diablo 3, and many people expect these 2 new games to be even more epic. One of them being a console game similar to Diablo 3 (for next-gen consoles obviously), and the other being a free-to-play (micro.fucking.transaction'$) game made for iPhone/Android (lol losers). Much smaller fan base than COD/Overwatch, but still, 10's of millions is pretty massive.
  4. WoW - Not what it used to be, but still has a large player base of millions. They are releasing another new expansion this year and the revitalization of its classic Wow has been a hit.
  5. Hearthstone - More than 100 million people have played the game as of 2018 (most recent data I could find). I'd guess that with their new Battlegrounds Mode, in addition to multiple yearly expansions, this game will continue pulling in significant revenue for years to come, especially if they find ways to invent new game modes that bring old players back.
  6. Starcraft - Although this area of the business doesn't make them much money right now, I think it's safe to say that the Starcraft Universe still carries a lot of weight in a lot of gamers' minds. I wouldn't be surprised if we see a Starcraft 4 or some mobile variation of it in the next 3 years, and I think that it would do excellent.
  7. Hero's of the Storm - The game is still played, but is definitely one of the smallest revenue generators for them.
  8. Revitalizing Spyro and Crash Bandicoot - Although there is no real news on theses getting re-vamped, ATVI thinks of them as a flagship brand. I bet they sell a shit load of copies each on console if they go that route, especially the Nintendo Switch (which happens to be in the hands of 55 million people).
  9. Tony Hawk's Pro Skater 1+2 Remaster - Yeah, they are remastering this shit. You remember how badass these games were back in the day. Set to release Sept, 2020. I actually think this might be a surprise revenue generator. It'll sell 25-35 million copies.
  10. King Digital Entertainment - ATVI bought them for around 6 billion a few years back, and it's pretty clear that this was a wise purchase. Their suite of current games and upcoming games/expansions should continue to print money and at a good margin. They are a dominat player in the mobile space, and could leverage those users to try other games from ATVI (Diablo Immortal)
  11. Tv show - Pretty strong rumors that Blizzard is working on a few TV shows based on their Diablo and Overwatch worlds. Animated TV shows are growing in popularity, even for adults. Both of these shows will attract ALL blizzard fans (100's of millions around the world), and lots of new people too, as I'm sure they'll make it easy enough to digest for someone who doesn't know the game/universes already. This could also bring brand new people into the Blizziverse. And I'm sure Netflix/HBO Max/Apple TV would be happy to pay a pretty penny for rights to it.

E-Sports - The Future of 'sports' entertainment

E-Sports will largely replace real sports in our lifetime, and we’re just now really getting started. Disagree? Great, I don’t give a fuck. Go ask any 10 year-old this question. “Hey little Johnny-Sue. Would you like to watch some sweaty dudes smash into each other for 3 hours, or would you rather watch your favorite team play in their respective competitive E-Sport league on Twitch?” 9/10 times, Lil-fuckin-Johnny-Sue gonna pick video games, and that's a fact.
Teams and Orgs
Esports are also BOOMING in colleges, with lots of colleges offering significant scholarships to come play video games for their school. Let me help you draw a mental picture. Concentrate.
Remember Lil-Fucking-Johnny-Sue from above? If he/she gets good enough at whatever game he/she is playing, they could get a full-ride scholarship to college, and then possibly get a job afterwards as a professional Esports athlete (and make more money then a CPA makes their first few years of working). THEN, when he/she gets too fucking old and slow to play the game (25-30 years old typically) they can become an analyst, caster, coach, manager, scout, etc etc. Maybe they become the next N0tail (highest paid Esports athlete to date) and make a cool 6.8 million a year. Imagine making 6 figures a year to play fucking video games and rekt n00bs on stage. Fuck I want that life so bad.
There are literally stadiums being filled with fans to watch people play video games, while another 100 million people watch from home. Esports organizations are becoming bigger and bigger. TSM is a major Esports organization in the US and they are building a $50 million facility in LA. More words on other organizations to help put things into perspective. While these facilities are clearly impressive, this is nothing compared to major sports facilities.
Here's my point. Is it reasonable to assume that these facilities/teams/Esports stadiums/orgs will continue to get bigger? And if they get bigger, they will demand more attention from celebrities/rich folk because they want to get in on the action. As a result, the salaries of players/managers/staff/coaches/analysts will continue to go up and there will be more and more opportunities for jobs in this field. This then causes more young people to be more interested in video games, because not only are they fun af (and insanely addictive), but you could play pro someday! Schools/colleges will continue to develop competitive Esports teams because A: You better fucking believe that there are lots of kids out there that care about this and B: The school knows that it could lead to jobs (more like a dream job, but still something that's reasonable to consider if you are really good at a video game).
Still disagree? More words for you to look at and not understand.
Blizzard Esports Revenue
There are competitive (money generating) Esports leagues for 7 different ATVI games. (Overwatch, Hearthstone, WoW, COD, COD Warzone, COD Mobile, Starcraft). Here are some thoughts from Pete Vlastelica (head of E-Sports at Blizzard).
E-Sports will be 10x in 10 years. Bet your bottom dollar on it.

Technicals - (kinda, but only 1 cause fuck TA)

Honestly, just fucking look at the 50-day moving average (image attached). They crashed and burned cause Rona (so did everything else you autist). But Rona has been canceled, and even if it hasn't, ATVI is gonna be better off because of it.
TL;DR - ATVI makes a lot of money and they are in a strong position to grow and make lots more fucking cash regardless of C19/protests/riots and they might actually do even better because of it. (3 -12 months = 80's) (12-24 months = 90's.)
Yolo 100c mid-2021.
EDIT: misspelled ATVI ticker one time in post and some autist called me out. Fixed. Also, fuck off.
https://preview.redd.it/8g6urh79oa451.png?width=2476&format=png&auto=webp&s=cfc5dc86d808439bbb5ff7612d2f40d86c0742e2
https://preview.redd.it/ry0jel79oa451.png?width=739&format=png&auto=webp&s=1f683884fc309d90803a24e3c32d1c626ef84cb0
https://preview.redd.it/qq32ek79oa451.png?width=596&format=png&auto=webp&s=11661a18e989e7fdf5fc94979f15fb64645d8907
submitted by tslatothemoon to wallstreetbets [link] [comments]

When Market Bounce Inevitably Comes...Don't Scream "GUH" and Avoid IV Crush (DD Inside)

WSB's greatest advantage is that we pretty much exclusively trade options. That great asset is also our greatest enemy because I would bet 90% of you autists don't understand how they work, so I am here today to try and help you out.
With such insane spikes in volatility (i.e. rises in IV on the option contracts), it is very easy to get fucked by "IV crush." For those idiots who do not know what this means: IV Crush is when volatility (a key component of the option premium) decreases, causing your option contract to lose value, even if you called the directional move correctly. This happened on Thursday and Friday to many autists, including myself, due to the lower than usual volatility. Now, this volatility can translate to your advantage. If you were long puts at the start of the Rona Bear Market, you would have made massive tendies because you called the direction and the increase in volatility.
As with any market route, there is always a bounce, bull trap, dead cat bounce - whatever the fuck you want to call it. The fact is, we are incredibly oversold, and the markets will experience a partial recovery eventually. What I am showing you is that if you buy calls and the market slightly recovers you called the direction but will experience a decrease in volatility. This limits your output of tendies.
I will use u/Variation-Separate and his call for a short term bottoming around 213 on the $SPY and take his rally to the 270 range. The obvious play if what he says happens is picking up 4/17 220c/230c/240c/250c/260c (whatever your preference) and riding the increase. The issue with this play is that your upside is going to be limited by IV crush.
Volatility is measured most transparently for the $SPY using the $VIX, which has been pushing records during this market route. Using historical data, I took a look at the market volatility in 2018, 2017, 2016, and 2008 to show you that on relief rallies, after a significant pullback,the $VIX (aka the proxy for implied volatility on $SPY options) drastically decreases during market recoveries. What this means: your long calls that you scooped up when $SPY was at 213 will not print as much because while $SPY may hit 270 and you will make some money, you are going to get IV crushed by the fall in volatility.
The important takeaway: on dead cat bounces / bull traps / market rallies, the $VIX significantly pulls back. Put another way, the IV on your $SPY calls decreases when markets rebound.
So how do I avoid getting IV crushed on the market rally?
Hedge vega (the quantifiable proxy for IV on option pricing). Vega represents the change in an option value for a 1% change in IV.
The hedge is by going long $SPY calls, and hedging the vega by shorting the $VIX with puts. All you need to do is match up the vega of the $SPY call with the delta of the $VIX put.
The Hypothetical Trade:
Long $SPY 4/17 240c - trading at 9.65 a piece with a vega of 0.2404
Long $VIX 4/15 52.5p - trading at 7.90 a piece with a delta of -0.2463
This essentially creates a vega-neutral position, aka Fuck Off IV Crush You Dumb Cuck. All you need to do is match up the vega of the $SPY call with the delta of the $VIX put, and you will be able to print massive tendies if you call the directional movement correct. However, since option greeks are constantly changing it is best to do this in a shorter time frame, so be nimble.
It should be noted this can be done using spreads or futures but that is 🌈 People keep bringing up IV on the $VIX, which does exist, and can be visualized with $VVIX. If you want a perfect hedge explore vol futures, otherwise you will face some IV crush on $VIX puts, but the hedge still holds up quite well.
tl;dr - When the market bounces and you go long $SPY calls, avoid IV crush by buying puts on the $VIX. Just match up the $SPY call vega with the $VIX put delta.
Enjoy the quarantine - 🌈🐶
Edit:
A lot are asking so it should be noted: if you were betting that $SPY would go down with puts, hedging IV is silly because drops in the $SPY almost always correlate to a higher $VIX, so you most likely won’t get IV crushed. However, if you still wanted to be Vega-neutral with $SPY puts, you would still use $VIX puts because Vega is a positive greek and you are still trying to hedge away a decrease in IV. Note: $SPY falling in marginal, incremental amounts can still experience decreasing IV, so hedging Vega on puts is not always a bad idea in a high IV environment.
Not financial advise, just for educational purposes. The use of specific expiries was to model the Vega / Delta relationship between VIX and SPY
submitted by bigd0g111 to wallstreetbets [link] [comments]

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

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

future and option trading tutorial . Futures and Options on Futures. Farming is a risky venture. A lot of money, time, and effort is needed to produce farm products, with many risks, such as weather or price fluctuations in the market, which can result in high or low prices in the spot market (aka cash market), the market where the buyer pays cash to the seller for the immediate delivery of The term variation margin refers to a margin payment made by a clearing member to a clearinghouse based on the price movements of futures contracts Futures Contract A futures contract is an agreement to buy or sell an underlying asset at a later date for a predetermined price. It’s also known as a derivative because future contracts derive What is Maintenance Margin in Futures Trading? Maintenance Margin is one of three margin terms that all futures traders must understand. The other two being Initial Margin and Variation Margin. Unlike Initial Margin and Variation Margin (which are cash that you actually pay), Maintenance Margin is really just a level below which you would need to top up cash (Variation Margin) in order to keep Variation margin refers the amount of funds needed to ensure margin levels for trading. It depends on a variety of factors, including expected price movements, type of asset, and market conditions. Variation margin is which of the following? a. the difference in margin between hedger and speculator b. margin differences according to trading style c. margin deposited as a result of marking-to-market d. margin set by the variability of a futures price e. none of the above

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Live Trading: Adjusting ES Futures Options - YouTube

Margin allows for trading with high leverage which is actually a crucial instrument in the futures market. With leverage, you don’t need to put up 100% of the futures contract’s value amount ... Derivatives Margining Basics - Initial, Variation and Maintenance Margin - Duration: 5:43. Wealthy Princess 6,372 views. 5:43. Understanding Futures Margin Fundamentals of Futures Trading Course ... Variation margin is often used in exchange areas, where trader's forecasts regarding trading results are of great importance. ... because there is direct trading in securities. Any futures ... Understanding Futures Margin Fundamentals of Futures Trading Course - Duration: 7:15. TD Ameritrade 41,398 views. 7:15. How to Invest in the Stock Market for Beginners - Duration: 17:54. Keywords: Initial Margin, Maintenance Margin, Variation Margin, Market to Market. This video lecture explains what are margins and their types, their role in futures contracts, and how daily ...

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