The Benefits of Futures Trading Using Leverage and Margin ...
The Benefits of Futures Trading Using Leverage and Margin ...
All About Margin on Futures Contracts
Trading on Margin Basics for Futures and Options - dummies
What are Futures in Trading? - Futures Explained 2020
Futures Trading Strategies: Trade Futures using Futures ...
@BinanceResearch: With the latest piece in its Global Markets series, @Binance Research discusses notable trends in #staking services, margin trading, and futures markets from November. Check out a case example showing margin trading's impact on orderbook structure. https://t.co/ZWLwq5qQNB
I'm trading for 11 months with pretty good success. I never traded metals and forex before, just stocks. Today when gold started to consolidate at the last hour, I decided to scalp short it with a large amount, so I opened 100 lots. I haven't realised, in forex 100 (lots) doesn't mean "100 pcs", because I used to stocks and I went full retard without knowledge. Seconds later, I realised it means 10 million dollars (1 lot = 100.000, and I had 500x leverage). It moved up a bit and immediately I was down £4000. I scared as fuck and rather than closing the position quickly I hoped maybe I could close break even. The market closed, and I waited for the Asian session. The gold popped like never before, and I lost all my life savings (£55000) in less than two hours. (including the 1-hour break between sessions). If I count that I lost all my earnings as well, I lost around £85000. Here is the margin call https://imgur.com/a/XY5m4ZA https://imgur.com/a/VSgmCSs https://imgur.com/pRWl5g9 IC Markets closed my position partially in every 1-2 minutes until I shut it myself at £35. You know the rest of the story. I'm depressed, crying and shouting with myself. Yes, I know I was stupid, thanks. I just wanted to share this with you. Edit: WOW THANK YOU, GUYS! I haven't expected this, but you help me. Many of you asked the same questions, I answer it here: - I live in Europe, and we usually trade CFD's, not futures. - Currency in GBP. - As you can see, this account made on IC Markets. They not just allowing you a 500x leverage, it's the default. - You can ask me why I went against the market. Because gold is way oversold? Because I expected institutions would sell their shares before gold is hitting £2000, leaving retails hanging there. Also, as I said, I wanted to scalp, not riding the gold all the way down. If I had a loss of £100, I would close the position immediately. But when I saw the £4000, my heart is stopped, and my brain just freezes. - I went for a revenge trade with my last £2k, and I don't have to say what happened. I uninstalled the app, and I give up trading for a while. - Again, in the past months, I was cautious, I lost a significant sum in March, but I managed to recover. Made consistent gains, always with SL. This is just an example of how easy is to fuck up everything you did. - I didn't come here for some shiny digital medals. I can't tell about my losses to anyone who I know in real life. I would make a fool of myself. - Anyone who attacking me that it is a scam. Well, think what you want. I feel terrible and the last thing is to answer all the messages saying "You fucking karma whore". I don't give a shit about karma.
The dollar standard and how the Fed itself created the perfect setup for a stock market crash
Disclaimer: This is neither financial nor trading advice and everyone should trade based on their own risk tolerance. Please leverage yourself accordingly. When you're done, ask yourself: "Am I jacked to the tits?". If the answer is "yes", you're good to go. We're probably experiencing the wildest markets in our lifetime. After doing some research and listening to opinions by several people, I wanted to share my own view on what happened in the market and what could happen in the future. There's no guarantee that the future plays out as I describe it or otherwise I'd become very rich. If you just want tickers and strikes...I don't know if this is going to help you. But anyways, scroll way down to the end. My current position is TLT 171c 8/21, opened on Friday 7/31 when TLT was at 170.50. This is a post trying to describe what it means that we've entered the "dollar standard" decades ago after leaving the gold standard. Furthermore I'll try to explain how the "dollar standard" is the biggest reason behind the 2008 and 2020 financial crisis, stock market crashes and how the Coronavirus pandemic was probably the best catalyst for the global dollar system to blow up.
Tackling the Dollar problem
Throughout the month of July we've seen the "death of the Dollar". At least that's what WSB thinks. It's easy to think that especially since it gets reiterated in most media outlets. I will take the contrarian view. This is a short-term "downturn" in the Dollar and very soon the Dollar will rise a lot against the Euro - supported by the Federal Reserve itself.US dollar Index (DXY)If you zoom out to the 3Y chart you'll see what everyone is being hysterical about. The dollar is dying! It was that low in 2018! This is the end! The Fed has done too much money printing! Zimbabwe and Weimar are coming to the US. There is more to it though. The DXY is dominated by two currency rates and the most important one by far is EURUSD.EURUSD makes up 57.6% of the DXY And we've seen EURUSD rise from 1.14 to 1.18 since July 21st, 2020. Why that date? On that date the European Commission (basically the "government" of the EU) announced that there was an agreement for the historical rescue package for the EU. That showed the markets that the EU seems to be strong and resilient, it seemed to be united (we're not really united, trust me as an European) and therefore there are more chances in the EU, the Euro and more chances taking risks in the EU.Meanwhile the US continued to struggle with the Coronavirus and some states like California went back to restricting public life. The US economy looked weaker and therefore the Euro rose a lot against the USD. From a technical point of view the DXY failed to break the 97.5 resistance in June three times - DXY bulls became exhausted and sellers gained control resulting in a pretty big selloff in the DXY.
Why the DXY is pretty useless
Considering that EURUSD is the dominant force in the DXY I have to say it's pretty useless as a measurement of the US dollar. Why? Well, the economy is a global economy. Global trade is not dominated by trade between the EU and the USA. There are a lot of big exporting nations besides Germany, many of them in Asia. We know about China, Japan, South Korea etc. Depending on the business sector there are a lot of big exporters in so-called "emerging markets". For example, Brazil and India are two of the biggest exporters of beef. Now, what does that mean? It means that we need to look at the US dollar from a broader perspective. Thankfully, the Fed itself provides a more accurate Dollar index. It's called the "Trade Weighted U.S. Dollar Index: Broad, Goods and Services". When you look at that index you will see that it didn't really collapse like the DXY. In fact, it still is as high as it was on March 10, 2020! You know, only two weeks before the stock market bottomed out. How can that be explained?
Global trade, emerging markets and global dollar shortage
Emerging markets are found in countries which have been shifting away from their traditional way of living towards being an industrial nation. Of course, Americans and most of the Europeans don't know how life was 300 years ago.China already completed that transition. Countries like Brazil and India are on its way. The MSCI Emerging Market Index lists 26 countries. Even South Korea is included. However there is a big problem for Emerging Markets: the Coronavirus and US Imports.The good thing about import and export data is that you can't fake it. Those numbers speak the truth. You can see that imports into the US haven't recovered to pre-Corona levels yet. It will be interesting to see the July data coming out on August 5th.Also you can look at exports from Emerging Market economies. Let's take South Korean exports YoY. You can see that South Korean exports are still heavily depressed compared to a year ago. Global trade hasn't really recovered.For July the data still has to be updated that's why you see a "0.0%" change right now.Less US imports mean less US dollars going into foreign countries including Emerging Markets.Those currency pairs are pretty unimpressed by the rising Euro. Let's look at a few examples. Use the 1Y chart to see what I mean. Indian Rupee to USDBrazilian Real to USDSouth Korean Won to USD What do you see if you look at the 1Y chart of those currency pairs? There's no recovery to pre-COVID levels. And this is pretty bad for the global financial system. Why? According to the Bank of International Settlements there is $12.6 trillion of dollar-denominated debt outside of the United States. Now the Coronavirus comes into play where economies around the world are struggling to go back to their previous levels while the currencies of Emerging Markets continue to be WEAK against the US dollar. This is very bad. We've already seen the IMF receiving requests for emergency loans from 80 countries on March 23th. What are we going to see? We know Argentina has defaulted on their debt more than once and make jokes about it. But what happens if we see 5 Argentinas? 10? 20? Even 80? Add to that that global travel is still depressed, especially for US citizens going anywhere. US citizens traveling to other countries is also a situation in which the precious US dollars would enter Emerging Market economies. But it's not happening right now and it won't happen unless we actually get a miracle treatment or the virus simply disappears. This is where the treasury market comes into play. But before that, let's quickly look at what QE (rising Fed balance sheet) does to the USD. Take a look at the Trade-Weighted US dollar Index. Look at it at max timeframe - you'll see what happened in 2008. The dollar went up (shocker).Now let's look at the Fed balance sheet at max timeframe. You will see: as soon as the Fed starts the QE engine, the USD goes UP, not down! September 2008 (Fed first buys MBS), March 2009, March 2020. Is it just a coincidence? No, as I'll explain below. They're correlated and probably even in causation.Oh and in all of those scenarios the stock market crashed...compared to February 2020, the Fed balance sheet grew by ONE TRILLION until March 25th, but the stock market had just finished crashing...can you please prove to me that QE makes stock prices go up? I think I've just proven the opposite correlation.
Bonds, bills, Gold and "inflation"
People laugh at bond bulls or at people buying bonds due to the dropping yields. "Haha you're stupid you're buying an asset which matures in 10 years and yields 5.3% STONKS go up way more!".Let me stop you right there. Why do you buy stocks? Will you hold those stocks until you die so that you regain your initial investment through dividends? No. You buy them because you expect them to go up based on fundamental analysis, news like earnings or other things. Then you sell them when you see your price target reached. The assets appreciated.Why do you buy options? You don't want to hold them until expiration unless they're -90% (what happens most of the time in WSB). You wait until the underlying asset does what you expect it does and then you sell the options to collect the premium. Again, the assets appreciated. It's the exact same thing with treasury securities. The people who've been buying bonds for the past years or even decades didn't want to wait until they mature. Those people want to sell the bonds as they appreciate. Bond prices have an inverse relationship with their yields which is logical when you think about it. Someone who desperately wants and needs the bonds for various reasons will accept to pay a higher price (supply and demand, ya know) and therefore accept a lower yield. By the way, both JP Morgan and Goldmans Sachs posted an unexpected profit this quarter, why? They made a killing trading bonds. US treasury securities are the most liquid asset in the world and they're also the safest asset you can hold. After all, if the US default on their debt you know that the world is doomed. So if US treasuries become worthless anything else has already become worthless. Now why is there so much demand for the safest and most liquid asset in the world? That demand isn't new but it's caused by the situation the global economy is in. Trade and travel are down and probably won't recover anytime soon, emerging markets are struggling both with the virus and their dollar-denominated debt and central banks around the world struggle to find solutions for the problems in the financial markets. How do we now that the markets aren't trusting central banks? Well, bonds tell us that and actually Gold tells us the same! TLT chartGold spot price chart TLT is an ETF which reflects the price of US treasuries with 20 or more years left until maturity. Basically the inverse of the 30 year treasury yield. As you can see from the 5Y chart bonds haven't been doing much from 2016 to mid-2019. Then the repo crisis of September 2019took place and TLT actually rallied in August 2019 before the repo crisis finally occurred!So the bond market signaled that something is wrong in the financial markets and that "something" manifested itself in the repo crisis. After the repo market crisis ended (the Fed didn't really do much to help it, before you ask), bonds again were quiet for three months and started rallying in January (!) while most of the world was sitting on their asses and downplaying the Coronavirus threat. But wait, how does Gold come into play? The Gold chart basically follows the same pattern as the TLT chart. Doing basically nothing from 2016 to mid-2019. From June until August Gold rose a staggering 200 dollars and then again stayed flat until December 2019. After that, Gold had another rally until March when it finally collapsed. Many people think rising Gold prices are a sign of inflation. But where is the inflation? We saw PCE price indices on Friday July 31st and they're at roughly 1%. We've seen CPIs from European countries and the EU itself. France and the EU (July 31st) as a whole had a very slight uptick in CPI while Germany (July 30th), Italy (July 31st) and Spain (July 30th) saw deflationary prints.There is no inflation, nowhere in the world. I'm sorry to burst that bubble. Yet, Gold prices still go up even when the Dollar rallies through the DXY (sadly I have to measure it that way now since the trade-weighted index isn't updated daily) and we know that there is no inflation from a monetary perspective. In fact, Fed chairman JPow, apparently the final boss for all bears, said on Wednesday July 29th that the Coronavirus pandemic is a deflationarydisinflationary event. Someone correct me there, thank you. But deflationary forces are still in place even if JPow wouldn't admit it. To conclude this rather long section: Both bonds and Gold are indicators for an upcoming financial crisis. Bond prices should fall and yields should go up to signal an economic recovery. But the opposite is happening. in that regard heavily rising Gold prices are a very bad signal for the future. Both bonds and Gold are screaming: "The central banks haven't solved the problems". By the way, Gold is also a very liquid asset if you want quick cash, that's why we saw it sell off in March because people needed dollars thanks to repo problems and margin calls.When the deflationary shock happens and another liquidity event occurs there will be another big price drop in precious metals and that's the dip which you could use to load up on metals by the way.
Dismantling the money printer
But the Fed! The M2 money stock is SHOOTING THROUGH THE ROOF! The printers are real!By the way, velocity of M2 was updated on July 30th and saw another sharp decline. If you take a closer look at the M2 stock you see three parts absolutely skyrocketing: savings, demand deposits and institutional money funds. Inflationary? No. So, the printers aren't real. I'm sorry.Quantitative easing (QE) is the biggest part of the Fed's operations to help the economy get back on its feet. What is QE?Upon doing QE the Fed "purchases" treasury and mortgage-backed securities from the commercial banks. The Fed forces the commercial banks to hand over those securities and in return the commercial banks reserve additional bank reserves at an account in the Federal Reserve. This may sound very confusing to everyone so let's make it simple by an analogy.I want to borrow a camera from you, I need it for my road trip. You agree but only if I give you some kind of security - for example 100 bucks as collateral.You keep the 100 bucks safe in your house and wait for me to return safely. You just wait and wait. You can't do anything else in this situation. Maybe my road trip takes a year. Maybe I come back earlier. But as long as I have your camera, the 100 bucks need to stay with you. In this analogy, I am the Fed. You = commercial banks. Camera = treasuries/MBS. 100 bucks = additional bank reserves held at the Fed.
Revisiting 2008 briefly: the true money printers
The true money printers are the commercial banks, not the central banks. The commercial banks give out loans and demand interest payments. Through those interest payments they create money out of thin air! At the end they'll have more money than before giving out the loan. That additional money can be used to give out more loans, buy more treasury/MBS Securities or gain more money through investing and trading. Before the global financial crisis commercial banks were really loose with their policy. You know, the whole "Big Short" story, housing bubble, NINJA loans and so on. The reckless handling of money by the commercial banks led to actual money printing and inflation, until the music suddenly stopped. Bear Stearns went tits up. Lehman went tits up. The banks learned from those years and completely changed, forever. They became very strict with their lending resulting in the Fed and the ECB not being able to raise their rates. By keeping the Fed funds rate low the Federal Reserve wants to encourage commercial banks to give out loans to stimulate the economy. But commercial banks are not playing along. They even accept negative rates in Europe rather than taking risks in the actual economy. The GFC of 2008 completely changed the financial landscape and the central banks have struggled to understand that. The system wasn't working anymore because the main players (the commercial banks) stopped playing with each other. That's also the reason why we see repeated problems in the repo market.
How QE actually decreases liquidity before it's effective
The funny thing about QE is that it achieves the complete opposite of what it's supposed to achieve before actually leading to an economic recovery. What does that mean? Let's go back to my analogy with the camera. Before I take away your camera, you can do several things with it. If you need cash, you can sell it or go to a pawn shop. You can even lend your camera to someone for a daily fee and collect money through that.But then I come along and just take away your camera for a road trip for 100 bucks in collateral. What can you do with those 100 bucks? Basically nothing. You can't buy something else with those. You can't lend the money to someone else. It's basically dead capital. You can just look at it and wait until I come back. And this is what is happening with QE. Commercial banks buy treasuries and MBS due to many reasons, of course they're legally obliged to hold some treasuries, but they also need them to make business.When a commercial bank has a treasury security, they can do the following things with it:- Sell it to get cash- Give out loans against the treasury security- Lend the security to a short seller who wants to short bonds Now the commercial banks received a cash reserve account at the Fed in exchange for their treasury security. What can they do with that?- Give out loans against the reserve account That's it. The bank had to give away a very liquid and flexible asset and received an illiquid asset for it. Well done, Fed. The goal of the Fed is to encourage lending and borrowing through suppressing yields via QE. But it's not happening and we can see that in the H.8 data (assets and liabilities of the commercial banks).There is no recovery to be seen in the credit sector while the commercial banks continue to collect treasury securities and MBS. On one hand, they need to sell a portion of them to the Fed on the other hand they profit off those securities by trading them - remember JPM's earnings. So we see that while the Fed is actually decreasing liquidity in the markets by collecting all the treasuries it has collected in the past, interest rates are still too high. People are scared, and commercial banks don't want to give out loans. This means that as the economic recovery is stalling (another whopping 1.4M jobless claims on Thursday July 30th) the Fed needs to suppress interest rates even more. That means: more QE. that means: the liquidity dries up even more, thanks to the Fed. We heard JPow saying on Wednesday that the Fed will keep their minimum of 120 billion QE per month, but, and this is important, they can increase that amount anytime they see an emergency.And that's exactly what he will do. He will ramp up the QE machine again, removing more bond supply from the market and therefore decreasing the liquidity in financial markets even more. That's his Hail Mary play to force Americans back to taking on debt again.All of that while the government is taking on record debt due to "stimulus" (which is apparently only going to Apple, Amazon and Robinhood). Who pays for the government debt? The taxpayers. The wealthy people. The people who create jobs and opportunities. But in the future they have to pay more taxes to pay down the government debt (or at least pay for the interest). This means that they can't create opportunities right now due to the government going insane with their debt - and of course, there's still the Coronavirus.
"Without the Fed, yields would skyrocket"
This is wrong. The Fed has been keeping their basic level QE of 120 billion per month for months now. But ignoring the fake breakout in the beginning of June (thanks to reopening hopes), yields have been on a steady decline. Let's take a look at the Fed's balance sheet. The Fed has thankfully stayed away from purchasing more treasury bills (short term treasury securities). Bills are important for the repo market as collateral. They're the best collateral you can have and the Fed has already done enough damage by buying those treasury bills in March, destroying even more liquidity than usual. More interesting is the point "notes and bonds, nominal". The Fed added 13.691 billion worth of US treasury notes and bonds to their balance sheet. Luckily for us, the US Department of Treasury releases the results of treasury auctions when they occur. On July 28th there was an auction for the 7 year treasury note. You can find the results under "Note -> Term: 7-year -> Auction Date 07/28/2020 -> Competitive Results PDF". Or here's a link. What do we see? Indirect bidders, which are foreigners by the way, took 28 billion out of the total 44 billion. That's roughly 64% of the entire auction. Primary dealers are the ones which sell the securities to the commercial banks. Direct bidders are domestic buyers of treasuries. The conclusion is: There's insane demand for US treasury notes and bonds by foreigners. Those US treasuries are basically equivalent to US dollars. Now dollar bears should ask themselves this question: If the dollar is close to a collapse and the world wants to get rid fo the US dollar, why do foreigners (i.e. foreign central banks) continue to take 60-70% of every bond auction? They do it because they desperately need dollars and hope to drive prices up, supported by the Federal Reserve itself, in an attempt to have the dollar reserves when the next liquidity event occurs. So foreigners are buying way more treasuries than the Fed does. Final conclusion: the bond market has adjusted to the Fed being a player long time ago. It isn't the first time the Fed has messed around in the bond market.
How market participants are positioned
We know that commercial banks made good money trading bonds and stocks in the past quarter. Besides big tech the stock market is being stagnant, plain and simple. All the stimulus, stimulus#2, vaccinetalksgoingwell.exe, public appearances by Trump, Powell and their friends, the "money printing" (which isn't money printing) by the Fed couldn't push SPY back to ATH which is 339.08 btw. Who can we look at? Several people but let's take Bill Ackman. The one who made a killing with Credit Default Swaps in March and then went LONG (he said it live on TV). Well, there's an update about him:Bill Ackman saying he's effectively 100% longHe says that around the 2 minute mark. Of course, we shouldn't just believe what he says. After all he is a hedge fund manager and wants to make money. But we have to assume that he's long at a significant percentage - it doesn't even make sense to get rid of positions like Hilton when they haven't even recovered yet. Then again, there are sources to get a peek into the positions of hedge funds, let's take Hedgopia.We see: Hedge funds are starting to go long on the 10 year bond. They are very short the 30 year bond. They are very long the Euro, very short on VIX futures and short on the Dollar.
This is the perfect setup for a market meltdown. If hedge funds are really positioned like Ackman and Hedgopia describes, the situation could unwind after a liquidity event:The Fed increases QE to bring down the 30 year yield because the economy isn't recovering yet. We've already seen the correlation of QE and USD and QE and bond prices.That causes a giant short squeeze of hedge funds who are very short the 30 year bond. They need to cover their short positions. But Ackman said they're basically 100% long the stock market and nothing else. So what do they do? They need to sell stocks. Quickly. And what happens when there is a rapid sell-off in stocks? People start to hedge via put options. The VIX rises. But wait, hedge funds are short VIX futures, long Euro and short DXY. To cover their short positions on VIX futures, they need to go long there. VIX continues to go up and the prices of options go suborbital (as far as I can see).Also they need to get rid of Euro futures and cover their short DXY positions. That causes the USD to go up even more. And the Fed will sit there and do their things again: more QE, infinity QE^2, dollar swap lines, repo operations, TARP and whatever. The Fed will be helpless against the forces of the market and have to watch the stock market burn down and they won't even realize that they created the circumstances for it to happen - by their programs to "help the economy" and their talking on TV. Do you remember JPow on 60minutes talking about how they flooded the world with dollars and print it digitally? He wanted us poor people to believe that the Fed is causing hyperinflation and we should take on debt and invest into the stock market. After all, the Fed has it covered. But the Fed hasn't got it covered. And Powell knows it. That's why he's being a bear in the FOMC statements. He knows what's going on. But he can't do anything about it except what's apparently proven to be correct - QE, QE and more QE.
A final note about "stock market is not the economy"
It's true. The stock market doesn't reflect the current state of the economy. The current economy is in complete shambles. But a wise man told me that the stock market is the reflection of the first and second derivatives of the economy. That means: velocity and acceleration of the economy. In retrospect this makes sense. The economy was basically halted all around the world in March. Of course it's easy to have an insane acceleration of the economy when the economy is at 0 and the stock market reflected that. The peak of that accelerating economy ("max velocity" if you want to look at it like that) was in the beginning of June. All countries were reopening, vaccine hopes, JPow injecting confidence into the markets. Since then, SPY is stagnant, IWM/RUT, which is probably the most accurate reflection of the actual economy, has slightly gone down and people have bid up tech stocks in absolute panic mode. Even JPow admitted it. The economic recovery has slowed down and if we look at economic data, the recovery has already stopped completely. The economy is rolling over as we can see in the continued high initial unemployment claims. Another fact to factor into the stock market.
TLDR and positions or ban?
TLDR: global economy bad and dollar shortage. economy not recovering, JPow back to doing QE Infinity. QE Infinity will cause the final squeeze in both the bond and stock market and will force the unwinding of the whole system. Positions: idk. I'll throw in TLT 190c 12/18, SPY 220p 12/18, UUP 26c 12/18.That UUP call had 12.5k volume on Friday 7/31 btw.
Edit about positions and hedge funds
My current positions. You can laugh at my ZEN calls I completely failed with those.I personally will be entering one of the positions mentioned in the end - or similar ones. My personal opinion is that the SPY puts are the weakest try because you have to pay a lot of premium. Also I forgot talking about why hedge funds are shorting the 30 year bond. Someone asked me in the comments and here's my reply: "If you look at treasury yields and stock prices they're pretty much positively correlated. Yields go up, then stocks go up. Yields go down (like in March), then stocks go down. What hedge funds are doing is extremely risky but then again, "hedge funds" is just a name and the hedgies are known for doing extremely risky stuff. They're shorting the 30 year bond because they needs 30y yields to go UP to validate their long positions in the equity market. 30y yields going up means that people are welcoming risk again, taking on debt, spending in the economy. Milton Friedman labeled this the "interest rate fallacy". People usually think that low interest rates mean "easy money" but it's the opposite. Low interest rates mean that money is really tight and hard to get. Rising interest rates on the other hand signal an economic recovery, an increase in economic activity. So hedge funds try to fight the Fed - the Fed is buying the 30 year bonds! - to try to validate their stock market positions. They also short VIX futures to do the same thing. Equity bulls don't want to see VIX higher than 15. They're also short the dollar because it would also validate their position: if the economic recovery happens and the global US dollar cycle gets restored then it will be easy to get dollars and the USD will continue to go down. Then again, they're also fighting against the Fed in this situation because QE and the USD are correlated in my opinion. Another Redditor told me that people who shorted Japanese government bonds completely blew up because the Japanese central bank bought the bonds and the "widow maker trade" was born:https://www.investopedia.com/terms/w/widow-maker.asp"
Since I've mentioned him a lot in the comments, I recommend you check out Steven van Metre's YouTube channel. Especially the bottom passages of my post are based on the knowledge I received from watching his videos. Even if didn't agree with him on the fundamental issues (there are some things like Gold which I view differently than him) I took it as an inspiration to dig deeper. I think he's a great person and even if you're bullish on stocks you can learn something from Steven!
Would you like to entertain yourself with a story about one of the greatest schemes in the history and, maybe, learn a few plays? This story is about three brave autistic brothers, who almost cornered the entire commodity and how one (not so brave, but shrewd) bank did it without anyone noticing. As in any good fable – there’s a moral and a strategy that you could draw from it. The year is 1971. Nixon temporarily abolishes gold standard. And every temporary government program is never reversed, as you know. Trading price of gold went sky high: from 270s to 800s in two years or so. Enter Hunt brothers, sons of H. L. Hunt, oil tycoon, one of, if not the, richest man in the world at that time. Hunt family was, what one might describe as, right-wing libertarian and anti-globalist. They believed that Keynesian economics and the US shift to the left in the 60s will lead to the debasement of the US dollar and monetary collapse. Thus, return to the gold or silver standard was the way, as they thought. Allegedly, Hunts also had a feud with Rothschild family and other financial speculators, and were resentful towards the US government for doing nothing to protect their oil assets in Libya, confiscated by Gaddafi. So they started their move against America, alpha-silver bug style. In 1973 Hunts began buying all the silver they could. And, instead of just speculating futures contracts, they actually took delivery. Initial price was $1.5/oz. Silver was shipped to Switzerland in secretive and costly operations and stored in vaults (brothers feared confiscations – remember, private citizens were still prohibited from owning gold in the US). The following events are quite vivid and include the efforts to create a cartel similar to OPEC, talks with Iran and Saudi monarchs, pump and dump publicity and large scale purchases of miners. But we will spare the details, except one: Hunts even tried to corner the soy market at the same time. Reminds you how WSB slv gang quickly switched to corn gang. But the soy scheme didn't fly and they focused on silver only. Their efforts pumped the price to almost $50/oz by early 1980. At some point Hunts controlled around 230 million oz of silver and the majority of what was traded. Hunt brothers laughing at your pump&dump effort Of course, when you are such a smart ass, you become a target. Chicago exchange officials became very concerned citizens by 1979. They started issuing numerous regulations limiting the amount of market share one can accumulate in one hands. As all American concerned citizens, they had financial incentive to do so: Hunts managed to prove that Chicago exchange board members had short positions against silver. Finally, CFTC (Commodity Futures Trading Commission) issued a ruling that basically forced Hunts to liquidate part of their portfolio by February 1980. This sent silver prices down dramatically and brothers started to get margin calls which they could not cover. And so their story ended with bankruptcies and heavy fines for the family. Shortly after, Reagan and Volcker raised interest rates and silver price never recovered to $50/oz ever since. We skip to the year 2008. Global financial crisis is in full swing. Bear Stearns is royally fucked, as due to all bears. Before the music was over, they mastered paper speculation of futures contracts like no one else. Bear Stearns accumulated world biggest naked short position on silver. What could go wrong? Stonks go up, silver goes down. Until it reversed and silver skyrocketed from $11 to $21. This became one of the margin calls to screw Bear Stearns. JP Morgan is asked by the FED and co. to buy out BS and to save the entire market. Since BS's shorts are now deeply down - JPM gets the whole bank with pennies on a dollar. But the problem is that JPM themselves have massive naked short position on silver. Combined with BS it will exceed anything permitted by the CFTC. Since Obama administration was in a rush, they push CFTC to grant JPM basically a carte blanche to accumulate any position over the limit for a period of time. Period of time comes due and turns out that JPM not only didn’t trim the shorts significantly – they even bought more shorts at some point. Even with all the fines, it went very much their way, because in 2009 silver dropped. So they pocketed hundreds of millions of dollars. But come 2011 and silver spiked again, dramatically. JPM, now bleeding cash on shorts, could close short positions, like any of us would do, right? Nope, fuckyall says JPM and starts hedging short futures positions with… physical silver. 'But wouldn’t that be even more control over the commodity?' - you might ask. See, nothing in the rules of CFTC says you can’t do that, because to help cronies speculate with paper futures contracts, made of thin air, CFTC basically started treating physical silver and futures as two different instruments (it’s, actually, even more complicated than that: google difference between physical, eligible, registered and so on). In the next 9 years JPM becomes the world biggest holder of both short contracts and physical silver. The later they 'loaned' to SLV trust, of which they are custodian. This way upkeep of physical silver, which otherwise would be a liability for hedging, becomes an asset, because we, retards, who own SLV pay the maintenance. People are often confused here, because SLV is issued by Black Rock, not JPM. Well, there is a difference between being an operator of a financial instrument and being a custodian providing backing. Now, to confuse you even more – JPM is one of the major holders of Black Rock itself with 1.6% or sth like that. By estimates of Theodore Butler, JPM acquired 900 million oz of physical silver since 2011. That’s 4 times more than what Hunts owned. Just shows you, that banks can get a pass with something that even the richest individuals can not. And you have to give it to JPM - their play was very clever. Instead of risking it all on a margin call, they make money on every turn. As of 2020, JPM still holds both shitton of physical silver and short COMEX contracts. You can call this the most epic straddle of all time. With such mass they can swing prices in any directions and profit from this on any given day. Latest example you’ve seen on the August 11th. Why am I bothering your poor gambling soul with this wall of text, you might ask? Market makers manipulate the market as they please, what’s new about that? Well, here we come to the conclusions and a strategy. How can a small retard replicate what the big boys are doing? Conclusions:
There will not be a linear up or down with silver and the swings might be dramatic. The reason being not only the sentiment of investors, but the ease of manipulation that is eligible to big players.
If we believe that speculation will throw the price of silver in all directions – it is unwise to go only long or short on silver, especially on a short term;
What shall we do? a) Only long expiration dates and calls; no weekly expiration, not even monthly. Ideally – at least half year options; b) Go long on certain silver stocks. Maybe I’ll do a write up on good silver stocks to buy; c) Sell covered calls on long positions; d) Buy 1-3 month puts on your long positions as a hedge; Now, day trade with those positions: on red days sell your puts and buy back covered calls. On green days – reload puts and sell calls. Repeat until lambo. P. S.: I gathered these facts from the open sources, since these events were of interest to me. Some facts are intentionally oversimplified, google for more details, there are good reads. And feel free to correct me if you know contradictory facts. P. P. S.: JPM, plz don’t whack me.
Premiums and theta on /ES options seem too good to be true, so I assume I'm missing something. I'm aware that extreme leverage coupled with the expiration of the future contract adds new layers of risk, but it seems like a feasible strategy. Anyone run the wheel on Futures Options? If so, would you be willing to share your lessons learned?
What has Trump actually done? I've done some research...
A little about myself: I have always been a right-leaning financially conservative liberal. Meaning I'm all for newer technologies. I want solar energy, electric cars, auto-driving technologies (Love Musk). I do care about our environment. I do believe LGBT relationships/marriage is awesome. I'm all for Black people having their fair style of policing as well. I hate Nazis, hate Communists, hate racism, sexism, abuse, etc. I hate hate. I love LOVE! I want our government to be LESS controlling and want less taxes. I do NOT believe we should be handing out welfare checks unless IF needed (you just lost a job, sure). If you are sitting on welfare for 10 years....that becomes a problem. I look at BOTH SIDES. I've signed up for newsletters/emails/facebook/twitter groups from both sides. However I've seen that the left has become a socialist groupthink mindset, for example omitting the word God in a few speeches....It's not a BIG deal but small unnoticed details may lead to big overhauls. The censorships of channels, the media attacking conservatives, people getting fired for just having a different political opinion...are you kidding me?? The media turning a blind eye to destruction yet talk about Coronavirus numbers and criminals that are resisting arrest get shot as the cop's fault...however we do need more police training. Cops are aggressive here (I do agree with my liberal friends on that). The double standard: letting people protest for BLM but when the Conservatives tried to protest to go back to work, at the beginning in March/April, they were at fault. Or how CA Gov Newsom stated "You're allowed to protest, but not allowed to have social gatherings"....isn't a protest a type of social gathering. I don't like to be biased, but holy crap how much I've found what Trump has done for the past 3.5 years is insane!! My point is I look at both sides for politics. Anyways, I decided to do a full day's work with the help of some people to compile a list:
Trump recently signed 3 bills to benefit Native people. One gives compensation to the Spokane tribe for loss of their lands in the mid-1900s, one funds Native language programs, and the third gives federal recognition to the Little Shell Tribe of Chippewa Indians in Montana.
Trump finalized the creation of Space Force as our 6th Military branch.
Trump signed a law to make cruelty to animals a federal felony so that animal abusers face tougher consequences.
Violent crime has fallen every year he’s been in office after rising during the 2 years before he was elected.
Trump signed a bill making CBD and Hemp legal.
Trump’s EPA gave $100 million to fix the water infrastructure problem in Flint, Michigan.
Under Trump’s leadership, in 2018 the U.S. surpassed Russia and Saudi Arabia to become the world’s largest producer of crude oil.
Trump signed a law ending the gag orders on Pharmacists that prevented them from sharing money-saving information.
Trump signed the “Allow States and Victims to Fight Online Sex Trafficking Act” (FOSTA), which includes the “Stop Enabling Sex Traffickers Act” (SESTA) which both give law enforcement and victims new tools to fight sex trafficking.
Trump signed a bill to require airports to provide spaces for breastfeeding Moms.
The 25% lowest-paid Americans enjoyed a 4.5% income boost in November 2019, which outpaces a 2.9% gain in earnings for the country's highest-paid workers.
Low-wage workers are benefiting from higher minimum wages and from corporations that are increasing entry-level pay.
Trump signed the biggest wilderness protection & conservation bill in a decade and designated 375,000 acres as protected land.
Trump signed the Save our Seas Act which funds $10 million per year to clean tons of plastic & garbage from the ocean.
He signed a bill this year allowing some drug imports from Canada so that prescription prices would go down.
Trump signed an executive order this year that forces all healthcare providers to disclose the cost of their services so that Americans can comparison shop and know how much less providers charge insurance companies.
When signing that bill he said no American should be blindsided by bills for medical services they never agreed to in advance.
Hospitals will now be required to post their standard charges for services, which include the discounted price a hospital is willing to accept.
In the eight years prior to President Trump’s inauguration, prescription drug prices increased by an average of 3.6% per year. Under Trump, drug prices have seen year-over-year declines in nine of the last ten months, with a 1.1% drop as of the most recent month.
He created a White House VA Hotline to help veterans and principally staffed it with veterans and direct family members of veterans.
VA employees are being held accountable for poor performance, with more than 4,000 VA employees removed, demoted, and suspended so far.
Issued an executive order requiring the Secretaries of Defense, Homeland Security, and Veterans Affairs to submit a joint plan to provide veterans access to access to mental health treatment as they transition to civilian life.
Because of a bill signed and championed by Trump, In 2020, most federal employees will see their pay increase by an average of 3.1% — the largest raise in more than 10 years.
Trump signed into a law up to 12 weeks of paid parental leave for millions of federal workers.
Trump administration will provide HIV prevention drugs for free to 200,000 uninsured patients per year for 11 years.
All-time record sales during the 2019 holidays.
Trump signed an order allowing small businesses to group together when buying insurance to get a better price
President Trump signed the Preventing Maternal Deaths Act that provides funding for states to develop maternal mortality reviews to better understand maternal complications and identify solutions & largely focuses on reducing the higher mortality rates for Black Americans.
In 2018, President Trump signed the groundbreaking First Step Act, a criminal justice bill which enacted reforms that make our justice system fairer and help former inmates successfully return to society.
The First Step Act’s reforms addressed inequities in sentencing laws that disproportionately harmed Black Americans and reformed mandatory minimums that created unfair outcomes.
The First Step Act expanded judicial discretion in sentencing of non-violent crimes.
Over 90% of those benefitting from the retroactive sentencing reductions in the First Step Act are Black Americans.
The First Step Act provides rehabilitative programs to inmates, helping them successfully rejoin society and not return to crime.
Trump increased funding for Historically Black Colleges and Universities (HBCUs) by more than 14%.
Trump signed legislation forgiving Hurricane Katrina debt that threatened HBCUs.
New single-family home sales are up 31.6% in October 2019 compared to just one year ago.
Made HBCUs a priority by creating the position of executive director of the White House Initiative on HBCUs.
Trump received the Bipartisan Justice Award at a historically black college for his criminal justice reform accomplishments.
The poverty rate fell to a 17-year low of 11.8% under the Trump administration as a result of a jobs-rich environment.
Poverty rates for African-Americans and Hispanic-Americans have reached their lowest levels since the U.S. began collecting such data.
President Trump signed a bill that creates five national monuments, expands several national parks, adds 1.3 million acres of wilderness, and permanently reauthorizes the Land and Water Conservation Fund.
Trump’s USDA committed $124 Million to rebuild rural water infrastructure.
Consumer confidence & small business confidence is at an all-time high.
More than 7 million jobs created since election.
More Americans are now employed than ever recorded before in our history.
More than 400,000 manufacturing jobs created since his election.
Trump appointed 5 openly gay ambassadors.
Trump ordered Ric Grenell, his openly gay ambassador to Germany, to lead a global initiative to decriminalize homosexuality across the globe.
Through Trump’s Anti-Trafficking Coordination Team (ACTeam) initiative, Federal law enforcement more than doubled convictions of human traffickers and increased the number of defendants charged by 75% in ACTeam districts.
In 2018, the Department of Justice (DOJ) dismantled an organization that was the internet’s leading source of prostitution-related advertisements resulting in sex trafficking.
Trump’s OMB published new anti-trafficking guidance for government procurement officials to more effectively combat human trafficking.
Trump’s Immigration and Customs Enforcement’s Homeland Security Investigations arrested 1,588 criminals associated with Human Trafficking.
Trump’s Department of Health and Human Services provided funding to support the National Human Trafficking Hotline to identify perpetrators and give victims the help they need.
The hotline identified 16,862 potential human trafficking cases.
Trump’s DOJ provided grants to organizations that support human trafficking victims – serving nearly 9,000 cases from July 1, 2017, to June 30, 2018.
The Department of Homeland Security has hired more victim assistance specialists, helping victims get resources and support.
President Trump has called on Congress to pass school choice legislation so that no child is trapped in a failing school because of his or her zip code.
The President signed funding legislation in September 2018 that increased funding for school choice by $42 million.
The tax cuts signed into law by President Trump promote school choice by allowing families to use 529 college savings plans for elementary and secondary education.
Under his leadership ISIS has lost most of their territory and been largely dismantled.
ISIS leader Abu Bakr Al-Baghdadi was killed.
Signed the first Perkins CTE reauthorization since 2006, authorizing more than $1 billion for states each year to fund vocational and career education programs.
Executive order expanding apprenticeship opportunities for students and workers.
Trump issued an Executive Order prohibiting the U.S. government from discriminating against Christians or punishing expressions of faith.
Signed an executive order that allows the government to withhold money from college campuses deemed to be anti-Semitic and who fail to combat anti-Semitism.
President Trump ordered a halt to U.S. tax money going to international organizations that fund or perform abortions.
Trump imposed sanctions on the socialists in Venezuela who have killed their citizens.
Finalized new trade agreement with South Korea.
Made a deal with the European Union to increase U.S. energy exports to Europe.
Withdrew the U.S. from the job killing TPP deal.
Secured $250 billion in new trade and investment deals in China and $12 billion in Vietnam.
Okay’ d up to $12 billion in aid for farmers affected by unfair trade retaliation.
Has had over a dozen US hostages freed, including those Obama could not get freed.
Trump signed the Music Modernization Act, the biggest change to copyright law in decades.
Trump secured Billions that will fund the building of a wall at our southern border.
The Trump Administration is promoting second chance hiring to give former inmates the opportunity to live crime-free lives and find meaningful employment.
Trump’s DOJ and the Board Of Prisons launched a new “Ready to Work Initiative” to help connect employers directly with former prisoners.
President Trump’s historic tax cut legislation included new Opportunity Zone Incentives to promote investment in low-income communities across the country.
8,764 communities across the country have been designated as Opportunity Zones.
Opportunity Zones are expected to spur $100 billion in long-term private capital investment in economically distressed communities across the country.
Trump directed the Education Secretary to end Common Core.
Trump signed the 9/11 Victims Compensation Fund into law.
Trump signed measure funding prevention programs for Veteran suicide.
Companies have brought back over a TRILLION dollars from overseas because of the TCJA bill that Trump signed.
Manufacturing jobs are growing at the fastest rate in more than 30 years.
Stock Market has reached record highs.
Median household income has hit highest level ever recorded.
African-American unemployment is at an all-time low.(was until Covid bullshit)
Hispanic-American unemployment is at an all-time low.
Asian-American unemployment is at an all-time low.
Women’s unemployment rate is at a 65-year low.
Youth unemployment is at a 50-year low.
We have the lowest unemployment rate ever recorded.
The Pledge to America’s Workers has resulted in employers committing to train more than 4 million Americans.
95 percent of U.S. manufacturers are optimistic about the future— the highest ever.
As a result of the Republican tax bill, small businesses will have the lowest top marginal tax rate in more than 80 years.
Record number of regulations eliminated that hurt small businesses.
Signed welfare reform requiring able-bodied adults who don’t have children to work or look for work if they’re on welfare.
Under Trump, the FDA approved more affordable generic drugs than ever before in history.
Reformed Medicare program to stop hospitals from overcharging low-income seniors on their drugs—saving seniors 100’s of millions of $$$ this year alone.
Signed Right-To-Try legislation allowing terminally ill patients to try experimental treatment that wasn’t allowed before.
Secured $6 billion in new funding to fight the opioid epidemic.
Signed VA Choice Act and VA Accountability Act, expanded VA telehealth services, walk-in-clinics, and same-day urgent primary and mental health care.
U.S. oil production recently reached all-time high so we are less dependent on oil from the Middle East.
The U.S. is a net natural gas exporter for the first time since 1957.
NATO allies increased their defense spending because of his pressure campaign.
Withdrew the United States from the job-killing Paris Climate Accord in 2017 and that same year the U.S. still led the world by having the largest reduction in Carbon emissions.
Has his circuit court judge nominees being confirmed faster than any other new administration.
Had his Supreme Court Justice’s Neil Gorsuch and Brett Kavanaugh confirmed.
Moved U.S. Embassy in Israel to Jerusalem.
Agreed to a new trade deal with Mexico & Canada that will increase jobs here and $$$ coming in.
Reached a breakthrough agreement with the E.U. to increase U.S. exports.
Imposed tariffs on China in response to China’s forced technology transfer, intellectual property theft, and their chronically abusive trade practices, has agreed to a Part One trade deal with China.
Signed legislation to improve the National Suicide Hotline.
Signed the most comprehensive childhood cancer legislation ever into law, which will advance childhood cancer research and improve treatments.
The Tax Cuts and Jobs Act signed into law by Trump doubled the maximum amount of the child tax credit available to parents and lifted the income limits so more people could claim it.
It also created a new tax credit for other dependents.
In 2018, President Trump signed into law a $2.4 billion funding increase for the Child Care and Development Fund, providing a total of $8.1 billion to States to fund child care for low-income families.
The Child and Dependent Care Tax Credit (CDCTC) signed into law by Trump provides a tax credit equal to 20-35% of child care expenses, $3,000 per child & $6,000 per family + Flexible Spending Accounts (FSAs) allow you to set aside up to $5,000 in pre-tax $ to use for child care.
In 2019 President Donald Trump signed the Autism Collaboration, Accountability, Research, Education and Support Act (CARES) into law which allocates $1.8 billion in funding over the next five years to help people with autism spectrum disorder and to help their families.
In 2019 President Trump signed into law two funding packages providing nearly $19 million in new funding for Lupus specific research and education programs, as well an additional $41.7 billion in funding for the National Institutes of Health (NIH), the most Lupus funding EVER.
Another upcoming accomplishment to add: In the next week or two Trump will be signing the first major anti-robocall law in decades called the TRACED Act (Telephone Robocall Abuse Criminal Enforcement and Deterrence.) Once it’s the law, the TRACED Act will extend the period of time the FCC has to catch & punish those who intentionally break telemarketing restrictions. The bill also requires voice service providers to develop a framework to verify calls are legitimate before they reach your phone.
Israel-UAE peace. More Muslim countries (Countries such as Oman, Morocco, Sudan, Lebanon) said they may follow. Last time Israel and a Muslim country normalized ties was 26 years ago.
US stock market continually hits all-time record highs.
Note: I would like to also add that this list will obviously be very similar to other lists if not the same, since these are facts and not really opinions. I may have missed some stuff or duplicated a few things. Sorry about that. Please let me know if you have anything to add. Thanks for reading!
Investment Thesis: Why investing in POW.TO (Power Corporation of Canada) now is an investment in a future high market cap Wealthsimple IPO
I have seen some posts here wondering about the wisdom of investing in Wealthsimple's parent company, Power Corporation of Canada (POW.TO). I decided to look more into this, decided to post my investment thesis and research on why I, long-term, I have a very bullish view on Wealthsimple (and by extension POW.TO), and why I think this is equal to being an early stage investor in a Wealthsimple IPO.
Ownership: Power Corporation of Canada (POW.TO) (83.2% ownership)
AssetsUnderMangement: $5.4 billion, as of June 30, 2020 (4.9 billion in June 30, 2019)
Wealthsimple Invest (ETF Roboadvisor service), WS was one of the first-movers in this space in Canada and offered robo-advising as part of its initial product in 2015. WS claims to have largest digital investing presence in Canada (70% of the market) (reference).
Wealthsimple Cash, a savings account service
Wealthsimple Trade, a commission free trading app where users can buy and sell ~8,000 stocks and ETFs
Wealthsimple Crypto, a commission free cryptocurrency trading app, currently in beta
SimpleTax.ca, a free tax-return service used by ~1 million Canadians per year, acquired in late 2019
WS has had many successful rounds of funding and a vote of confidence from both its parent POW.TO and other multinationals investing in fintech.
Last year WS received a $100 million dollar investment led by Allianz X, the start up investor arm of German financial services giant Allianz
WS has had 7 total investing rounds, totalling $266.9 million (reference)
WS has been extremely aggressive in targeting growth areas. Wealthsimple’s CEO Mike Katchen has said he wants to position the company as a “full-stack” financial services company. Here are some of their current expansion areas:
UK and USA Expansion - in 2017, they started offering similar investing services in the UK and the US (reference and reference).
Socially Responsible ETFs - WS recently partnered with Mackenzie Investment to offer socially responsible ETFs with a social and environmental focus. Although probably not something that older investors care about, this is particularly important for younger investors who want to make sure their investments are socially responsible
Cryptocurrency - WS is currently testing a beta service of their cryptocurrency app, and offering fee-free cryptocurrency trading, similar to Wealthsimple Trade. Whatever your views of cryptocurrency (I'm of the view that I can in some cases be part of a portfolio to hedge against risk), it's here to stay. Earlier this month, WS was the first company in Canada to register with the Ontario Securities Exchange Commission (reference). My sense is that crypto will face increasing regulations and scrutiny in the coming years, which will be a good thing for WS which is a step ahead of the game (reference). Even Google is starting to look into relaxing its restraints on crypto (reference).
Other full-stack services - WS has been mum on what other services they might offer, but insurance, mortgages, and chequing accounts could be other areas of disruption. (Reference)
WS is run by young guys who have big ambitions and plans for the company. Sometimes there are CEOs with the intangibles that can really drive a company's growth, and from what I can glean, I think the company has a lot of potential here in terms of vision by its leaders. You can read more about the founders here
Michael Katchen, CEO, Background: Led product and marketing at a start up called 1000memories, a Y Combinator startup later acquired by Ancestry.com. Worked for McKinsey & Company.
Brett Huneycutt, COO, Rhodes Scholar... not much else I know about the guy
Quote sfrom CEO: Michael Katchen On being laughed out of the boardroom when he proposed his idea for Wealthsimple:
Within the last month, Wealthsimple has also opened an office in London. Katchen said a push into the European market is “possible” as its “ambitions are global,” but right now the Canadian and U.S. markets are “a lot to chew.” It is a far cry from the company’s early days: Katchen said he was “laughed out of the boardroom” for laying out a global vision for Wealthsimple at a time when they had just $1.9-million in funding and 20 users***.***“It’s a very personal mission of mine since I moved back from California, to inspire more Canadian companies to think big and to think internationally about the businesses that they’re building,” he said. (reference)
On Wealthsimple's growth in the next 10-15 years:
Wealthsimple has more than $5 billion in assets under management and 175,000 customers in Canada, the U.S. and U.K. He sees that reaching $1 trillion 15 years. “We’re just getting started,” he said. “Our plans are to get to millions of clients in the next five years.” (reference)
Brand Value and Design
Out of all the financial services company in Canada, WS probably has the most cohesive and smart design concept across its platforms and products. I see the value in Wealthsimple in not just the assets they have under management, but also the value of the brand itself. I mean, what kind of financial services company makes a blog post about their branding colour scheme and font choices? Also see: Wealthsimple’s advertisement earlier this year capturing 4 million views on Youtube. There also seems to be very strong brand awareness and brand loyalty amongst its users. I think a lot of users find WS refreshing as a financial services company because they cut through the "bullshit" and legalese, and try to simply things for the consumer. They also have their own in house team of designers and creative directors to do branding, design, and advertising, and this kind of vertical integration is generally unheard of in the financial services industry (reference).
Interestingly, the CEO’s ultimate goal is to take the company public. Therefore, I see an investment in POW.TO as being an early stage pre-IPO investor in WS (reference).
The goal is to get Wealthsimple to the size and scale to go public, something that Katchen said he’s “obsessed with.” While admitting that an IPO was still a few years down the road, Katchen already has a target of $20 billion in assets under administration (AUA) as the tipping point (the company recently announced $4.3 billion in AUA as of Q1 2019) (reference)
Ultimately, my sense is that a spun-out Wealthsimple IPO eventually be worth a lot, perhaps even more than POW.TO at some point. Obviously the company is losing money right now, and no where even close to an IPO, and there are still many chances that this company could flop. The best analogy that I can think of is when Yahoo bought an early stake in Alibaba (BABA) back in the early 2000s, and there came a point where their stake in BABA was worth more than Yahoo’s core business. I think an investment in POW.TO now is an early investment in WS before it goes public. (reference)
Expansion problems. In the UK, they reported significant losses and despite increasing users. (reference). The US is also an especially competitive space with lots of similar competitors.
The robo-advising, fintech space is highly competitive now, and the Big Five Banks and other investment/trading companies could easily start offering low-cost or commission free trading
Competitors such as Robinhood could also expand into the Canadian market and take out a huge chunk of WS's userbase
The X Factor
What I find particularly compelling about WS is they have aggressively positioned themselves to be a disruptor in the Canadian financial services industry. This is an area that has traditionally been thought to be a firewall for the Big Five Banks. There is also a generational gap in investing approaches, knowledge, and strategy, and I think WS has positioned itself nicely with first-time investors. My sense is that COVID-19 has also captured a huge amount of young adults with its trading app in the last few months, who will continue to use Wealthsimple products in the future. The average age of its user is around 34. As younger individuals are more comfortable with moving away traditional banking products, I think Wealthsimple’s product offering offers significant advantages over its competitors.
Power Corp is a Good Home
Currently POW.TO is trading at $26.30, down from its 52-week high of $35.15. I see an investment in POW.TO now as fairly low risk, and while WS grows, and there is also the added benefit of a high dividend stock. One of the most confusing things I found about Power Corp was its confusing corporate structure where there were two stocks, Power Financial Corp, and Power Corp of Canada. Fortunately, in Dec 2019, they simplified and consolidated the stocks, which also simplifies the holding structure of WS. I currently see POW.TO has a good stock to hold as well if you're a dividend holder, with a dividend of 6.86%. Also, POW.TO is patient enough to bide its time and let its investment in WS grow, unlike a VC that might want to sell it quick. For example, the reason why WS went with POW.TO instead of the traditional VC route is explained here:
Katchen has directly addressed the question of why he did not go the traditional VC route recently, saying: If you are a business that requires perhaps decades to achieve the vision you have, well, if you’re not going to be able to generate the kind of returns that venture needs is they will force you to sell yourself, they will force you to go public before you’re ready, or they will just forget about you because you’re going to be a write off. And so Katchen essentially flipped Wealthsimple to Power Financial. Power is well known as a conservative, patient, long-term investor. (https://opmwars.substack.com/p/the-wealthsimple-founders-before)
My belief is there is a huge unrecognized potential in POW.TO's massive ownership stake in WS that will be realized maybe 5-10 years down the road. I didn't really dive into the financials of POW.TO in relation to WS's performance, because the earnings reports do no actually say much about WS. I'm aware of the main criticisms that POW.TO is a mature company and dividend stock that has been trading sideways for many years, and the fact that WS is currently not a profitable company. I am not a professional investor, and this is just my amateur research, so I certainly welcome any comments/criticism of this thesis that people on this subreddit might have! (Please be gentle on me!).
You may have heard about off-shore tax havens of questionable legality where wealthy people invest their money in legal "grey zones" and don't pay any tax, as featured for example, in Netflix's drama, The Laundromat. The reality is that the Government of Canada offers 100% tax-free investing throughout your life, with unlimited withdrawals of your contributions and profits, and no limits on how much you can make tax-free. There is also nothing to report to the Canada Revenue Agency. Although Britain has a comparable program, Canada is the only country in the world that offers tax-free investing with this level of power and flexibility. Thank you fellow Redditors for the wonderful Gold Award and Today I Learned Award! (Unrelated but Important Note: I put a link at the bottom for my margin account explainer. Many people are interested in margin trading but don't understand the math behind margin accounts and cannot find an explanation. If you want to do margin, but don't know how, click on the link.) As a Gen-Xer, I wrote this post with Millennials in mind, many of whom are getting interested in investing in ETFs, individual stocks, and also my personal favourite, options. Your generation is uniquely positioned to take advantage of this extremely powerful program at a relatively young age. But whether you're in your 20's or your 90's, read on! Are TFSAs important? In 2020 Canadians have almost 1 trillion dollars saved up in their TFSAs, so if that doesn't prove that pennies add up to dollars, I don't know what does. The TFSA truly is the Great Canadian Tax Shelter. I will periodically be checking this and adding issues as they arise, to this post. I really appreciate that people are finding this useful. As this post is now fairly complete from a basic mechanics point of view, and some questions are already answered in this post, please be advised that at this stage I cannot respond to questions that are already covered here. If I do not respond to your post, check this post as I may have added the answer to the FAQs at the bottom.
How to Invest in Stocks
A lot of people get really excited - for good reason - when they discover that the TFSA allows you to invest in stocks, tax free. I get questions about which stocks to buy. I have made some comments about that throughout this post, however; I can't comprehensively answer that question. Having said that, though, if you're interested in picking your own stocks and want to learn how, I recommmend starting with the following videos: The first is by Peter Lynch, a famous American investor in the 80's who wrote some well-respected books for the general public, like "One Up on Wall Street." The advice he gives is always valid, always works, and that never changes, even with 2020's technology, companies and AI: https://www.youtube.com/watch?v=cRMpgaBv-U4&t=2256s The second is a recording of a university lecture given by investment legend Warren Buffett, who expounds on the same principles: https://www.youtube.com/watch?v=2MHIcabnjrA Please note that I have no connection to whomever posted the videos.
TFSAs were introduced in 2009 by Stephen Harper's government, to encourage Canadians to save. The effect of the TFSA is that ordinary Canadians don't pay any income or capital gains tax on their securities investments. Initial uptake was slow as the contribution rules take some getting used to, but over time the program became a smash hit with Canadians. There are about 20 million Canadians with TFSAs, so the uptake is about 70%- 80% (as you have to be the age of majority in your province/territory to open a TFSA).
Eligibility to Open a TFSA
You must be a Canadian resident with a valid Social Insurance Number to open a TFSA. You must be at the voting age in the province in which you reside in order to open a TFSA, however contribution room begins to accumulate from the year in which you turned 18. You do not have to file a tax return to open a TFSA. You do not need to be a Canadian citizen to open and contribute to a TFSA. No minimum balance is required to open a TFSA.
Where you Can Open a TFSA
There are hundreds of financial institutions in Canada that offer the TFSA. There is only one kind of TFSA; however, different institutions offer a different range of financial products. Here are some examples:
The Canadian big 5 bank branches and most other financial institutions offer a TFSA that allows you to buy mutual funds, hold cash, GICs, term deposits, and possibly ETFs. This is a good choice if you want guaranteed returns or diversified investing.
There are a number of on-line banks such as Tangerine, Simplii Financial, Oaken Financial, and many more that offer the TFSA.
The discount DIY brokerage arms of the big 5 banks give you more choices, including stocks, warrants, bonds and options. There are also standalone brokers like IBKR Canada, Questrade, Qtrade, and Virtual Brokers, among others, that offer this.
Some brokerages and financial advisors also offer TFSAs that give you these investment choices, in different formats such as:
Traditional brokerage, where a stockbroker invests your money (BMO Nesbitt Burns, RBC Dominion Securities and others)
Financial advisor who will invest your money according to a plan you put together with the advisor (TSI Network and many others)
"Robo" advisors such as Wealthsimple, RBC InvestEase, BMO SmartFolio, or Wealthbar
BMO's AdviceDirect, which is a semi-directed hybrid between standalone DIY investing and fully-advised investing, where you operate on a DIY basis but have access to a registered investment advisor (a live person) who can give you suggetions and advice.
Your TFSA may be covered by either CIFP or CDIC insuranceor both. Ask your bank or broker for details.
What You Can Trade and Invest In
You can trade the following:
GICS, mutual funds, term deposits
individual common and preferred stocks listed on an "approved exchange" which is the TSX, TSX-V, NASDAQ, NYSE, and about 20 other exchanges worldwide, but not the US OTC pink sheets. Many examples, such as Suncor, Linamar, Apple, any of the big banks, and many thousands of others, when you want to buy into an individual company
stock-like securities like REITS, ETFs and ETNs, including 2x and 3x leveraged
gold and silver certificates
cash of many countries (CAD/USD/EUGBP/AUD/NZD/JPY/CHF and many others)
government bills and bonds of most countries, subsovereigns like Canadian provincial bills and bonds, and most corporations
options that trade on the Montreal Exchange or various options exchanges in the USA and the rest of the word (see FAQ for details)
gold, silver bullion certificates
shares in certain private companies -- but consult your tax advisor on this
What You Cannot Trade
You cannot trade:
commodity futures contracts
option spread positions (see FAQ for details)
anything that requires a margin account, meaning, a special kind of account that allows you to borrow money directly from the broker against the assets you have in your account and the assets you intend to buy.
crypto (although there exist crypto ETNs that you can buy)
Again, if it requires a margin account, it's out. You cannot buy on margin in a TFSA. Nothing stopping you from borrowing money from other sources as long as you stay within your contribution limits, but you can't trade on margin in a TFSA. You can of course trade long puts and calls which give you leverage.
Rules for Contribution Room
Starting at 18 you get a certain amount of contribution room. According to the CRA: You will accumulate TFSA contribution room for each year even if you do not file an Income Tax and Benefit Return or open a TFSA. The annual TFSA dollar limit for the years 2009 to2012 was $5,000. The annual TFSA dollar limit for the years 2013 and 2014 was $5,500. The annual TFSA dollar limit for the year 2015 was $10,000. The annual TFSA dollar limit for the years 2016 to 2018 was $5,500. The annual TFSA dollar limit for the year 2019 is $6,000. The TFSA annual room limit will be indexed to inflation and rounded to the nearest $500. Investment income earned by, and changes in the value of TFSA investments will not affect your TFSA contribution room for the current or future years. https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/tax-free-savings-account/contributions.html If you don't use the room, it accumulates indefinitely. Trades you make in a TFSA are truly tax free. But you cannot claim the dividend tax credit and you cannot claim losses in a TFSA against capital gains whether inside or outside of the TFSA. So do make money and don't lose money in a TFSA. You are stuck with the 15% withholding tax on U.S. dividend distributions unlike the RRSP, due to U.S. tax rules, but you do not pay any capital gains on sale of U.S. shares. You can withdraw *both* contributions *and* capital gains, no matter how much, at any time, without penalty. The amount of the withdrawal (contributions+gains) converts into contribution room in the *next* calendar year. So if you put the withdrawn funds back in the same calendar year you take them out, that burns up your total accumulated contribution room to the extent of the amount that you re-contribute in the same calendar year.
E.g. Say you turned 18 in 2016 in Alberta where the age of majority is 18. It is now sometime in 2020. You have never contributed to a TFSA. You now have $5,500+$5,500+$5,500+$6,000+$6,000 = $28,500 of room in 2020. In 2020 you manage to put $20,000 in to your TFSA and you buy Canadian Megacorp common shares. You now have $8,500 of room remaining in 2020. Sometime in 2021 - it doesn't matter when in 2021 - your shares go to $100K due to the success of the Canadian Megacorp. You also have $6,000 worth of room for 2021 as set by the government. You therefore have $8,500 carried over from 2020+$6,000 = $14,500 of room in 2021. In 2021 you sell the shares and pull out the $100K. This amount is tax-free and does not even have to be reported. You can do whatever you want with it. But: if you put it back in 2021 you will over-contribute by $100,000 - $14,500 = $85,500 and incur a penalty. But if you wait until 2022 you will have $14,500 unused contribution room carried forward from 2021, another $6,000 for 2022, and $100,000 carried forward from the withdrawal 2021, so in 2022 you will have $14,500+$6,000+$100,000 = $120,500 of contribution room. This means that if you choose, you can put the $100,000 back in in 2022 tax-free and still have $20,500 left over. If you do not put the money back in 2021, then in 2022 you will have $120,500+$6,000 = $126,500 of contribution room. There is no age limit on how old you can be to contribute, no limit on how much money you can make in the TFSA, and if you do not use the room it keeps carrying forward forever. Just remember the following formula: This year's contribution room = (A) unused contribution room carried forward from last year + (B) contribution room provided by the government for this year + (C) total withdrawals from last year. EXAMPLE 1: Say in 2020 you never contributed to a TFSA but you were 18 in 2009. You have $69,500 of unused room (see above) in 2020 which accumulated from 2009-2020. In 2020 you contribute $50,000, leaving $19,500 contribution room unused for 2020. You buy $50,000 worth of stock. The next day, also in 2020, the stock doubles and it's worth $100,000. Also in 2020 you sell the stock and withdraw $100,000, tax-free. You continue to trade stocks within your TFSA, and hopefully grow your TFSA in 2020, but you make no further contributions or withdrawals in 2020. The question is, How much room will you have in 2021? Answer: In the year 2021, the following applies: (A) Unused contribution room carried forward from last year, 2020: $19,500 (B) Contribution room provided by government for this year, 2021: $6,000 (C) Total withdrawals from last year, 2020: $100,000 Total contribution room for 2021 = $19,500+6,000+100,000 = $125,500. EXAMPLE 2: Say between 2020 and 2021 you decided to buy a tax-free car (well you're still stuck with the GST/PST/HST/QST but you get the picture) so you went to the dealer and spent $25,000 of the $100,000 you withdrew in 2020. You now have a car and $75,000 still burning a hole in your pocket. Say in early 2021 you re-contribute the $75,000 you still have left over, to your TFSA. However, in mid-2021 you suddenly need $75,000 because of an emergency so you pull the $75,000 back out. But then a few weeks later, it turns out that for whatever reason you don't need it after all so you decide to put the $75,000 back into the TFSA, also in 2021. You continue to trade inside your TFSA but make no further withdrawals or contributions. How much room will you have in 2022? Answer: In the year 2022, the following applies: (A) Unused contribution room carried forward from last year, 2021: $125,500 - $75,000 - $75,000 = -$24,500. Already you have a problem. You have over-contributed in 2021. You will be assessed a penalty on the over-contribution! (penalty = 1% a month). But if you waited until 2022 to re-contribute the $75,000 you pulled out for the emergency..... In the year 2022, the following would apply: (A) Unused contribution room carried forward from last year, 2021: $125,500 -$75,000 =$50,500. (B) Contribution room provided by government for this year, 2022: $6,000 (C) Total withdrawals from last year, 2020: $75,000 Total contribution room for 2022 = $50,500 + $6,000 + $75,000 = $131,500. ...And...re-contributing that $75,000 that was left over from your 2021 emergency that didn't materialize, you still have $131,500-$75,000 = $56,500 of contribution room left in 2022. For a more comprehensive discussion, please see the CRA info link below.
FAQs That Have Arisen in the Discussion and Other Potential Questions:
Equity and ETF/ETN Options in a TFSA: can I get leverage? Yes. You can buy puts and calls in your TFSA and you only need to have the cash to pay the premium and broker commissions. Example: if XYZ is trading at $70, and you want to buy the $90 call with 6 months to expiration, and the call is trading at $2.50, you only need to have $250 in your account, per option contract, and if you are dealing with BMO IL for example you need $9.95 + $1.25/contract which is what they charge in commission. Of course, any profits on closing your position are tax-free. You only need the full value of the strike in your account if you want to exercise your option instead of selling it. Please note: this is not meant to be an options tutorial; see the Montreal Exchange's Equity Options Reference Manual if you have questions on how options work.
Equity and ETF/ETN Options in a TFSA: what is ok and not ok? Long puts and calls are allowed. Covered calls are allowed, but cash-secured puts are not allowed. All other option trades are also not allowed. Basically the rule is, if the trade is not a covered call and it either requires being short an option or short the stock, you can't do it in a TFSA.
Live in a province where the voting age is 19 so I can't open a TFSA until I'm 19, when does my contribution room begin? Your contribution room begins to accumulate at 18, so if you live in province where the age of majority is 19, you'll get the room carried forward from the year you turned 18.
If I turn 18 on December 31, do I get the contribution room just for that day or for the whole year? The whole year.
Do commissions paid on share transactions count as withdrawals? Unfortunately, no. If you contribute $2,000 cash and you buy $1,975 worth of stock and pay $25 in commission, the $25 does not count as a withdrawal. It is the same as if you lost money in the TFSA.
How much room do I have? If your broker records are complete, you can do a spreadsheet. The other thing you can do is call the CRA and they will tell you.
TFSATFSA direct transfer from one institution to another: this has no impact on your contributions or withdrawals as it counts as neither.
More than 1 TFSA: you can have as many as you want but your total contribution room does not increase or decrease depending on how many accounts you have.
Withdrawals that convert into contribution room in the next year. Do they carry forward indefinitely if not used in the next year? Answer :yes.
Do I have to declare my profits, withdrawals and contributions? No. Your bank or broker interfaces directly with the CRA on this. There are no declarations to make.
Risky investments - smart? In a TFSA you want always to make money, because you pay no tax, and you want never to lose money, because you cannot claim the loss against your income from your job. If in year X you have $5,000 of contribution room and put it into a TFSA and buy Canadian Speculative Corp. and due to the failure of the Canadian Speculative Corp. it goes to zero, two things happen. One, you burn up that contribution room and you have to wait until next year for the government to give you more room. Two, you can't claim the $5,000 loss against your employment income or investment income or capital gains like you could in a non-registered account. So remember Buffett's rule #1: Do not lose money. Rule #2 being don't forget the first rule. TFSA's are absolutely tailor-made for Graham-Buffett value investing or for diversified ETF or mutual fund investing, but you don't want to buy a lot of small specs because you don't get the tax loss.
Moving to/from Canada/residency. You must be a resident of Canada and 18 years old with a valid SIN to open a TFSA. Consult your tax advisor on whether your circumstances make you a resident for tax purposes. Since 2009, your TFSA contribution room accumulates every year, if at any time in the calendar year you are 18 years of age or older and a resident of Canada. Note: If you move to another country, you can STILL trade your TFSA online from your other country and keep making money within the account tax-free. You can withdraw money and Canada will not tax you. But you have to get tax advice in your country as to what they do. There restrictions on contributions for non-residents. See "non residents of Canada:" https://www.canada.ca/content/dam/cra-arc/formspubs/pub/rc4466/rc4466-19e.pdf
The U.S. withholding tax. Dividends paid by U.S.-domiciled companies are subject to a 15% U.S. withholding tax. Your broker does this automatically at the time of the dividend payment. So if your stock pays a $100 USD dividend, you only get $85 USD in your broker account and in your statement the broker will have a note saying 15% U.S. withholding tax. I do not know under what circumstances if any it is possible to get the withheld amount. Normally it is not, but consult a tax professional.
The U.S. withholding tax does not apply to capital gains. So if you buy $5,000 USD worth of Apple and sell it for $7,000 USD, you get the full $2,000 USD gain automatically.
Tax-Free Leverage. Leverage in the TFSA is effectively equal to your tax rate * the capital gains inclusion rate because you're not paying tax. So if you're paying 25% on average in income tax, and the capital gains contribution rate is 50%, the TFSA is like having 12.5%, no margin call leverage costing you 0% and that also doesn't magnify your losses.
Margin accounts. These accounts allow you to borrow money from your broker to buy stocks. TFSAs are not margin accounts. Nothing stopping you from borrowing from other sources (such as borrowing cash against your stocks in an actual margin account, or borrowing cash against your house in a HELOC or borrowing cash against your promise to pay it back as in a personal LOC) to fund a TFSA if that is your decision, bearing in mind the risks, but a TFSA is not a margin account. Consider options if you want leverage that you can use in a TFSA, without borrowing money.
Dividend Tax Credit on Canadian Companies. Remember, dividends paid into the TFSA are not eligible to be claimed for the credit, on the rationale that you already got a tax break.
FX risk. The CRA allows you to contribute and withdraw foreign currency from the TFSA but the contribution/withdrawal accounting is done in CAD. So if you contribute $10,000 USD into your TFSA and withdraw $15,000 USD, and the CAD is trading at 70 cents USD when you contribute and $80 cents USD when you withdraw, the CRA will treat it as if you contributed $14,285.71 CAD and withdrew $18,75.00 CAD.
OTC (over-the-counter stocks). You can only buy stocks if they are listed on an approved exchange ("approved exchange" = TSX, TSX-V, NYSE, NASDAQ and about 25 or so others). The U.S. pink sheets "over-the-counter" market is an example of a place where you can buy stocks, that is not an approved exchange, therefore you can't buy these penny stocks. I have however read that the CRA make an exception for a stock traded over the counter if it has a dual listing on an approved exchange. You should check that with a tax lawyer or accountant though.
The RRSP. This is another great tax shelter. Tax shelters in Canada are either deferrals or in a few cases - such as the TFSA - outright tax breaks, The RRSP is an example of a deferral. The RRSP allows you to deduct your contributions from your income, which the TFSA does not allow. This deduction is a huge advantage if you earn a lot of money. The RRSP has tax consequences for withdrawing money whereas the TFSA does not. Withdrawals from the RRSP are taxable whereas they are obviously not in a TFSA. You probably want to start out with a TFSA and maintain and grow that all your life. It is a good idea to start contributing to an RRSP when you start working because you get the tax deduction, and then you can use the amount of the deduction to contribute to your TFSA. There are certain rules that claw back your annual contribution room into an RRSP if you contribute to a pension. See your tax advisor.
Pensions. If I contribute to a pension does that claw back my TFSA contribution room or otherwise affect my TFSA in any way? Answer: No.
The $10K contribution limit for 2015. This was PM Harper's pledge. In 2015 the Conservative government changed the rules to make the annual government allowance $10,000 per year forever. Note: withdrawals still converted into contribution room in the following year - that did not change. When the Liberals came into power they switched the program back for 2016 to the original Harper rules and have kept the original Harper rules since then. That is why there is the $10,000 anomaly of 2015. The original Harper rules (which, again, are in effect now) called for $500 increments to the annual government allowance as and when required to keep up with inflation, based on the BofC's Consumer Price Index (CPI). Under the new Harper rules, it would have been $10,000 flat forever. Which you prefer depends on your politics but the TFSA program is massively popular with Canadians. Assuming 1.6% annual CPI inflation then the annual contribution room will hit $10,000 in 2052 under the present rules. Note: the Bank of Canada does an excellent and informative job of explaining inflation and the CPI at their website.
Losses in a TFSA - you cannot claim a loss in a TFSA against income. So in a TFSA you always want to make money and never want to lose money. A few ppl here have asked if you are losing money on your position in a TFSA can you transfer it in-kind to a cash account and claim the loss. I would expect no as I cannot see how in view of the fact that TFSA losses can't be claimed, that the adjusted cost base would somehow be the cost paid in the TFSA. But I'm not a tax lawyeaccountant. You should consult a tax professional.
Transfers in-kind to the TFSA and the the superficial loss rule. You can transfer securities (shares etc.) "in-kind," meaning, directly, from an unregistered account to the TFSA. If you do that, the CRA considers that you "disposed" of, meaning, equivalent to having sold, the shares in the unregistered account and then re-purchased them at the same price in the TFSA. The CRA considers that you did this even though the broker transfers the shares directly in the the TFSA. The superficial loss rule, which means that you cannot claim a loss for a security re-purchased within 30 days of sale, applies. So if you buy something for $20 in your unregistered account, and it's trading for $25 when you transfer it in-kind into the TFSA, then you have a deemed disposition with a capital gain of $5. But it doesn't work the other way around due to the superficial loss rule. If you buy it for $20 in the unregistered account, and it's trading at $15 when you transfer it in-kind into the TFSA, the superficial loss rule prevents you from claiming the loss because it is treated as having been sold in the unregistered account and immediately bought back in the TFSA.
Day trading/swing trading. It is possible for the CRA to try to tax your TFSA on the basis of "advantage." The one reported decision I'm aware of (emphasis on I'm aware of) is from B.C. where a woman was doing "swap transactions" in her TFSA which were not explicitly disallowed but the court rules that they were an "advantage" in certain years and liable to taxation. Swaps were subsequently banned. I'm not sure what a swap is exactly but it's not that someone who is simply making contributions according to the above rules would run afoul of. The CRA from what I understand doesn't care how much money you make in the TFSA, they care how you made it. So if you're logged on to your broker 40 hours a week and trading all day every day they might take the position that you found a way to work a job 40 hours a week and not pay any tax on the money you make, which they would argue is an "advantage," although there are arguments against that. This is not legal advice, just information.
The U.S. Roth IRA. This is a U.S. retirement savings tax shelter that is superficially similar to the TFSA but it has a number of limitations, including lack of cumulative contribution room, no ability for withdrawals to convert into contribution room in the following year, complex rules on who is eligible to contribute, limits on how much you can invest based on your income, income cutoffs on whether you can even use the Roth IRA at all, age limits that govern when and to what extent you can use it, and strict restrictions on reasons to withdraw funds prior to retirement (withdrawals prior to retirement can only be used to pay for private medical insurance, unpaid medical bills, adoption/childbirth expenses, certain educational expenses). The TFSA is totally unlike the Roth IRA in that it has none of these restrictions, therefore, the Roth IRA is not in any reasonable sense a valid comparison. The TFSA was modeled after the U.K. Investment Savings Account, which is the only comparable program to the TFSA.
The UK Investment Savings Account. This is what the TFSA was based off of. Main difference is that the UK uses a 20,000 pound annual contribution allowance, use-it-or-lose-it. There are several different flavours of ISA, and some do have a limited recontribution feature but not to the extent of the TFSA.
Is it smart to overcontribute to buy a really hot stock and just pay the 1% a month overcontribution penalty? If the CRA believes you made the overcontribution deliberately the penalty is 100% of the gains on the overcontribution, meaning, you can keep the overcontribution, or the loss, but the CRA takes the profit.
Speculative stocks-- are they ok? There is no such thing as a "speculative stock." That term is not used by the CRA. Either the stock trades on an approved exchange or it doesn't. So if a really blue chip stock, the most stable company in the world, trades on an exchange that is not approved, you can't buy it in a TFSA. If a really speculative gold mining stock in Busang, Indonesia that has gone through the roof due to reports of enormous amounts of gold, but their geologist somehow just mysteriously fell out of a helicopter into the jungle and maybe there's no gold there at all, but it trades on an approved exchange, it is fine to buy it in a TFSA. Of course the risk of whether it turns out to be a good investment or not, is on you.
Remember, you're working for your money anyway, so if you can get free money from the government -- you should take it! Follow the rules because Canadians have ended up with a tax bill for not understanding the TFSA rules. Appreciate the feedback everyone. Glad this basic post has been useful for many. The CRA does a good job of explaining TFSAs in detail at https://www.canada.ca/content/dam/cra-arc/formspubs/pub/rc4466/rc4466-19e.pdf
Unrelated but of Interest: The Margin Account
Note: if you are interested in how margin accounts work, I refer you to my post on margin accounts, where I use a straightforward explanation of the math behind margin accounts to try and give readers the confidence that they understand this powerful leveraging tool.
Long Thesis - Progyny - 100% upside - High-growth, profitable company is the only differentiated provider in a large, growing, and underserved market. PGNY’s high-touch, seamless offering helps them stand out against large insurance carriers.
Link to my research report on PGNY Summary High-growth, profitable company is the only differentiated provider in a large, growing, and underserved market. PGNY’s high-touch, seamless offering helps them stand out against large insurance carriers. Covid-19 has shown the importance of benefits for employees and will continue to be the key differentiator for those thinking of changing jobs. According to RMANJ (Reproductive Medicine Associates of New Jersey), 68% of people would switch jobs for fertility benefits. For employers, Progyny reduces costs by including the latest cutting-edge technology in one packaged price, thereby lowering the risk of multiples and increasing the likelihood of pregnancy, keeping employees happy with an integrated, data-driven, concierge service partnering with a selective group of fertility doctors. Upside potential is 2x current price in the next 18 months. Overview Progyny Inc. (Nasdaq: PGNY), “PGNY” or the “Company”, based in New York, NY, is the leading independent fertility and family building benefits manager. Progyny serves as a value-add benefits manager sold to employers who want to improve their benefits coverage and retain and attract the best employees. Progyny offers a comprehensive solution and is truly disrupting the fertility industry. There is no standard fertility cycle, but the below is a good approximation of possible workflows: https://preview.redd.it/7aip8pna9zi51.png?width=941&format=png&auto=webp&s=7ef868a67eae10534bac254ab58fb3d4295aef37
Patient is referred to fertility center for evaluation for Assisted Reproductive Technology (“ART”) procedures, including in-vitro fertilization (“IVF “) and intrauterine insemination (“IUI”). Both can be aided by pharmaceuticals that stimulate egg production in the female patient. IVF involves the fertilization of the egg and sperm in the lab, while IUI is direct injection of the sperm sample into the uterus. Often, IUI is done first as it is less expensive. As success rates of IVF have increased, IUI utilization will likely fall.
Sperm washing is the separation of the sperm from the semen sample for embryo creation, and it enhances the freezing capacity of the sperm. Typically, a wash solution is added to the sample and then a centrifuge is used to undergo separation. This is done in both IUI and IVF.
Some OB/GYN platforms are pursuing vertical integration and offering fertility services directly. The OB would need to be credentialed at the lab / procedure center.
Specialty pharmacy arranges delivery of temperature sensitive Rx. Drug regimens include ovarian stimulation to increase the number of eggs or hormone manipulation to better time fertility cycles, among others.
Oocyte retrieval / aspiration is done under deep-sedation anesthesia in a procedure room, typically in the attached IVF lab. Transfer cycle implantation is done using ultrasound guidance without anesthesia. (Anecdotally, we have been told that only REIs can perform an egg retrieval. We have not been able to validate this).
Many clinics house frozen embryos on-site, while some clinics contract with 3rd parties to manage the process. During an IVF cycle, embryos are created from all available eggs. Single-embryo transfer (“SET”) is becoming the norm, which means that multiple embryos are then cryopreserved to use in the future. A fertility preservation cycle ends here with a female storing eggs for long-term usage (e.g. a woman in her young 20s deciding to freeze her eggs for starting a family later).
Common nomenclature refers to an IVF cycle or an IVF cycle with Intracytoplasmic sperm injection (“ICSI”). From a technical perspective, ICSI and IVF are different forms of embryo fertilization within an ART cycle.
ART clinics are frequently offering ancillary services such as embryo / egg adoption or surrogacy services. More frequently, there are independent companies that help with the adoption process and finding surrogates.
ART procedures are broken into two different types of cycles: a banking cycle is the process by which eggs are gathered, embryos are created and then transferred to cryopreservation. A transfer cycle is typically the transfer of a thawed embryo to the female for potential pregnancy. If a pregnancy does not occur, another transfer cycle ensues. Many REIs are moving towards a banking cycle, freezing all embryos, then transfer cycles until embryos are exhausted or a birth occurs. If a birth occurs with the first embryo, patients can keep their embryos for future pregnancy attempts, donate the embryos to a donation center, or request the destruction of the embryos.
The Company started as Auxogen Biosciences, an egg-freezing provider before changing business models to focus on providing a full-range of fertility benefits. In 2016, they launched with their first 5 employer clients and 110,000 members. As of June 30, 2020, the Company provided benefits to 134 employers and ~2.2 million members, year over year growth of 63%. 134 employers is less than 2% of the total addressable market of “approximately 8,000 self-insured employers in the United States (excluding quasi-governmental entities, such as universities and school systems, and labor unions) who have a minimum of 1,000 employees and represent approximately 69 million potential covered lives in total. Our current member base of 2.1 million represents only 3% of our total market opportunity.” The utilization rate for all Progyny members was less than 1% in 2019, offering significant leverageable upside as the topic of fertility becomes less taboo.
Fertility has historically been a process fraught one-sided knowledge, even more so than the typical physician procedure. Despite the increased availability of information on the internet, women who undergo fertility treatments have often described the experience as “byzantine” and “chaotic”. Outdated treatment models without the latest technology (or the latest tech offered as expensive a la carte options) continue to be the norm at traditional insurance providers as well as clinics that do not accept insurance. Progyny’s differentiated approach, including a high-touch concierge level of service for patients and data-driven decision making at the clinical level, has led to an NPS of 72 for fertility benefits and 80 for the integrated, optional pharmacy benefit. Typically, fertility benefits offered by large insurance carriers are add-ons to existing coverage subject to a lifetime maximum while simultaneously requiring physicians to try IUI 3 – 6 times before authorizing IVF. The success rate of IUI, also known as artificial insemination, is typically less than 10%, even when performed with medication. As mentioned in Progyny’s IPO “A patient with mandated fertility step therapy protocol may be required to undergo three to six cycles of IUI, which has an average success rate range of 5% to 15%, takes place over three to six months and can cost up to $4,000 per cycle (or an aggregate of approximately $12,000 to $24,000), according to FertilityIQ. Multiple rounds of mandated IUI is likely to exhaust the patient's lifetime dollar maximum fertility benefits and waste valuable time before more effective IVF treatment can be begun.” Success Rates for IVF IVF success rates vary greatly by age but were 49% on average for women younger than 35. The graph below shows success rates by all clinics by age group for those that did at least 10 cycles in the specific age group. As an example, for those in the ages 35 – 37, out of 456 available clinics, 425 performed at least 10 cycles with a median success rate of 39.7%. https://preview.redd.it/d2l5dtw89zi51.png?width=4990&format=png&auto=webp&s=5ff2ab9948b94419558a27ac861d4e498dce6713 Progyny’s Smart Cycle is the proprietary method the company has chosen as a “currency” for fertility benefits. As opposed to a traditional fee-for-service model with step-up methods, employers may choose to provide between 2 and unlimited Smart Cycles to employees. This enables employees to choose the provider’s best method. Included in the Smart Cycle, and another indicator of the Company’s forward-thinking methodology, are treatment options that deliver better outcomes (PGS, ICSI, multiple embryo freezing with future implantations). https://preview.redd.it/np577a389zi51.png?width=734&format=png&auto=webp&s=c061a2b24c8515890ba204479b4677893dabf755 As detailed in the chart above, a patient could undergo an IVF cycle that freezes all embryos (3/4 of a Smart Cycle), then transfer 5 frozen embryos (1/4 cycle each; each transfer would occur at peak ovulation, which would take at least 5 months) and use only 2 Smart Cycles. Alternatively, if the patient froze all embryos and got pregnant on the first embryo transfer, they would only use one cycle. Before advances in vitrification (freezing), patients could not be sure that an embryo created in the lab and frozen for later use would be viable, so using only one embryo at a time seemed wasteful. Now, as freezing technology has advanced, undergoing one pharmaceutical regime, one oocyte collection procedure, creating as many embryos as possible, and then transferring one embryo back into the uterus while freezing the rest provides the highest ROI. If the first transferred embryo fails to implant or otherwise does not lead to a baby, the patient can simply thaw the next embryo and try implantation again next month. Included in each Smart Cycle is pre-implantation genetic sequencing (“PGS”) on all available embryos and intracytoplasmic sperm injection (“ICSI”). PGS uses next-generation sequencing technology to determine the viability and sex of the embryo while ICSI is a process whereby a sperm is directly inserted into the egg to start fertilization, rather than allowing the sperm to penetrate the egg naturally. ICSI has a slightly higher rate of successful fertilization (as opposed to simply leaving the egg and sperm in the petri dish). Because Progyny’s experience is denominated in cycles of care, not simply dollars, patients and doctors can focus on what procedures offer the best return. 30% of the Company’s existing network of doctors do not accept insurance of any kind, other than Progyny, which speaks to the value that is provided to doctors and employers. For patients not looking to get pregnant, Progyny offers egg freezing as well. Progyny started as an egg-freezing manager, which allows a woman to preserve her fertility and manage her biological clock. As mentioned previously, pregnancy outcomes vary significantly and align closely with the age of the egg. Egg freezing is designed to allow a woman to save her younger eggs until she is ready to start a family. From an employer’s perspective, keeping younger women in the work force for longer is a cost savings. Vitrification technology has improved significantly since “Freeze your eggs, Free Your Career” was the headline on Bloomberg Businesweek in 2014, but we still don’t yet know the pregnancy rates for women who froze their eggs 5 years ago, but early results are promising and on par with IVF rates for women of similar ages now. From a female perspective, the egg freezing process is not an easy one. The patient is still required to inject themselves with stimulation drugs and the egg retrieval process is the same as in the IVF process (under sedation). The same number of days out of work are required. Using the SmartCycle benefit above as an example, the egg freezing process would require ½ of a Smart Cycle. The annual payment required to the clinic is typically included in the benefits package but may require out-of-pocket expenses covered by the employee. Contrary to popular belief, IVF pregnancies do not have a higher rate of multiples (twins, triplets, etc.), rather in order to reduce out of pocket costs, REIs have transferred multiple embryos to the patient, in the hopes of achieving a pregnancy. If you have struggled for years to get pregnant, and the doctor is suggesting that transferring 3 embryos at once is your best chance at success, you are unlikely to complain, nor are you likely to selectively eliminate an implanted embryo because you now have twins. There are several factors that are making it more likely / acceptable to transfer one embryo at a time, enabling Progyny’s success. https://preview.redd.it/48vk9gc69zi51.png?width=953&format=png&auto=webp&s=2c75a2771a1dd9a079074331b317451f076725ca From the Company: “According to a study published in the American Journal of Obstetrics & Gynecology that analyzed the total costs of care over 400,000 deliveries between 2005 and 2010, as adjusted for inflation, the maternity and perinatal healthcare costs attributable to a set of twins are approximately $150,000 on average, more than four times the comparable costs attributable to singleton births of approximately $35,000, and often exceed this average. In the case of triplets, the costs escalate significantly and average $560,000, sometimes extending upwards of $1.0 million.” “Progyny's selective network of high-quality fertility specialists consistently demonstrate a strong adherence to best practices with a substantially higher single embryo transfer rate. As a result, our members experience significantly fewer pregnancies with multiples (e.g., twins or triplets). Multiples are associated with a higher probability of adverse medical conditions for the mother and babies, and as a byproduct, significantly escalate the costs for employers. Our IVF multiples rate is 3.6% compared to the national average of 16.1%. A lower multiples rate is the primary means to achieving lower high-risk maternity and NICU expenses for our clients.” An educated and supported patient leads to better outcomes. Each patient gets a patient care advocate who interacts with a patient, on average, 15x during their usage of fertility benefits - before treatment, during treatment and post-pregnancy. The Company provides phone-based clinical education and support seven days a week and the Company’s proprietary “UnPack It” call allows patients to speak to a licensed pharmacy clinician who describes the medications included in the package (which contains an average of 20 items per cycle), provides instruction on proper medication administration, and ensures that cycles start on time. The Company’s single medication authorization and delivery led to no missed or delayed cycles in 2018. Previous conference calls have made note of the fact that the Company would like to purchase their own specialty pharmacy and own every aspect of that interaction, which should provide a lift to gross margins. This would allow PGNY to manage both the medication and the treatment, leading to decreased cost of fertility drugs. Under larger carrier programs, carriers manage access to treatment, but PBM manages access to medications, which can lead to a delay in cycle commencement. Progyny Rx can only be added to the Progyny fertility benefits solution (not offered without subscription to base fertility benefits) and offers patients a potentially lower cost fertility drug benefit, while streamlining what is often a frustrating part of the consumer experience. The Progyny Rx solution reduces dispensing and delivery times and eliminates the possibility that a cycle does not start on time due to a specialty pharmacy not delivering medication. Progyny bills employers for fertility medication as it is dispensed in accordance with the individual Smart Cycle contract. Progyny Rx was introduced in 2018 and represented only 5% of total revenue in 2018. By June 30, 2020, Progyny Rx represented 28% of total revenue and increased 15% y/y. The growth rate should slow and move more in line with the fertility benefits solution as the existing customer base adds it to their package. Progyny Rx can save employers 5% on spend for typical carrier fertility benefits or 21% of the drug spend. Prior authorization is not required, and the pre-screened network of specialty pharmacies can deliver within 48 hours. Additionally, PGNY has 1-year contracts, as opposed to 3 – 5 years like standard PBMs, but with guaranteed minimums, allowing them to purchase at discounts and pass part of the savings on to employers – another reason the attachment rate is so high. Large, Underpenetrated Addressable Market Total cycle counts are increasing (below, in 000s), including both freezing cycles and intended-pregnancy cycles. Acceleration in cycle volume is likely driven by a declining birth rate as women wait later in life to start a family, resulting in reduced fertility, as well as the number of non-traditional (LGBT and single parents). Conservatively, we believe cycles can double in the next 8 years, a 7% CAGR. https://preview.redd.it/y6y7jb559zi51.png?width=943&format=png&auto=webp&s=6cc5cdde7c6583d8e943d2675ad3b6ae85f818de Progyny believes its addressable market is the $6.7B spent on infertility treatments in 2017, but these numbers could easily understate the available market and potential patients as over 50% of people in the US who are diagnosed as infertile do not seek treatment. Additionally, according to the Company, 35% of its covered universe did not previously have fertility benefits in place previously, meaning there is a growing population of people who are now considering their fertility options. According to Willis Towers, Watson, ~ 55% of employers offered fertility benefits in 2018. A quick review of CDC stats and FertilityIQ shows a significant disparity in outcomes and emotions for those who are seeking treatment. While technology in the embryo lab is improving rapidly and success rates between clinics should be converging, there continue to be significant outliers. Clinics that follow what are now generally accepted procedures (follicle stimulating hormones, a 5-day incubation period and PGS to determine embryo viability) have seen success rates of at least 40%. There continue to be several providers that offer a mini-IVF cycle or natural IVF cycle. Designed to appeal to cost conscious cash payors, the on average $5,000 costs, is simply IVF without prescription drugs or any add-ons such as PGS. However, the success rates are on par with IUI and there is an abundance of patients over 40 using the service, where the success rates are already low. Additionally, success stories at these clinics frequently align with what is perceived as the worst parts of the process: One clinic offering a natural cycle IVF has a rating at FertilityIQ of ~8.0 with 60% of people strongly recommending it. This clinic performed 2,000 cycles in 2018 (the most recently available data from the CDC), making it one of the top 10 most active fertility center in the US. Their success rate for women under 35 was 23%, as opposed to the national average of 50% for all clinics. For women over 43, the average success rate for the most active 40 clinics in this demographic was 5.0% this clinics success rate was 0.4%. The lower success rate is likely due to the lack of pre-cycle drugs and PGS, but the success rate and the average rating is hard to understand. Part of this could be to the customer service provided by the clinic, or the perceived benefit of having to go into the office less often for check-ups when not doing a medication driven cycle. . Reviews from other clinics with high average customer ratings, but low success rates include: - “start of a journey that consisted of multiple IUI’s with numerous medications, but they were not successful.” - After an IVF retrieval, the couple had two viable embryos, both were transferred the next month” - “The couple started with a series of IUI treatments, three in total that were not successful.” - “After a fresh transfer of two embryos, again another unsuccessful cycle”. - “He suggested transferring 2 due to higher implantation rates, but there is increased rate of twins “ Valuation https://preview.redd.it/tqcykjm39zi51.png?width=6358&format=png&auto=webp&s=b63fd53c054ac5cbacaf9ccc734c7e73f0ea3c32 Progyny’s comps have typically been other high-growth companies that went public in the last two years: 1Life Healthcare (ONEM), Accolade (ACCD), Health Catalyst (HCAT), Health Equity (HQY), Livongo (LVGO), Phreesia (PHR), as well as Teladoc (TDOC). Despite revenue growth that outpaces these companies, PGNY’s revenue multiple of 4.4x 2021E revenue is a 40% discount to the peer group median. PNGY’s lower gross margin is likely limiting the multiple. However, Progyny is the one of the few profitable companies in this group and the only one with realistic EBTIDA margins. SG&A leverage is the most likely driver of increased EBITDA and can be achieved by utilizing data to improve clinical outcomes in the future, but primarily by increased productive of the sales reps, including larger employer wins and larger employee utilization. Perhaps the best direct comp is Bright Horizons (BFAM). BFAM offers childcare as a healthcare benefit where employees can use pre-tax dollars to pay for childcare. BFAM offers both onsite childcare centers built to the employer’s specification (owned by the employer and operated by BFAM), as well as shared-site locations that are open to the public and back-up sitter services. Currently, PGNY is trading at 4.4x 2021E Revenue, in-line with BFAM’s 4.3x multiple. I would argue that PGNY should trade significantly higher given the asset-lite business model and higher ROIC. Recent Results Post Covid-19, fertility treatments came back faster than anticipated, combined with disciplined operations, PGNY drove revenue and EBITDA above 2Q2020 consensus estimates. Utilization is still below historical levels, but management’s visibility led to excellent FY21 revenue estimates (consensus is around $555M, a y/y increase of 62%. 2Q2020 revenue increased 15% to $64.6M, and EBITDA increased 18% to $6.5M, primarily driven by SBC as the 15% revenue was not enough to leverage the additional G&A people hired in the last 18 months. The end of the quarter as fertility docs opened their offices back up for remote visits saw better operating margin. Despite the shutdown in fertility clinics during COVID-19, Progyny was able to successfully add several clients. “The significant majority of the clinics in our network chose to adhere to ASRMs guidelines, and our volume of fertility treatments and dispensing of the related medications declined significantly over the latter part of the quarter. . . Through the end of March and into the first half of April, we saw significant reductions in the utilization of the benefit by our members down to as low as 15%, when compared to the early part of Q1 were 15% of what we consider to be normal levels. In April, the New York Department of Health declared that fertility is an essential health service and stated that clinics have the authority to treat their patients and perform procedures during the pandemic. Then on April 24, ASRM updated its guidelines which were reaffirmed on May 11, advising that practices could reopen for all procedures so long as it could be done in a measured way that is safe for patients and staff.” Revenue increased by $33.8 million, 72% in 1Q2020. This increase is primarily due to a $19.0 million, or 47% increase, in revenue from fertility benefits. Additionally, the Company experienced a $14.8 million or 216% increase in revenue from specialty pharmacy. Revenue growth was due to the increase in the number of clients and covered lives. Progyny Rx revenue growth outpaced the fertility benefits revenue since Progyny Rx went live with only a select number of clients on January 1, 2018 and has continued to add both new and existing fertility benefit solution clients since its initial launch. Competition The only true competition is the large insurance companies, but, as mentioned previously, they are not delivering care the same way. WINFertility is the largest manager of fertility insurance benefits on behalf of Anthem, Aetna and Cigna and are not directly involved in the delivery of care. Carrot is a Silicon Valley startup that recently raised $24M in a Series B with several brand name customers (StitchFix, Slack) where they focus on negotiating discounts at fertility clinics for their customers, who then use after-tax dollars from their employers. Risks to Thesis Though there is risk a large carrier may switch to a model similar to Progyny’s, I believe it is unlikely given the established relationships with REIs at the clinic level, the difficulty of managing a more selective network of providers, and the lack of interest shown previously in eliminating the IUI. It is more likely a carrier would acquire Progyny first.
The current turmoil in Belarus and its impact to Belarusian-Russian bilateral relations: A few points of consideration
Aleksandr Lukashenko was purportedly re-elected in Belarus's most recent elections. The current turmoil resulted. As is fairly common in certain Eastern European elections, the 80% margin by which he claimed victory gives rise to obvious doubts as to legitimacy. Mass protests and demonstrations resulted. Lukashenko has 'won' past elections by similar margins, at least 85-90%+. Lukashenko has arrested most of his political opponents, and jailed or exiled others. Journalists which report on the extent of his corruption (of which there is no shortage) tend to find themselves in prison. His title as Europe's so called 'last dictator' is well deserved. The Global Response to Lukashenko's Purported Re-Election The global response to Lukashenko's purported re-election has been largely as would be anticipated. Western countries -- and specifically the United States, through Mike Pompeo -- have expressed their reservations. The results are self evidently suspect. Despite this, Russia and China both endorsed the results and both countries have officially signaled their endorsement of the results. Notably, Russia historically has been Belarus's strongest and closest ally, the animosity between Putin and Lukashenko in the recent years notwithstanding. Uncertainty from Russia Despite the official endorsement from Putin, uncertainty remains as to the future of Russian and Belarusian bilateral relations. Several prominent Russians, including those inside Putin's inner circle, have signaled that the Lukashenko's backing from Moscow is not guaranteed. Several developments this year contextualize the current status quo. First, negotiations for discounted oil broke down in totality earlier in February 2020. Russia not only suspended deliveries to Belarus, but offered future sales at "market rates" on a purely commercial basis. Second, the oil negotiations broke down after Putin's proposal to merge the two countries was flatly rejected. Natural gas sales were still discounted somewhat, but the lack of a market rate discount for oil sales to Belarus was a significant blow to the integrity of their relationship. The basic idea here is that when global oil prices were high, Russia could with very little significant loss discount its sales to Belarus to gain favor and geopolitical influence. When oil prices bottomed out -- as they have in recent years -- the costs of that deal to Russia rose, so Russia sought to re-negotiate. In the past, Lukashenko made few concessions (and in fact used the potential of closer ties with the West to extract that concession from Russia, consistent with his historical maneuvering of the animosity between Russia and NATO to his distinct advantage). At the very least, Russia wanted closer economic (and by implication, political) integration; potentially, integration to the level of merging the two countries once Lukashenko left office. Lukashenko predictably rebuked any such proposal. Shrinking Russian Sphere of Influence From the outside looking in, it may not make sense why Russia would even want to integrate with Belarus. All doubt however is resolved in consideration of how the other near and distant dominoes seem to be lining up -- each of them to fall outside the Russian sphere of influence. Consider Kazakhstan, for example. Nazarbayev (Kazakh president) has made deliberate efforts to broaden its economic and cultural reach outside the sphere of Russian influence, even to the point that he changed the Kazakh alphabet from Cyrillic to Latin in 2017. The idea was to draw a line in the sand relative to the scope and extent of Russian influence in Central Asia in general and Kazakhstan in particular. The fact that Russia hemorrhaged allied states following the USSR's collapse is a matter of historical record. Thirteen Warsaw Pact countries have joined NATO. So, when Georgia endeavored to join the EU in 2007, Putin invaded Abkhazia and South Ossetia -- both of which remain allegedly "disputed" territories to this day. A highly deceptive analysis concluded Georgia was to blame; but the whole reason Russia invaded in the first place was because Georgia was actively seeking NATO membership -- of course, to prevent exactly such an invasion. In reality, Russia invaded a sovereign country for the purpose of preventing it from joining NATO. Putin's response shows that in Russia's analysis, Georgia is better as a fragmented state than a NATO ally or EU member. A similar pattern played out in Ukraine. As I have discussed before, when Ukraine sought closer economic and political integration with Western Europe and the United States, that was met with Russian meddling in Ukraine's domestic politics, even to the point of installing Yanukovych as Russia's puppet Ukrainian president. Thereafter, in the face of maidan, Putin invaded eastern Ukraine and seized Crimea. In the example of Ukraine as in Georgia, the outcome shows that Russia would prefer that Ukraine be a failed or fragmented state than a NATO ally or EU member. Recall that the goal here was for Putin to create an economic alliance in at least Eastern Europe and Central Asia to rival the EU, and ideally as an insurance policy against further sanctions. The first step in that process would be developing individualized economic integration projects among each of the former Soviet bloc states. Instead, Putin lost Kazakhstan, Georgia, and Ukraine in the span of less than a decade. Ukraine was the first such integration project -- and that resulted in then-president of Ukraine, Viktor Yanukovych's absconding Ukraine for Russia in disgrace. So is Belarus next? Perhaps. It's a question worth asking; especially considering what "being next" could mean. In a first set of possible worlds, Lukashenko is out because of his own decisions, or because he is forced out (potentially by the protesters, Russia or both). In 2018-2019, when Russian-Belarusian bilateral relations were at their worst, it's conceivable that Putin might have tried something like he achieved in Ukraine -- but highly unlikely. It isn't obvious that Putin would be unwilling invade, given in particular the fact that he invaded Georgia and Ukraine under somewhat similar circumstances and that at this moment Lukashenko is very weak. Lukashenko has never faced mass protests/demonstrations of this caliber before. Putin has, and he survived them, but the public's dissatisfaction with Lukashenko's "leadership" is amplified by the uncertainty surrounding the coronavirus, the consequential economic fallout attributable to the world's response to the coronavirus, and an increasingly ravenous lion to the east in its once-closer ally Russia. This combination of factors certainly suggests that if Moscow sees the opportunity to try to replace Lukashenko with someone more reliable to the Kremlin, that is exactly what the Kremlin would try to accomplish. In that situation, Moscow would be re-running the same play-book it ran to get Yanukovych elected as president of Ukraine. Even if such a far-fetched plan were to work -- and it almost certainly would not, in the short term or the long term -- who would take Lukashenko's place? There is no one that would not leave Moscow worse off than they would be with Lukashenko. While it's obvious why he's not ideal, given the recent history of strife between the two countries, there is no world where Russia's interests are -- at this time -- served by trying to replace Lukashenko with a Kremlin puppet. In the second set of possible worlds, Lukashenko remains and has to quell or pacify the Belarusian political unrest while maintaining ground against increasing Russian pressure. To accomplish this, Lukashenko could do something like seek a trade deal with the EU, as both Georgia and Ukraine did. But that would almost certainly would involve some kind of military response from Russia, just like Georgia and then Ukraine. While there's an argument to be made that Lukashenko's historically closer relationship with Russia (however complicated) insulates him from the kind of retaliation Putin visited upon Georgia and Ukraine, he would still be playing with fire. The Russian response to that kind of a bargaining chip from Russia would likely not come in the form of unwillingness to discount oil; it would come in the same form as was witnessed in Eastern Ukraine. To be clear, neither Putin nor Lukashenko benefit in that case. The remaining option is most likely: Lukashenko "cracks down" on the protests, and then everything goes back to normal. Why Belarus is Different from Ukraine & Georgia As I wrote before, Belarus is not Ukraine. Maidan in Ukraine was in direct response to Ukrainian government's preventing Ukraine from joining the EU. The Ukrainian government opted for a counter-agreement with Russia instead. In response, Ukrainians took to the streets and sought Yanukovych's resignation. He subsequently fled to Russia. There were other abuses that precipitated the demonstrations, like Yanukovych arresting his pro-democracy political opponents and arresting journalists who were reporting on the extent of his corruption, but the threshold moment was when Yanukovych tried to rebuke the democratic will of the Ukrainian people (shirk the EU in favor of the Kremlin). So, for Ukraine, the goal was a clear and decisive move towards the EU and the United States (and NATO, by implication). This was in response to decades of Kremlin meddling in Ukrainian domestic political affairs. Maidan there was Ukraine setting forth a future for itself that did not include Putin. Belarus also isn't Georgia. The purported underlying ethnic conflict behind the Russian invasion of Georgia was little more than an illusory pretext; Saakashvili's primary aim for Georgia was to become a NATO member and there was clear support for that in the Bush Administration because of the implications that would have to world oil markets. Specifically, despite the fact that Georgia has no reserves of its own, a pipeline across Georgia would substantially decrease Western dependence on Middle Eastern oil. Bush even outlined a pathway for both Ukraine and Georgia to join NATO. This was intolerable to Putin, and so he invaded as a result. Belarus and its present situation is almost wholly incongruous. Belarus is now and has always been a far more authoritarian regime than Ukraine ever was, even at its worst. Unlike Ukraine and Georgia, Belarus never made the initial step towards actual democracy that ultimately laid the foundation the Ukrainian maidan or the Georgian efforts to draw closer to the West. Belarus also does not have ambitions of closer ties with the West, and the EU and Untied States in particular -- which Ukraine has sought for some time. Lukashenko only ever used that as a bargaining chip to extract concessions from Moscow -- a fact of which Putin is invariably aware. The riots taking place now in Belarus are not oriented towards any goal in particular, either. It's arbitrary rage. Even if they were oriented towards democratic reform, and it is not clear that they are, Belarus has no intention of divesting itself from the Russian sphere of influence -- however high the costs of maintaining that relationship may be. Compromise / Cooperation best serve both Belarus's & Russia's Interests If both Belarus and Russia act rationally, they will cooperate and compromise. Russia will have little choice but to accept the fact that Belarus is not merging with Russia any time soon. The costs of Russia's invading would be inexorably high. There is no one in Belarusian politics that can replace Lukashenko that would be both able to preserve Belarus as a state and that would in the same instance be able to more effectively advance Moscow's interests. Likewise, it is in Russia's interest that these riots and protests throughout Belarus come to and end -- as quickly and expeditiously as possible. Political unrest in one totalitarian country has a tendency to spread to another; as Putin has experienced time and again, dating back to his time in Dresden through the present. Further, this all comes at a time when Russian public confidence in Putin is at an all time low -- and the potential for another Moscow maidan (and perhaps one that might actually be successful) is at an all time high. Given that, the more pertinent question in the final analysis might even be, if Lukashenko falls, is Putin next? Their fates are tied together, whether they like it or not.
Why should you vote YES on the additional 60 million share proxy request?
In January of 2010, I sent an e-mail to MicroVision CEO Alex Tokman and shared with him the following blog post that I had written about MicroVision (MVIS). As a retail investor, I asked Alex a simple question: “What is Your Business Growth Strategy?” http://mirro7.blogspot.com/2010/01/microvision-whats-your-business-growth.html This opened a channel of communications with AT and I was recognized as a serious investor of MicroVision… and a strong supporter of LBS as the future growth technology that could spawn hundreds of billion dollar consumer and industrial applications. However, I never got a straight answer from Alex… In my frustration as the serious MicroVision Investor, I wrote… "Perhaps, just perhaps, there are many other options. Models are made to be broken. The choices may be beyond anything that has been done before. That choice, if indeed one is open to it, certainly does not appear to be with-in the reach of current management. I believe the technology at MicroVision will succeed. Management may just be along for the ride." "If this sounds harsh… it is not meant to be. How many companies have management? How many have leadership? My hope is management can simply steer the ship. Anything beyond that will be a bonus." Over the next few months in 2010, I was able to piece together MicroVision Business Development Strategy, or the lack of it, and wrote another blog post in October 2010. Once again, I shared this blog post with Alex [and his Board of Directors], and asked the question: “What is Your Business Growth Strategy?” Here's the blog post from October 2010... http://mirro7.blogspot.com/2010/10/microvision-what-business-growth.html Excerpt from the article… MicroVision: What Business Growth Strategy? Every business has to plan for growth and executives should make sure their growth plans are consistent with their dynamic business plan. A dynamic business plan is an updated version that is kept current to reflect the ever-changing business-operating environment. Especially in the technology and DOT.com businesses, where the product cycles are so short and consumer preferences are mostly dependent on the next hot product or service. When it comes to growth plans, the two ends of the spectrum are, for example, should a company grow quickly and unprofitably, like Amazon and Hotmail─ before it got acquired by Microsoft for $480 million, or slowly with a careful eye on the bottom line, like Ben & Jerry's ice cream parlors? It all depends on how much venture capital you have access to and what the competition is doing! The worst thing you can do is fail to decide whether you're going to be a Ben & Jerry's company, or a Hotmail company, or an Amazon company. There are three possible scenarios when focusing on the challenges of growing a business and picking the right growth model that is consistent with your business plan and positions you for whatever your ultimate goal is… Number one: you want to be the gorilla of your industry in a hurry like Amazon.Number two: you want to ramp-up your business fast and position for an acquisition like Hotmail.Number three: you want to be a brick and mortar company producing steady profits like Ben & Jerry’s. Regardless of what your business model is, the CEO and the CFO of the company need to formalize their business growth strategy and evangelize to the man in-charge of running the day-to-day operation of the business. Building a company is no small task? You've got one very important decision to make, because it affects everything else you do. No matter what else you do, you absolutely must figure out which camp you're in, and gear everything you do accordingly, or you're going to have a disaster on your hands. THE DECISION MAKING PROCESS: Whether to grow slowly, organically, and profitably, or whether to have a big bang with very fast growth with lots of capital spent in a hurry, that is the question? The first model, popularly called "Get Big Fast" (a.k.a. "Land Grab"), requires you to raise a lot of capital, and work as quickly as possible to get big fast without concern for profitability. I'm going to call this the “Amazon”, because Jeff Bezos, the founder of Amazon, has practically become the celebrity spokes-model for Get Big Fast. The second model is called "Hotmail for Sale or Fail". As for the name of our model “Hotmail for Sale or Fail”, I just made it up to make the point. This model requires you to raise only a small amount of capital, position for acquisition, and work as quickly as possible to build momentum to show there is promise of getting big fast… without concern for profitability. I'm going to call this “Hotmail” model, because Hotmail fits this model very well. The third model, organic growth model, is to start small, with limited goals, and slowly build a business over a long period of time. I'm going to call this “Ben & Jerry’s” model, because Ben & Jerry’s fit this model pretty well. Now the question is: “where on earth does the MicroVision business model fit-in?" The short answer is... "Nowhere" MicroVision’s current business growth strategy (in 2010) was either non-existent or was severely flawed after the green laser debacle of late… that still continued to haunt MicroVision even after 4 years (in 2014). Here’s one clue to the non-existent, or flawed, business growth strategy up until recently (in 2014)… In early 2007, Alex Tokman, CEO of MicroVision, was quite aware of the following facts… \ Embedded pico projector was to be the holy grail for MicroVision.* Without diode RGB lasers; the power, size, and cost of the laser light source based on SHG green lasers would be prohibitive for embedded applications.* In 2007, diode green lasers were 4 to 5 years away… as like in 2011/2012 time frame.* If you were to assume correctly, and AT was aware of these facts as early as in 2007, then why in hell his management team carried-on with an army of personnel in SG&A [and R&D] to continually spend over $12 million dollars every Qtr for the last four years [from 2007 to 2012]. If AT had used this readily available information and some gumption to control costs to say $6 million per Qtr… today there would be lot less pressure to raise money to continue with operations─ while still waiting for diode/SHG green lasers, because MicroVision would have saved over $96 million dollars in costs without sacrificing much. MicroVision management should have either changed their business growth strategy to “hunker down” and coast on a low cost/low profile basis until the green laser technology was mature enough with more plausible cost and performance metrics… or let someone else run the company, instead of pushing the company hard on the downward spiral of financial gloom and doom while waiting for diode/SHG green lasers. MicroVision’s current business growth strategy [in late 2010] assures that they will continue to lose money-- as they are now… and continue to do so all of the next year and five years from now. The cost and availability of green lasers today [in 2010], or a year or two from now, plays a role but its financial impact on the bottom-line profitability is very small when you consider the vicious [large volume/lower cost/lower absolute dollar margin] cycle associated with commodity products such as PDEs and IPMs that are sold to consumer product OEMs. As long as MicroVision corporate management is fixated on just selling their laser light based PDEs and IPMs in an OEM market that has all the makings of a commodity market… they will be at the mercy of the OEMs; for consumer product introduction time-lines, consumer product pricing, product marketing, and commodity component pricing with no pricing power. Just look around and tell me if you see any embedded mobile phone camera makers or the touch screen makers [for things like iPad or iPhone] making any money worth crowing about. On the other hand, consumer product OEMs like Apple, with vision and gumption, come to market with one consumer product at a time─ on their terms, and rake-in billions in revenue and profits. The current MicroVision business model [as of 2010] calls for hundreds of millions in sales of PDEs and IPMs to make a few million dollars in net profit in a commodity type pricing environment … and that too, if and when the OEM customers let that happen. MicroVision still has time [in 2010] to re-configure its business growth model and seriously consider launching its own branded consumer products ─ possibly in partnership with large OEMs; and be the shaker, baker, and maker of its own destiny. Just take the current situation [in 2010] of MicroVision patiently waiting on its hands and feet─ and spending $12 million dollars per Qtr; while the OEM for the High End Media Player (HEMP) procrastinates on product configuration, product introduction time-lines, and product marketing and pricing issues. In the best case scenario, the current MicroVision business model can, in a year or two, only produce modest earnings growth of perhaps 12% per years for many years to come… and may never come even close to the hyper growth in revenue and earnings that we once believed was possible. End of excerpt from the 2010 article. Now fast forward to 2020… After ten years [in the middle of 2020] and over seven hundred million dollars in sunken cost later, I would ask the current CEO Sumit Sharma: “What is Your Business Exit Strategy?” Or should I change my question and ask: “What is Your Exit Strategy with a Staff of 30 Managing the Viewing at MicroVision?” Here’s my opinion… Anyone on this board will tell you, I am no fan of this Management team and this Board of Directors. I believe many of them are out of their depth. Historically, the various Corporate Executives at MicroVision have been, shall we say, less than comfortable in their positions and less than qualified to make the decisions they have made over the 14 years. Historically, no one can really argue with that; given the fact, as a team, they have spent well in excess of 700 million dollars of shareholder value and created a company which, just a few months ago, had a market cap of around $30 million [trading at around $0.20]. I have also stated that the deal CEO Sharma and the Board might make with a potential partner is not necessarily the deal THEY will end up with. Having said that, I do realize even a stopped clock is right twice a day. Again, depending on what additional information is given by CEO Sharma and the Board, I am willing to vote YES on the additional 60 million share requested. I also believe that MicroVision Technology, in the hands of the right partner company, is certainly worth Multiples of a Billion Dollars. We shall see if CEO Sharma and CFO Holt can live up to their titles. So far they are making all the right noises; and comparing them with the C Suite Executives at some of the mega corporations is not fair… because, both can be successful on their own scale and modus operandi. The recent notice from the class action lawyers trying to drum up a lawsuit against MicroVision… is a sure sign that there are some VERY nervous short sellers out there. Why should you also vote YES on the additional 60 million share request? Sumit Sharma has been the new CEO for only four months; and the multi-year mess [from 2007 to early 2020] he inherited was enormous and sticky. He is doing, and has done a lot, more for the investor community than any of us will ever know. He is the right person for this job, other CEOs wouldn't have had the gall to cut the cord and set the company free to realize its full potential by going the M&A route. He has options and he is exploring all of them and not taking the easy and quick route. The end game is, in my opinion, the long investors will be handsomely rewarded and can happen when nobody expects it. To give credit where credit is due… · Sumit Sharma made a pact with retail longs to not precipitously do a reverse split… and he has kept that promise by clearly announcing that there will be no S. · SS never promised he wouldn't come back for more shares later. He quite clearly said he understood he COULD come back in August or September. Now it's August. See the Fireside Chat thread. · SS brought Dr. Mark B. Spitzer to MicroVision BoD. If you don't actually grasp the importance of that… read-up on Dr. Spitzer’s CV and his patent portfolio in AR technology space. · When SS took over as CEO, the company was under not one but TWO deficiency notices from NASDAQ that could result in losing their exchange listing. Today, there is none. · SS had the guts to tell us about this 60 million new shares proxy before the CC and then stood up and defended it on the conference call. If you knew anything about the previous practice of this company, a Press Release would have been dropped on Friday, two days after the CC, so the management could avoid talking about it in person for as long as possible. Sumit Sharma has done some impressive work in a short period of time; bringing others on Board with expertise and clout, trimming production liability, cutting operating expenses to 1/3rd, acquiring government PPP loan for keeping the employees so their LiDAR kits could be completed, ensuring company has the cash for opex until end of year 2020 (possibly beyond if they can clear the liability from the PPP loan), reverse split approval without using it, and a clear vision to sell [or merge] the company or sell one or more of its 4 core technology verticals to the highest bidder. You know how long and arduous M&A can be, and achieving it in less than 6 months would have been absolutely incredible... especially, considering the 12 year of mess that he inherited some 4 months ago. It is easy to speak strongly on such a topic, but harder to actually do it. Maybe, we all should reach out and try assisting SS and his team, and at the very least give the corporate management the tools they need to execute the best “exit strategy” that, for once, has the retail investor in mind. Anant Goel (a.k.a. Mirro7) [Curated content based on excerpts from posts, blogs, media articles, and sponsored research]
Calculating intraday margin amounts is straightforward. For example, the E-mini S&P 500 futures contract is commonly assigned a $500 intraday margin. This means that for every ES contract involved in an open position, $500 must remain in the trading account to facilitate the trade. Futures Trading and Margin Calls Steve has 29 years of financial market experience including 3 years at Credit Suisse and 15 years at Merril Lynch. Steve is the Academic Dean for The London School of Wealth Management and has won many awards from Technical Analyst Magazine. With the futures margin system, all futures contracts have sufficient equity for settlement. This in turn provides the safe and reliable futures trading environment that exists today. Disadvantages of Futures Margin. The prevailing drawback of the futures margin system is that losses incurred on each contract must be settled on a daily basis. Margin Rate for Futures Contracts . In the world of futures contracts, the margin rate is much lower. In a typical futures contract, the margin rate varies between 3% and 12% of the total contract value. For example, the buyer of a contract of wheat futures might only have to post $1,700 in margin. Futures Trading Strategies – Practical Example. Investors give sellers a small amount called margin, usually a small percentage. Larger amounts are paid when the commodity in the market is out rightly bought. When the predictions made are right, the investors make a multiplied profit of the paid margin. The margin is a security bond.
Understanding Trading Margin and Managing Losing Trades
Charlie introduces the Futures Market, the goal of Futures Contracts, and compares it to equity trading. He also talks about how margin requirements are handled in the futures market as well as ... Live Trade in Futures & Option with Example ----- You are just few videos away to get Expe... Futures Spread Trade Setup shows a Calendar Spread setup example, with eurodollar futures. Spread trading reduces systemic risk and margin requirements. Tracking the spread as it hits support and ... Trading boils down to a numbers game; staying consistent with your trades and optimizing your win percentages. Joshua Martinez also goes over trading margin: intraday margin, initial margin, and ... Understanding the mechanics of margin for futures. Initial and maintenance margin.Created by Sal Khan. Watch the next lesson: https://www.khanacademy.org/eco...