Edit: Thank you for all the comments and chat messages! I'm trying to go through each one. Writing thoughtful comments in the midst of having a full-time job is HARD WORK. I think I've missed a few questions, drop me a message if you're interested in continuing a discussion, I'm open to listening! There has been a lot of good comments, a few with great perspectives, and now I have a whole lot of things to read up on. --- Now that the 2020 General Election is firmly in our rear-view mirror, there is something that I have been meaning to write about: institutionalized racism affecting the minorities, especially the Malays, in Singapore. If you are groaning at this thinking you have been misled by this post’s title, I assure you that by the end of this post you will understand the caveat behind the above-mentioned title. I plead for a little of your time and patience. We have seen many discussions online about majority privilege and systemic racism impacting the minorities. Many of you may have even participated in some of these discussions. I will not try to explain those terms for they have already been repeatedly debated to death. What this post aims to achieve is to bring to light Singapore’s history and government policies that have either benefited the majority race or kneecapped the minority race. Or both. Why am I doing this? It is frustrating to see some Singaporeans fully buying into the narrative that Singapore is a truly meritocratic society; that the government’s policies do not discriminate against minorities, or if a Singaporean worked hard enough he or she will succeed (whatever the definition of success is), or that we have anti-discriminatory laws that protect the minorities. Some even claim that the Malays enjoy special privileges due to Section 152 of the Constitution describing the special position of Malays, and that the Malays are blessed with free education in Singapore. Section 152, “Special Position”, free education for all Malays?
Minorities and special position of Malays 152.—(1) It shall be the responsibility of the Government constantly to care for the interests of the racial and religious minorities in Singapore. (2) The Government shall exercise its functions in such manner as to recognise the special position of the Malays, who are the indigenous people of Singapore, and accordingly it shall be the responsibility of the Government to protect, safeguard, support, foster and promote their political, educational, religious, economic, social and cultural interests and the Malay language.
"The aim of the government is not to turn out a few well-educated youths, nor a number of less well-educated boys; rather it is to improve the bulk of the people, and to make the son of a fisherman or a peasant a more intelligent fisherman or peasant than his father had been, and a man whose education will enable him to understand how his lot in life fits in with the scheme of life around him".
"The great object of education is to train a man to make a living.... you can teach Malays so that they do not lose their skill and craft in fishing and jungle work. Teach them the dignity of manual labour, so that they do not all become krannies (clerks) and I am sure you will not have the trouble which has arisen in India through over education"
Unusual Option Activity for Aug-26-2020 - STM, SE (C), AMD (C)
Context - The S&P 500 (+1.0%) and Nasdaq Composite (+1.7%) rallied to fresh record highs on today, propelled higher by some eye-popping gains in the mega-cap stocks. The Russell 2000 was left in the dust with a 0.7% decline. Highlighting a few of the moves: Salesforce (CRM 272.32, +56.27, +26.0%) surged 26% following its earnings report, Facebook (FB 303.91, +23.09, +8.2%) rose 8% on no news, and Netflix (NFLX 547.53, +56.95, +11.6%) rose 11% on no news. Apple (AAPL 506.09, +6.79, +1.4%) and Tesla (TSLA 2153.17, +129.83, +6.4%) were fueled by a pair of Street-high price-target increases. Today’s leadership came from the S&P 500 communication services (+3.7%), information technology (+2.1%). In the afternoon, the gains broadened out to the materials (+1.0%), industrials (+0.1%), and consumer staples (+0.1%) sectors. Declining issues outnumbered advancing issues at the NYSE and Nasdaq by a comfortable margin. The biggest laggards were found within the energy (-2.2%), utilities (-1.2%), and real estate (-0.7%) sectors. Durable goods orders increased 11.2% m/m in July (consensus +3.9%), and Moderna (MRNA 70.50, +4.25, +6.4%) said its COVID-19 vaccine generated a promising immune response in ten elderly patients. For some perspective on today's record-setting performance, the S&P 500 finished the day up 58.7% from its March 23 low, up 7.7% for the year, and 13.0% above its 200-day moving average (3079). The latter raises the risk for a technical correction, although the momentum in the market can go on for longer than expected. The U.S. Dollar Index declined 0.1% to 92.91. WTI crude futures increased by 0.1% to $43.39/bbl. Investors will receive the weekly Initial and Continuing Claims report, the second estimate for Q2 GDP, and Pending Home Sales for July on Thursday. Index Summary - S&P 500 +1.0%; Nasdaq +2.13%; DOW +0.29%; Russell 2000 -0.63% VIX: 23.27 1.24,( +5.63%) Sector Summary - The three highest sectors for today were : Communication Services +3.42%; Information Technology +2.03%; Materials +1.05%; The three lowest sectors for today were : Energy -2.11%; Utilities -1.11%; Real Estate -0.69%; Commodities - Gold - 1921.3,( -0.09%); Crude - 43.19,( -0.37%) Today’s Option Activity Fast Facts - CBOE Put/Call Ratio - 0.42 Highest Multiple Over Daily Average - BOX with 17 x the ADV of 2756. There were 36698 calls and 9645 puts. Ticker with Most Contracts - NIO with 1330223 contracts traded today with an AVD of 322440. There were 1036099 calls and 294124 puts. Largest Put / Call Ratio - ALBO with a 49.0 P/C ratio. There were 14603 puts and 298 calls. Largest Call / Put Ratio - STM with a 98.36 C/P ratio. There were 57247 calls and 582 puts. \Stocks must be >$6, Highest Multiple must have >1k ADV, Largest ratios must have an option volume >10k* Recap - PDD 89.24 +2,(+2.29%) NIO 20.44 +2.6,(+14.57%) AMGN 250.16 +1.94,(+0.78%) LI 23.3 +5.07,(+27.81%) You can find yesterday's post here. MOMENTUM UNUSUAL OPTION ACTIVITY - First Momentum Stock Pick - Ticker : STM 30.91 +0.72,(+2.38%) Earnings : 2020-10-22 Name : STMicroelectronics NV Industry : Semiconductors, Sector : Electronic Technology Option Information - Today’s Option Volume: 57829, OptionOI: 140872 Multiple of ADV: 6, ADV: 9349 Total Calls: 57247, Total Puts: 582 Calls at Ask: 75.4%, Calls at Bid: 14.0% Puts at Ask: 9.1%, Puts at Bid: 82.0% C/P Ratio: 98.4 Notable Strikes : SEP 18 '20 30.0 C had 1526.0 VLM and 0 OI. OCT 16 '20 30.0 C had 1438 VLM and 0 OI. NOV 20 '20 30.0 C had 1976 VLM and 4400 OI. News : Potential Sympathy Stocks for STM TXN, NXPI, ADI, MXIM My Impression : The Calls at Ask %, Multiple of ADV, and C/P ratio looks extremely bullish. The Semi-Conductor sector has seen a lot of aggressive buying over the past few weeks. This was a pick on July 15ths post. This stock increased initially after it was mentioned and has now declined. I think I will likely invest in this one again tomorrow. CLASSIC UNUSUAL OPTION ACTIVITY - First Classic UOA Stock Pick - Ticker : SE 159 +4.87,(+3.16%), Earnings : 2020-11-18 Name : Sea Ltd. (Singapore) Sector : Technology Services, Industry : Internet Software/Services Option Information : 2020-09-18 185.0 C - 1,200 @ 2.85 were traded at 11:37 as a BLOCK Spot Price: 161.62 News : No new news today. Potential Sympathy Stocks for SE WMB, EPD, ENB, SRE Second Classic UOA Stock Pick - Ticker : AMD 86.01 -0.34,( -0.39%), Earnings : 2020-10-15 Name : Advanced Micro Devices, Inc. Sector : Electronic Technology, Industry : Semiconductors Option Information : 2020-09-18 95.0 C - 1,238 @ 1.80 were traded at 09:38 as a BLOCK Spot Price: 86.58 News : 2020-08-26 07:04:46 - The Value vs Growth Dilemma for Intel, Nvidia and AMD No summary available. 2020-08-25 17:35:36.383000 - AMD Q2 Earnings: The Company Gained Market Share in All CPU Markets For years AMD was known as the little low-cost competitor of Intel. For people who cared looking into details, AMD processors often delivered better performance per dollar but in the end, who said… Potential Sympathy Stocks for AMD INTC, NVDA, TXN, MCHP Upcoming Events for Next Trading Day - Here you can find a full list of tomorrow's events with explanations. Thanks for reading. DISCLAIMER – These are my observations that I have made at the end of each day and trades that I am considering placing or watching. I am not responsible for your financial losses if you follow any of these trades. As always, do your due diligence. Company Summary : STM STMicroelectronics NV designs, develops, manufactures and markets products, which offers discrete and standard commodity components, application-specific integrated circuits, full custom devices and semi-custom devices for analog, digital and mixed-signal applications. It operates through the following segments: Automotive and Discrete Group, Analog and MEMS Group, and Microcontrollers and Digital ICs Group. The Automotive and Discrete Group segment comprises of all dedicated automotive ICs, and discrete and power transistor products. The Analog and MEMS Group segment comprises of low-power high-end analog ICs, smart power products for industrial, computer and consumer markets, touch screen controllers, low power connectivity solutions and metering solutions for smart grid and all MEMS products. The Microcontrollers and Digital ICs Group segment comprises of general purpose and secure microcontrollers, EEPROM memories, and digital ASICs. The company was founded in June 1987 and is headquartered in Plan-Les-Ouates, Switzerland. Company Summary : SE Sea Ltd. (Singapore) is an internet and mobile platform company. The firm engages in the provision of online gaming services. It operates through the following segments: Digital Entertainment, E-Commerce and Digital Financial Services. The Digital Entertainment segment offers access to game-related content through game forums, group voice chat, live streaming, and other user socializing functions on the Garena mobile app and desktop application. The E-Commerce segment manages third-party marketplace through Shopee mobile app and websites that connects buyers and sellers. The Digital Financial Services segment includes financial services to individuals and businesses, including e-wallet and payment services through the AirPay mobile app and AirPay counter applications on mobile phones or computers. The company was founded by Xiao Dong Li, Gang Ye and Jing Ye Chen on May 8, 2009 and is headquartered in Singapore. Company Summary : AMD Advanced Micro Devices, Inc. engages in the provision of semiconductor businesses. It operates through the following segments: Computing & Graphics, and Enterprise, Embedded and Semi-Custom. The Computing and Graphics segment includes desktop and notebook processors and chipsets, discrete and integrated graphics processing units, data center and professional GPUs and development services. The Enterprise, Embedded and Semi-Custom segment includes server and embedded processors, semi-custom System-on-Chip products, development services and technology for game consoles. The company was founded by W. J. Sanders III on May 1, 1969 and is headquartered in Santa Clara, CA.
Thesis: SIGA Technologies, an anti-bioterror pharmaceutical company, will double their stock price in a year and triple or quadruple it in two years. They are in an incredibly strong financial position: zero debt, future US government purchases that may be greater than their market cap, and low expenses for operations and forward research. They also have amazing future growth prospects as foreign governments will buy their meds to prepare for future pandemics. Their drugs treat smallpox which is both more contagious and deadly (IFR ~30%!) than the Wuhan plague. Do you think absolutely no political or military leader will learn their lesson about pandemic preparedness? Do you think business leaders are going to put the pressure down since the cost of unpreparedness is orders of magnitude greater than preparedness? That’s what this play is all about. The play: Buy $SIGA stocks and hold for 2 years.
Market cap: $560 million Style: Value, when compared to other biotechs Products: Their primary product is an FDA approved oral antiviral (TPOXX) that treats all orthopox viruses (e.g. the dreaded smallpox). They are currently developing additional products for IV and pediatric treatment, another small molecule drug for treating orthopox viruses, and are developing therapeutics that use orthopox viruses for delivery of anticancer antigens. How SIGA makes money: 1) US government contracts to supply the Strategic National Stockpile, 2) US government contracts for research, 3) sales to foreign governments and potentially private parties. Note that their business doesn't care about prevailing market conditions and all of these are multi-year contracts. Debt: $0. They paid off an $86 MM loan in March. Cash holdings: $77.4 MM Total assets: $118.6 MM Net cash flow 2019: -$18.2 MM, as discussed below, 2019 was a transition year between govt contracts hence the low income. They made $400MM from closing contracts in 2018. Net cash flow 2020, my estimate: +$53 MM, see cash flow section below for how I got this figure
How this play can win
- The US govt through BARDA accelerates their purchasing of TPOXX to be and look more prepared for future pandemics. - Foreign governments purchase TPOXX for their own pandemic preparedness. Canada announced an intent to purchase in December. Others are likely to follow. IMO, the stock will hit $10 when 3 additional countries announce purchasing and $20 when they have a network of 10 purchasing countries plus additional research. The US gets a discount on TPOXX because they funded the initial research, others will likely pay three times as much per dose. - The US govt offers much more research funding to SIGA to design antivirals for other possible pandemic viruses. 10 years ago they had a small BARDA contract to look into antivirals for Lassa fever, a nasty rat flu boogaloo. They might renew or add to this type of research. - TPOXX gets additional approvals for IV use and prophylactic use (i.e. give to people in contact with infected, first responders or first city) and US buys more. They recently received a new $23 MM contract for developing this use. - A larger pharmaceutical company announces that they will purchase SIGA for $10-$15 share in a year. SIGA already has connections with Pfizer. - Large amounts of additional income help them pump with stock buybacks or fat dividends. I am totally convinced they are going to buyback or spit dividends in a year from now.
- Foreign governments don’t purchase TPOXX or don’t approve its safety/efficacy and rely on the vaccine for smallpox (but 1 in 5 people can’t take the vax and lots of deaths in first wave without TPOXX). - US govt does not add to stockpile, only keeps refreshing expired TPOXX. - US govt does not invest in additional pandemic preparedness research/invests only in competitors. - TPOXX may later be discovered to have a severe side-effect. (Oral formula is already FDA approved though). - There’s more risks listed in their 10-K, but I do not think they are significant enough to list here.
I’m going to start off this section by answering the arguments you’ve already thought of. Who gives a shit about some old timey disease? The world militaries. Smallpox is a nasty disease. It's basic reproduction number, R0, is between 3-6, like the Wuhan coronavirus. It similarly has a 7-14 day lag time before symptoms show, although it is not known to be infectious for the first several days. Smallpox is also exceptionally deadly, ranging from 15-30% fatality rate depending upon the strain and in children and the elderly can reach a 75% mortality rate. Survivors are usually permanently scarred and may have life-long complications from the disease. A smallpox epidemic would actually make corona look like "just the flu." Infection around day 20 mark. Bangladesh, 1973. Bioterrorism or biowarfare with smallpox is a massive threat to the military and people and an obvious first choice of weapon for a bioterrorist. Careful governments will plan for it. Isn't smallpox eradicated? Yes. But. 1) There are still many samples across the world in government labs across the world. 2) The genome exists on computers in said labs. 3) Many other orthopox viruses exist such as cowpox and monkeypox. Monkeypox in particular has had more cases in subsaharan Africa in the last few years. There have even been small outbreaks in the US, UK, and Singapore within the last 20 years. What about vaccines?
Maybe you recall that in the 1790’s Edward Jenner discovered the first vaccine by giving people the milder cowpox to prevent smallpox. The state of the smallpox vaccine has not evolved significantly since then. The modern vaccine uses a two-prong poker to deliver a live smallpox virus that has been engineered to be very weak. However, it is still a real virus that can causes symptoms or spread the disease to others. One in five Americans have underlying conditions that prevent them from receiving this vaccine due to the symptoms it causes.
What do you do when smallpox starts spreading rapidly? You need to be able to treat the potentially 100s of thousands of people who will be infected before the immunization takes effect. The US is well-prepared with the vaccine having 300 million doses, nearly enough for every American. But you need a treatment as part of the defense strategy.
TPOXX is in the process of being approved as a prophylactic. I.e. if smallpox were to spread then people could be given both the vaccine and TPOXX at the same time to make sure they don’t get sick if they were exposed prior to vaccination. Prophylactic treatment could be extremely important to first-responders, military, and people in the most badly affected zones.
I am no expert in reading 10-K filings, but SIGA's 10-K is not too complicated. I encourage you to do your own DD before making this play and if you've never read a 10-K filing before this is a great one to cut your teeth on. SIGA only has one key product line and their debt is uncomplicated (nonexistent); the only tricky parts is following the government money. Balance sheet from most recent 10-Q Balance sheet So the things to look at here are:
SIGA has plenty of cash. Enough for two years operating expenses without any sort of austerity. Even if the economic downturn affected their business model, they would weather it easily.
They have $16 MM in inventory. That’s mostly TPOXX they’ve already manufactured. This is great because it means they will have low costs for meeting the current BARDA contract supply request for this year and that if they get more orders they can dedicate their supply chain to filling them.
No debt. There’s no risk of them going tits up soon. Unlike your other favorite plays against highly-leveraged trash companies (looking at you Zillow), SIGA can ride out a credit crunch with ease.
Stockholders’ equity aka book value. At a price to book of 5:1 this is a cheap biotech company, one of the reasons I see them as a value buy. Also of note, their property includes patents on TPOXX in virtually every country.
Cash flow In 2019, SIGA took a $7 million loss while in 2018 they punched a $422 million gain. How did that happen? Their entire business runs on multi-year govt contracts. 2018 saw an older BARDA contract end with the orders completely filled to stuff the strategic stockpile. 2019 was a transition year.They have a new contract with BARDA to replenish expiring TPOXX and research then purchase new formulations for IV and pediatric use. So, looking at their 201910-K their earnings look abysmal, but their forward looking earnings are much better given their recent news releases. Let’s look more at that contract since it is a principal revenue source. SIGA’s most recent 19C contract gives BARDA (Biomedical Advanced Research and Development Authority) the ability to purchase up to $602.5MM worth of product. The base contract guarantees $51.7 MM and BARDA announced the exercise of an additional $127.1 MM in purchasing for the next year as of a few weeks ago. Due to drug expiration and future preparedness, my opinion is that BARDA will exercise all of the purchasing options over the next 10 years. Here’s my 2020 cash flow estimate, I am inexperienced at this sort of analysis. Pro 10-K readers, please give me some criticism. -$24 MM from expenses for sales, admin, research, services ,patents. Average of last 2 years -10% because research activity is shut down -$7 MM from additional costs of terminating loan. 10-Q +$2 MM from part 1 of Canadian order. Press release +$75 MM from three quarters of $101 MM exercise of BARDA contract. Estimated because they will supply TPOXX the next three quarters of 2020 and Q1 2021, press release -$3 MM additional costs to fulfill orders. Estimate from BARDA contract’s allocation for supply costs +$10 MM from contracts for research. Estimate by Q1 research revenue x 4 ? a new $23 MM research contract with the department of defense was announced in June, unclear when they will receive the money at this time $0 from stock buybacks and dividends, they have never had a dividend, but did do $800k in buybacks last year. They might have paid down their debt to put them in a position to do a lot more buybacks, so this is subject to change. Total: +$53 MM I expect the next few years to be cash flow positive now that they are out of the development phase and into the deployment phase. As they get additional international buyers they will also need to service their expiring stockpiles. This puts them at a forward price to earnings estimate of 10:1, still a value play in the current environment. The high future cash flow is why I expect them to start pumping dividends or buybacks in a year. Since their research activities are primarily supported by the US government, they won't have other useful activities for the cash other than to return it to shareholders. Also, the guys who founded SIGA in the 90's probably want to retire on a fat dividend pretty soon. Dividends and buybacks are a big factor in how many analysts calculate stock prices so either development will push the share price up a lot. International Sales This is where SIGA make us gigatendies. The US sales are the bread and butter that will keep them afloat for years to come. International sales are where they grow. Their contracts with the US government let them sell TPOXX at about $350 per course because they funded the initial research, whereas Canada is paying about $950 per course giving SIGA a massive estimated 95% margin. Let's see who might be interested in buying TPOXX as the China flu crisis unwinds: we've got most of western Europe/NATO--UK, France,Italy, Austria, Sweden, Switzerland, Germany, Spain; Pacific countries wary of being in the China sphere--Taiwan, South Korea, Japan, Singapore, Australia,Malaysia, Vietnam, Indonesia; and wealthy Middle Eastern countries that need to hedge against instability--Israel, Turkey, Saudi Arabia, UAE, Qatar; a smattering of other countries getting wise to viral threats--Russia, India,Brazil, South Africa, Mexico. That's a lot of potential buyers and it will only take a few for SIGA's price to shoot up. Also note that SIGA does not market internationally themselves, they are partnered with Meridian, a Pfizer subsidiary, for international sales. SIGA also has an excellent moat internationally. They have patents for TPOXX and its analogs almost everywhere but China. Of course, there are still risks associated with international expansion, but the upside potential is yuuge. Let's hear it from the horse's mouth and see what SIGA had to say on their 2019 Q4 conference call:
Now let's discuss the international markets. The pursuit of international sales for oral TPOXX is a key focus for us at SIGA. Our partnership with Meridian Medical Technologies that we announced last June has been excellent. However as I've said many times the sales cycle is long for international government procurement of these types of products and each country has its own set of internal dynamics. ... I have been asked why we do not provide a country-by-country update on sales progress. We do not comment on specific progress with countries for two main reasons. First, we respect the confidentiality of our customers who would not want their deliberations to become public. And second, we would not want to signal to competitors which countries may be undergoing an expansion in their spending for biodefense. With that context in mind, we are pleased to share a progress report regarding the Canadian military, who announced in December and intend to issue contracts to support a Health Canada, regulatory filing and thep urchase of up to 15,825 courses of oral TPOXX for the Canadian military. A procurement order of this size would represent about 25%of the active military forces in Canada. Although this is a relatively modest number of courses it is precedent for military preparedness by a U.S. NATO ally.
What can we gather from that? They've got multiple sales in the works, but are keeping mum about it. Also, that it takes time to cut through government tape and announce these sales. Here's the single largest risk for this play: that it takes too long for international contracts to be announced. For this reason, I recommend buying stocks and not calls. The near term future is too unpredictable. Research Activities SIGA's main drug, oral TPOXX, is already completely FDA approved as safe in humans and effective in animals. A quirk of their niche is that since smallpox is eradicated, they can't ethically test the drug for effectiveness in humans. This helps their bottom line because they basically get to skip some of the trials of a typical drug development cycle. SIGA's most important upcoming products are TPOXX for IV, liquid pediatric, and prophylactic use. Due to the current pandemic, all human trials are postponed, but the barriers for these trials are quite low. They only need to demonstrate human safety for the alternate ROA drugs. For prophylactic TPOXX, SIGA needs to demonstrate that TPOXX does not interfere with immunity acquisition from the smallpox vaccine. That way a potentially exposed person can both be treated and vaccinated at the same time. If they fail to meet these research goals, then I doubt the BARDA contract will be exercised for full value. Because of the delay in these results due to corona, I doubt that they threaten the trade that I'm proposing. Orthopox viruses to deliver cancer therapeutics and older Lassa fever antivirals. I honestly don't know enough about their activities in these areas to make a comment. I think they are irrelevant to the base play, but could provide some surprise upside if there was a development. Insider trading The execs did more selling than buying last year which is perhaps bearish, but their most recent move was to buy a lot of stock in December after announcing the Canada deal. They sold stock at ~$5.80 in early 2019. Now, they're holding even though it is past $6. I think the COVID pandemic has massively increased SIGA’s value and their key people are holding at a price where they previously sold knowing that a lot more cash is coming in. I think there's also some possibility of acquisition at higher share price, being debt free makes them attractive to a buyer--just pick up all the shares, no liabilities to clean up. Positions I have 5% of my IRA in SIGA and a couple of long dated $10 calls (volume is shit FYI) in my funny money account. Thank you for reading my novel. Disclaimer: Just because I can write two coherent paragraphs on a play does not mean I know what I'm doing. Do your own due diligence.
Hey all, I've been researching coins since 2017 and have gone through 100s of them in the last 3 years. I got introduced to blockchain via Bitcoin of course, analyzed Ethereum thereafter and from that moment I have a keen interest in smart contact platforms. I’m passionate about Ethereum but I find Zilliqa to have a better risk-reward ratio. Especially because Zilliqa has found an elegant balance between being secure, decentralized and scalable in my opinion.
Below I post my analysis of why from all the coins I went through I’m most bullish on Zilliqa (yes I went through Tezos, EOS, NEO, VeChain, Harmony, Algorand, Cardano etc.). Note that this is not investment advice and although it's a thorough analysis there is obviously some bias involved. Looking forward to what you all think!
Fun fact: the name Zilliqa is a play on ‘silica’ silicon dioxide which means “Silicon for the high-throughput consensus computer.”
This post is divided into (i) Technology, (ii) Business & Partnerships, and (iii) Marketing & Community. I’ve tried to make the technology part readable for a broad audience. If you’ve ever tried understanding the inner workings of Bitcoin and Ethereum you should be able to grasp most parts. Otherwise, just skim through and once you are zoning out head to the next part.
Technology and some more:
The technology is one of the main reasons why I’m so bullish on Zilliqa. First thing you see on their website is: “Zilliqa is a high-performance, high-security blockchain platform for enterprises and next-generation applications.” These are some bold statements.
Before we deep dive into the technology let’s take a step back in time first as they have quite the history. The initial research paper from which Zilliqa originated dates back to August 2016: Elastico: A Secure Sharding Protocol For Open Blockchains where Loi Luu (Kyber Network) is one of the co-authors. Other ideas that led to the development of what Zilliqa has become today are: Bitcoin-NG, collective signing CoSi, ByzCoin and Omniledger.
The technical white paper was made public in August 2017 and since then they have achieved everything stated in the white paper and also created their own open source intermediate level smart contract language called Scilla (functional programming language similar to OCaml) too.
Mainnet is live since the end of January 2019 with daily transaction rates growing continuously. About a week ago mainnet reached 5 million transactions, 500.000+ addresses in total along with 2400 nodes keeping the network decentralized and secure. Circulating supply is nearing 11 billion and currently only mining rewards are left. The maximum supply is 21 billion with annual inflation being 7.13% currently and will only decrease with time.
Zilliqa realized early on that the usage of public cryptocurrencies and smart contracts were increasing but decentralized, secure, and scalable alternatives were lacking in the crypto space. They proposed to apply sharding onto a public smart contract blockchain where the transaction rate increases almost linear with the increase in the amount of nodes. More nodes = higher transaction throughput and increased decentralization. Sharding comes in many forms and Zilliqa uses network-, transaction- and computational sharding. Network sharding opens up the possibility of using transaction- and computational sharding on top. Zilliqa does not use state sharding for now. We’ll come back to this later.
Before we continue dissecting how Zilliqa achieves such from a technological standpoint it’s good to keep in mind that a blockchain being decentralised and secure and scalable is still one of the main hurdles in allowing widespread usage of decentralised networks. In my opinion this needs to be solved first before blockchains can get to the point where they can create and add large scale value. So I invite you to read the next section to grasp the underlying fundamentals. Because after all these premises need to be true otherwise there isn’t a fundamental case to be bullish on Zilliqa, right?
Down the rabbit hole
How have they achieved this? Let’s define the basics first: key players on Zilliqa are the users and the miners. A user is anybody who uses the blockchain to transfer funds or run smart contracts. Miners are the (shard) nodes in the network who run the consensus protocol and get rewarded for their service in Zillings (ZIL). The mining network is divided into several smaller networks called shards, which is also referred to as ‘network sharding’. Miners subsequently are randomly assigned to a shard by another set of miners called DS (Directory Service) nodes. The regular shards process transactions and the outputs of these shards are eventually combined by the DS shard as they reach consensus on the final state. More on how these DS shards reach consensus (via pBFT) will be explained later on.
The Zilliqa network produces two types of blocks: DS blocks and Tx blocks. One DS Block consists of 100 Tx Blocks. And as previously mentioned there are two types of nodes concerned with reaching consensus: shard nodes and DS nodes. Becoming a shard node or DS node is being defined by the result of a PoW cycle (Ethash) at the beginning of the DS Block. All candidate mining nodes compete with each other and run the PoW (Proof-of-Work) cycle for 60 seconds and the submissions achieving the highest difficulty will be allowed on the network. And to put it in perspective: the average difficulty for one DS node is ~ 2 Th/s equaling 2.000.000 Mh/s or 55 thousand+ GeForce GTX 1070 / 8 GB GPUs at 35.4 Mh/s. Each DS Block 10 new DS nodes are allowed. And a shard node needs to provide around 8.53 GH/s currently (around 240 GTX 1070s). Dual mining ETH/ETC and ZIL is possible and can be done via mining software such as Phoenix and Claymore. There are pools and if you have large amounts of hashing power (Ethash) available you could mine solo.
The PoW cycle of 60 seconds is a peak performance and acts as an entry ticket to the network. The entry ticket is called a sybil resistance mechanism and makes it incredibly hard for adversaries to spawn lots of identities and manipulate the network with these identities. And after every 100 Tx Blocks which corresponds to roughly 1,5 hour this PoW process repeats. In between these 1,5 hour, no PoW needs to be done meaning Zilliqa’s energy consumption to keep the network secure is low. For more detailed information on how mining works click here. Okay, hats off to you. You have made it this far. Before we go any deeper down the rabbit hole we first must understand why Zilliqa goes through all of the above technicalities and understand a bit more what a blockchain on a more fundamental level is. Because the core of Zilliqa’s consensus protocol relies on the usage of pBFT (practical Byzantine Fault Tolerance) we need to know more about state machines and their function. Navigate to Viewblock, a Zilliqa block explorer, and just come back to this article. We will use this site to navigate through a few concepts.
We have established that Zilliqa is a public and distributed blockchain. Meaning that everyone with an internet connection can send ZILs, trigger smart contracts, etc. and there is no central authority who fully controls the network. Zilliqa and other public and distributed blockchains (like Bitcoin and Ethereum) can also be defined as state machines.
Taking the liberty of paraphrasing examples and definitions given by Samuel Brooks’ medium article, he describes the definition of a blockchain (like Zilliqa) as: “A peer-to-peer, append-only datastore that uses consensus to synchronize cryptographically-secure data”.
Next, he states that: "blockchains are fundamentally systems for managing valid state transitions”. For some more context, I recommend reading the whole medium article to get a better grasp of the definitions and understanding of state machines. Nevertheless, let’s try to simplify and compile it into a single paragraph. Take traffic lights as an example: all its states (red, amber, and green) are predefined, all possible outcomes are known and it doesn’t matter if you encounter the traffic light today or tomorrow. It will still behave the same. Managing the states of a traffic light can be done by triggering a sensor on the road or pushing a button resulting in one traffic lights’ state going from green to red (via amber) and another light from red to green.
With public blockchains like Zilliqa, this isn’t so straightforward and simple. It started with block #1 almost 1,5 years ago and every 45 seconds or so a new block linked to the previous block is being added. Resulting in a chain of blocks with transactions in it that everyone can verify from block #1 to the current #647.000+ block. The state is ever changing and the states it can find itself in are infinite. And while the traffic light might work together in tandem with various other traffic lights, it’s rather insignificant comparing it to a public blockchain. Because Zilliqa consists of 2400 nodes who need to work together to achieve consensus on what the latest valid state is while some of these nodes may have latency or broadcast issues, drop offline or are deliberately trying to attack the network, etc.
Now go back to the Viewblock page take a look at the amount of transaction, addresses, block and DS height and then hit refresh. Obviously as expected you see new incremented values on one or all parameters. And how did the Zilliqa blockchain manage to transition from a previous valid state to the latest valid state? By using pBFT to reach consensus on the latest valid state.
After having obtained the entry ticket, miners execute pBFT to reach consensus on the ever-changing state of the blockchain. pBFT requires a series of network communication between nodes, and as such there is no GPU involved (but CPU). Resulting in the total energy consumed to keep the blockchain secure, decentralized and scalable being low.
pBFT stands for practical Byzantine Fault Tolerance and is an optimization on the Byzantine Fault Tolerant algorithm. To quote Blockonomi: “In the context of distributed systems, Byzantine Fault Tolerance is the ability of a distributed computer network to function as desired and correctly reach a sufficient consensus despite malicious components (nodes) of the system failing or propagating incorrect information to other peers.” Zilliqa is such a distributed computer network and depends on the honesty of the nodes (shard and DS) to reach consensus and to continuously update the state with the latest block. If pBFT is a new term for you I can highly recommend the Blockonomi article.
The idea of pBFT was introduced in 1999 - one of the authors even won a Turing award for it - and it is well researched and applied in various blockchains and distributed systems nowadays. If you want more advanced information than the Blockonomi link provides click here. And if you’re in between Blockonomi and the University of Singapore read the Zilliqa Design Story Part 2 dating from October 2017. Quoting from the Zilliqa tech whitepaper: “pBFT relies upon a correct leader (which is randomly selected) to begin each phase and proceed when the sufficient majority exists. In case the leader is byzantine it can stall the entire consensus protocol. To address this challenge, pBFT offers a view change protocol to replace the byzantine leader with another one.”
pBFT can tolerate ⅓ of the nodes being dishonest (offline counts as Byzantine = dishonest) and the consensus protocol will function without stalling or hiccups. Once there are more than ⅓ of dishonest nodes but no more than ⅔ the network will be stalled and a view change will be triggered to elect a new DS leader. Only when more than ⅔ of the nodes are dishonest (66%) double-spend attacks become possible.
If the network stalls no transactions can be processed and one has to wait until a new honest leader has been elected. When the mainnet was just launched and in its early phases, view changes happened regularly. As of today the last stalling of the network - and view change being triggered - was at the end of October 2019.
Another benefit of using pBFT for consensus besides low energy is the immediate finality it provides. Once your transaction is included in a block and the block is added to the chain it’s done. Lastly, take a look at this article where three types of finality are being defined: probabilistic, absolute and economic finality. Zilliqa falls under the absolute finality (just like Tendermint for example). Although lengthy already we skipped through some of the inner workings from Zilliqa’s consensus: read the Zilliqa Design Story Part 3 and you will be close to having a complete picture on it. Enough about PoW, sybil resistance mechanism, pBFT, etc. Another thing we haven’t looked at yet is the amount of decentralization.
Currently, there are four shards, each one of them consisting of 600 nodes. 1 shard with 600 so-called DS nodes (Directory Service - they need to achieve a higher difficulty than shard nodes) and 1800 shard nodes of which 250 are shard guards (centralized nodes controlled by the team). The amount of shard guards has been steadily declining from 1200 in January 2019 to 250 as of May 2020. On the Viewblock statistics, you can see that many of the nodes are being located in the US but those are only the (CPU parts of the) shard nodes who perform pBFT. There is no data from where the PoW sources are coming. And when the Zilliqa blockchain starts reaching its transaction capacity limit, a network upgrade needs to be executed to lift the current cap of maximum 2400 nodes to allow more nodes and formation of more shards which will allow to network to keep on scaling according to demand. Besides shard nodes there are also seed nodes. The main role of seed nodes is to serve as direct access points (for end-users and clients) to the core Zilliqa network that validates transactions. Seed nodes consolidate transaction requests and forward these to the lookup nodes (another type of nodes) for distribution to the shards in the network. Seed nodes also maintain the entire transaction history and the global state of the blockchain which is needed to provide services such as block explorers. Seed nodes in the Zilliqa network are comparable to Infura on Ethereum.
The seed nodes were first only operated by Zilliqa themselves, exchanges and Viewblock. Operators of seed nodes like exchanges had no incentive to open them for the greater public. They were centralised at first. Decentralisation at the seed nodes level has been steadily rolled out since March 2020 ( Zilliqa Improvement Proposal 3 ). Currently the amount of seed nodes is being increased, they are public-facing and at the same time PoS is applied to incentivize seed node operators and make it possible for ZIL holders to stake and earn passive yields. Important distinction: seed nodes are not involved with consensus! That is still PoW as entry ticket and pBFT for the actual consensus.
5% of the block rewards are being assigned to seed nodes (from the beginning in 2019) and those are being used to pay out ZIL stakers. The 5% block rewards with an annual yield of 10.03% translate to roughly 610 MM ZILs in total that can be staked. Exchanges use the custodial variant of staking and wallets like Moonlet will use the non-custodial version (starting in Q3 2020). Staking is being done by sending ZILs to a smart contract created by Zilliqa and audited by Quantstamp.
With a high amount of DS; shard nodes and seed nodes becoming more decentralized too, Zilliqa qualifies for the label of decentralized in my opinion.
Generalized: programming languages can be divided into being ‘object-oriented’ or ‘functional’. Here is an ELI5 given by software development academy: * “all programs have two basic components, data – what the program knows – and behavior – what the program can do with that data. So object-oriented programming states that combining data and related behaviors in one place, is called “object”, which makes it easier to understand how a particular program works. On the other hand, functional programming argues that data and behavior are different things and should be separated to ensure their clarity.” *
Scilla is on the functional side and shares similarities with OCaml: OCaml is a general-purpose programming language with an emphasis on expressiveness and safety. It has an advanced type system that helps catch your mistakes without getting in your way. It's used in environments where a single mistake can cost millions and speed matters, is supported by an active community, and has a rich set of libraries and development tools. For all its power, OCaml is also pretty simple, which is one reason it's often used as a teaching language.
Scilla is blockchain agnostic, can be implemented onto other blockchains as well, is recognized by academics and won a so-called Distinguished Artifact Award award at the end of last year.
One of the reasons why the Zilliqa team decided to create their own programming language focused on preventing smart contract vulnerabilities is that adding logic on a blockchain, programming, means that you cannot afford to make mistakes. Otherwise, it could cost you. It’s all great and fun blockchains being immutable but updating your code because you found a bug isn’t the same as with a regular web application for example. And with smart contracts, it inherently involves cryptocurrencies in some form thus value.
Another difference with programming languages on a blockchain is gas. Every transaction you do on a smart contract platform like Zilliqa or Ethereum costs gas. With gas you basically pay for computational costs. Sending a ZIL from address A to address B costs 0.001 ZIL currently. Smart contracts are more complex, often involve various functions and require more gas (if gas is a new concept click here ).
So with Scilla, similar to Solidity, you need to make sure that “every function in your smart contract will run as expected without hitting gas limits. An improper resource analysis may lead to situations where funds may get stuck simply because a part of the smart contract code cannot be executed due to gas limits. Such constraints are not present in traditional software systems”.Scilla design story part 1
Some examples of smart contract issues you’d want to avoid are: leaking funds, ‘unexpected changes to critical state variables’ (example: someone other than you setting his or her address as the owner of the smart contract after creation) or simply killing a contract.
Scilla also allows for formal verification. Wikipedia to the rescue: In the context of hardware and software systems, formal verification is the act of proving or disproving the correctness of intended algorithms underlying a system with respect to a certain formal specification or property, using formal methods of mathematics.
Formal verification can be helpful in proving the correctness of systems such as: cryptographic protocols, combinational circuits, digital circuits with internal memory, and software expressed as source code.
“Scilla is being developed hand-in-hand with formalization of its semantics and its embedding into the Coq proof assistant — a state-of-the art tool for mechanized proofs about properties of programs.”
Simply put, with Scilla and accompanying tooling developers can be mathematically sure and proof that the smart contract they’ve written does what he or she intends it to do.
Smart contract on a sharded environment and state sharding
There is one more topic I’d like to touch on: smart contract execution in a sharded environment (and what is the effect of state sharding). This is a complex topic. I’m not able to explain it any easier than what is posted here. But I will try to compress the post into something easy to digest.
Earlier on we have established that Zilliqa can process transactions in parallel due to network sharding. This is where the linear scalability comes from. We can define simple transactions: a transaction from address A to B (Category 1), a transaction where a user interacts with one smart contract (Category 2) and the most complex ones where triggering a transaction results in multiple smart contracts being involved (Category 3). The shards are able to process transactions on their own without interference of the other shards. With Category 1 transactions that is doable, with Category 2 transactions sometimes if that address is in the same shard as the smart contract but with Category 3 you definitely need communication between the shards. Solving that requires to make a set of communication rules the protocol needs to follow in order to process all transactions in a generalised fashion.
There is no strict defined roadmap but here are topics being worked on. And via the Zilliqa website there is also more information on the projects they are working on.
Business & Partnerships
It’s not only technology in which Zilliqa seems to be excelling as their ecosystem has been expanding and starting to grow rapidly. The project is on a mission to provide OpenFinance (OpFi) to the world and Singapore is the right place to be due to its progressive regulations and futuristic thinking. Singapore has taken a proactive approach towards cryptocurrencies by introducing the Payment Services Act 2019 (PS Act). Among other things, the PS Act will regulate intermediaries dealing with certain cryptocurrencies, with a particular focus on consumer protection and anti-money laundering. It will also provide a stable regulatory licensing and operating framework for cryptocurrency entities, effectively covering all crypto businesses and exchanges based in Singapore. According to PWC 82% of the surveyed executives in Singapore reported blockchain initiatives underway and 13% of them have already brought the initiatives live to the market. There is also an increasing list of organizations that are starting to provide digital payment services. Moreover, Singaporean blockchain developers Building Cities Beyond has recently created an innovation $15 million grant to encourage development on its ecosystem. This all suggests that Singapore tries to position itself as (one of) the leading blockchain hubs in the world.
Zilliqa seems to already take advantage of this and recently helped launch Hg Exchange on their platform, together with financial institutions PhillipCapital, PrimePartners and Fundnel. Hg Exchange, which is now approved by the Monetary Authority of Singapore (MAS), uses smart contracts to represent digital assets. Through Hg Exchange financial institutions worldwide can use Zilliqa's safe-by-design smart contracts to enable the trading of private equities. For example, think of companies such as Grab, Airbnb, SpaceX that are not available for public trading right now. Hg Exchange will allow investors to buy shares of private companies & unicorns and capture their value before an IPO. Anquan, the main company behind Zilliqa, has also recently announced that they became a partner and shareholder in TEN31 Bank, which is a fully regulated bank allowing for tokenization of assets and is aiming to bridge the gap between conventional banking and the blockchain world. If STOs, the tokenization of assets, and equity trading will continue to increase, then Zilliqa’s public blockchain would be the ideal candidate due to its strategic positioning, partnerships, regulatory compliance and the technology that is being built on top of it.
What is also very encouraging is their focus on banking the un(der)banked. They are launching a stablecoin basket starting with XSGD. As many of you know, stablecoins are currently mostly used for trading. However, Zilliqa is actively trying to broaden the use case of stablecoins. I recommend everybody to read this text that Amrit Kumar wrote (one of the co-founders). These stablecoins will be integrated in the traditional markets and bridge the gap between the crypto world and the traditional world. This could potentially revolutionize and legitimise the crypto space if retailers and companies will for example start to use stablecoins for payments or remittances, instead of it solely being used for trading.
Zilliqa also released their DeFi strategic roadmap (dating November 2019) which seems to be aligning well with their OpFi strategy. A non-custodial DEX is coming to Zilliqa made by Switcheo which allows cross-chain trading (atomic swaps) between ETH, EOS and ZIL based tokens. They also signed a Memorandum of Understanding for a (soon to be announced) USD stablecoin. And as Zilliqa is all about regulations and being compliant, I’m speculating on it to be a regulated USD stablecoin. Furthermore, XSGD is already created and visible on block explorer and XIDR (Indonesian Stablecoin) is also coming soon via StraitsX. Here also an overview of the Tech Stack for Financial Applications from September 2019. Further quoting Amrit Kumar on this:
There are two basic building blocks in DeFi/OpFi though: 1) stablecoins as you need a non-volatile currency to get access to this market and 2) a dex to be able to trade all these financial assets. The rest are built on top of these blocks.
So far, together with our partners and community, we have worked on developing these building blocks with XSGD as a stablecoin. We are working on bringing a USD-backed stablecoin as well. We will soon have a decentralised exchange developed by Switcheo. And with HGX going live, we are also venturing into the tokenization space. More to come in the future.”
Additionally, they also have this ZILHive initiative that injects capital into projects. There have been already 6 waves of various teams working on infrastructure, innovation and research, and they are not from ASEAN or Singapore only but global: see Grantees breakdown by country. Over 60 project teams from over 20 countries have contributed to Zilliqa's ecosystem. This includes individuals and teams developing wallets, explorers, developer toolkits, smart contract testing frameworks, dapps, etc. As some of you may know, Unstoppable Domains (UD) blew up when they launched on Zilliqa. UD aims to replace cryptocurrency addresses with a human-readable name and allows for uncensorable websites. Zilliqa will probably be the only one able to handle all these transactions onchain due to ability to scale and its resulting low fees which is why the UD team launched this on Zilliqa in the first place. Furthermore, Zilliqa also has a strong emphasis on security, compliance, and privacy, which is why they partnered with companies like Elliptic, ChainSecurity (part of PwC Switzerland), and Incognito. Their sister company Aqilliz (Zilliqa spelled backwards) focuses on revolutionizing the digital advertising space and is doing interesting things like using Zilliqa to track outdoor digital ads with companies like Foodpanda.
Zilliqa is listed on nearly all major exchanges, having several different fiat-gateways and recently have been added to Binance’s margin trading and futures trading with really good volume. They also have a very impressive team with good credentials and experience. They don't just have “tech people”. They have a mix of tech people, business people, marketeers, scientists, and more. Naturally, it's good to have a mix of people with different skill sets if you work in the crypto space.
Marketing & Community
Zilliqa has a very strong community. If you just follow their Twitter their engagement is much higher for a coin that has approximately 80k followers. They also have been ‘coin of the day’ by LunarCrush many times. LunarCrush tracks real-time cryptocurrency value and social data. According to their data, it seems Zilliqa has a more fundamental and deeper understanding of marketing and community engagement than almost all other coins. While almost all coins have been a bit frozen in the last months, Zilliqa seems to be on its own bull run. It was somewhere in the 100s a few months ago and is currently ranked #46 on CoinGecko. Their official Telegram also has over 20k people and is very active, and their community channel which is over 7k now is more active and larger than many other official channels. Their local communities also seem to be growing.
Moreover, their community started ‘Zillacracy’ together with the Zilliqa core team ( see www.zillacracy.com ). It’s a community-run initiative where people from all over the world are now helping with marketing and development on Zilliqa. Since its launch in February 2020 they have been doing a lot and will also run their own non-custodial seed node for staking. This seed node will also allow them to start generating revenue for them to become a self sustaining entity that could potentially scale up to become a decentralized company working in parallel with the Zilliqa core team. Comparing it to all the other smart contract platforms (e.g. Cardano, EOS, Tezos etc.) they don't seem to have started a similar initiative (correct me if I’m wrong though). This suggests in my opinion that these other smart contract platforms do not fully understand how to utilize the ‘power of the community’. This is something you cannot ‘buy with money’ and gives many projects in the space a disadvantage.
Zilliqa also released two social products called SocialPay and Zeeves. SocialPay allows users to earn ZILs while tweeting with a specific hashtag. They have recently used it in partnership with the Singapore Red Cross for a marketing campaign after their initial pilot program. It seems like a very valuable social product with a good use case. I can see a lot of traditional companies entering the space through this product, which they seem to suggest will happen. Tokenizing hashtags with smart contracts to get network effect is a very smart and innovative idea.
Regarding Zeeves, this is a tipping bot for Telegram. They already have 1000s of signups and they plan to keep upgrading it for more and more people to use it (e.g. they recently have added a quiz features). They also use it during AMAs to reward people in real-time. It’s a very smart approach to grow their communities and get familiar with ZIL. I can see this becoming very big on Telegram. This tool suggests, again, that the Zilliqa team has a deeper understanding of what the crypto space and community needs and is good at finding the right innovative tools to grow and scale.
To be honest, I haven’t covered everything (i’m also reaching the character limited haha). So many updates happening lately that it's hard to keep up, such as the International Monetary Fund mentioning Zilliqa in their report, custodial and non-custodial Staking, Binance Margin, Futures, Widget, entering the Indian market, and more. The Head of Marketing Colin Miles has also released this as an overview of what is coming next. And last but not least, Vitalik Buterin has been mentioning Zilliqa lately acknowledging Zilliqa and mentioning that both projects have a lot of room to grow. There is much more info of course and a good part of it has been served to you on a silver platter. I invite you to continue researching by yourself :-) And if you have any comments or questions please post here!
Rant: Of late, there’s been too much low-quality, bullshit DD on here. I’ve come to rescue you from your own retardation—a formidable task, I might add. Fortunately, I’m not going to do it alone. I’ll be doing it with the help of Thomas Peterffy, a Hungarian refugee who revolutionized the brokerage industry, and in so doing went from penury to multi-billionaire-hood. Peterffy is the founder of $IBKR, or Interactive Brokers Group, Inc. Here’s a description I definitely did not rip directly from CapitalIQ: “Interactive Brokers operates as an automated electronic broker worldwide. It specializes in executing and clearing trades in securities, futures, foreign exchange instruments, bonds, and mutual funds. The company custodies and services accounts for hedge and mutual funds, registered investment advisors, proprietary trading groups, introducing brokers, and individual investors. In addition, it offers custody, prime brokerage, securities, and margin lending services. Further, the company provides electronic execution and clearing services. It serves institutional and individual customers through approximately 120 electronic exchanges and market centers. The company was founded in 1977 and is headquartered in Greenwich, Connecticut.” Essentially, IBKR is inverse Robinhood. It has a shockingly bad user interface, is not designed to gamify investing, and does not have a retarded userbase. However, it does have better fills, better tech, a wider variety of options (both literal and figurative), more client AUM, etc. This is why you might not have heard of it. But rest assured, it’s a massive company; it is, essentially, the engine mobilizing much of the market machine. I’m bullish for two main reasons:
Upcoming earnings (July 22nd) and July EOM numbers report
Comparable companies have shown huge growth (e.g. $VIRT in Q1, which reported three weeks after IBKR and caught more Covid-trading)
IBKR releases monthly KPIs, the last batch of which came out recently, validated the theories described herein, and sent us on an upwards trajectory
Momentum: this stock is an inverse POS, which recently tends to go up with SPY but not down
TL;DR: IBKR 8/21 $55 C, $60 C for higher risk Business Pros:
High moat business with tons of IP
IBKR releases monthly metrics; these have been very strong as mentioned above:
1,862 thousand Daily Average Revenue Trades (DARTs), 131% higher than prior year and 13% higher than prior month.
Ending client equity of $203.2 billion, 33% higher than prior year and 7% higher than prior month.
Ending client margin loan balances of $24.9 billion, 3% lower than prior year and 7% higher than prior month.
Ending client credit balances of $71.0 billion, including $3.1 billion in insured bank deposit sweeps, 30% higher than prior year and 1% higher than prior month.
876,000 client accounts, 36% higher than prior year and 4% higher than prior month.
487 annualized average cleared DARTs per client account.
IBKR makes most of its money from loans by acting as a quasi-bank
More total client AUM is very good for revenue (see third and second bullet from bottom above)
We’ve just seen banks with a focus on trading outperform, again emphasizing what a large role trading activity is playing in this market
IBKR also be seen tech company—but it’s not above its pre-Covid high unlike most
Serves as a volatility hedge, because volatility is profitable for the company (cheap IV)
This can be seen in part by it’s relatively low market correlation (B = .63)
Volatility will almost certainly increase as we enter earnings season
Great international focus
Recently opened an office in Singapore
69% of their clients are outside the U.S. (international account growth rate at 23% vs 15% in US) which gives broader revenue base
Relatedly, the biggest opportunity driving Net Interest Margin (NIM) income is from key customer segments. There’s only around <0.5% of target asset market (TAM) penetrated in fields of global retail clients through intro brokers, financial advisors and hedge funds.
Peterffy has spoken to the idea that IBKR could capture more TAM and become a high multibagger long term by capturing more TAM.
Major holder of $TIGR, which has done extremely well
$IBKR netted over $1 billion so far off the $TIGR IPO, and the stock has been strong recently
8% short float w/ high days to cover
Not really short-squeeze material, but somewhat squeeze-like conditions existent
Earnings could squeeze this, especially because management owns so much of the stock
Comparables like $VIRT have done super well; IBKR might not be as explosive but certainly should do better than it has been
“The CEO I admire most is Thomas Peterffy of Interactive Brokers. He came to the U.S. penniless and built a massive fortune and, more importantly, a great company. His is a story of innovation; he was one of the first to use computers for market making. Peterffy was smart enough to see the applications of technology to online brokerage, and brave enough to pursue what could effectively kill the market-making business— and he is a great executor. The business has profitably and steadily grown the account base, growing brokerage accounts by 15%+ per year like clockwork. Peterffy still personally owns over 70% of the company, and all but ten of the company’s approximately 1,400 employees own shares. He has built a company with the lowest costs and highest margins, a very long runway for growth, a history of execution, and a highly aligned team.”
CEO explicitly called it a “stay-at-home stock”
Trading volume was 3X normal and account openings were 4x normal back in April—more people have gotten into the game since then!
“Despite markets down about 9% year-on-year, our total client equity rose 9% to $161 billion, the second highest quarterly total in our history.”
The above is only from Q1
Momentum, momentum, momentum. Some of you need to learn that.
They have fuckups, and recently got a ton of bad PR due to the oil contango fiasco!
Not the greatest customer service, certainly (does anyone really give a shit, though?)
Diverse customer base leaves it susceptible to geopolitical and geoeconomic risk
Stock was in a downtrend since 2018 before recent turnaround—who knows where momentum is now
The high (85%) percentage of shares owned by management means that shareholders are effectively a minority interest
To me, this is good, as it indicates a longer term focus, but it might not be good for short term results
Highly valued (possibly fundamentally overvalued) at a PE of 24.9x
Lower interest rates—which will remain for the foreseeable future—are a headwind
That being said, IBKR is less susceptible to them than other brokers
Interest rate risk is lessened as they adopt a relatively fixed net interest margin (NIM) spread.
Client balances receive 50bps below the Fed Funds rate, and excess cash is invested in repos & treasuries, while margin rates are typically 25bps – 150 bps above the Fed Funds, with rates depending on the size of margin.
Most major risks on the downside (refinance, credit risk, interest rate risks etc.) are limited. The main risk is that if they’ve already largely penetrated their TAM and are unable to drive success by broadening appeal to their other market segments valuation is overly rich at these levels.
This market is volatile, and IBKR is in no way immune to volatility in SPY. So you might want to hedge this play.
Summary: Interactive Brokers (IBKR) is a tech-focused, low cost brokerage firm. It is also a quasi-bank, making money through interest on client assets. It benefits when:
Interest rates increase
When account signups increase (they have a paid Pro version); this is minor
When total user AUM increases
When DARTs volume increases
While interest rates have declined, IBKR is comparatively less susceptible than are its competitors. And for various reasons outlined above, we can rest assured items 2 through 4 will continue to rise dramatically. This should result in significant appreciation. Is there room to run? Certainly. The ATH is $79.70, which also arrived after a period of volatility (remember, volatility is good for IBKR!). Of course, there’s a time-lag element to the results of volatility, which I map out below. We’re just getting into the good part now: nut For all of these reasons, I believe that Earnings + EOM KPI updates will pour gasoline on the recent fire. Or, as George Soros crustily uttered between denture fittings: “You want to be long the things that are going up, and short the ones that are going down.” TL;DR: IBKR 8/21 $55 C, $60 C for more risk/reward Positions (wanted to let it run a bit before helping out you tardigrades): https://preview.redd.it/32ru2d00i8b51.png?width=1416&format=png&auto=webp&s=0b592f1b956daa8f1dff04544f4bdb6a27e55d24 Disclaimer: not investment advice! do your own DD. I have a position, obviously. Do not yolo. Hedge your bets.
This rally is a mirage, we are only in the beginning stages of this recession
TL;DR at the bottom Hi guys, with the market rallying 20% from its "bottom", many people are expressing the sentiment that we should buy back into the market again because the "fed" or the "government" won't allow stocks to crash. We will for sure see unprecedented actions taken by the fed and the government because they have both the motive and the political capital to enact such policies. However, I think this is a misguided reason to believe the market is currently making its "real" rally. I am not not a permabear nor am I a permabull. I just try to objectively analyze the facts, apply a healthy dose of margin of safety, and then see if my conclusions are actionable. For example, I posted my thesis on why we will enter a serious global economic downturn on Feb 9th 10 days before it happened. At the time we were at the height of the biggest bull market in our history, and I had gotten a lot of attacks on my thesis leading up to me consolidating my thoughts: https://www.reddit.com/China_Flu/comments/f1fm6y/the_world_economy_will_enter_a_serious_downturn/ I continued adding more thoughts on things like the potential efficacy of Chloroquine 2 weeks before Trump announced it in a press conference and the media picked up on it, the potential collapse of American oil producers before the price war happened, casinos going under, helicopter money, bailouts, etc all before they were announced or the markets priced them in here: https://www.reddit.com/China_Flu/comments/fede69/continued_thoughts_on_the_global_economic_impact/ And finally I talked about an upcoming inflection point coincidentally moments before Trump first announced Chloroquine/Hydroxychloroquine and 2 trading days before the "bottom" of the market: https://www.reddit.com/stocks/comments/fleh7e/incoming_inflection_point_for_general_market/ So I'm perfectly happy to make bearish calls or bullish calls, they are dependent variables of independent and unbiased analysis. I hope I made a reasonable case for why I am not personally biased (although, for the sake of humanity, I do wish for progress and prosperity of course). I think the market rally is largely a mirage, and we are not getting correct pricings. The rally is probably driven by two main sources:
Capital displacement from monetary action
Incorrect earnings modeling based on improper historic precedent.
So the capital displacement is relatively simple: If you're seeking shelter in "risk free" investments that has some yields, you're now competing with a buyer (federal reserve) that prints hundreds of billions up to whatever it wants. They're literally squeezing out capital from the finite treasuries. If you want riskier high quality corporate bonds, the fed will be there. If you want even equities, you're going to face competition for them in the future. At least that's what former chairwoman Jenet Yellen recently said about the possibility of expanding their powers to buy equities. So money is getting squeezed into a smaller and smaller relative portion of the financial markets, and the artificial demand is driving yields down and prices up. I could write a whole thread about this, but let's stick with the explanation of price movement. The second main reason for the recent rally is from institutional investors who are incorrectly modeling earnings/yield of equities. So the logic here is: trillions are injected into the economy (fiscal injections), those trillions will become earnings for companies at some multiplier of the original stimulus over x amount of time, and if we add this number to the unstimulated estimated earnings, we can model future earnings. My issue with this model, is on two main assumptions: The first assumption is the length of disruption caused by the threat of this virus. This virus is not going to stop its serious disruption of behavior from economic actors. Especially not in a country like the US where the majority of people have a massive financial disincentive to seek out healthcare. Here's my logic: For months I've been praising the governments and response of South Korea, Singapore, and Taiwan. With Taiwan being the absolute best at handling the virus. However, I have also been using them as my leading indicators for how the virus will progress and affect economic actors. What I have seen developing lately is not good. Singapore is now calling for a shutdown, after they initially did a herculean job of containing their outbreak. I had hoped that they would develop procedures (that we can copy) needed to run an open economy while the threat of the virus looms in the background. But that is not what has happened. Instead, we are seeing growing numbers of new clusters forming, and quickly getting out of control. They are tightening and shutting down their economy rather than opening up more. This is our leading indicator. A government far more responsible and effective than us is resorting to shutting down. Taiwan is faring better, but only because of their prohibitive ban on almost all foreign travelers (this is obviously devastating to their tourism sector and broader economy). Their economy and society remains open, with many if not most people having hardly any interruptions to their lives (aside from mask wearing). They are one of only 3 countries where all children are still going to school. However, even their economy is faltering as they try to balance the prohibitive actions needed to contain the virus and the economic need to keep things open. They are proposing an unprecedented stimulus/rescue package to bolster their economy. And I think it's a safe assumption that if they ever do open up to foreign travelers again, especially with covid19 having proliferated as it already has, then they will have to deal with massive outbreak clusters all over their island. South Korea, which has probably the relatable and relevant model for us to copy, has recently extended its social distance campaign. South Korea is a far larger nation than Singapore or Taiwan. They have a climate similar to Seattle/New York. They had a major outbreak in Deagu but didn't shut their country down. They never even banned Chinese travelers, yes, they had Chinese tourists in their country while the outbreak was happening. They were among the first to widely use Hydroxychloroquine/chloroquine as a treatment for Covid19. They had among the lowest fatality rates. They contained their outbreak without shutting the whole country down. Even South Korea can't truly return to normal and open their economy up. So why, in our incredible American exceptionalism hubris, and far less competent leaders, do we believe we're going to come anywhere close to normalcy in the near future? Let's look at the next assumption, that fiscal stimulus would end up as earnings for companies. There's no doubt some will end up as earnings, but only a small fraction of what is being modeled by those on Wall Street. The average American don't even have $1000 in emergency funds, do we expect them to return to their normal consumption habits when they risk having hospital bills multiples of $1000 just from walking past the wrong person? Do you think Americans, as much as they love to spend, aren't going to put some of that stimulus check in their emergency funds rather than contribute it to the earning of some companies? Sure, there will be some "forced" spending of the money (food and necessities), but if anyone is modeling the multiplier effect from previous data, then they really don't appreciate how different this virus makes things. Even in the GFC, laid off people didn't really worry about the heightened threat of being hospitalized. Finally, some investors believe the Fed and the government literally will do anything to keep the numbers up. If this is true, you should be buying silver (or gold), not stocks. Monetary actions can be reversed relatively easily. They are far more dynamic tools. Fiscal actions are not. You put money in the hands of spenders, that money is gonna circulate. And you really don't have an easy way of reversing that. If we think the government is going to keep handing out stimulus checks, grants to businesses, and other fiscal stimulus, then the inflation predicted from the GFC will come true for this crisis. The fall out of inflation will be difficult to truly understand. But I do think inflation will be disruptive enough to the economy that inflation hedge assets will outperform other assets at least in the short term. For example, if inflation goes to 5%, who's going to lend to companies for less than inflation? With costlier debt, equity yield goes down, and again, what investor wants yields less than inflation? Inflation is going to cause all kinds of disruptions. I think the disruptions will come down to less liquidity (credit will vanish with uncertain inflation) and higher economic friction (less efficiency). So if the response to why the market has to go up is continuous fiscal (and some monetary) actions to prop up spending and earnings, then the question is how will fiscal actions be reversed? How do we get that money out after things go back to "normal"? I think if we see equities rise from here, it'll be reflective of inflation rather than inflation-adjusted earnings. Silver would be the play here. I have a lot more thoughts on this, especially on the time it takes to turn the gears of the financial system and why the inertia is moving us deeper into global recession, not out of it, but I'm running out of time and must end here. TL;DR this is a fake rally, and if anyone really expects prices to continue rallying, buy silver instead
Source: fb dot com /joelgohch/posts/1416676251876518
Don’t Vote For the Best Candidate
by Joel Goh Here's my cold hard logical take on #GE2020.*
(1) Don't vote for the best candidate.
You often hear people say things like, "Vote wisely. Don't vote PAP out of fear or conformity. Don't vote Opposition out of rebellion or to show displeasure. Vote for the best candidate!". The truth is, such statements feel good because they appeal to that side of us that wants to believe we are reasonable, logical, responsible people. But here's the reasonable, logical, and responsible fact — if you are going to vote Opposition, it really doesn't matter whether a candidate is "good" or "lousy". Your MP will not be able to direct public policy, pass laws, or make constitutional changes. And he cannot stop the PAP's policies, laws, and constitutional changes. If you get a “lousy” Opposition MP, what is the worst thing he can do in Parliament? Spray graffiti? No, the only thing he can do is give a speech. That is literally all. On other hand, if you are going to vote PAP, it also doesn't really matter whether a candidate is "good" or "lousy". The PAP's policies will largely be formulated by the Party holistically. Your MP will vote under the party whip anyway, so the PAP's policies will be passed regardless. Again, what is the worst thing he can do in Parliament? Give a speech. Of course, there are differences between good and bad MPs. But the differences between candidates are minuscule and trivial (e.g. relating to their capacity as an estate manager or as your mailbox to the Government) compared to the differences in the alternative consideration I want to talk about, namely, Voting For the Best Outcome. Unlike voting for the best candidate, voting for the best outcome requires a few more brain cells to wrap your head around. But I assure you that it's worth it. Unless, of course, you're the sort who is more concerned about whether your town council clears your rubbish efficiently rather than what sort of country and political system we are developing in the long-term. If you are that sort of person and would trade the nation's best interests for crumbs, I have nothing further to say to you. You needn't read beyond this point. Voting for the best outcome means looking beyond the myopic issue of who “represents” you to seeing what effect your choice has on Singapore as a whole. Here, I’m not even talking about each Party’s manifesto and proposed policies, such as whether to raise GST, lower the voting age, or abolish NS, because those are subjective and debatable. They deserve a separate in-depth debate which I won’t go into here. More importantly, as I will explain in my next point below, your vote won’t actually decide which Party’s policies Singapore will have. No matter how you vote, it is only the PAP’s policies that are going to be implemented anyway. Yes, by voting Opposition, you give them a chance to at least raise their own proposed policies in Parliament, so those policies count in that very limited sense. But the main point here is that your vote won’t change which Party’s policies Singapore will implement. What your vote can change are things even bigger than those policies. I will touch on 2 which have been brought up quite a few times this GE:
First, whether the PAP retains a supermajority in Parliament.
Second, whether Singapore retains the GRC system.
(2) The PAP will retain supermajority in Parliament.
Don't let the excitement of the election campaign mislead you. On 11 July, we will wake up to a PAP-governed Singapore once again. Most of us want that, but that's beside the point. This outcome is assured. The PAP will continue to wield a supermajority in Parliament even if the Opposition wins in the most dramatic and extreme way possible. Taking into account the 3-cornered fights, PAP strongholds, and the candidates being fielded, we can do a rudimentary back-of-envelope calculation to see what happens if we assume the Opposition wins big. Like, really big. This assumes the extreme event that, first, everyone in the middle ground votes Opposition, and second, even many die-hard PAP voters are won over and switch to the Opposition. So let's give the Opposition the most seats it can possibly win in such an extreme scenario: Workers’ Party (let's go extreme and assume WP wins all 21 seats it is contesting):
East Coast (5) <— See what I mean by extreme? Can you imagine hundreds of thousands of Singaporeans kicking out Heng Swee Keat?
Marine Parade (5) <— Look how extreme we are going. Tan Chuan-Jin and Edwin Tong losing to the WP's C team?
Punggol West (1)
Total: 21 seats
Progress Singapore Party: * West Coast (5) * Marymount (1) Total: 6 seats Singapore Democratic Party: * Holland-Bt Timah (4) <— Imagine Vivian Balakrishnan losing to Tan Jee Say. Now, that's what I call extreme. * Bt Batok (1) <— Singaporeans choosing Chee Soon Juan for the first time in history after decades of just saying "no"? You got it — we are going extreme here. * Total: 5 seats People’s Voice: * Jalan Besar (4) <— Ooo, what did I say about extreme? Just imagine a world where the majority of voters choose Lim Tean over Denise Phua. Total: 4 seats Grand total: 36 Opposition seats. PAP retains a majority in Parliament with 57 seats (61%). (There are 93 seats in Parliament.) In other words, the PAP retains a comfortable majority even in this ridiculously extreme situation. Let’s be clear — we are not in such an extreme situation. People are not rioting on the streets from mass discontent. There is no widespread starvation or major scandal by the incumbent. Our Prime Minister did not steal money to buy his wife a mansion of handbags. In the last GE, the Opposition won only 1 GRC and 1 SMC — 6 seats. The PAP won even Chiam See Tong's stronghold of Potong Pasir. To expect the Opposition to win 36 seats this time is wishful thinking. So let's step back to reality. No one can predict how voters choose. But realistically, even if the Opposition somehow manages to bewitch everyone they meet, it is simply not possible for them to deprive the PAP of its supermajority.
(3) What is the supermajority and why does it matter?
Many people, including Lee Hsien Yang (who, together with his sister Lee Wei Ling, have been accusing their brother of being dishonourable, but who ultimately chose not to contest in this GE), have talked about depriving the PAP of its supermajority (i.e. having 66.6% of seats in Parliament). As I showed above, only a fantasist can seriously expect the PAP to lose its supermajority this GE. The PAP will retain their supermajority, and retain it comfortably even if the Opposition somehow wins a freak election and conquers a few more GRCs. Indeed, even if all the WP candidates win, the PAP will still have a comfortable supermajority. Singapore's constitution, like all constitutions, is a special law. It is the supreme law of the land. This can be contrasted with what we may call "ordinary laws". Ordinary laws can be made or changed by Parliament if a simple majority (50%) vote to approve them. In contrast, changes to the Constitution require a supermajority (66%). You've probably heard of the balance of powers. In most political systems, including Singapore, what we call “The Government" is really 3 branches which are supposed to be independent of each other so that they can counter each other:
First, the Executive (i.e. Ministers, who come from the governing Party).
Second, the Legislative (i.e. Parliament, made up of both the governing Party MPs and Opposition MPs).
Third, the Judiciary (i.e. Judges).
How do they balance each other? And how does the Constitution feature in this? Let me give an example in 5 acts:
Act 1: Let's say tomorrow a Minister orders the police to arrest and execute everyone with the surname “Tan”. Our Court will intervene to stop them because there is no law that allows such a thing.
Act 2: So the next day the Minister goes to Parliament and proposes a law that prescribes death for all Tans. If his governing party has a simple majority (50%) in Parliament, the law is passed. If they do not, the Opposition can vote against this law, so it will not be passed.
Act 3: So let's say the governing Party holds a simple majority and passes the law. The Minister then orders the police to execute all Tans. What happens then? The Court will stop them again. But wait — isn’t there now a law that prescribes death for all Tans? Yes. But here is where the Constitution comes into play. The Court will point to the Constitution, which (expressly or impliedly) enshrines rules such as "Laws Must be Reasonable" and "People Can't be Put to Death Arbitrarily". Once again, the Minister is foiled.
Act 4: So what can the Minister do now? Why, he can change the Constitution itself. And how? By having a supermajority (66.6%) in Parliament. With a supermajority, his Party can change the Constitution to remove the rules I mentioned above, and even insert in the Constitution the rule that all Tans must die.
Act 5: And now, the Minister once again orders the death of all Tans. Once again, they run to the Court. But the Court cannot help them, because the Court’s job is to uphold the law. "It is for Parliament to change the law", they will say. The Tans die.
That was an extreme example. No one with the surname Tan need seriously worry for his life. But in a nutshell that is how the Constitution works — it is the highest law. It is meant to overrule and check against bad ordinary laws. That is why it must take a supermajority (instead of just a simple majority) to change the Constitution. This additional step is the whole point of having a Constitution. That is why so many Opposition candidates often talk about depriving the PAP of its supermajority. After all, they often say, why even have a Constitution if it can be changed just as easily as ordinary laws? You might as well do away with Acts 3 to 5 above. A Party with a supermajority will never need to worry about its ordinary laws being struck out by the Court because it can change the Constitution as easily as it changes ordinary laws. The Constitution becomes meaningless. On the other hand, a Party with a supermajority can pass all laws big and small, including laws that change the supreme law of the land, very efficiently since they never have to win the votes of other parties in Parliament. This is useful when the Government wants to make many changes to a country’s laws, since they can do so without being stalled by political disagreement with other Parties. For example, in some other countries, the legislature gets stuck in stalemate and no law can be passed because no Party can get 50% of votes (or 66.6% for constitutional changes). In contrast, because the PAP had supermajority, they could efficiently introduce even major constitutional changes such as introducing the GRC system and the Reserved Presidential Elections, which I will talk more about later. Ultimately, the question the Opposition poses is this — should we end a system where all our laws and even major constitution changes are passed without anyone apart from the PAP being able to veto them? On the other hand, since few can deny that the PAP has proven itself since Independence to be a good and competent government, is there a need to worry that the best men in the job are so fallible that we must have a safety mechanism to ensure that it is possible for bad laws and constitutional changes to be opposed? As we have seen above, regardless of your opinion on the questions above, the reality is that it will be impossible for the PAP to lose its simple majority this GE. It will already take the most unthinkably extreme of extreme outcomes for the PAP to lose even its supermajority by a slim margin, where everyone who isn't a PAP die-hard votes for the Opposition regardless of who the Opposition is. So it’s simply not going to happen. My take on this is that the PAP will not lose its supermajority this GE, no matter what.
(4) But how we vote will determine one thing — whether we retain the GRC system.
The other major outcome that will result from our country's voting pattern is whether Singapore retains the GRC system in the long-run. In 1988, the PAP changed our Constitution to introduce the GRC system as a means to ensure our racial minorities get seats in Parliament. In a country where multiracialism is intrinsically important, every race should be represented in our law-making body. Singapore is the only country that has this GRC system, where citizens vote for a group of candidates rather than for a single individual in each constituency. This ensures that minorities will be represented because each group of candidates must include at least one racial minority. Whether or not you agree with that argument, the GRC system has become a central feature in most criticisms of what the Opposition call an unfair electoral system, since you must vote for a group of people rather than a single individual in each constituency. They argue that this means there is "no real choice", since you will always be forced to vote "for" some people you don't want and vote "against" some people that you do want. Remember the point about not voting for the “best candidate”? The critic will say that you can’t even do that even if you wanted to. The Opposition argue that the GRC system unfairly favours the PAP because it can use it to ensure voters never have a "real choice", by fielding one important Minister in every GRC. And you've heard it before. People often say, "I wish I could vote foagainst ABC, but aiyah no choice la, because that would mean also voting foagainst XYZ too”. This means that citizens will always end up voting for the PAP for the sake of the Important Minister in their GRC. The Opposition will say that these people are falling into the "GRC Trap". Because as long as people are trapped into thinking in such myopic terms, GRCs will always succeed in deterring people from ever voting Opposition. After all, there will always be an Important Minister in every GRC that every citizen who wants to consider himself responsible and reasonable cannot imagine booting out, no matter his desire for Opposition representation. The Opposition say that this system is unfair, undemocratic, and illogical. In GE2011, during the Battle for Aljunied, you often heard the WP saying that the GRC system is an irresponsible system because it gambles with our nation’s best interests. The PAP was effectively forcing Aljunied residents to choose between (a) kicking out our Foreign Affairs Minister and (b) having an Opposition voice in Parliament. The WP’s point is that you shouldn't strong-arm people into making such a lose-lose decision by having the GRC system. On the other hand, the PAP’s point is that the GRC system is important to ensure racial representation. Racial representation is a very important thing in politics. That is why in 2016 the PAP also changed our Constitution to change the way we elect our President. Henceforth, the Presidentship will be “reserved” for a particular race if that race has not seen one of its members as President for the 5 most recent Presidencies. Although most people accused the PAP of making that change only in 2016 in order to do a “Tan Cheng _Block_” (to disqualify popular Dr Tan Cheng Bock who was expected to do well in the 2017 Presidential Elections which became reserved for only the Malay community because of this change), Law Minister K Shanmugam dismissed those criticisms. He said that the Government must do what is right, based on the system, rather than worry that people would accuse them of trying to knock out people they don’t like. In sum, like the race-based changes to the Presidency, the GRC system is meant to ensure our minority races are represented in Government. Ultimately, the Opposition will put it this way — like it or not, it is a matter of choosing between biting the bullet and suffering an unpopular Opposition in Parliament for one term now, or having the GRC system forever. And with the GRC system, no one can ever realistically talk about voting “wisely” or for the “best candidate” because you always have no true choice. Do we want to continue to prize racial representation or is it more important to be able to truly choose which MPs to vote in and which ones to vote out? On the other hand, the PAP will caution that without the GRC system, we may never see racial minorities in Parliament. It may be true that we had many racial minorities who won elections in the past, such as J B Jeyaratnam who was Indian and even David Marshall who as a Jew won Singapore’s first ever legislative elections. But Singapore society may be changing and it may become harder for racial minorities to win elections on their own without the GRC system to help them. And as a racially diverse country, we must guard against that. Regardless of whether you agree with the GRC system, it will always remain in place to serve its purpose of ensuring racial representation. That is what some people want. The only way GRCs will ever be abolished is if the Opposition win several GRCs in a GE. Regardless of the cause for such an event, this will lead to the inevitable conclusion that the GRC system has become a liability for the country, rather than an advantage. Instead of ensuring minority representation, its most impactful effect would become the unnecessary loss of Important Ministers. Since that is too heavy a price to pay for even minority representation, the Government will have little choice but to abolish such a system. And since an Opposition victory in several GRCs is within the realm of possibility, your vote actually has an impact on this outcome.
Ultimately, given our current circumstances, the important question is not about whom you like or dislike. While it may feel like you are choosing a spouse, the reality is that the candidate you vote for will make a small difference to your life personally and to the country as a whole. Indeed, how you vote will have little impact on what policies we will see in the next 5 years because the PAP will surely win and pursue its policies. You may feel like you are choosing one manifesto over another, but the reality is that only one Party’s manifesto will be implemented, regardless of how you vote. How you vote will also not change the fact that the PAP will continue to have a supermajority in Parliament and so will be able to effectively and efficiently pass all its policies for the next 5 years, whether through ordinary laws or constitutional changes. The Opposition will not break this supermajority, much less the PAP’s simple majority. But how you vote will have a direct impact on one thing — whether Singapore continues to have the GRC system. The cold hard logical reality is that this is one thing your vote will realistically have an impact on in this GE. As I have explained above, there is merit to both sides of the GRC argument. In this analysis, I do not express any personal view on which I prefer. But you, the voter, must decide. * [Disclaimer: In this Note I cite several arguments that have been raised across the political spectrum. As far as possible I have sought to present them in a balanced fashion. My purpose in this Note is to summarise and if possible distill those arguments, not endorse any of them. The only opinion I seek to express here is that, all politics aside, I merely observe that which has been summarised in my conclusion.]
Hi everyone, this is my first ever post here. I run a little website called The Thought Experiment where I talk about various issues, some of them Singapore related. And one of my main interests is Singaporean politics. With the GE2020 election results, I thought I should pen down my take on what us as the electorate were trying to say. If you like what I wrote, I also wrote another article on the state of play for GE2020 during the campaigning period, as well as 2 other articles related to GE2015 back when it was taking place. If you don't like what I wrote, that's ok! I think the beauty of freedom of expression is that everyone is entitled to their opinion. I'm always happy to get feedback, because I do think that more public discourse about our local politics helps us to be more politically aware as a whole. Just thought I'll share my article here to see what you guys make of it :D Article Starts Here: During the campaigning period, both sides sought to portray an extreme scenario of what would happen if voters did not vote for them. The Peoples’ Action Party (PAP) warned that Singaporeans that their political opponents “might eventually replace the government after July 10”. Meanwhile, the Worker’s Party (WP) stated that “there was a real risk of a wipeout of elected opposition MPs at the July 10 polls”. Today is July 11th. As we all know, neither of these scenarios came to pass. The PAP comfortably retained its super-majority in Parliament, winning 83 out of 93 elected MP seats. But just as in GE2011, another Group Representation Constituency (GRC) has fallen to the WP. In addition, the PAP saw its vote share drop drastically, down almost 9% to 61.2% from 69.9% in GE2015. Singapore’s electorate is unique in that a significant proportion is comprised of swing voters: Voters who don’t hold any blind allegiance to any political party, but vote based on a variety of factors both micro and macro. The above extreme scenarios were clearly targeted at these swing voters. Well, the swing voters have made their choice, their roar sending 4 more elected opposition MPs into Parliament. This article aims to unpack that roar and what it means for the state of Singaporean politics going forward. 1. The PAP is still the preferred party to form Singapore’s Government Yes, this may come across as blindingly obvious, but it still needs to be said. The swing voter is by its very definition, liable to changes of opinion. And a large factor that determines how a swing voter votes is their perception of how their fellow swing voters are voting. If swing voters perceive that most swing voters are leaning towards voting for the opposition, they might feel compelled to vote for the incumbent. And if the reverse is true, swing voters might feel the need to shore up opposition support. Why is this so? This is because the swing voter is trying to push the vote result into a sweet spot – one that lies between the two extreme scenarios espoused by either side. They don’t want the PAP to sweep all 93 seats in a ‘white tsunami’. Neither do they want the opposition to claim so much territory that the PAP is too weak to form the Government on its own. But because each swing voter only has a binary choice: either they vote for one side or the other (I’m ignoring the third option where they simply spoil their vote), they can’t very well say “I want to vote 0.6 for the PAP and 0.4 for the Opposition with my vote”. And so we can expect the swing voter bloc to continue being a source of uncertainty for both sides in future elections, as long as swing voters are still convinced that the PAP should be the Government. 2. Voters no longer believe that the PAP needs a ‘strong mandate’ to govern. They also don’t buy into the NCMP scheme. Throughout the campaign period, the PAP repeatedly exhorted voters to vote for them alone. Granted, they couldn’t very well give any ground to the opposition without a fight. And therefore there was an attempt to equate voting for the PAP as voting for Singapore’s best interests. However, the main message that voters got was this: PAP will only be able to steer Singapore out of the Covid-19 pandemic if it has a strong mandate from the people. What is a strong mandate, you may ask? While no PAP candidate publicly confirmed it, their incessant harping on the Non-Constituency Member of Parliament (NCMP) scheme as the PAP’s win-win solution for having the PAP in power and a largely de-fanged opposition presence in parliament shows that the PAP truly wanted a parliament where it held every single seat. Clearly, the electorate has different ideas, handing Sengkang GRC to the WP and slashing the PAP’s margins in previous strongholds such as West Coast, Choa Chu Kang and Tanjong Pagar by double digit percentages. There is no doubt from the results that swing voters are convinced that a PAP supermajority is not good for Singapore. They are no longer convinced that to vote for the opposition is a vote against Singapore. They have realized, as members of a maturing democracy surely must, that one can vote for the opposition, yet still be pro-Singapore. 3. Social Media and the Internet are rewriting the electorate’s perception. In the past, there was no way to have an easily accessible record of historical events. With the only information source available being biased mainstream media, Singaporeans could only rely on that to fill in the gaps in their memories. Therefore, Operation Coldstore became a myth of the past, and Chee Soon Juan became a crackpot in the eyes of the people, someone who should never be allowed into Parliament. Fast forward to today. Chee won 45.2% of the votes in Bukit Batok’s Single Member Constituency (SMC). His party-mate, Dr. Paul Tambyah did even better, winning 46.26% of the votes in Bukit Panjang SMC. For someone previously seen as unfit for public office, this is an extremely good result. Chee has been running for elections in Singapore for a long time, and only now is there a significant change in the way he is perceived (and supported) by the electorate. Why? Because of social media and the internet, two things which the PAP does not have absolute control over. With the ability to conduct interviews with social media personalities as well as upload party videos on Youtube, he has been able to display a side of himself to people that the PAP did not want them to see: someone who is merely human just like them, but who is standing up for what he believes in. 4. Reserved Election Shenanigans and Tan Cheng Block: The electorate has not forgotten. Tan Cheng Bock almost became our President in 2011. There are many who say that if Tan Kin Lian and Tan Jee Say had not run, Tony Tan would not have been elected. In March 2016, Tan Cheng Bock publicly declared his interest to run for the next Presidential Election that would be held in 2017. The close result of 2011 and Tan Cheng Bock’s imminent candidacy made the upcoming Presidential Election one that was eagerly anticipated. That is, until the PAP shut down his bid for the presidency just a few months later in September 2016, using its supermajority in Parliament to pass a “reserved election” in which only members of a particular race could take part. Under the new rules that they had drawn up for themselves, it was decreed that only Malays could take part. And not just any Malay. The candidate had to either be a senior executive managing a firm that had S$500 million in shareholders’ equity, or be the Speaker of Parliament or a similarly high post in the public sector (the exact criteria are a bit more in-depth than this, but this is the gist of it. You can find the full criteria here). And who was the Speaker of Parliament at the time? Mdm Halimah, who was conveniently of the right race (Although there was some hooha about her actually being Indian). With the extremely strict private sector criteria and the PAP being able to effectively control who the public sector candidate was, it came as no surprise that Mdm Halimah was declared the only eligible candidate on Nomination Day. A day later, she was Singapore’s President. And all without a single vote cast by any Singaporean. Of course, the PAP denied that this was a move specifically aimed at blocking Tan Cheng Bock’s bid for the presidency. Chan Chun Sing, Singapore’s current Minister of Trade and Industry, stated in 2017 that the Government was prepared to pay the political price over making these changes to the Constitution. We can clearly see from the GE2020 results that a price was indeed paid. A loss of almost 9% of vote share is very significant, although a combination of the first-past-the-post rule and the GRC system ensured that the PAP still won 89.2% of the seats in Parliament despite only garnering 61.2% of the votes. On the whole, it’s naught but a scratch to the PAP’s overwhelming dominance in Parliament. The PAP still retains its supermajority and can make changes to the Constitution anytime that it likes. But the swing voters have sent a clear signal that they have not been persuaded by the PAP’s rationale. 5. Swing Voters do not want Racial Politics. In 2019, Heng Swee Keat, Singapore’s Deputy Prime Minister and the man who is next in line to be Prime Minister (PM) commented that Singapore was not ready to have a non-Chinese PM. He further added that race is an issue that always arises at election-time in Singapore. Let us now consider the GE2015 results. Tharman Shanmugaratnam, Singapore’s Senior Minister and someone whom many have expressed keenness to be Singapore’s next PM, obtained 79.28% of the vote share in Jurong GRC. This was above even the current Prime Minister Lee Hsien Loong, who scored 78.63% in Ang Mo Kio GRC. Tharman’s score was the highest in the entire election. And now let us consider the GE2020 results. Tharman scored 74.62% in Jurong, again the highest scorer of the entire election, while Hsien Loong scored 71.91%. So Tharman beat the current PM again, and by an even bigger margin than the last time. Furthermore, Swee Keat, who made the infamous comments above, scored just 53.41% in East Coast. Yes, I know I’m ignoring a lot of other factors that influenced these results. But don’t these results show conclusively that Heng’s comments were wrong? We have an Indian leading both the current and future PM in both elections, but yet PAP still feels the need to say that Singapore “hasn’t arrived” at a stage where we can vote without race in mind. In fact, this was the same rationale that supposedly led to the reserved presidency as mentioned in my earlier point. The swing voters have spoken, and it is exceedingly clear to me that the electorate does not care what our highest office-holders are in terms of race, whether it be the PM or the President. Our Singapore pledge firmly states “regardless of race”, and I think the results have shown that we as a people have taken it to heart. But has the PAP? 6. Voters will not be so easily manipulated. On one hand, Singaporeans were exhorted to stay home during the Covid-19 pandemic. Contact tracing became mandatory, and groups of more than 5 are prohibited. But on the other hand, we are also told that it’s absolutely necessary to hold an election during this same period, for Singaporeans to wait in long lines and in close proximity to each other as we congregate to cast our vote, all because the PAP needs a strong mandate. On one hand, Heng Swee Keat lambasted the Worker’s Party, claiming that it was “playing games with voters” over their refusal to confirm if they would accept NCMP seats. But on the other hand, Heng Swee Keat was moved to the East Coast GRC at the eleventh hour in a surprise move to secure the constituency. (As mentioned above, he was aptly rewarded for this with a razor-thin margin of just 53.41% of the votes.) On one hand, Masagos Zulkifli, PAP Vice-Chairman stated that “candidates should not be defined by a single moment in time or in their career, but judged instead by their growth throughout their life”. He said this in defense of Ivan Lim, who appears to be the very first candidate in Singaporean politics to have been pushed into retracting his candidacy by the power of non-mainstream media. But on the other hand, the PAP called on the WP to make clear its stand on Raeesah Khan, a WP candidate who ran (and won) in Sengkang GRC for this election, stating that the Police investigation into Raeesah’s comments made on social media was “a serious matter which goes to the fundamental principles on which our country has been built”. On one hand, Chan Chun Sing stated in 2015, referring to SingFirst’s policies about giving allowances to the young and the elderly, “Some of them promised you $300 per month. I say, please don’t insult my residents. You think…. they are here to be bribed?” On the other hand, the PAP Government has just given out several handouts under its many budgets to help Singaporeans cope with the Covid-19 situation. [To be clear, I totally approve of these handouts. What I don’t approve is that the PAP felt the need to lambast similar policies as bribery in the past. Comparing a policy with a crime is a political low blow in my book.] I could go on, but I think I’ve made my point. And so did the electorate in this election, putting their vote where it counted to show their disdain for the heavy-handedness and double standards that the PAP has displayed for this election. Conclusion I don’t say the above to put down the PAP. The PAP would have you believe that to not support them is equivalent to not wanting what’s best for Singapore. This is a false dichotomy that must be stamped out, and I am glad to see our swing voters taking a real stand with this election. No, I say the above as a harsh but ultimately supportive letter to the PAP. As everyone can see from the results, we all still firmly believe that the PAP should be the Government. We still have faith that PAP has the leadership to take us forward and out of the Covid-19 crisis. But we also want to send the PAP a strong signal with this vote, to bring them down from their ivory towers and down to the ground. Enough with the double standards. Enough with the heavy-handedness. Singaporeans have clearly stated their desire for a more mature democracy, and that means more alternative voices in Parliament. The PAP needs to stop acting as the father who knows it all, and to start acting as the bigger brother who can work hand in hand with his alternative younger brother towards what’s best for the entire family: Singapore. There is a real chance that the PAP will not listen, though. As Lee Hsien Loong admitted in a rally in 2006, “if there are 10, 20… opposition members in Parliament… I have to spent my time thinking what is the right way to fix them”. Now, the PAP has POFMA at its disposal. It still has the supermajority in Parliament, making them able to change any law in Singapore, even the Constitution at will. We have already seen them put these tools to use for its own benefit. Let us see if the PAP will continue as it has always done, or will it take this opportunity to change itself for the better. Whatever the case, we will be watching, and we will be waiting to make our roar heard once again five years down the road. Majulah Singapura! Article Ends Here. Here's the link to the actual article: https://thethoughtexperiment.org/2020/07/11/ge2020-the-roar-of-the-swing-vote And here's the link to the other political articles I've written about Singapore: https://thethoughtexperiment.org/2020/07/07/ge2020-the-state-of-play/ https://thethoughtexperiment.org/2015/09/10/ge2015-voting-wisely/ https://thethoughtexperiment.org/2015/09/05/expectations-of-the-opposition/
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