RWAs: US-China's Chess Game for Financial Hegemony

On 6/24: 国泰君安, China’s #1 broker, jumps 300% on Hong Kong’s ok to be the first SOE stablecoin dealer.
7/17: Trump signs Genius Act.
8/1: HK follows quickly w/ Stablecoin Bill.

Among Chinese finance circles, RWA is all anyone's talking about right now.

What’s changed these last 3 months to turn tokenization from the wet dream of on-chain zealots to the queening pawn of Chinese Wall St?

And where do we go next?
👇
🧵
1/ RWA Universe

First, the basics.
What's an RWA anyways?

Literal def: a “real world asset”, aka any qty of anything wrapped as a crypto so as to:
(a) increase access or
(b) skirt KYC

My def: a synechdoche for stablecoins, aka the tug of war for dollar dominance.

Not to throw shade, but here's my corrected market map (Labubu is rapidly upping China's soft power so it can stay 🙃).

Nvidia is about to become the 1st trillion-dollar chipmaker, after surging $200B in valuation in a single day.

But when cofounders Jensen, Chris, & Curtis started the company in 1993, they had only $40K in the bank.

Here’s Nvidia’s founding story, from 0 to Taxman of AI.
👇
🧵/ 1/ On Day 0
The idea came together over breakfast at Dennys — to bring 3D graphics computing to the burgeoning video game industry.

The risk was clear—$10M+ initial capex needed to ship the first accelerator with no pre-committed customers, no funding, and huge technology &… twitter.com/i/web/status/1…

🔎How to Read a Term Sheet

VC term sheets are one of the most talked-about & least-understood docs in existence.
What's dirty, what's standard?

Whether you're building a company or thinking about it, as founder or employee:

Here's what the VCs know that you need to know👇
🧵/ 0/ the basics

Your objective: build cool shit
VC's objective: achieve maximum rate of return

Interests on both sides usually align — until they don't.

Term sheets spell out the:
(1) control rights, and
(2) economic rights

of both parties as the company goes from 0->1.

8 Underrated ChatGPT Prompts for B2B Sales

(with real examples, each scored #/10 on usefulness & accuracy)

👇 1/ Sourcing potential clients
score: 9/10

Prompt:
"Find 50 [insert business, eg. brokers] in [target region] that [do X, eg. offer US stocks on their investment app]?
Indicate each's website, HQ, & [other relevant info: eg. their custodial partner]. Put everything into a chart.

Dissecting the Impending CRE Crisis

Soon u'll hear a lot more on CRE.

Why? B/c US banks & PE firms are headed for real estate doomsday.
4 collapses in 11 days
$270B in CRE loans due EoY
$3B+ defaulted in March 2023 alone

What is CRE & why does it matter?
What's next?
👇
🧵/… twitter.com/i/web/status/1… 1/ What is CRE?
"Commercial real estate" = property for business

The US CRE industry is a $20.7 trillion market.

Core segments include:
- office
- industrial
- multifamily
- retail
- hotels
- land

BREAKING:
Another wrinkle in the regional banks / $SIVB / $SBNY saga.

Retail investors about to lose $𝟑𝟏𝟎 𝐌𝐈𝐋𝐋𝐈𝐎𝐍 𝐓𝐇𝐈𝐒 𝐅𝐑𝐈𝐃𝐀𝐘— $130M on SVB + $180M on SBNY.
But NO ONE is talking about it.

WSB mods are even censoring posts about it.

What’s going on?
👇
🧵/ 1/ The News

On 3/14, National Securities Clearing Corp (NSCC) said it will no longer accept $SIVB & $SBNY exercise. Settlements will be be broker-by-broker.

What does this mean?

In short, things are about to get fucked.
Put holders are about to get WIPED.

Let me explain ...

🏦📉 SVB Crash Explained📉🏦

Silicon Valley Bank—#16 largest US bank with $212B — just crashed 60% in 1 day & fell 22% post-close. Stock halted now.

@BillAckman is calling a US gov bailout.
@peterthiel is calling a bank run.
JPM, BAC, WFC all dropped 6%.
What's next?

Is this… twitter.com/i/web/status/1… 1/ How banks make money

Let's start at the beginning: SVB is a bank.
Banks make 💸💸 by taking in deposits & lending back out at higher rates.

This spread btw interest earned on loans vs paid on deposits is called NII (Net Interest Income).

NII is SVB's #1 profit source: ~73%

What is Chapter 11 Bankruptcy

FTX infamously collapsed this week from a $32B empire to filing for chapter 11 bankruptcy.

What does that mean?
Is FTX now worth ... 0?
What happens to BlockFi, Voyager, LedgerX & all its other investments?

👇👇
CHAPTER 11 BANKRUPTCY EXPLAINED
🧵/ 1/ Types of Bankruptcy

Basics first:
bankruptcy =/= fire sale
doesn't mean company is worth 0!
(that's only 1 type)

There's 2 main types:
Ch 7 - "fire sale"
Ch 11 - "restructuring" (adjusting debt terms)

Chart below summarizes the major differences between chapter 7 and 11:

What is a Credit Default Swap?
(and wtf is going on with Credit Suisse?)

"Lehman-like collapse" flooded the news this week as spreads on $CS hit 2008 levels.

But first, what is a CDS spread? What # is "bad"?

Quick breakdown on what this all means and why it matters:
👇
🧵/ 1/ Definition

A Credit Default Swap (CDS) is a bet on a company/country's chance of defaulting,
i.e. a put option on a bond.

CDS seller: "ABC won't default."
Sells protection for quarterly yield payments.

CDS buyer: "If ABC defaults, I want protection."
Pays quarterly yield.

The Hedge Fund Guide to Industry Analysis

100% of hedge funds, VCs, founders & strategy execs do market research.

95% do it wrong.
That's why they invest in, build & buy shitty companies.

Follow this blueprint from the top 5%:
A 9-Step Guide For Analyzing Any Industry
👇
🧵/ 1/ Build a market map

i.e. top-down hierarchical view of major players
(see example below)

Why start here?
a) there should be plenty literature out already
b) just knowing the major names in a space & 1-2 lines about each arms u with the right lingo to talk to experts [step 2]

💰How PE Firms Make Money💰

Chobani, Bumble, Dell—many of ur favorite brands are PE-owned.

Every time u shop, go on a date, turn on the💡—some KKR tycoon's getting filthy rich.
How does it all work?

WHAT IS PE & HOW DOES IT MAKE $?
How is it different from a hedge fund?
👇
🧵/ 1/ Business Overview

PE (private equity) makes $ by buying low w/ debt & selling high.

Heres the typical KKR/TPG/BX playbook in a nutshell

Step1: Find a cheap cash-cow, "ABC Co"
Step2: Lever up & buy big stake (often >51%)
Step3: "Improve operations"
[5 yrs later]
Step4: Flip

A Breakdown of the Hedge Fund Industry

"Ok stupid question, what *is* a hedge fund?"

I get this question all the time.
It's NOT a stupid question.

The hedge fund industry is so damn secretive & every primer out on the internet sucks.

Here's a comprehensive breakdown.
👇
🧵/ 1/ Style:

Systematic -
These funds hire quants & build algos where each strategy/trade "sweeps" across an entire market for hard-to-spot arbitrage.

example: "dispersion trade" i.e. buy options on all single stocks in SPX, sell an equivalent sum of options on SPX the index

starting a petition to bring back TRADER MING'S!
😤 @ArtirKel you should tell them to bring back Trader José

Exposé on the Dark Side of Market Structure

3 wks ago the SEC proposed a groundbreaking reform that could cut trading costs by >50%.
HUGE SHIT.

How did investors react?
Crickets🦗

Turns out <1% understood what's happening: how "market structure" works today.

Story time
👇
🧵 1/ Current state of confusion

"Market structure" (i.e. where & how ur order gets executed via financial plumbing) is the hottest most misunderstood topic of 2022.

Can brokers trade against me?
Can MMs frontrun me?
Is PFOF evil?
Is NBBO legit?
How the fuck does Citadel make $$$?

Day in the Life of a Hedge Fund Analyst

Few live to tell the tale.

"Was it like Billions?"
"Describe ur investment process?"
"What did u learn?"

I get these questions all the time, but for a while I was afraid of answering publicly. No more!

Hedge fund story time.
👇
🧵/ 1/ ⏰ 6AM Pre-Market Review

Wake up thinking about ur overnight positions.
What happened during London/Asia trading?
Scan the major news on ur way to office.
🏢🚕🚶‍♀️

Think about how ur getting screwed by beta (general macro, FOMC, inflation, etc.) cuz ur net long (or net short).

9 Ways Retail Traders Gain Edge over Hedge Funds

🔥Hot take 🔥: Wall St. tries to hide this -- but in more ways than one the small fry actually have big systematic advantages against the sharks.

How to weaponize the dealer's strategies & constraints against him:
👇
🧵/ 1/ Hedge funds can't touch 80% of high-Sharpe low-capacity trades - totally up for retail grabs.

Why?
2 reasons:

a) not enough juice so not worth quants' time (e.g. a 3-Sharpe that's only 3-Sharpe up to $1M, where returns quickly erode after that)

b) not enough liquidity

Net Income vs. "Adjusted Net Income"

Just met a trader who's up 350%+ in 2022!
His strategy:
1. Look for one-time expenses the Street is missing.
2. Recalculate adjusted net income.

What's that?
Let's do a deep-dive.
👇

7 One-time items an investor should NEVER overlook.
🧵/ 0/ But first, some basics

Why care about net income?
- it's supposed to reflect the company's steady-state revenues minus expenses -- what investors project into perpetuity to set fair value

Why adjust?
- investors want to remove "noise" (i.e. 1-time items) cuz not sustainable

14 Knowledge-Packed 🧵s on Fundamental Analysis

Becoming a great long-term value investor is difficult, but luckily it's very learnable for a disciplined mind!

Here are some amazing resource on:
- financial statement analysis
- how to model companies
- growth metrics
& more!
👇 1/ Financial Statement Analysis (part 1): the Income Statement

First stop on your journey should always be accounting basics. This is a pre-requisite to learning how to analyze 10Ks, earnings calls, reports, etc.

shoutout to @BrianFeroldi

https://twitter.com/brianferoldi/status/1420377260222296066

46/ The 11 Economic Moats You Gotta Know

https://twitter.com/FabiusMercurius/status/1520463292346494976

47/ Resources for learning fundamental investing

https://twitter.com/FabiusMercurius/status/1522985150023290880

How Companies Build Moats

Everyone *claims* they have a moat. But moats are one of the most criminally misunderstood topics for investors and founders.

11 types of business moats
(& how to sniff out the phonies, with real examples)
👇
🧵/ 1/ Distribution Moat

Saturate all distribution channels to your end customers & strategic partners/wholesalers to block out competitors.

This is particularly critical for companies selling through highly-regulated verticals.

e.g. Bloomberg captured every bulge bracket bank

FACTOR-BASED INVESTING

#1 Worst mistake beginner traders make: they look at returns instead of *risk-adjusted returns* (starting in a bull market).

Only by understanding the the underlying factors of your portfolio can you ensure *sustainable* returns, in bull or bear.
👇

🧵/ 1/ What are "factors"?

Factors are any technical, fundamental, or macroeconomic driver behind a security’s risk and returns.

The 5 most common factors (i.e. a mental model that quants have popularized among themselves):

- Value
- Momentum
- Size
- Quality
- Volatility