Current Affairs - The Bear and Badger

Funkstain

This article doesn't really cover liability but is an easy guide to what's going on, re: short squeeze

https://www.thestreet.com/personal-finance/squeeze-play-what-happens-when-short-selling-goes-bad-1047862

I'm still trying to find out about the potential consequential chain reaction if, as Rouj reports, the short-selling hedge fund is forced to buy shares (or pay for its borrowed shares) by the end of this week.

poprock

LivDiv wrote:

If only there was some sort of event between 12 and 13 years ago that informed governments that this was happening and the effects it could have.

Funkstain

LivDiv wrote:

If only there was some sort of event between 12 and 13 years ago that informed governments that this was happening and the effects it could have.

So the article I posted was from the year 2000. This has been going on mostly due to Clinton-era deregulation as far as I can see. The whole idea of being able to "borrow" 1,000 shares at value X, "sell" the borrowed shares at that value (making 1000X - broker charges and bit of interest) , then manipulate the market "legally" to lower the share price to value <X, and "return" the shares at 1000(<X) is a ludicrous attempt to make equity function in the same way, say, shipping actual goods works.

There will be financiers on here shaking their head and saying "well he just doesn't get it - there is no difference, it's all the same thing: you short sell on loaves of bread so you can short sell on shares"....

mistercrayon

It’s worth remembering where all of this comes from which is guys making bets against each other. Insurance comes from people betting a ship won’t make its journey across the sea when transporting goods.

Roujin

Yes but the ship doesn't need to sink in order for people to make money in that example.

When you are shorting the share price, you are basically betting that other people are going to lose money, because the money you make is the money they lost on the devaluation of the stock price.

mistercrayon

It can go both ways. If you buy shares hoping they go up the traditional way for this (and I think the expectation to an extent) is that there will be sackings of lots of people.

Who are the losers in a dropping share price? I would imagine mostly people of the same sort.

hylian_elf

mistercrayon wrote:

If you buy shares hoping they go up the traditional way for this (and I think the expectation to an extent) is that there will be sackings of lots of people.

Eh?

RedDave2

mistercrayon wrote:

It can go both ways. If you buy shares hoping they go up the traditional way for this (and I think the expectation to an extent) is that there will be sackings of lots of people. Who are the losers in a dropping share price? I would imagine mostly people of the same sort.

Stock value going up is not only a result of the sacking of lots of people. This has been a stupid lever that companies use but for a lot of companies stock price increase comes off strong performance as well. I remember there was a push to have no stock value increase as a result of sackings but I think it never got any support from (checks notes) ...cunts

Yossarian

I wonder if Jacob Rees Mogg’s hedge fund has any publicly listed short positions...

Roujin

mistercrayon wrote:

It can go both ways. If you buy shares hoping they go up the traditional way for this (and I think the expectation to an extent) is that there will be sackings of lots of people. Who are the losers in a dropping share price? I would imagine mostly people of the same sort.

True, but the end game here for the hedges was that they had identifified a business that appeared to be going bankrupt, and then did everything they could to further drive the stock into the floor while shorting it so they could make money off it while the business went down.

The losers aren't other hedge funds, since they are the ones who already set out giant short positions on the stock, they are trying to sell cheap stocks to people who are looking for something that might give them a return on investment. Sure, a lot of people who purchased in at $4 a share are not going to be massively damaged if the price drops to $3 and they lose 25% of their investment on something that's potentially a throw away or reasonably risky investment, but the fact is the people likely to make those purchases are just regular people, they might not mind losing a small amount, but the whole time the hedge funds are shorting gamestop there are articles out there continually talking down the company, the know exactly where the share price is going and they also don't care if the company goes under and the stock price reaches zero. It's really shitty just skimming a bit of cash off the top of this failing business at other people's expense kind of behaviour.

The whole amorality aspect that the market likes to project is a joke.

mistercrayon

hylian_elf wrote:

mistercrayon wrote:

If you buy shares hoping they go up the traditional way for this (and I think the expectation to an extent) is that there will be sackings of lots of people.

Eh?

I’m probably (certainly) overstating it but a lot of share price increase comes from “cost savings”. I think there’s a significant chunk of investors which see potential for investment it’s because either there is some untapped potential for actual growth or some efficiencies to be made. The second one is much easier to make money from for investors I think.

acemuzzy

mistercrayon wrote:

It’s worth remembering where all of this comes from which is guys making bets against each other. Insurance comes from people betting a ship won’t make its journey across the sea when transporting goods.

Is this true? I view insurance as the opposite of a bet, as averaging the cost of between everyone so no individual is exposed. But I guess the seller's view is likely different (hence eg premium calculations). It still feels very different to shorting.

monkey

This seems like a decent explainer of the basics if anyone needs it (from Reddit)

Funkstain

Yeah Crayon I'm not sure that statement (share price up = efficiencies and cost savings) bears much scrutiny.

A struggling business which starts a turnaround partly due to "efficiencies" (redundancies and staff savings) will no doubt see more equity confidence, but it's hardly the only way to improve that confidence!

pantyfire

A pundit was saying that the hedge fund had (and I don’t understand how it could) shorted more stock I’m GME than actually existed.
The figure I heard was 136%.

Subbax

What I've just realised is that this hedge fund is allowed to trade outside of hours when retail traders can't. This must give them an edge to try and minimise their losses somewhat, which also stinks a little.

Edit - Yeah, I think that's what triggered this back in 2019 with Burry and this madlad, u/DeepFuckingValue. He sold some calls and is $13mm up currently.

GooberTheHat

Pardon my ignorance, but could some explain to me in very simple terms how this works.

I've always assumed that there is a finite number of shares available for any stock/company. Is that true? If so, what happens if a hedge fund borrows shares, sells them, but then when the time comes to return them no one is selling? Is that a possible scenario?

mistercrayon

Yeah it’s not the only way but I would bet that people that invest for return (increase in share price) are more keen on the easy path.

Roujin

GooberTheHat wrote:

Pardon my ignorance, but could some explain to me in very simple terms how this works. I've always assumed that there is a finite number of shares available for any stock/company. Is that true? If so, what happens if a hedge fund borrows shares, sells them, but then when the time comes to return them no one is selling? Is that a possible scenario?

That is the scenario happening now. The hedge fund have two options, buy at the price the market wants to sell at (if there are enough shares available) or renegotiate their short positions with their brokers to let them have a longer period to return the borrowed stocks I guess.

That is why the subredit is full people calling for everyone to hold their stocks, they are waiting until the hedge fund runs out of room and the shares they borrowed become due. This was going to be Friday, but since Melvin Capital have somehow put out a statement saying they have covered their short position (which seems incredible to me without outside investors stumping up cash or brokers extending the return time on the stocks borrowed) it's now a bit of a standoff between the people buying the shares and how long people will go before selling them, bringing the price back down at which point the hedge fund may opt to sell and just cut their losses at an amount they can afford to bear.

pantyfire

Roujin wrote:

Pardon my ignorance, but could some explain to me in very simple terms how this works. I've always assumed that there is a finite number of shares available for any stock/company. Is that true? If so, what happens if a hedge fund borrows shares, sells them, but then when the time comes to return them no one is selling? Is that a possible scenario?

That is the scenario happening now. The hedge fund have two options, buy at the price the market wants to sell at (if there are enough shares available) or renegotiate their short positions with their brokers to let them have a longer period to return the borrowed stocks I guess. That is why the subredit is full people calling for everyone to hold their stocks, they are waiting until the hedge fund runs out of room and the shares they borrowed become due. This was going to be Friday, but since Melvin Capital have somehow put out a statement saying they have covered their short position (which seems incredible to me without outside investors stumping up cash or brokers extending the return time on the stocks borrowed) it's now a bit of a standoff between the people buying the shares and how long people will go before selling them, bringing the price back down at which point the hedge fund may opt to sell and just cut their losses at an amount they can afford to bear.

I think what’s also is also a major factor in all this is that the hedge funds aren’t dealing with normal players of the stock market.
These aren’t big investors, putting millions in and wanting tens of millions back in a matter of days.
It’s many, many people sticking £50 in or £300. With a few putting a couple of k in.
I think a lot of these people are saying to themselves if I lose my £50 so fucking what, I gave a hedge fund a black eye.

Tbh if I was an american yoot and someone came up to me and said give me £50 and I will fuck that baby boomer hedge fund up the arse I’d do it for no return.

acemuzzy

Article I just read suggested they've already closed out their shorts (at a big, but not bankruptcy, loss). Hopefully fine some damage, but if true, from here on in it is just pyramid scheme stuff, right? Like if they bought the shares yesterday, tomorrow's price is irrelevant and a further rocket won't hurt them m

Rev

https://twitter.com/Revatar/status/1354496738313334792

Accidentally went viral responding to Dan Price's tweet about the Short situation.

RedDave2

Rev wrote:

https://twitter.com/Revatar/status/1354496738313334792 Accidentally went viral responding to Dan Price's tweet about the Short situation.

Nice one.

pantyfire

I’m loving this.
When people say vote with your wallets, business wouldn’t survive if it was anti-consumer, the customer has the power etc...
This is just an extension of that. But this time it’s actually giving business and the markets a black eye.
And of course they don’t like it.

equinox_code

Def enjoy the SS having a fall, but I'd for sure like it all more if other people weren't profiting billions out of this. I feel I must be missing something with the purpose of even having a stock market. It seems so detached from reality.

equinox_code

it's just a place where all life's aspiring cheaters face off against each other to see who can leverage the most unearnt wealth off the backs of others?

nick_md

Someone I know keeps referring to these people as 'tulipers'. I get the reference but it sounds salty as hell to me.

Subbax

Most of WSB believes Melvin are lying about closing their position and so probably won't sell regardless. If so, Melvin have borrowed time and that's just plasters over the crumbling dam.

Yossarian

equinox_code wrote:

it's just a place where all life's aspiring cheaters face off against each other to see who can leverage the most unearnt wealth off the backs of others?

The stock market is, in theory, a reasonable thing to have.

Allowing companies to raise capital by selling shares is no bad thing, if people can buy shares then they need to have the ability to sell them too, the stock market is a place to do that.

The existence of a stock market isn’t the issue so much as how it’s used.

Roujin

Subbax wrote:

Most of WSB believes Melvin are lying about closing their position and so probably won't sell regardless. If so, Melvin have borrowed time and that's just plasters over the crumbling dam.

I agree to some extent, although it's possible Melvin have either secured outside loans to cover the loss, or renegotiatied the return period on their borrowed stocks with the brokers they borrowed from.

So either we will see them buying back shares on Friday, or they will continue to hold, I suppose. If they hold on friday and there is no buy back of shares from Melvin then WSB has the green light to continue holding stocks as long as they like because it's a stalemate and at some point Melvin will have deal with the shares they borrowed.

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