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It gets even wilder [merged with GME/wsb/etc]

Honest reporting on shorter-term trading activity and ideas
dspp
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Re: It gets even wilder [merged with GME/wsb/etc]

#382030

Postby dspp » January 29th, 2021, 5:52 pm

GoSeigen wrote:
dspp wrote:It was quite clear that the aim of many shorters was to destroy TSLA, an objective going far beyond price discovery


Even if we accept that was the aim of somebody, please could you explain the mechanism by which selling shares destroys a company? It might destroy the share price or the holding value of some of the shareholders or result in margin calls but how in the vast majority of cases can it have any effect on the company itself?

100% genuine question. No-one has ever satisfactorily explained this to me.


GS


A lot of lending can be secured directly or indirectly on the mkt cap, both company and individuals, esp in USA. I think the fastest path acts on the individuals, literally forcing them into margin calls and bankruptcy. Can wipe out the entire senior mge team. I am sure there are other ways, mostly as a matter of confidence of clients and suppliers.

This was an interesting reddit wsb post with some interesting $$ numbers that raised my eyebrows if they are true https://www.reddit.com/r/wallstreetbets ... lear_bomb/


regards, dspp

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Re: It gets even wilder [merged with GME/wsb/etc]

#382039

Postby dspp » January 29th, 2021, 6:06 pm

Chamath did a good thread on this,

https://threadreaderapp.com/thread/1354 ... 97697.html

regards, dspp

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Re: It gets even wilder [merged with GME/wsb/etc]

#382049

Postby tikunetih » January 29th, 2021, 6:28 pm

dspp wrote:Chamath did a good thread on this,

https://threadreaderapp.com/thread/1354 ... 97697.html

regards, dspp


Nope. It includes the same mistake that nearly everyone else (WSB, here, everywhere) has been making: seemingly not grasping how stock lending can lead to short interest legitimately > 100%.

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Re: It gets even wilder [merged with GME/wsb/etc]

#382064

Postby GoSeigen » January 29th, 2021, 7:05 pm

dspp wrote:A lot of lending can be secured directly or indirectly on the mkt cap, both company and individuals, esp in USA.


Care to quantify this? (In the case of companies, not individuals. The latter are irrelevant to this discussion.)


What is the typical result if the value of the security falls below the covenanted amount? Any examples of a company failing this way?


GS
Bonus question: What if there's no short-selling, just holders and buyers lowering their valuation of the company? Are those people also evil 'cos they made the company go bust?

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Re: It gets even wilder [merged with GME/wsb/etc]

#382076

Postby Adamski » January 29th, 2021, 7:47 pm

Do you think the pull back this week is partly due to the volatility this Reddit craziness has caused, or normal pull back in context of recent highs, before resuming interest uptrend.

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Re: It gets even wilder [merged with GME/wsb/etc]

#382108

Postby dspp » January 29th, 2021, 10:11 pm

GoSeigen wrote:
dspp wrote:A lot of lending can be secured directly or indirectly on the mkt cap, both company and individuals, esp in USA.


Care to quantify this? (In the case of companies, not individuals. The latter are irrelevant to this discussion.)


What is the typical result if the value of the security falls below the covenanted amount? Any examples of a company failing this way?


GS
Bonus question: What if there's no short-selling, just holders and buyers lowering their valuation of the company? Are those people also evil 'cos they made the company go bust?


GS,

In a fully rational efficient markets land we both know there wouldn't be an effect, because knowledge would be perfect and it would always be priced in. Meanwhile out in the real world there is. That said it seems to be a US thing mostly where shorting can drive stocks down so far that lending to the company and/or individuals becomes impossible, amd/or margin is withdrawn. However since that is where it goes on most obviously then it is unsurprising that is where to look :

https://news.ycombinator.com/item?id=20494376
https://money.stackexchange.com/questio ... -long-term
https://www.reddit.com/r/investing/comm ... orting_it/

regards, dspp

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Re: It gets even wilder [merged with GME/wsb/etc]

#382119

Postby GoSeigen » January 29th, 2021, 10:56 pm

dspp wrote:
GoSeigen wrote:
dspp wrote:A lot of lending can be secured directly or indirectly on the mkt cap, both company and individuals, esp in USA.


Care to quantify this? (In the case of companies, not individuals. The latter are irrelevant to this discussion.)


What is the typical result if the value of the security falls below the covenanted amount? Any examples of a company failing this way?


GS
Bonus question: What if there's no short-selling, just holders and buyers lowering their valuation of the company? Are those people also evil 'cos they made the company go bust?


GS,

In a fully rational efficient markets land we both know there wouldn't be an effect, because knowledge would be perfect and it would always be priced in. Meanwhile out in the real world there is. That said it seems to be a US thing mostly where shorting can drive stocks down so far that lending to the company and/or individuals becomes impossible, amd/or margin is withdrawn. However since that is where it goes on most obviously then it is unsurprising that is where to look :

https://news.ycombinator.com/item?id=20494376
https://money.stackexchange.com/questio ... -long-term
https://www.reddit.com/r/investing/comm ... orting_it/

regards, dspp


The only real mechanism advanced here is loans using the company stock as collateral or with covenants based on the stock price -- but we can't have a figure on how widespread this type of loan actually is?? As a believer you must know surely? FWIW in 20 years of investing I've NEVER come across such a loan, brokerage margin excepted... and proper companies in the vast majority of cases are not taking leveraged bets on their own stock. In most jurisdictions it's illegal apart from anything! (UK Company Law: "A company may NOT purchase its own shares except [long list of restrictive conditions]")

So not a particularly convincing narrative at all so far...


GS

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Re: It gets even wilder [merged with GME/wsb/etc]

#382153

Postby NapoleonD » January 30th, 2021, 9:25 am

Wild?

Until Wednesday i had never participated in stocks and decided to join the madness by taking a punt on 2 shares.

I'm up about £158, small beans but clearly a wild return on my original stake. Not quite at the point of cashing my pension pot in, but it is fun to watch, so much so I might do a bit more of this. GME is a smash & grab affair in terms of ROI, i suspect such events are, for the total novice (ie, me) rare, and difficult to spot.

And the schadenfreude, sweet sweet sweet.....

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Re: It gets even wilder [merged with GME/wsb/etc]

#382160

Postby dspp » January 30th, 2021, 10:14 am

GoSeigen wrote:
dspp wrote:
GoSeigen wrote:
Care to quantify this? (In the case of companies, not individuals. The latter are irrelevant to this discussion.)


What is the typical result if the value of the security falls below the covenanted amount? Any examples of a company failing this way?


GS
Bonus question: What if there's no short-selling, just holders and buyers lowering their valuation of the company? Are those people also evil 'cos they made the company go bust?


GS,

In a fully rational efficient markets land we both know there wouldn't be an effect, because knowledge would be perfect and it would always be priced in. Meanwhile out in the real world there is. That said it seems to be a US thing mostly where shorting can drive stocks down so far that lending to the company and/or individuals becomes impossible, amd/or margin is withdrawn. However since that is where it goes on most obviously then it is unsurprising that is where to look :

https://news.ycombinator.com/item?id=20494376
https://money.stackexchange.com/questio ... -long-term
https://www.reddit.com/r/investing/comm ... orting_it/

regards, dspp


The only real mechanism advanced here is loans using the company stock as collateral or with covenants based on the stock price -- but we can't have a figure on how widespread this type of loan actually is?? As a believer you must know surely? FWIW in 20 years of investing I've NEVER come across such a loan, brokerage margin excepted... and proper companies in the vast majority of cases are not taking leveraged bets on their own stock. In most jurisdictions it's illegal apart from anything! (UK Company Law: "A company may NOT purchase its own shares except [long list of restrictive conditions]")

So not a particularly convincing narrative at all so far...


GS


GS,
It was definitely an objective of the TSLA shorters to trigger the various loans and thereby wipeout TSLA. It failed and I think they lost $50bn or so.
regards,
dspp

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Re: It gets even wilder [merged with GME/wsb/etc]

#382161

Postby dspp » January 30th, 2021, 10:25 am

An interesting reddit post with a lot of the oa plot laid out
https://www.reddit.com/r/wallstreetbets ... _the_ring/
regards, dspp

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Re: It gets even wilder [merged with GME/wsb/etc]

#382170

Postby dspp » January 30th, 2021, 11:00 am

dspp wrote:
GoSeigen wrote:
dspp wrote:
GS,

In a fully rational efficient markets land we both know there wouldn't be an effect, because knowledge would be perfect and it would always be priced in. Meanwhile out in the real world there is. That said it seems to be a US thing mostly where shorting can drive stocks down so far that lending to the company and/or individuals becomes impossible, amd/or margin is withdrawn. However since that is where it goes on most obviously then it is unsurprising that is where to look :

https://news.ycombinator.com/item?id=20494376
https://money.stackexchange.com/questio ... -long-term
https://www.reddit.com/r/investing/comm ... orting_it/

regards, dspp


The only real mechanism advanced here is loans using the company stock as collateral or with covenants based on the stock price -- but we can't have a figure on how widespread this type of loan actually is?? As a believer you must know surely? FWIW in 20 years of investing I've NEVER come across such a loan, brokerage margin excepted... and proper companies in the vast majority of cases are not taking leveraged bets on their own stock. In most jurisdictions it's illegal apart from anything! (UK Company Law: "A company may NOT purchase its own shares except [long list of restrictive conditions]")

So not a particularly convincing narrative at all so far...


GS


GS,
It was definitely an objective of the TSLA shorters to trigger the various loans and thereby wipeout TSLA. It failed and I think they lost $50bn or so.
regards,
dspp


GS,

I guess it depends how much one is into conspiracy theories, and I do recall the old joke of "just because you're paranoid doesn't mean they're not out to get you".

In the deeply paranoid corner we have https://www.deepcapture.com/2009/02/ema ... c-company/ with, e.g.
"From the above email it is evident that in addition to working with corrupt journalists, the “group” sought to destroy Fairfax Financial by getting “them where they eat.” That is, the hedge funds sought to “take this baby down for the count” by cutting off the company’s access to capital. Sometimes “prominent investors” will merely dish dirt to a company’s lenders. Other times, the schemes are more complicated, with investors in their network actually financing the company. This gives them access to inside information and (in the case of convertible debentures) to stock that can be lent to affiliated short sellers. In other cases, “prominent investors” will buy the company’s debt, package it into “collateralized debt obligations” (financial weapons of mass destruction that were pioneered by Michael Milken’s team at Drexel Burnham Lambert), and then trade it in such a way as to make it seem as if the company is in trouble. When the time is right, the “prominent investors” fob off the debt to some witless or compliant pension fund. Then they tell people that they’re no longer financing the company – the company’s been “cut off.”"


In the nothing to see here, move along corner we have, https://en.wikipedia.org/wiki/Naked_sho ... d_shorting with e.g.
"U.S. Securities and Exchange Commission chairman Christopher Cox said there was no "unbridled naked short selling in financial issues""

There's some other interesting stuff in that wiki,
"In May 2012, lawyers acting for Goldman accidentally released an unredacted document revealing compromising internal discussions regarding naked short selling. "[expletive deleted] the compliance area – procedures, schmecedures", Rolling Stone Magazine quoted Peter Melz, the former president of Merrill Lynch Professional Clearing Corp. as saying in the document.[84]"

I don't generally follow this area myself, but to my eyes over the last few clearly TSLA were shorts were acting just as much in concert as TSLA longs were in the opposing direction. In the TSLA case the shorts lost a packet ($50bn or so) and that primer appears to have contributed to the GME long attack on their shorts.

I guess we watch and see what weapons get used, and who crawls out alive from the wreckage when it is all over. In that vein so far Citron appears to have sworn off shorting and had a Damascene conversion, https://markets.businessinsider.com/new ... 1030020509
"In a tweet on Friday, Left said, "After 20 years of publishing Citron will no longer publish 'short reports". Instead, Left will focus his efforts on long-only investment opportunities for individual investors."


regards, dspp

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Re: It gets even wilder [merged with GME/wsb/etc]

#382200

Postby SteMiS » January 30th, 2021, 12:13 pm

scrumpyjack wrote:but it seems the US market has allowed huge naked shorting, so Gamestop was 130% shorted.

That Gamestop was 130% shorted doesn't mean there was naking shorting (for avoidance of doubt, I'm not saying there isn't naked shorting going on, just that it is possible to short 130% without naked shorting).

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Re: It gets even wilder [merged with GME/wsb/etc]

#382209

Postby bruncher » January 30th, 2021, 12:50 pm

johnhemming wrote:
bruncher wrote:Reminds me of the UK regulator restricting which bonds are available to 'retail' investors - in the name of protecting retail investors, but actually restricting competition.


I think that is slightly unfair. The argument of the regulator is that people don't understand the complexity of the instruments. My view is that it is unfair to do this because it prevents retail investors having access to the better interest rates. It is not, however, a question of restricting competition.


I remember that 'retail' investors were offered an inferior deal by Lloyds, when Lloyds repurchased the hybrid bonds that had been issued to replace prefs, following the banking crisis. The regulator looked the other way. Seems like a similar situation: 'pari passu' was ignored then i.e. the bonds owned by institutions were accorded greater value. In the current situation 'retail' investors have been prevented from trading because they were beating the establishment and so needed to be stopped.

The argument that people should be prevented from buying what they don't understand, if applied widely, would mean that no-one could buy a car (don't understand how it works) or a house (don't understand the deeds), or any ordinary shares (how many investors read the accounts?).


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Re: It gets even wilder [merged with GME/wsb/etc]

#382263

Postby dspp » January 30th, 2021, 4:34 pm


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Re: It gets even wilder [merged with GME/wsb/etc]

#382264

Postby Lootman » January 30th, 2021, 4:36 pm

SteMiS wrote:
scrumpyjack wrote:but it seems the US market has allowed huge naked shorting, so Gamestop was 130% shorted.

That Gamestop was 130% shorted doesn't mean there was naking shorting (for avoidance of doubt, I'm not saying there isn't naked shorting going on, just that it is possible to short 130% without naked shorting).

The latest theory I heard about how that happened is based on the fact that insiders were lending out their closely held shares. They are excluded from the shares outstanding number on which the "percentage short" figure is based. The idea being that only the free float of shares counts but If you add in the closely held shares to the free float then the percentage short is not over 100%.

If this is correct then it is those closely connected with that company who are lending out their stock. Apparently in the current situation the price you can get for lending out these dozen or so shares is astronomical and hard to resist.

This is turn implies that the company insiders are helping those who are shorting their stock. This gets stranger and stranger.

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Re: It gets even wilder [merged with GME/wsb/etc]

#382273

Postby dspp » January 30th, 2021, 5:09 pm

Lootman wrote:
SteMiS wrote:
scrumpyjack wrote:but it seems the US market has allowed huge naked shorting, so Gamestop was 130% shorted.

That Gamestop was 130% shorted doesn't mean there was naking shorting (for avoidance of doubt, I'm not saying there isn't naked shorting going on, just that it is possible to short 130% without naked shorting).

The latest theory I heard about how that happened is based on the fact that insiders were lending out their closely held shares. They are excluded from the shares outstanding number on which the "percentage short" figure is based. The idea being that only the free float of shares counts but If you add in the closely held shares to the free float then the percentage short is not over 100%.

If this is correct then it is those closely connected with that company who are lending out their stock. Apparently in the current situation the price you can get for lending out these dozen or so shares is astronomical and hard to resist.

This is turn implies that the company insiders are helping those who are shorting their stock. This gets stranger and stranger.


In the US this can indeed happen, but only with the permission of the owners.

So, is there any evidence that the GME insiders were doing this, i.e. is there any factual basis for this assertion re GME ?

regards, dspp

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Re: It gets even wilder [merged with GME/wsb/etc]

#382276

Postby SteMiS » January 30th, 2021, 5:13 pm

bruncher wrote:The argument that people should be prevented from buying what they don't understand, if applied widely, would mean that no-one could buy a car (don't understand how it works) or a house (don't understand the deeds), or any ordinary shares (how many investors read the accounts?).

Whilst I agree with that in principle, the flip side is the issue of contagion and it's impact on the stability of the financial system. If you buy a share then your downside is limited to the amount you've paid. However if you are short a share or buying on margin then your downside is much greater, potential greater than your ability to stand. If you can't stand the loss then someone else will have to. If they can't, then the loss will travel through the system like a game of pass the parcel. A major part of the 2008 banking was the loss of confidence in the system because no one was sure who currently was holding the parcel...

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Re: It gets even wilder [merged with GME/wsb/etc]

#382287

Postby scrumpyjack » January 30th, 2021, 5:38 pm

SteMiS wrote:
bruncher wrote:The argument that people should be prevented from buying what they don't understand, if applied widely, would mean that no-one could buy a car (don't understand how it works) or a house (don't understand the deeds), or any ordinary shares (how many investors read the accounts?).

Whilst I agree with that in principle, the flip side is the issue of contagion and it's impact on the stability of the financial system. If you buy a share then your downside is limited to the amount you've paid. However if you are short a share or buying on margin then your downside is much greater, potential greater than your ability to stand. If you can't stand the loss then someone else will have to. If they can't, then the loss will travel through the system like a game of pass the parcel. A major part of the 2008 banking was the loss of confidence in the system because no one was sure who currently was holding the parcel...


It is always difficult to draw the line as to protecting people from their own stupidity and thereby preventing sensible and knowledgeable people from investing in things they do actually understand. Simply taking the line that all private investors are ignorant idiots is not very helpful. It would be better for the FCA to put their energy into all the obvious scams that they have allowed to carry on. Just having one or two guys trawling the net and the papers for offers that look suspicious and acting quickly to investigate them and shut them down, would be a far better use of their resources.

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Thoughts on the meaning of WSB?

#382365

Postby Gilgongo » January 31st, 2021, 9:27 am

One of my first thoughts when I heard about all this GME stuff was, "So, this is the stock market on which all of my generation's retirement income will be based. A bunch of bets, that, if they go wrong, leave you mostly screwed in your old age. Perhaps we should expect a response of some kind."

Of course, if you have a diversified portfolio of assets and etc. etc. But will it be different this time? What does this last week mean for all that?

That thought is contextualised and expanded upon on in this Twitter thread:

https://twitter.com/doctorow/status/135 ... 20739?s=20

Yes, this is an American story, but a version of it exists in the UK as well with "pension freedoms" and the end of defined benefits and (effectively) annuities.

"a nation of stockholders meant that workers had to choose between supporting rules that protected their jobs and rules that protected their retirement."

For one thing, it now seems pretty much inevitable that we will see Bitcoin jump to ridiculous values through similarly toxic mechanisms as yet unknown (but linked to too much cash chasing too few real assets). Might this lead to, say blue chips being shorted into the ground? After all, there is some (unsubstantiated) evidence that people inside of GME were lending their preference shares out to short their own company! The prices being paid were too hard to resist. That may be illegal in the UK (for now...) but its stuff like this that makes me think reliance on the markets, of any kind really, for retirement is a bad and dangerous thing.


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