FormulaNova said..
My edit got mucked up, but why are the hedge funds doing this anyway, if its not just to profit by making soneone else the loser and taking the money from it?

The original share holders are the losers and its pretty poor if these funds do this just to get a return instead of basing their buys and sells on what they think a company is worth.

Most short selling by professional managers IS based on fundamentals. If a manager feels that a stock is overpriced, they can back that valuation judgment by either not buying the share long, or, short selling if they have a lot of conviction in their valuation. Short selling adds a lot of liquidity to the market, so it is a good thing in my opinion.

There are many shorting themes that are easy to spot, such as situations where a business model is becoming obsolete, such as Kodak for a historic example, and currently some traditional retailing (like Game Shop which is an obsolete model now that you can load games online direct to consoles like my 9yo son showed me this week!). These businesses become obsolete if they don't evolve, and the shareholders who bought long will lose their money anyway as business profits decline and share prices follow the profit and dividends down. Short selling is just a way to profit from what was going to eventually happen anyway in these circumstances.

In most situations however, short selling is very difficult. Prudent hedge fund managers I use typically have a very diversified portfolio of shorts, say, no more than 2% of portfolio value per short, and strict short covering rules. Shorting themes can revolve around poor/obsolete business models like those mentioned above, FADS that have run too hard too fast and are not profitable (Cannabis stocks in Canada a few years ago for example that went sky high and then crashed again, and maybe Tesla at the moment, although shorting this stock has been a widow maker) and FRAUDS (management who have a history of cooking the books at previous companies to make the numbers look better with tricky accounting). Most of the managers I like use a mix of buying assets that they like LONG, and short selling the ones that they don't. It is a tough game. Some managers specialise in short selling only (Jim Chanos for example), now that is a tough gig in a rising market, and typically the market rises 4 years out of 5.

Anyway, I digress. Short selling is not evil, it is a specialist skill that brings liquidity and allows asset managers to back their own valuations. A good movie to watch is The Big Short, which is on Netflix. Shows how the Global Financial Crisis played out.. in Hollywood style of course. Anyway, some short selling in there, but it importantly shows that there can be bucket loads more fraud/greed/nasty on the long side in equities and other assets too.

Yeah Storm Ahead, been watching this one play out. Certainly interesting! My generic answers above were more for the questions FN asked me.

It is also worthy to note that having to take evasive action with a "Short Squeeze" usually comes from imprudent management and there will be some of the riskier hedge funds out there in this category that had to cover. If the short is a small part of your a diversified short portfolio (like I have mentioned in the post above) and you smell bull**** (like what is going on here), there would be prudent managers just holding the short position, or even doubling and tripling down on the short. The price of this stock has gone up, the value hasn't.............fundamentals and valuations will come home to roost......eventually!

You are correct, that trader's handle is "Deep ****ing Value"...........$50k down on GS, and was at $47mill before the next 65% leg up on Friday (assuming he was still holding stock)!!!!!

Will be interesting to see how this plays out. Personally (being a capitalist pig), I would be taking my profits whilst I can, it is one thing to prove a point, and another to blow away a profit of $46+mill in the case of DFV. The stock ain't going to continue going up in perpetuity, to do so relies on others continuing to pile in and buy more stock at even more elevated prices.............at some point it will drop a **** tonne of $$$ and the retail investors who wanted to inflict pain will get burnt themselves......fundamentals will prevail..........Personally I would be doubling up on my shorts and waiting for the fallout to start........it is only a matter of time before someone sees their paper profits slide and they all start to bail to take a profit, or if you bought in late like clearly so many are, minimise your losses.

evlPanda said..

Storm Ahead said..
It seems that the reddit community are now preparing to unleash the worlds biggest short squeeze on Silver. Unfortunately, the likes of JPM have a direct line of infinite credit form the FED reserve....

I wouldn't be worried if some small hedge funds blow up on GME, AMC and NOK etc. However, if the likes of JPM gets into trouble it could be another Lehman moment.

Having said that, we are in the time of endless credit and endless money supply.

00000070 00 00 00 00 00 00 FF FF FF FF 4D 04 FF FF 00 1D ......????M.??..
00000080 01 04 45 54 68 65 20 54 69 6D 65 73 20 30 33 2F ..EThe Times 03/
00000090 4A 61 6E 2F 32 30 30 39 20 43 68 61 6E 63 65 6C Jan/2009 Chancel
000000A0 6C 6F 72 20 6F 6E 20 62 72 69 6E 6B 20 6F 66 20 lor on brink of
000000B0 73 65 63 6F 6E 64 20 62 61 69 6C 6F 75 74 20 66 second bailout f
000000C0 6F 72 20 62 61 6E 6B 73 FF FF FF FF 01 00 F2 05 or banks????..?.

Endless credit and an unlimited supply makes for very, very soft money.

Have you noticed the price of everything has gone up lately? Houses, cars, boats, groceries, stocks. (not wages)

They haven't gone up in value. Money has gone down in value. Because it's everywhere. It's not rare. It's so easy to get. See?

Bitcoin (you: oh no, not this again! DIdn't it die?) is the hardest money, ever. By far. It's ludicrously hard. It can't stop. it won't stop. It's a financial terminator.

It's just very, very sound money... that is programmable. Like "smart" money, or something. Dunno. [cough cough]

Maybe the internet won't come for money, too. Like it has for mail, publishing, music, shopping, communications, tv and film. Yeah, nah the internet has stopped now.

I think the misunderstanding comes from thinking bitcoin is run and operated by someone. It's not; it's a protocol. A protocol like email (SMTP), MP3, HTTP, and so on. Capital "B" Bitcoin is a protocol, little "b" bitcoin is its baked-in currency. No-one owns it anymore than someone owns SMTP/email. There's no company making and selling it or anything.

just, watch it. is all. There are very, very large sums pouring into it now. Faster, and faster. More and more.

"Average Weekly Investment - Grayscale Bitcoin Trust: $217.1 million"

Bitcoin Investors May Lose Everything, Central Banker Warns
au.finance.yahoo.com/news/bitcoin-investors-may-lose-everything-105239031.html

Macroscien said..

Bitcoin Investors May Lose Everything, Central Banker Warns

au.finance.yahoo.com/news/bitcoin-investors-may-lose-everything-105239031.html

For Bitcoin fans who care about glbal warming
www.smh.com.au/business/markets/dirty-factories-the-hidden-cost-of-mining-bitcoins-20210201-p56yag.html

Can you buy long dated put options on the stock? Like 6 months or a year when evrybody will have lost interest and the price will have crashed.

Roger303 said..
The reddit kids have moved onto silver. . . Buying up silver miners / physical silver etc. They've pushed up global silver price 8% today. silverprice.org Plenty of tendies for everyone, yolo, going to the moon

Makes you wonder, are they just doing what the big firms do, but doing it as many individuals with a collective aim?

All this reading about stock trading firms making buckets of money makes me wonder who they are making it from? All these ads for DIY share trading says you cannot lose, so there must be someone doing it tough! (my guess is its all the DIY share traders, or at least a majority of them)

Harrow said..

FormulaNova said..
There was some article I read where the author was trying to make out that these hedge funds short selling were actually heroes... obvious BS and the author was trying to defend them for a practice that can bring companies to their knees for no reason other than some fund decides to as they can make money.

An ignorant question perhaps, but how does market manipulation that crashes a companies share price kill the company? The company isn't losing money, it's just the value of the shares held by the public that is fluctuating. What stops the company going about its daily business and paying the appropriate dividend the following quarter, after which the share price can then return to a reasonable P/E ratio.

- many funding arrangements are subject to maintaining a certain share price value (which is meant to reflect the health of the company). Hitting the share price floor puts loans in default requiring rectification or repayment. New loans will not be possible to repay defaulting loans. The short term overdrafts (loans) that are used for working capital is like a cut to the jugular...
- it severely impacts confidence for that companies suppliers and customers who will stop doing business if they think the company will collapse which will in turn speed up its collapse
- it impacts negatively on employee job security and work output
- it directly impacts any shares or share options held by employees
- its impacts employee bonus schemes common within public companies

FormulaNova said..

Roger303 said..
The reddit kids have moved onto silver. . . Buying up silver miners / physical silver etc. They've pushed up global silver price 8% today. silverprice.org Plenty of tendies for everyone, yolo, going to the moon

Makes you wonder, are they just doing what the big firms do, but doing it as many individuals with a collective aim?

All this reading about stock trading firms making buckets of money makes me wonder who they are making it from? All these ads for DIY share trading says you cannot lose, so there must be someone doing it tough! (my guess is its all the DIY share traders, or at least a majority of them)

FN -

Point 1. YES - and they've managed to outsmart the bad guys !!!

Point 2. Wall Street is a rigged casino where its the dealer and a player. Everyone else is the other player who is inevitably the loser....


How good is Nancy Pelosi buying Tesla shares knowing the Biden policies coming and being in a position to pass the legislation that will benefit the business !!!!! Its just beyond belief......

Mr Milk said..
Can you buy long dated put options on the stock? Like 6 months or a year when evrybody will have lost interest and the price will have crashed.

Yes you can buy Jan 2022 and Jan 2023 GME puts. A few days ago the Jan 2022 $2 puts were $0.34, when the underlying was $300-500/share. Strange thing, now the underlying has dropped to $80-100/share, and the Jan 2022 puts also dropped to $0.27.

Mr Milk said..

On the CameStop/ Robinhood thing, I read this morning in the SMH that the reason that trading got suspended was due to market regulations. Counterparties have to be sure that they will be paid for their shares, so when Robinhood was being used to buy too many shares, it had to find $2.5B in extra funds to guarantee settlement. Trades couldn't be made until that money was there to back them.

Robinhood made the following public statements:

1) The CEO was interviewed on CNBC and was asked if they had any liquidity problems (cash and resources to fund their operation) and he said categorically "no. none at all."
2) robi hood drew on their lines of credit AFTER that day of trading and then the price was manipulated down for the hedge funds

3) they never said anything to their customers when they did it. We're only hearing about this alleged $3B deposit requirement several days AFTER the damage was done. Not to mention, no one has seen any proof this $3B request happened, no emails? Any regulatory body confirm this?

I had been told (but unsubstantiated) the same hedge fund that owns (invested in) robinhood has bailed out Melvin Capital who were one of the biggest losers on shorting the stocks.
robinhood is reportedly worth $10B.

psychojoe said..
This subject has garnered a high level of interest, not least of all from my wife who is a Redditor.
What I want to know is, have any of us acquired and are now holding GME

Until now it was near impossible to be a successful trader as an individual.
The old saying was " the markets will stay irrational a lot longer than you can stay solvent"

truth is the markets are irrational because they get manipulated!

Main said..

Orchestrated short selling by groups of Wall Street hedge funds targeting any business successful or otherwise for no other reason that to profit from their collapse is as common as dogs in parks.

Its nothing short of immoral, unethical and just plain evil. To release research, media press releases and give research briefings to heighten the fear of the pending collapse is the definition of market manipulation.

Orchestrated "pump and dump" on the long side is just as bad and yields the same poor outcomes for the unsophisticated retail investor........let's not just look at one side of the see-saw. Orchestrated activity in investment markets for profit is just plain repugnant. Using this current example, the poor woke bastards that invested in GME to prove a point at the high of US$483 about a week ago are in a world of pain with the stock falling pretty rapidly to the price of US$92 today.

To your second point, releasing research about the justification of your valuations and decision to go long or short is not market manipulation. Publicising your reason for short selling an asset is just about as common as fund managers on the long side pimping their portfolio constituents via youtube, facebook, money/investment magazines, blog posts, newspaper articles to bring awareness and buy trades to the stock. To believe that this doesn't influence investors when "experts" reveal their highest conviction long trades is naive.

The average long only fund manager will admit that their strike rate of positive returns when running a portfolio is 65-70%............even the better wholesale guys will admit if they are currently at a strike rate of 70+% that they expect the next 12 months will be weaker and bring them back to the average of 65-70%. So 35% of the stocks they pimp don't work out and lose money...............and so do the punters that follow those tips. Making your thoughts of stock valuations, or opinions on an economy is what it is.....just an opinion.

Being able to articulate a point of view on both sides, long and short, based upon your beliefs and valuation is what makes a market. It is neither good nor bad. No different to politics or most other things that divide a population. We do agree on one thing however, and that is my statement in bold above.

AJEaster said..

.. the poor woke bastards that invested in GME to prove a point at the high of US$483 about a week ago are in a world of pain with the stock falling pretty rapidly to the price of US$92 today..

Meh, depends how much they bought.

If they only chucked $966 in and they did it for purposes other than making a profit on that particular stock then I doubt the pain is all that great.

The stock didn't soar because people thought there was a profit in it and are now all hurting, the stock soared in an orchestrated plan to hurt the hedgers.

If anyone went all-in solely to make a quick profit then they are as bad as the hedge funds in using the stockmarket as a casino, just dumber thinking it isn't rigged and even dumber thinking there was profit to be made without massive risk.

I am pretty sure folks doing just that weren't the woke bastards and so I doubt too many care if those people are hurting. In fact the woke bastards who sent the stock soaring would probably be laughing that dumb-arse idiots lost a lot and are in pain.

AJEaster said..
Worst case, if investing $966 and losing $800 doesn't aggravate you then wow...

Yeah but my point is they weren't investors investing.

The "woke bastards" doing it were making a protest. I can spend money taking a day off work, travelling to the city and marching down the street waving a flag about shouting about invasion day or LQBFTIDGEFAJ equality or some crap. Am I "in pain" because afterwards nothing changed and I lost money doing it or did I spend money to make a point I felt enough passion about to spend money making a point ?

I can't feel sorry for any pain felt by "investors" who jumped on the back of the "woke bastards" - they were gamblers not investors who lost the gamble. Such is the nature of gambling. Dick heads who got what they deserved, like bullfighters being hit by the bull.

And I can't feel sorry if they are "woke bastards" who lost money and now decide that protests shouldn't cost them as a protestor. Good on them for having a go and I applaud it, but if they thought they could 'bring the system down' or 're-distribute equality' or whatever by spending $800 and now realise instead they just lost $800 and got nothing then they are dickheads who got what they deserved. I suppose at least they didn't block my travel plans for the day with a stupid shouty march.

AJEaster said..

Main said..

Orchestrated short selling by groups of Wall Street hedge funds targeting any business successful or otherwise for no other reason that to profit from their collapse is as common as dogs in parks.

Its nothing short of immoral, unethical and just plain evil. To release research, media press releases and give research briefings to heighten the fear of the pending collapse is the definition of market manipulation.

Orchestrated "pump and dump" on the long side is just as bad and yields the same poor outcomes for the unsophisticated retail investor........let's not just look at one side of the see-saw. Orchestrated activity in investment markets for profit is just plain repugnant. Using this current example, the poor woke bastards that invested in GME to prove a point at the high of US$483 about a week ago are in a world of pain with the stock falling pretty rapidly to the price of US$92 today.

To your second point, releasing research about the justification of your valuations and decision to go long or short is not market manipulation. Publicising your reason for short selling an asset is just about as common as fund managers on the long side pimping their portfolio constituents via youtube, facebook, money/investment magazines, blog posts, newspaper articles to bring awareness and buy trades to the stock. To believe that this doesn't influence investors when "experts" reveal their highest conviction long trades is naive.

The average long only fund manager will admit that their strike rate of positive returns when running a portfolio is 65-70%............even the better wholesale guys will admit if they are currently at a strike rate of 70+% that they expect the next 12 months will be weaker and bring them back to the average of 65-70%. So 35% of the stocks they pimp don't work out and lose money...............and so do the punters that follow those tips. Making your thoughts of stock valuations, or opinions on an economy is what it is.....just an opinion.

Being able to articulate a point of view on both sides, long and short, based upon your beliefs and valuation is what makes a market. It is neither good nor bad. No different to politics or most other things that divide a population. We do agree on one thing however, and that is my statement in bold above.

this cresting of fear in the media is market manipulation and it's very different to a fund manager publishing their opinion on taking a long position due to a good investment proposition based in sound business metrics:

"Bill Ackman turned a net profit of more than $2 billion on Monday after he sold his bets against the market less than one week after warning CNBC that "hell is coming"He then used those proceeds to wager that existing Pershing bets, including hotel operator Hilton Worldwide, would rebound. The Ackman about-face came less than one week after he told CNBC that the United States was in jeopardy unless the White House closed the country.That he added to his Hilton position using the money he earned from his bets against the market is notable after saying the stock could be headed to zero"