not-bono-ever
meh
.
If yer an oldie, don’t worry as the bulk of yer pension will be low risk and low yield based
Redditors vs the hedge funds
- Thread starter NoXion
- Start date
If yer an oldie, don’t worry as the bulk of yer pension will be low risk and low yield based
stdP
One Swiss dinosaur in Polly Gosling's anorak hood
As mentioned above, even if loads of people did decide to hold their shares, Melvin Capital took the greedy step of shorting more shares than actually exist (as Fez mentioned, this is apparently called naked short selling and it, for some inexplicable reason, legal); so even if 100% of the shares came on the market, Melvin still might not be able to cover their remaining shorts.
That's what makes the accusations of Robin Hood selling people's stakes for them very interesting if true (I've not seen anything that indicates this is widespread and/or true yet) since Robin Hood is backed by Citadel, who are holding the bag for the Melvin as well. Robin Hood has also supposedly borrowed heavily from the banks today to cover liquidity. I wonder if they're worried about a bloodbath at close?
www.bloomberg.com
(Margin Call, The Big Short and Inside Job are all thoroughly excellent films IMHO. Margin Call is especially notable for being told from the POV of the people selling the soon-to-be-toxic assets and makes it patently obvious they've got precious little idea of what's happening until it's too late)
That's what makes the accusations of Robin Hood selling people's stakes for them very interesting if true (I've not seen anything that indicates this is widespread and/or true yet) since Robin Hood is backed by Citadel, who are holding the bag for the Melvin as well. Robin Hood has also supposedly borrowed heavily from the banks today to cover liquidity. I wonder if they're worried about a bloodbath at close?
Robinhood Is Said to Draw on Bank Credit Lines Amid Tumult
Robinhood Markets, the trading app that’s popular with investors behind this month’s wildest stock swings, has drawn down some of its bank credit lines to ensure it has enough cash to clear trades, according to people with knowledge of the matter.
www.bloomberg.com
(Margin Call, The Big Short and Inside Job are all thoroughly excellent films IMHO. Margin Call is especially notable for being told from the POV of the people selling the soon-to-be-toxic assets and makes it patently obvious they've got precious little idea of what's happening until it's too late)
hitmouse
so defeated, thinks it's funny
This is the point where I have to drop out, I'm not sure if I'll ever be able to grasp the difference between "buying [x] from someone who's selling it to you" and "paying the monetary value of [x]".
But seriously I wouldn't have thought that there'd be a problem with finding people willing to sell, I'd expect that there must be plenty of people who bought shares at X amount who'd now be very happy to sell their shares for 10X and make a tidy profit rather than hanging on and losing out when the bubble bursts, I would have thought that the problem would be that the hedge funds would be unenthusiastic about being put in the position of having to buy at that amount. Right?Hang on, I'm still struggling with this.
I thought the point of a margin call was that it happened at a specific amount, so the amount that you'd need to cover it would be fixed in advance? I get that this is probably me missing something here, rather than all the hedge fund owners panicking for no reason despite margin calls meaning that they'd actually be fine, or at least fine-ish.
hitmouse
so defeated, thinks it's funny
So they've just been selling shares that don't exist, and that's fine? What a brilliant system. Here, does anyone want to buy some Gamestop shares off me? Roll up, roll up.
not-bono-ever
meh
Bear in mind these are borrowed stocks
hitmouse
so defeated, thinks it's funny
But they've borrowed more stocks than actually exist, making them borrowed imaginary stocks*, right?
If my muddled understanding of this is correct, and there's a mechanism built in to the whole system specifically to prevent investors from losing large amounts of money (the margin calls as discussed above), and the hedge fund investors have just found a way around that mechanism to ensure that they can lose large amounts of money despite the existence of those safeguards, well then. That was a bit silly of them.
* putting my dreary ultra-left value form hat on for a second, this is one of the reasons why I find it difficult to get enthusiastic about this beyond just "lol rich people having a bad day"- it might be a learning experience of some kind for a lot of people, but it all takes place on this kind of terrain that lends itself to arguments about the fairness of markets, imaginary versus real capital, unproductive financial capital vs proper productive capital and so on, there's really not a straight line leading to the critique of capital as a whole here, I think. Although on the other hand, lol rich people having a bad day.
If my muddled understanding of this is correct, and there's a mechanism built in to the whole system specifically to prevent investors from losing large amounts of money (the margin calls as discussed above), and the hedge fund investors have just found a way around that mechanism to ensure that they can lose large amounts of money despite the existence of those safeguards, well then. That was a bit silly of them.
* putting my dreary ultra-left value form hat on for a second, this is one of the reasons why I find it difficult to get enthusiastic about this beyond just "lol rich people having a bad day"- it might be a learning experience of some kind for a lot of people, but it all takes place on this kind of terrain that lends itself to arguments about the fairness of markets, imaginary versus real capital, unproductive financial capital vs proper productive capital and so on, there's really not a straight line leading to the critique of capital as a whole here, I think. Although on the other hand, lol rich people having a bad day.
not-bono-ever
meh
As as aside, there’s the thick end of 100 bn of losses made by shorters slopping about so far this year. Tick tick tick...
teqniq
DisMembered
Will give Margin Call and Inside Job a watch. The Big Short is indeed great.
not-bono-ever
meh
Naked shorting is verboten. If the funds were shorting then they should have the asset on their books to do this. These are real stocks, just belonging to someone else.unless someone along the chain is creating bogus securities , then this shouldn’t really happen.
not-bono-ever
meh
Yer vix index is remarkably calm all things considered. If this contagion spreads to the bigger SnP members, we could be lookibg at something interesting. It’s Chinese NY in a week or two, liquidity will dry up a bit before then - watch out for the fun happening
cybershot
Well-Known Member
Yeah I'm in HE, although do have a few other pensions scattered about from previous work places one with Aegon and one with Aviva, I think the Aviva one has a rather large pot of money in it (well, large to me) but as you probably irrelevant to the value of the pot. Pensions confuse the fuck out of me if I am honest and it's one of those things I just kind of ignore, but know I should probably be doing better management of it rather than just going with the flow. Fuck knows.
stdP
One Swiss dinosaur in Polly Gosling's anorak hood
I'm still reading up on it; apparently naked short selling is illegal in the US as well now (it was made such after 2008) so I'm not sure how they can have shorted 130% of the shares and not been on the wrong side of the law:
What Is Naked Short Selling, How Does It Work, and Is It Legal?
Naked shorting occurs when sellers short assets without borrowing them or securing that ability first.
Something fundamentally broken going on here if this is the case.
If you're in the mood for a financial binge, The Smartest Guys in the Room is also a fun watch, this one a documentary about the criminal fuckwittery behind the Enron scandal circa 2001. (I was looking to see if anyone ever made any good documentaries or dramas about the dotcom bubble of the same vintage but have come up empty so far, granted it's a less interesting story since it was mostly just market hysteria rather than widespread fraud).
not-bono-ever
meh
Meh. Let the good times begin
redsquirrel
This Machine Kills Progressives
Margin Call is a much better film than The Big Short, though it probably does not give such a technical look at the stock market.
Fez909
toilet expert
Just to clarify a few points:
Naked shorting is short-selling shares that you didn't [yet] borrow. They might actually exist.
This is different, but related, to the separate issue that more shares have been shorted than actually exist.
If you were to take a naked-short position on some shares, but they were easily available, then you could just borrow them later, and turn the deal into a 'real' short position.
The problem here (for the hedge funds) is that enough people have done naked short selling that the amount available to borrow from actual share holders is smaller than the amount that have been traded short.
Even if ever single share was bought by the hedge funds, it wouldn't be enough to cover all of their positions, which is why the price is potentially about to skyrocket.
What would have to happen here is they'd have to buy them (at whatever price) then sell them again, then buy them back - I think?!
It's crazy, tbh, and I'm loving the madness of it all.
Naked shorting is short-selling shares that you didn't [yet] borrow. They might actually exist.
This is different, but related, to the separate issue that more shares have been shorted than actually exist.
If you were to take a naked-short position on some shares, but they were easily available, then you could just borrow them later, and turn the deal into a 'real' short position.
The problem here (for the hedge funds) is that enough people have done naked short selling that the amount available to borrow from actual share holders is smaller than the amount that have been traded short.
Even if ever single share was bought by the hedge funds, it wouldn't be enough to cover all of their positions, which is why the price is potentially about to skyrocket.
What would have to happen here is they'd have to buy them (at whatever price) then sell them again, then buy them back - I think?!
It's crazy, tbh, and I'm loving the madness of it all.
Fez909
toilet expert
It might be more similar to the 2008 thing in that the person who they sold the shorted shares to, could have themselves shorted.
I think they were called CDS in 2008. Credit Default Swaps - whereby bad credit was re-packaged and sold on, in effect multiplying the problem.
It feels like this is similar, but I haven't got that far into research yet. But there is a thing whereby you can re-package your short, and sell that on. Effectively cashing out at a lower cost - just like re-selling bad debt...
Idaho
blah blah blah
Naked shorting is legal in the US. The one exception seems to be the Chicago mercantile exchange (CME) paper settled bitcoin futures. You can buy and sell the right to gamble on the future price of bitcoin, and when the coupon expires, you just trade an equivalent dollar value.
Crypto exchanges are relatively small, under supervised, and easy to play all kinds of manipulation games that have long been outlawed in mature markets. Which makes you wonder why the CME was permitted to facilitate naked shorting of BTC? The US benefits in so many ways from the USD being the global reserve currency. There is always demand for dollars as all international settlement is done in dollars and through US approved intermediaries. When the US is unhappy with somewhere, it blocks them from those intermediaries (Russia, Iran, etc).
www.wsj.com
BTC was initially very popular in China, then supressed, then sort of allowed to slowly uptick. Now the Chinese are busy working on a CBDC (Central Bank Digital Currency).
Maybe this seems a bit conspiraloony - but there have been credible people suggesting it might be so:
www.sussex.ac.uk
Crypto exchanges are relatively small, under supervised, and easy to play all kinds of manipulation games that have long been outlawed in mature markets. Which makes you wonder why the CME was permitted to facilitate naked shorting of BTC? The US benefits in so many ways from the USD being the global reserve currency. There is always demand for dollars as all international settlement is done in dollars and through US approved intermediaries. When the US is unhappy with somewhere, it blocks them from those intermediaries (Russia, Iran, etc).
The Coming Currency War: Digital Money vs. the Dollar
Central banks are getting closer to issuing their own digital currencies. If they do, the dollar might finally face real competition as the world’s dominant currency.
www.wsj.com
BTC was initially very popular in China, then supressed, then sort of allowed to slowly uptick. Now the Chinese are busy working on a CBDC (Central Bank Digital Currency).
Maybe this seems a bit conspiraloony - but there have been credible people suggesting it might be so:
No place to hide: How market manipulation in the age of pandemic is destroying traditional safe havens
Safe haven assets such as gold and bitcoin are struggling during the global Coronavirus pandemic thanks to intense, large-scale manipulation.
www.sussex.ac.uk
If you're in the default pension fund in a money purchase scheme (i.e. you have your own invested fund. This is not necessarily a "private pension"; most employee pensions these days are also money purchase), it will almost certainly be almost wholly invested in UK shares as well as bonds. They might have some element of ex-UK, which will be largely focussed on the largest US companies. They mix income (i.e. vanilla) with growth (i.e. risky) stocks to some degree but the chance of them having some small US company in your fund in anything like a meaningful amount is essentially zero.
If you've chosen some bespoke funds, however, then that depends on what you've chosen!
BigTom
Well-Known Member
This is the point where I have to drop out, I'm not sure if I'll ever be able to grasp the difference between "buying [x] from someone who's selling it to you" and "paying the monetary value of [x]".
What I meant by this is that there's two ways they can close their short position:
1) Buy the shares they need to return to the people they've borrowed them from (I'm thoroughly confused by naked short selling where they haven't actually borrowed the shares yet so I'm ignoring that)
2) Pay the people they borrowed shares to get out of the contract (which would presumably be the value of the shares they should be returning)
Well that's one thing that is interesting about this. There are people buying small amounts of shares with the absolute intention to never sell. They do not want to make money. They want the hedge funds to lose money. The more people there are who refuse to sell, the higher the price will go as the hedge funds try to find people who will sell.
idk to be honest. on the other side of things you get stuff like stop-losses which is an automatic sell point if the price falls to that level but traders can set what that is themselves. I don't think the specific amount relates to the stock price exactly, it's about how much money the hedge fund has and whether it can cover its position. Melvin got an extra £3bn from Citadel I think to cover themselves in this regard, for a little while anyway.
so the stock price can keep going up as long as the hedge fund can keep raising capital to keep enough capital on hand to cover their positions.
I think, lol. There's a level of technical detail here which is beyond my experience.
stdP
One Swiss dinosaur in Polly Gosling's anorak hood
Some interesting analysis has finally appeared on one of my fave sites:
theconversation.com
theconversation.com
I'm fairly sure this was a conscious choice on behalf of the writer, there's plenty of opportunity for exposition for whizz-bang graphs and suchlike that aren't taken; it's more there to show how the people react to give insight in to what's ultimately very human, but sociopathic, behaviour.
Why GameStop shares stopped trading: 5 questions answered
The easy answer as to why trading was halted relates to the stock’s ‘volatility’ after its dramatic climb in recent weeks. But it could also mean something fishy is going on.
theconversation.com
GameStop: hedge fund attacks have opened up powerful new front against Wall Street
The question is if and how the regulators can respond.
theconversation.com
I'm fairly sure this was a conscious choice on behalf of the writer, there's plenty of opportunity for exposition for whizz-bang graphs and suchlike that aren't taken; it's more there to show how the people react to give insight in to what's ultimately very human, but sociopathic, behaviour.
If you're in the default Aviva one and you're more than 10 years from your predetermined retirement age, this will be your fund:
It's way more international than I would have expected, which reflects how things have moved on since I was properly in the pensions field. 42% international equities, 21% international bonds, 13% UK equities, 10% cash, 14% everything else. Top ten holdings are:
Apple - 1.6%
Microsoft - 1.2%
Amazon - 1.0%
Unilever - 0.8%
Astrazeneca - 0.7%
HSBC - 0.6%
A particular UK government bond - 0.6%
Diageo - 0.5%
GSK - 0.5%
Facebook - 0.5%
So basically, I wouldn't worry. Nothing is more than 1.6%, showing it's very well diversified indeed. The top 10 are only 8% of the total portfolio. And those top 10 are all absolutely giant names.
(And if you're less than 10 years from retirement, they will be gradually switching you into a higher percentage of bonds, ready for you to buy an annuity.)
BigTom
Well-Known Member
Yep, I agree - it's why I like it alongside The Big Short, which is more technical, and a proper documentary. I think they all complement each other really well to give a good picture of what went on and why.
Flavour
hang the bankers
that is completely irrelevant
not-bono-ever
meh
Enforcement of naked shorting rule is reactive rather than proactive by the SEC. there is no auto check that you maintain a long to cover the short you have created. Shares are. Kept in a CSD and de facto ownership in transferred around within the system. In essence the rules map out your maintenance of the equity to cover . The proliferance of out of market trading in dark pools has reduced transparency in this regard
not-bono-ever
meh
What you do have however is timing delays and gubbins, where someone could go naked short within the trading day and cover it or take advantage of the couple of days window for delivery. If you want to take a short term death or glory naked short, it is perfectly possible if legally naughty
not-bono-ever
meh
The herstatt risk that is brought into play here can have a massive domino effect in the people involved in the chain very quickly
not-bono-ever
meh
I have work to do anyway now
danny la rouge
More like *fanny* la rouge!
Can’t say I’m gobsmacked.
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