Discord bans r/WallStreetBets server, subreddit went private for a while • Hacker News Board

Re: Discord bans r/WallStreetBets server, subreddit went private for a while

#891

Post by philistine » Thu, Jan 28, 2021, 1:07 PM UTC

jariel wrote: post #826

jug wrote: post #777

It does feel like a watershed moment regarding hedge funds. This is the first time netizens capitalize on hedge fund short favorites and it has been surprisingly easy to cause an absolute catastrophy in the order of billion losses for them. I heard Melvin Capital may even have gone bankrupt? And how to do it? You get people to invest in a stock that is expected by the industry to go belly up. Seriously. It's that eas…

I'm sorry but this is a possibly irresponsible take for at least a few reasons. The populism on this issue is completely out of touch with reality. 1) As the stock pops due to irrational upwards pressure - the hedges funds might lose a bit, but in reality a lot of 'regular people' will be left holding the bag. When the stock inevitably crashes, those 'regular people' will lose a lot and it will probably be a more mea…

With regards to number one, what will happen is exactly the reverse of what you’re saying. Hedge funds have shorted more of the stock than exists. That means that when they decide to buy back the stock to close their shorts, they will need to buy every single stock of the company, return it to the people who lent them their stock, and those people will have to now sell it, so they can buy it again to return it to other people.

It won’t happen in minutes either, it will take days for this to happen. That’s why everybody is going crazy about this. WSB saw a perfect situation and exploited it. This isn’t a case where the stock will drop in mere minutes.

Re: Discord bans r/WallStreetBets server, subreddit went private for a while

#892

Post by argonaut » Thu, Jan 28, 2021, 1:09 PM UTC

grumple wrote: post #827

Tenoke wrote: post #820

Earlier quoted context omitted.

It's not quite that easy. You have to find a stock that's overshorted (>100% of shares here) irresponsibly (if they used e.g puts they'd be fine), buy a lot and hold it long enough. Also quite likely WSB money wasnt enough and it's only because other hedge funds jumped in that we got here. What Melvin did was risky and avoidable.

The stock doesn’t actually need to be shorted that much. We’re seeing the same thing happen with Koss, BB, and AMC right now. The infamous VW short squeeze was also caused by significantly less short interest: https://www.autoweek.com/news/industry-news/a35340727/heres-...

We are seeing them become the next meme stock that people are trying to pump. Unlike GameStop their pumps have very little to do with short squeezes because these stocks were not being shorted anywhere near as much as GameStop was.

Re: Discord bans r/WallStreetBets server, subreddit went private for a while

#893

Post by fractionalhare » Thu, Jan 28, 2021, 1:11 PM UTC

lordnacho wrote: post #830

jug wrote: post #777

It does feel like a watershed moment regarding hedge funds. This is the first time netizens capitalize on hedge fund short favorites and it has been surprisingly easy to cause an absolute catastrophy in the order of billion losses for them. I heard Melvin Capital may even have gone bankrupt? And how to do it? You get people to invest in a stock that is expected by the industry to go belly up. Seriously. It's that eas…

As a former fund manager, I think it mainly illuminates bad risk management practices at one specific fund. Why would you ever paint yourself in a corner where you lose 30% on a single name? It just makes me think all their other bets are also huge and simply lucky they haven't collapsed. Funds are also diverse, though. There will be a load of funds who have taken the other side to Melvin, based either on various fun…

30% has not been lost on a single name. It's publicly available information that every known short by the fund (particularly those with high short interest) is now being targeted, and is up tens to hundreds of percent in the past couple of days.

Re: Discord bans r/WallStreetBets server, subreddit went private for a while

#894

Post by cheph » Thu, Jan 28, 2021, 1:13 PM UTC

serf wrote: post #864

cheph wrote: post #849

Earlier quoted context omitted.

How does a low share price "destroy the company"?

by limiting financial opportunity for the devaluing company to the point that it inhibits normal every day business, creating a feedback loop that the company may be unable to recover from. This occurred to Lehman Brothers. Different industry, but they got shorted to the point that their clients withdrew their funds and they were left in a position that was ineligible/undesired for most loans. https://slate.com/news-…

> by limiting financial opportunity

Financial opportunity to what? Be specific.

None of the examples there really makes a lot of sense in this case. You think this pump (and coming dump) happening with GameStop would convince lenders to lend to GameStop at better rates? Maybe if they had no clue what was happening and did no due diligence, but that is not the case. And I doubt share price is the only consideration made by lenders, if their share P/E ratio was very low (which shorting would cause) then this would also affect their lending opportunities positively.

You think they were planning to issue new shares? It would have been an amazingly stupid idea which likely would not have been approved by existing shareholders anyway and would have had much the same effect as shorting.

Considerations for an investment bank is quite different from the considerations for a game retailer.

EDIT: The claim that short selling contributed significantly to the demise of Lehman Brothers is also disputed: https://en.wikipedia.org/wiki/Lehman_Brothers#Short-selling_...

Re: Discord bans r/WallStreetBets server, subreddit went private for a while

#895

Post by fractionalhare » Thu, Jan 28, 2021, 1:14 PM UTC

ClumsyPilot wrote: post #836

twic wrote: post #818

Earlier quoted context omitted.

> It does feel like a watershed moment regarding hedge funds Let's wait six months. This story is being badly reported all over. I suspect the hedge funds will mostly be fine. >You get people to invest in a stock that is expected by the industry to go belly up. Seriously. It's that easy. It's not illegal. Yes, it is, it's an abusive short squeeze, which is market manipulation.

If anything is market manipulation, its shorting over 100% of a company to push down it's share price even lower and destroy the company

No single fund deliberately pushed short interest over 100%. Short interest increasing over 100% is something that happens organically when many firms want to short the same thing. No collusion required. Someone buys a stock from a short seller and sells it short themselves.

I will add that short interest > 100% is a very common risk measure that firms with a short position actively track.

Re: Discord bans r/WallStreetBets server, subreddit went private for a while

#896

Post by cik » Thu, Jan 28, 2021, 1:17 PM UTC

thr0waway2 wrote: post #874

cik wrote: post #761

There is some brilliant analysis on WSB, some rubbish - the usual. But there was great analysis on this post a few hours ago: https://old.reddit.com/r/wallstreetbets/comments/l6n4ay/the_... Assuming it (like others) gets taken down, here's a copy+paste with some cleanup: Note that Discord has had significant investment from private equity funds including FirstMark Capital, Greenoaks Capital Partners, Index Ventures,…

Mate, every medium-sized company and above has an investment by PE and VC. You can literally pull any company with above $10 mm EBITDA and there will be no more than two degrees of separation between them and Steve Cohen/any other big financiier

That's literally the point.

Re: Discord bans r/WallStreetBets server, subreddit went private for a while

#897

Post by lordnacho » Thu, Jan 28, 2021, 1:17 PM UTC

fractionalhare wrote: post #893

lordnacho wrote: post #830

Earlier quoted context omitted.

As a former fund manager, I think it mainly illuminates bad risk management practices at one specific fund. Why would you ever paint yourself in a corner where you lose 30% on a single name? It just makes me think all their other bets are also huge and simply lucky they haven't collapsed. Funds are also diverse, though. There will be a load of funds who have taken the other side to Melvin, based either on various fun…

30% has not been lost on a single name. It's publicly available information that every known short by the fund (particularly those with high short interest) is now being targeted, and is up tens to hundreds of percent in the past couple of days.

Fair enough, I hadn't considered I might be reading a skewed view of what the PnL distribution was. However it's still not a great look that the firm can be put in such a position. It's not actually an excuse that events are unprecedented.

Thanks for your input. I've worked during such crises myself and it's stressful.

Re: Discord bans r/WallStreetBets server, subreddit went private for a while

#898

Post by fractionalhare » Thu, Jan 28, 2021, 1:17 PM UTC

ballenf wrote: post #886

jariel wrote: post #826

Earlier quoted context omitted.

I'm sorry but this is a possibly irresponsible take for at least a few reasons. The populism on this issue is completely out of touch with reality. 1) As the stock pops due to irrational upwards pressure - the hedges funds might lose a bit, but in reality a lot of 'regular people' will be left holding the bag. When the stock inevitably crashes, those 'regular people' will lose a lot and it will probably be a more mea…

What about retail investors who looked at Gamestop before all this and thought it seemed like a reasonable investment, only to get wiped out by "irrational downward pressure" from hedge funds conspiring to short the stock 136%? We'll have to wait and see a bit, but the huge pop in Gamestock was likely more the result of funds covering shorts, not retail investors continuing to buy at these prices. So it feels really…

Hedge funds don't need to conspire for short interest to go over 100%. If a business is widely considered a viable short target, it usually just happens through regular market mechanics. Everyone wants to borrow it to sell it short, and they may end up borrowing it from someone who already bought it from a short seller.

Re: Discord bans r/WallStreetBets server, subreddit went private for a while

#899

Post by baybal2 » Thu, Jan 28, 2021, 1:17 PM UTC

bko wrote: post #832

jug wrote: post #777

It does feel like a watershed moment regarding hedge funds. This is the first time netizens capitalize on hedge fund short favorites and it has been surprisingly easy to cause an absolute catastrophy in the order of billion losses for them. I heard Melvin Capital may even have gone bankrupt? And how to do it? You get people to invest in a stock that is expected by the industry to go belly up. Seriously. It's that eas…

> And how to do it? You get people to invest in a stock that is expected by the industry to go belly up. A lot of the people involved aren't just buying and holding. They're specifically buying/selling short dated out of the money options in order to move the price. Some understand the market microstructure and the various levers they have to make the price move using what is effectively leverage. > Seriously. It's t…

> And there will be more laws made targeting individuals engaging in this sort of activity (basically coordinating with groups of people).

These laws will not be legal under US law, because US congress is not permitted to make a law abridging an act of speaking, or expressing an idea, or opinion.

> Finance is highly regulated and arbitrarily so.

The level of arbitrariness of legal process in legal systems of ex-UK colonies is in league of its own in the world, and USA is particularly prominent at that.

In US, financial regulations are some of the most vaguely defined of laws, in the rest of the world, they are usually are the most verbose, and formal in definition.

A law whose execution is wholly arbitrary is not a law at all, and a country allowing arbitrary interpretation of laws is lawless.

This is why what is "technically legal" is legal. What is defined in the law as legal, or not defined as illegal is what is legal. This is why no smarty pants bureaucrat should be allowed to wiggle out arbitrary powers by coming with "interpretations," "extended definitions," or "legal theories."

> If you think the lawmakers and regulators will throw their hands up and say geez, it's technically legal, carry on, you're sorely mistaken.

Re: Discord bans r/WallStreetBets server, subreddit went private for a while

#900

Post by TheRealDunkirk » Thu, Jan 28, 2021, 1:19 PM UTC

thr0waway2 wrote: post #874

cik wrote: post #761

There is some brilliant analysis on WSB, some rubbish - the usual. But there was great analysis on this post a few hours ago: https://old.reddit.com/r/wallstreetbets/comments/l6n4ay/the_... Assuming it (like others) gets taken down, here's a copy+paste with some cleanup: Note that Discord has had significant investment from private equity funds including FirstMark Capital, Greenoaks Capital Partners, Index Ventures,…

Mate, every medium-sized company and above has an investment by PE and VC. You can literally pull any company with above $10 mm EBITDA and there will be no more than two degrees of separation between them and Steve Cohen/any other big financiier

Then this reduces to that old adage that, if you win big in the lottery, you need to put every significant law firm in your area on retainer, so that local people can't find a lawyer to sue you. If you just put a bit of money in every up-and-coming technology company, then you get to pull their strings when you need a favor. Very smart.