Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

Hedge fund Melvin sustains 53% loss after Reddit onslaught

arstechnica.com

Post reply on HN
Print view View original

141–150 of 410 posts

Re: Hedge fund Melvin sustains 53% loss after Reddit onslaught

#141

Post by motohagiography »

015a wrote: post #89
mathattack wrote: post #73

Earlier quoted context omitted.

This isn’t that big a deal. LTCM was levered up 100 to 1 when it got bailed out on its 3 billion notional. Bear and Lehman were levered up 30 to 1 on their billions of assets. I don’t see that kind of leverage or counterparts risk here. A hedge fund or two blows up. Maybe they take a small investment bank with them. The system can survive that shock.

I agree; its important to keep in mind that GME's total market cap, even after all of this, is only ~$22B. A 140% short position is bad (even if that's the real number, which I doubt), but in the scope of all things, not world-ending. Some hedge funds will die from this, and we'll probably have a few weeks of overall market downturn similar to last year, but we're not talking about "the entire US real estate market"…

Indeed, I'm saying it's not the cost of if they do a bailout, it's the cost if they don't. Maybe I've overestimated the impact of a ~13bn fund evaporating and breaking a clearing house and the liquidity crunch from all their leverage and the linked derivatives. Not sure what hedge fund leverage is these days. Surely it can't be at 2008 levels. We know about Melvin, not sure about others in there.

As I interpret it, it's not clear what institutions have exposure to these at-risk funds and their leverage who are still short GME, and this is what causes liquidity problems. Not 2008 level, but could be Fed intervention level.

The admin can bail out those funds for a trivial line item by taking on the RH user shares. If they don't intervene, I'm suggesting this is the domino for a crunch.

Re: Hedge fund Melvin sustains 53% loss after Reddit onslaught

#142

Post by PurpleFoxy »

gambiting wrote: post #87
tpmx wrote: post #81

Earlier quoted context omitted.

> %53 What's with that weird way of writing a percentage numeric? Some weird "i'm an insider, trust me" signalling?

In some languages you put the percentage sign at the front - like, in Turkish for instance[0]. I mean, it's not that weird. It's how currency symbols move to either front or behind of a number. Why is it $300 but 300zł? [0] https://forum.wordreference.com/threads/percent-sign-positio...

It’s generally said that the dollar sign is in front to stop people adding extra numbers to written cheques. Since the end of the number is finished with .00 and the start is $ there is no room to add anything extra.

Re: Hedge fund Melvin sustains 53% loss after Reddit onslaught

#143

Post by aerovistae »

tpmx wrote: post #81
motohagiography wrote: post #58

%53, so far. The problem with the short interest being %140 is that the notional value of shares to cover that extra %40 is in fact, infinite. It's literally everything those funds can sell, borrow, and get bailed out to cover their position. My prediction last week was this has system wide implications, and I'm thinking 1. the Fed will intervene, leverage Robinhood's EULA, and buy out everyone's shares at a price th…

> %53 What's with that weird way of writing a percentage numeric? Some weird "i'm an insider, trust me" signalling?

Wow.

Re: Hedge fund Melvin sustains 53% loss after Reddit onslaught

#144

Post by kps »

gambiting wrote: post #87
tpmx wrote: post #81

Earlier quoted context omitted.

> %53 What's with that weird way of writing a percentage numeric? Some weird "i'm an insider, trust me" signalling?

In some languages you put the percentage sign at the front - like, in Turkish for instance[0]. I mean, it's not that weird. It's how currency symbols move to either front or behind of a number. Why is it $300 but 300zł? [0] https://forum.wordreference.com/threads/percent-sign-positio...

Does Turkish say “out of ten, four” rather than “four out of ten”?

Re: Hedge fund Melvin sustains 53% loss after Reddit onslaught

#145

Post by tpmx »

aerovistae wrote: post #143
tpmx wrote: post #81

Earlier quoted context omitted.

> %53 What's with that weird way of writing a percentage numeric? Some weird "i'm an insider, trust me" signalling?

Wow.

Wow what? Yes, I wrote that people here tend to speak English rather than Turkish in this forum. Horrible me.

Re: Hedge fund Melvin sustains 53% loss after Reddit onslaught

#146

Post by kasey_junk »

mmahemoff wrote: post #137
kasey_junk wrote: post #116

Just for context Melvin has returned better than 30% returns yearly since 2014. There is a very good chance if you are in their fund you’ll look at the total return and be quite happy with the outcome, especially if their risk is decorelated with the other parts of your portfolio.

A rough calculation assuming 35% for 5 years is they made 1.35^5, about ~4.5x. Now it's ~2.2x since they lost 53%. The good news is you didn't get wiped out, but it's about what a "boring" S&P 500 index would have earned since 2014, and would be worse than the index if you had invested after 2014.

People that invest in hedge funds are looking for risk differences as much as total returns.

A fund that returns the same as the S&P but has a completely different risk profile is a very strong win.

Re: Hedge fund Melvin sustains 53% loss after Reddit onslaught

#147

Post by gruez »

MichaelApproved wrote: post #21
newacct583 wrote: post #14

Earlier quoted context omitted.

The stock is currently around $300, up by a factor of five from last week and much more than that over its historical base. The question should be who isn't shorting GME, not leading questions about a conspiracy theory as to whether or not Melvin actually closed its shorts or not. I mean, I haven't shorted GME personally. But I've absolutely joked with friends that it's an obvious play. Maybe I should.

If you can find shares to borrow, are willing to pay the 30% fee, and can handle the swings of a spike higher, go for it. What will last longer, your solvency or the market’s irrationality?

>[...] are willing to pay the 30% fee [...]

that's per year. If it goes down 30% half a year from now you'll still be ahead.

Re: Hedge fund Melvin sustains 53% loss after Reddit onslaught

#148

Post by SpicyLemonZest »

gnarbarian wrote: post #124
wdn wrote: post #115

Earlier quoted context omitted.

Of course there are other big players that drive it. Retail investors are in no way able to move price.

Half of all robinhood accounts held GME. Nevermind this is incorrect.

I believe this is false. The Vice story that started that rumor (https://www.vice.com/en/article/m7ak7y/robinhood-stops-users...) has retracted the claim.

Re: Hedge fund Melvin sustains 53% loss after Reddit onslaught

#149

Post by kshacker »

fractionalhare wrote: post #43
Judgmentality wrote: post #11

Earlier quoted context omitted.

The general assumption on WSB is that Melvin Capital is lying and that they haven't closed their positions. I haven't seen any evidence to suggest they've closed it, and have seen circumstantial evidence suggesting they have not. You don't spend money on ads saying "we no longer have a financial stake in this stock" unless you, you know, have a financial stake in this stock. Considering this is a hedge fund, I just a…

> Considering this is a hedge fund, I just assume they're lying because, you know, it's a fucking hedge fund. If this is your prior for approaching evidence, you're always going to catch big finance lying. But not because you're actually calibrated on evidence. And you won't be able to distinguish between actual fraud and baseless conspiracy.

Well this has been going around on the reddits today. See for yourself: https://www.youtube.com/watch?v=gMShFx5rThI

> Says Cramer: What's important when you're in that hedgefund mode, is to not do anything remotely truthful, because the truth is so against your view, so its important to CREATE A NEW TRUTH to develop a fiction...the great thing about the market is it has absolutely nothing to do with the actual stocks

Re: Hedge fund Melvin sustains 53% loss after Reddit onslaught

#150

Post by kasey_junk »

gruez wrote: post #126
kasey_junk wrote: post #116

Just for context Melvin has returned better than 30% returns yearly since 2014. There is a very good chance if you are in their fund you’ll look at the total return and be quite happy with the outcome, especially if their risk is decorelated with the other parts of your portfolio.

>Just for context Melvin has returned better than 30% returns yearly since 2014 That's funny because in another thread someone mentioned that's usually how a lot of "good" investment strategies go. They return above-average returns when the times are good, but they get wiped out every few years/decades by the tail risk.

Yep. Extremely common pattern. So long as the tail risk is diversified compared to other options that is a perfectly good outcome for many asset managers.
Post reply on HN