291–300 of 312 posts
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There is nothing magical about 100%. If it's useful in 99% then it's useful in 101%. Short squeezes and other things happen also before 100% of stocks are shorted. Shorts relative to float seems more important.
No, there is something magical about derivatives that in general provide questionable value.
Futures are derivatives and seem obviously useful.
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How does the common sense definition of "naked short" differ from the technical one?
"Common sense" may have been an overstatement... but what I meant was: Assuming that if shorts require traders to borrow the stock, shorting more than 100% of it is impossible.
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No, there is something magical about derivatives that in general provide questionable value.
Are shorts a derivative? Futures are derivatives and seem obviously useful.
And I wouldn't say futures are "obviously useful". They are "useful" in the sense that if you bet on the future and bet correctly, you win, but does the overall economy win? Or is it just a layer that creates more winners and losers without those winners actually providing more value than they otherwise would've? Futures are effectively a zero sum game, and I don't think we should in general encourage those. Futures and shorts are basically just gambling. Would you say gambling (when applied to sports / etc) is economically useful?
What we should be encouraging is positive sum games / win-wins.
Recent events have a lot of people confusing high short interest with naked shorting. A stock can have short interest greater than 100% without any naked shorting. How is this possible? The textbook definition of a "short sale" is that someone borrows stock and then, literally, sells it short. The buyer of the stock is free and clear to do whatever they want with the stock, including re-lend it for another short sale…
http://counterfeitingstock.com/CS2.0/CounterfeitingStock.htm...
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But as the original stock holder what happens when if the loanee defaults? The broker just calls you up and says "you had the share in your account but we lost it, here's some money for your troubles?" It seems like the holder wouldn't care if they were just selling it, but if you were transferring the stock out to another brokerage, they just give you the alleged ask price of the shares (which actually doesn't exist…
>The broker just calls you up and says "you had the share in your account but we lost it, here's some money for your troubles?" Pretty much. Devils advocate: if you know you own all the stock, and someone offers to sell you stock, you know the deal cannot actually be completed. So at best you're owed your money back for the "extra" stock you "bought". If you own 101% you should know you cannot actually transfer or vo…
Isn't this also a loophole that can be used to "steal" stock from someone who otherwise doesn't want to sell: their share is loaned by their broker to B who sells it to you, and then you just refuse to sell it back to be returned, and some random middle man is on the hook and you've managed to purchase shares that weren't for sale?
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I don't understand how this can work. The broker loans the share to person B. Person B sells the share to person C (as B wants to short the stock). How can the Broker recall the share: they have no relationship with the current owner of the stock. Even if the broker demanded B rebuy a share to return the stock, since the original guy owner all liquid shares, it would only take one other share holder to holdout to mak…
They still recall them from person B, who has no choice but to buy them at whatever price is available to cover their position.
I understand shorts are said to be unbounded risk, but surely there's some escape hatch: if the top hedge fund shorted 30% of some penny stock presumably a competitor that buys out 71% of shares doesn't get to take over the whole hedge fund by only selling that last share back at a price of 100% of the funds value: instead the fund will default on their recall responsibility and pay out some reasonable amount (and some true end stock holder just surprise loses their share?)
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>The broker just calls you up and says "you had the share in your account but we lost it, here's some money for your troubles?" Pretty much. Devils advocate: if you know you own all the stock, and someone offers to sell you stock, you know the deal cannot actually be completed. So at best you're owed your money back for the "extra" stock you "bought". If you own 101% you should know you cannot actually transfer or vo…
Thanks for clarifying. It seems like this should be a problem for cases where not just one person owns all the stock but for any fairly illiquid stock: if someone holds 40% of outstanding shares, the brokerage loans it and then it's sold, if there's some kind of takeover or aggressive purchase then it seems like a collection of others who now hold 61% and aren't listing their shares would also cause this "lost share"…
You have to be a pretty big organisation and post a lot of collateral to borrow and sell stock. It's also assumed you'll sell it on exchange, if you do so you don't know the buyer though I guess you could arrange it? So a really sneaky player willing to sacrifice a lot of collateral could probably do it.
I think the main safety catch here is that if you hold a significant percentage of a company and you want those voting rights, talk to your broker to make sure its not lent without your knowledge...
I wonder if this has ever happened?
Edit:
I spent some time googling and found this:
https://www.quora.com/What-happens-to-a-short-seller-who-can...
It's quora but it seems pretty good. It does seem that if it's lent and not returned you get cash or wait for some to become available. Sucks if you wanted to vote the shares...
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CPI matches other measures of inflation like http://bpp.mit.edu pretty well. People who think inflation is high are cranks - the history of cranks goes from Austrians, to Shadowstats, and currently is on Chapwood Index. If we had inflation at 10% the economy would be smaller now than it was in 2010. It's under 2% and we can't get it up no matter how hard we try (not that hard so far.) > If you look back the top margi…
To be fair I actually thought that inflation was measured using a fixed basket of goods. Apparently that was changed in the 90s. An example I read (of which I am not sure if it is entirely accurate) was: "if steaks become too expensive, its weight in the basket will be reduced because people are expected to buy more chicken instead. this results in lower inflation estimates". If true, why do you feel a fixed basket s…
For instance, industrial agriculture, the farm bill subsidizing corn to below the cost of production starting in 1933, and many other things may change the relative cost of beef over time as compared to, for instance, pork and chicken. That's not inflation, and as such it doesn't really make sense to define inflation in terms of these factors which affect only a specific industry.
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I'm pretty sure that's how the stock market is actually intended to work. This should be obvious if you consider things like dividends. There needs to be a fixed number of shares, each with a clear owner for that to work. This isn't really true. Let's say a company has 100 shares and they decide to issue a $1 dividend. If there is no shorting, the company just pays out $100 and everything is done. But let's say there…
So a company could discourage shorting of its stock by arranging dividends to be spread over the year? Paying out to 1/365th of shareholders each day for example.
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> As you point out, an IOU for a share doesn't pay out a dividend from the company Huh? They most definitely do. That's actually one of the simplest non-objections to naked shorting; in the system we have, the short seller must pay the dividend to the person who loaned them the stock. In a naked short, the short seller would pay the dividend to the person who bought the stock. Voting rights don't transfer so cleanly;…
Note that I said "from the company". My point was that the company only pays dividend to real shares, and the stock market intends to track ownership of those real shares. This does not prevent lenders and short sellers to replicate dividends from IOUs of shares via contractual agreements, but it is not the same thing.