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

A SVB short seller explains red flags he saw months ago

fortune.com

Post reply on HN
Print view View original

161–170 of 186 posts

Re: A SVB short seller explains red flags he saw months ago

#161

Post by eru »

gmiller123456 wrote: post #134
kklisura wrote: post #83

Earlier quoted context omitted.

Thanks for the explanation! What happens when someone shorts a stock and then the company goes under? In this case of SVB, you short a stock, company gets taken by FDIC, trading is halted and I'm assuming the company will be sold/dissolved? So what happens with the shorts? Edit: Answered already by someone in other thread https://news.ycombinator.com/item?id=35107107

At that point, the stock is worthless and the borrower doesn't have to return it. They keep all of the money from the initial sale.

It's a bit more complicated.

Companies are often in limbo for a long time before they officially go under.

The borrower has to keep paying borrow costs during that time. Which makes shorting companies that go down rather risky.

Re: A SVB short seller explains red flags he saw months ago

#162

Post by eru »

eadmund wrote: post #85
notafraudster wrote: post #42

Earlier quoted context omitted.

When you buy a stock, you pay money and someone else gives you a stock. Once you have it, you can hold it for as long as you want. Its value can go up or down. When you sell, you get money, which might be less or more than what you paid. If the value goes to zero, you can no longer sell and you will never get any money. When you short a stock, you are basically selling a stock you don't have. Thus you get money and o…

> someone else unknowingly gives you a stock for free and then you sell it Lends it for a fee, right?

Also not 'unknowingly'.

Re: A SVB short seller explains red flags he saw months ago

#163

Post by eru »

notafraudster wrote: post #42
scscsc wrote: post #28

Could anyone in the know explain how "shorting" works?

When you buy a stock, you pay money and someone else gives you a stock. Once you have it, you can hold it for as long as you want. Its value can go up or down. When you sell, you get money, which might be less or more than what you paid. If the value goes to zero, you can no longer sell and you will never get any money. When you short a stock, you are basically selling a stock you don't have. Thus you get money and o…

> (in practice what happens is someone else unknowingly gives you a stock for free and then you sell it, and they get an IOU for a share of the stock later; but let's not worry too much about the mechanics)

That's a mis-characterisation. What makes you think the counterparty lends you the stock unknowingly?

> The reason shorting is permitted is because [...]

You forgot the most important reasons:

First, why forbid voluntary transactions between people? Stock lending is an activity between consenting adults.

Second, short selling is a way to finance muckracking and investigations. Short sellers are the only people with an incentive to burst manias. They are an important mechanism for the market to regulate itself.

Re: A SVB short seller explains red flags he saw months ago

#164

Post by eru »

junon wrote: post #72
notafraudster wrote: post #42

Earlier quoted context omitted.

When you buy a stock, you pay money and someone else gives you a stock. Once you have it, you can hold it for as long as you want. Its value can go up or down. When you sell, you get money, which might be less or more than what you paid. If the value goes to zero, you can no longer sell and you will never get any money. When you short a stock, you are basically selling a stock you don't have. Thus you get money and o…

This is the clearest explanation I've ever read of this. Thank you.

Alas, it's also not quite right.

Eg 'in practice what happens is someone else unknowingly gives you a stock for free':

Someone else willingly and _knowingly_ loans you the stock, and _charges_ borrow costs. As a private investor you can participate in stock lending, just check with your broker. Index funds are often more than happy to loan out their shares, partially because it's one of the few ways they have to make extra money.

(Also maybe partially because it helps offset their impact on the market. If a new company makes it into the S&P 500 and all of a sudden index funds have to own 20% of that company, you might expect prices to go up in _anticipation_, ie before the index fund can buy. But if at the same time the same 20% of that company's stock becomes available for loan and thus short-selling, that might help counteract this move.)

See good old Wikipedia https://en.wikipedia.org/wiki/Short_(finance) for more.

Re: A SVB short seller explains red flags he saw months ago

#165

Post by landemva »

vajrabum wrote: post #149
IG_Semmelweiss wrote: post #124

>>>don’t know how it all shakes out, or at the end of the day where that money ended up and where it went,” he says. I'm going to take a stab - the money ended up at the issuer tbill or mbs, that has been funding the profligacy of the feds with very low interest rates. In the meantime, fed stakeholders will declare a dividend and pay themselves for the priviledge of keeping musical chairs going

The federal reserve dividends are set by statute and are an unvarying 6%/yr and have been since 1913. So, in this case, the 'fed stakeholders' are the US Congress. Moreover the amount of stock owned by member banks is also set by statute at 6% of the bank's capital plus surplus with the share price set at $100/share also by law. Banks are required by law to buy a certain amount of stock and they can't buy or sell the…

> the whole purpose of the fed is to ensure that we don't have a systemic, cascading bank failure

I thought they set (or manipulate) the price of money via interest rates. And they help provide liquidity to primary dealers of US Treasury debt which helps govt ignore persistent budget deficits. They also hold USA's gold on their balance sheet and there hasn't been a full audit since ..?

Re: A SVB short seller explains red flags he saw months ago

#166

Post by jnwatson »

mynameisvlad wrote: post #126
jnwatson wrote: post #118

Earlier quoted context omitted.

If someone had deposited $20 billion last Monday, they would have been fine. In a way, it did depend on money flowing in exceeding money going out.

A $20 billion deposit would have saved them, yes. But that doesn’t make it a pyramid scheme. $20 billion can fix a lot of problems. If a person is on the verge of bankruptcy and they get a cash infusion that saves them, they have not magically become a pyramid scheme. The fact that money helps fix a massive financial problem does not indicate something is a pyramid scheme, just that they have a massive financial prob…

Any system that requires new clients to pay for existing clients’ outflows is by definition a pyramid scheme.

Re: A SVB short seller explains red flags he saw months ago

#167

Post by mynameisvlad »

jnwatson wrote: post #166
mynameisvlad wrote: post #126

Earlier quoted context omitted.

A $20 billion deposit would have saved them, yes. But that doesn’t make it a pyramid scheme. $20 billion can fix a lot of problems. If a person is on the verge of bankruptcy and they get a cash infusion that saves them, they have not magically become a pyramid scheme. The fact that money helps fix a massive financial problem does not indicate something is a pyramid scheme, just that they have a massive financial prob…

Any system that requires new clients to pay for existing clients’ outflows is by definition a pyramid scheme.

I mean, that’s not the definition of a pyramid scheme at all, but go off sis.

There is a very specific definition and it is not “ Any system that requires new clients to pay for existing clients’ outflows”

Re: A SVB short seller explains red flags he saw months ago

#168

Post by tigershark »

filoleg wrote: post #158
nzealand wrote: post #156

Earlier quoted context omitted.

Bleecker Street Research is a hedge fund that has been shorting since 2014. They wouldn't be in business if they were only lucky once. Shorts perform significantly more analysis than longs, as they have to have great timing in addition to being directionally correct. In the article, Bleecker are not making any specific predictions, just explaining their reasoning for shorting this stock. Their one prediction is "This…

> Bleecker Street Research is a hedge fund that has been shorting since 2014. They wouldn't be in business if they were only lucky once. I disagree. Their model is similar to VCs in a way. Hedge funds don't care about the number of times they were correct vs. wrong, they care about the wins from the correct bets being more than losses from the bets that went wrong. It goes even further, if you think about what the po…

No their model has nothing to do with VC. Maybe it would be useful if at least you read the definition on Wikipedia before trying to pass completely incorrect notions as truth?

https://en.m.wikipedia.org/wiki/Hedge_fund

Re: A SVB short seller explains red flags he saw months ago

#169

Post by dustedcodes »

croes wrote: post #133
dustedcodes wrote: post #115

Earlier quoted context omitted.

Not really, because people who didn’t short SVB probably didn’t look at them in more depth, so it’s not survivorship bias. It’s just a case of we looked where others didn’t look so we discovered something, and this article is about that something.

I'm thinking of the times they short other companies because of the same red flags but lost in the end. To make a silly example, if I short every company when it's CEO wears a red tie and than one of these goes down I get interviewed and can explain my great red flag I used.

> if I short every company when it's CEO wears a red tie

No matter how ridiculous your strategy may sound, if this is how you successfully grow your fund over many years then perhaps it's a great red flag and not just survivorship bias, so let's do an interview and hear your thoughts on this topic.

Re: A SVB short seller explains red flags he saw months ago

#170

Post by tigershark »

mike_d wrote: post #5

This is all you needed to know to short SVB a month ago: https://twitter.com/WatcherGuru/status/1634246217226919937

There is also an inverse Cramer tracker to bet against King Mierdas: https://nypost.com/2023/03/03/inverse-cramer-etf-lets-invest...
Post reply on HN