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A SVB short seller explains red flags he saw months ago

fortune.com

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

#181

Post by otterley »

gizmo wrote: post #180
otterley wrote: post #175

Earlier quoted context omitted.

My point is about banking as a business model being mischaracterized as a Ponzi scheme, not about SVB’s particular level of risk exposure. > Regular banks don't have the problem of having billions of dollars in deposits but no way to put that money to work SVB chose a way to put that money to work, but they miscalculated what would happen to the bond market. I don't know how or why they overexposed themselves to this…

SVB literally needed a constant stream of new startup customers to cover the withdrawals of their current customers. Maybe you don't like the word ponzi, but it's an accurate description of the dynamic at play. Other banks don't have this problem because they don't have money-losing startups as their core customer base. VC investment is highly sensitive to interest rates. Always has been, and everybody knows this. In…

> SVB literally needed a constant stream of new startup customers to cover the withdrawals of their current customers.

Isn't it true of any bank that experiences a sudden and unexpected flood of withdrawals that they need an infusion of cash to cover them? Whether they get the cash from new depositors or by liquidating investments, the cash has to come from somewhere.

I think you're mistaking a bad investment decision for a criminal act and intent, and nobody is claiming SVB of a crime at this point in time; the evidence isn't there so far. Every bank invests cash deposits in a mix of liquid and illiquid investments, and the illiquid investments often can't be liquidated quickly, if at all. (Think mortgages.) As I said, that is the business model of a bank.

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

#182

Post by nzealand »

filoleg wrote: post #178
tigershark wrote: post #168

Earlier quoted context omitted.

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

You are missing the point I was trying to make. I was not implying that VC and hedge funds operate similarly or even have the same mechanisms. I was trying to say that their success metric is the same: the total amount of dollars gained, not the number of bets on companies (VC) or the number of positions (hedge fund) that worked out.

But that is where you are wrong.

VCs can be wildly successful making 999 losing bets, as long as one bet is a 100 bagger. VCs are running off imperfect information, they don't know which horse will be a winner, so they spread their bets. The more bets the better.

Short hedge funds are betting that they know more than Mr Market, one of the most efficient pricing mechanism known to man. A long fund can be no smarter than a monkey throwing darts, and it still does well. A short fund needs to be the smartest person in the room. They go deep, to find an edge that no one else but them has spotted. So they are highly concentrated, because you just can't go that deep on more than a handful of companies.

To say a short sellers insight is not worth anything because they just got lucky once is incredibly... short sighted?

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

#183

Post by otterley »

otterley wrote: post #175
gizmo wrote: post #155

Earlier quoted context omitted.

SVB is not like other banks. Ordinary banks don't have catastrophic interest rate exposure. Regular banks don't have money burning startups as their main customer base. Regular banks don't have the problem of having billions of dollars in deposits but no way to put that money to work. If you think SVB is a regular bank practicing accepted business models I'm not sure you appreciate how unusual SVB is in terms of thei…

My point is about banking as a business model being mischaracterized as a Ponzi scheme, not about SVB’s particular level of risk exposure. > Regular banks don't have the problem of having billions of dollars in deposits but no way to put that money to work SVB chose a way to put that money to work, but they miscalculated what would happen to the bond market. I don't know how or why they overexposed themselves to this…

I wanted to add that I learned today that SVB was operating without a Chief Risk Officer between April 2022 and January 2023. And apparently the former CRO sold $4M worth of stock immediately before she left. (Source: https://fortune.com/2023/03/10/silicon-valley-bank-chief-ris...)

That doesn't look good.

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

#184

Post by llampx »

nzealand wrote: post #159
filoleg wrote: post #158

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. 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…

With all due respect, you have no idea what you are talking about. A traditional hedge fund is the opposite of a VC. VC's want huge gains, which means huge volatility. Traditionally hedge funds minimize volatility rather than maximize returns. Traditional hedge funds are for those who care more about wealth retention during down times than increasing wealth during uptimes. The maximum theoretical gain from shorting i…

> The maximum theoretical gain from shorting is 100%. A stock can only go to zero. If only 10% of your shorts are wildly correct and go to zero, you just made 10% on that one bet.

That's one way to look at it. A stock can only go down 100%. But shorting can make tons of money because:

a) stairs up, elevator down, it takes shorter amount of time to get the same price movement.

b) leverage, corollary of (a).

c) A stock going from 400 to 200 is a 50% move, from 200 to 400 is a 100% move, in terms of points its exactly the same so you earn the same amount.

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

#185

Post by pas »

napsec wrote: post #179
pas wrote: post #177

Earlier quoted context omitted.

> They just made a huge return on a short play that most people never saw coming. Debatable. The amount is not disclosed. Also just in this HN thread there were some talk about how even if someone saw it coming taking the actual position was a bit risky (because borrowing the stock in a high-interest rate env can easily lead to closing the position too soon). > This establishes who the short seller is, when the inter…

> Debatable. The amount is not disclosed. Also just in this HN thread there were some talk about how even if someone saw it coming taking the actual position was a bit risky (because borrowing the stock in a high-interest rate env can easily lead to closing the position too soon). Regardless of how much money they actually made on the play, they can now openly claim to be the ones who saw this coming. The marketing v…

Thanks for responding!

I'm familiar with the idioms (and there's the picture of people literally standing in front of the HQ), and them being common, I just don't think they are good choices here. Just as I don't think referring to the regulator without naming it is a good practice. It's just too vague.

> But I objectively I don't think your criticisms land.

Fair, matters of style preferences are subjective anyway :)

The reading experience of your comment was much more coherent to me than the article's.

I know it's a strange claim, especially after spending half a page discussing somewhat unfruitfully what's "my beef" with the article.

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

#186

Post by rvz »

karaterobot wrote: post #150
rjtavares wrote: post #99

Earlier quoted context omitted.

It's not a pyramid scheme. A pyramid scheme can only continue it people keep putting money into it. SVB didn't need more money coming in, they just couldn't handle money coming out.

Doesn't it seem like the definition of "pyramid scheme" is in the middle of expanding to mean roughly "any finance-related issue that seems a little shady to me"? I see it being applied so broadly when it's by rights a pretty specific and identifiable concept.

Yes. It IS a pyramid scheme. But it works like a Ponzi.
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