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> 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

by twic 6y ago

> 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.

ClumsyPilot 6y ago
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
- cheph 6y ago
  How does a low share price "destroy the company"?
  - serf 6y ago
    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-and-politics/2011/08/does-it-matter-to-a-company-if-its-stocks-lose-value.html https://slate.com/news-and-politics/2011/08/does-it-matter-t...
    - cheph 6y ago
      > 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_allegations https://en.wikipedia.org/wiki/Lehman_Brothers#Short-selling_...
- thr0waway2 6y ago
  That's just building a large position. I don't think they expected to run the company into the ground by merely shorting it, that's not how market impact works. These firms generally try to minimise market impact as opposed to r/wsb who try to maximise it
- fractionalhare 6y ago
  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.
  - oneeyedpigeon 6y ago
    I don't know how to verify this, but I've heard one source claim that firms continued to short once it was already over 100%. Even if that's not strictly collusion, it sounds — to my admittedly untrained ear — like a position that the system should want to avoid.
    - fractionalhare 6y ago
      I think it's reasonable for people to want to limit that. The trouble is that you would need to require brokers to prevent short selling stocks that have been already been borrowed and short sold. Aside from tracking a tree of stock ownership changes at the brokerage level, this would de facto create two similar but different assets for every equity: those which are "clean" (have never been sold short, or the short position is closed) wnd those which are "dirty" (have been sold short at some point and the position is not closed). This is trickier than it might sound, because you are in some sense restricting the rights and capabilities of some subset of the shares. That has valuation implications. I am not saying it can't be done or even that it's undesirable; just that the mechanics of this are nontrivial to enforce.
    - twic 6y ago
      There's nothing mechanically wrong with short interest being over 100%. It just means that some shares will have to change hands more than once to close the shorts. This is a very widespread misunderstanding.
- short_sells_poo 6y ago
  Intent is very important and this keeps being lost on the layman crowd. If I go to a widely publicized open forum and say: "Let's go and squeeze the shorts so that they go bankrupt, oh and here's a picture of me doing just that." that's market manipulation and in many corners of the world, that's illegal. As in, you go to jail illegal. If I short a stock because I genuinely believe it's overpriced, that's perfectly legal. Beyond this, I'm sure there are many funds who try and successfully manipulate the markets, but they try to do it quietly. To do in blatantly in the open is basically rubbing it in the regulators face and giving them no choice but to crack down. Nobody would notice a bunch of idiots doing this quietly. A 1 million strong mob hivemind will get noticed and will leave no choice for regulators but to come down hard on them. This is not rocket science. It's the same sort of crowd who planned to storm the capitol, meticulously documented the evidence, posted it online (including confirmation of identity through driving licenses) and then went ahead and did the deed. They basically handed all the evidence to the feds on a silver platter.
  - SuoDuanDao 6y ago
    What is the difference between your argument and a saying "the big boys know how to benefit from the corruption inherent in the system and the regulators would rather persecute a bunch of powerless people than confront the corruption in their own industry"?
    - short_sells_poo 6y ago
      This is not about knowing how to benefit from corruption. This is like basic common sense. I'm not engaging in whataboutism or trying to excuse bad behavior. Market abuse, including market manipulation should be punished irrespective of who is doing it. I was pointing out the fact that if you go and do it and then brag about it in a public forum, don't be surprised that you get dinged. It's literally like robbing a bank and then going to the police to hand in the video evidence, only to be surprised when the policemen are not impressed. Yes the big guys should be prosecuted. But perhaps if you didn't explicitly stand on the corner shouting "I'm going to rob a bank and all you guys should also rob banks", the authorities wouldn't be on to you.
- twic 6y ago
  No, that is absolutely not market manipulation. That is the market working exactly as designed.
ericmay 6y ago
> Let's wait six months. This story is being badly reported all over. I suspect the hedge funds will mostly be fine. Right. All of a sudden the WSJ is publishing an article about the founder getting kicked out where he claims the subreddit is full of white supremacists. Really? Give me a break. FT is claiming many are “alt-right” all of a sudden. Bad reporting all around. > Yes, it is, it's an abusive short squeeze, which is market manipulation. I’m not sure I buy it, and I’m not sure there is a fundamental difference between dinner club (as Matt Levine wrote) where hedge fund managers talk about their favorite stock picks and people on an open forum openly talking about companies that they think should be purchased or sold. Is it not market manipulation when a short seller publishes a scathing report, or when a CEO goes on CNBC or Bloomberg and gives a good opinion of their company or a different one? Which has more reach? I think the most sensible and straightforward thing is further regulation of hedge funds and large financial institutions. If they are going to act irresponsibly and then cry about it, well, maybe they need adult supervision? The positions of hedge funds versus, uh, retail traders on an Internet forum is an unequal one from the start, anyway. Not to mention the ridiculous media blitz coming from institutions. Jeez what a way to really create a lack of trust and further erode our democracy. If I find a drug dealer working for the FT can I write an article about how some people who work there are drug dealers? It’s obvious what they’re doing.

by twic 6y ago

ClumsyPilot 6y ago

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

cheph 6y ago
How does a low share price "destroy the company"?
- serf 6y ago
  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-and-politics/2011/08/does-it-matter-to-a-company-if-its-stocks-lose-value.html https://slate.com/news-and-politics/2011/08/does-it-matter-t...
  - cheph 6y ago
    > 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_allegations https://en.wikipedia.org/wiki/Lehman_Brothers#Short-selling_...
thr0waway2 6y ago
That's just building a large position. I don't think they expected to run the company into the ground by merely shorting it, that's not how market impact works. These firms generally try to minimise market impact as opposed to r/wsb who try to maximise it
fractionalhare 6y ago
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.
- oneeyedpigeon 6y ago
  I don't know how to verify this, but I've heard one source claim that firms continued to short once it was already over 100%. Even if that's not strictly collusion, it sounds — to my admittedly untrained ear — like a position that the system should want to avoid.
  - fractionalhare 6y ago
    I think it's reasonable for people to want to limit that. The trouble is that you would need to require brokers to prevent short selling stocks that have been already been borrowed and short sold. Aside from tracking a tree of stock ownership changes at the brokerage level, this would de facto create two similar but different assets for every equity: those which are "clean" (have never been sold short, or the short position is closed) wnd those which are "dirty" (have been sold short at some point and the position is not closed). This is trickier than it might sound, because you are in some sense restricting the rights and capabilities of some subset of the shares. That has valuation implications. I am not saying it can't be done or even that it's undesirable; just that the mechanics of this are nontrivial to enforce.
  - twic 6y ago
    There's nothing mechanically wrong with short interest being over 100%. It just means that some shares will have to change hands more than once to close the shorts. This is a very widespread misunderstanding.
short_sells_poo 6y ago
Intent is very important and this keeps being lost on the layman crowd. If I go to a widely publicized open forum and say: "Let's go and squeeze the shorts so that they go bankrupt, oh and here's a picture of me doing just that." that's market manipulation and in many corners of the world, that's illegal. As in, you go to jail illegal. If I short a stock because I genuinely believe it's overpriced, that's perfectly legal. Beyond this, I'm sure there are many funds who try and successfully manipulate the markets, but they try to do it quietly. To do in blatantly in the open is basically rubbing it in the regulators face and giving them no choice but to crack down. Nobody would notice a bunch of idiots doing this quietly. A 1 million strong mob hivemind will get noticed and will leave no choice for regulators but to come down hard on them. This is not rocket science. It's the same sort of crowd who planned to storm the capitol, meticulously documented the evidence, posted it online (including confirmation of identity through driving licenses) and then went ahead and did the deed. They basically handed all the evidence to the feds on a silver platter.
- SuoDuanDao 6y ago
  What is the difference between your argument and a saying "the big boys know how to benefit from the corruption inherent in the system and the regulators would rather persecute a bunch of powerless people than confront the corruption in their own industry"?
  - short_sells_poo 6y ago
    This is not about knowing how to benefit from corruption. This is like basic common sense. I'm not engaging in whataboutism or trying to excuse bad behavior. Market abuse, including market manipulation should be punished irrespective of who is doing it. I was pointing out the fact that if you go and do it and then brag about it in a public forum, don't be surprised that you get dinged. It's literally like robbing a bank and then going to the police to hand in the video evidence, only to be surprised when the policemen are not impressed. Yes the big guys should be prosecuted. But perhaps if you didn't explicitly stand on the corner shouting "I'm going to rob a bank and all you guys should also rob banks", the authorities wouldn't be on to you.
twic 6y ago
No, that is absolutely not market manipulation. That is the market working exactly as designed.

ericmay 6y ago

> Let's wait six months. This story is being badly reported all over. I suspect the hedge funds will mostly be fine. Right. All of a sudden the WSJ is publishing an article about the founder getting kicked out where he claims the subreddit is full of white supremacists. Really? Give me a break. FT is claiming many are “alt-right” all of a sudden. Bad reporting all around. > Yes, it is, it's an abusive short squeeze, which is market manipulation. I’m not sure I buy it, and I’m not sure there is a fundamental difference between dinner club (as Matt Levine wrote) where hedge fund managers talk about their favorite stock picks and people on an open forum openly talking about companies that they think should be purchased or sold. Is it not market manipulation when a short seller publishes a scathing report, or when a CEO goes on CNBC or Bloomberg and gives a good opinion of their company or a different one? Which has more reach? I think the most sensible and straightforward thing is further regulation of hedge funds and large financial institutions. If they are going to act irresponsibly and then cry about it, well, maybe they need adult supervision? The positions of hedge funds versus, uh, retail traders on an Internet forum is an unequal one from the start, anyway. Not to mention the ridiculous media blitz coming from institutions. Jeez what a way to really create a lack of trust and further erode our democracy. If I find a drug dealer working for the FT can I write an article about how some people who work there are drug dealers? It’s obvious what they’re doing.