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A SVB short seller explains red flags he saw months ago
- skmurphy 4y agokey grafs As of Dec. 2021, SVB’s interest expense on its deposits was $62 million. By Dec. 2022, it was $862 million. By the end of this year, Wettlaufer was projecting it to be nearly $4 billion. When Silicon Valley Bank posted its annual report at the end of last month, non-interest-bearing deposit levels were clearly deflating. And it seemed like those figures would keep falling. Wettlaufer was projecting non-interest-bearing deposits might go down to $40 billion, from $80 billion, meaning that SVB would have had to come up with $32 billion somewhere else to fill that hole.
- United857 4y agohttps://archive.ph/pwQXA https://archive.ph/pwQXA
- vishnugupta 4y agohttps://finance.yahoo.com/news/silicon-valley-bank-short-seller-215643348.html https://finance.yahoo.com/news/silicon-valley-bank-short-sel...
- mike_d 4y agoThis is all you needed to know to short SVB a month ago: https://twitter.com/WatcherGuru/status/1634246217226919937 https://twitter.com/WatcherGuru/status/1634246217226919937
- apsurd 4y agothis guy is not comprehensible. i do know who he is, but wow... how times have caught up to, maybe both of us i guess.
- dylan604 4y agomy brain can't even focus on that. from the drunk guy running the camera on an unbalanced gimbal, to the extreme wide angle lens that makes me think the producer of the show used to make music videos for MTV, to any of the other whacked out things that goes along with the guy that can't even utter a sentence without tripping over his own words before he barely takes half a breath. (this sentence was written in a toned down style of the host's on the show)
- coolandsmartrr 4y agoMy thoughts exactly. He needs to train on his enunciation.
- cassonmars 4y agoAlways Inverse Cramer
- mahkeiro 4y agohttps://www.getquantbase.com/partners/inverse_cramer https://www.getquantbase.com/partners/inverse_cramer
- DrBazza 4y ago"14.39% return"
- _the_inflator 4y agoThis is hilarious and extremely sad at the same time.
- koolba 4y agoBut what do you when Cramer suggests buying the Inverse Cramer ETF?
- atomlib 4y agoMy eyesight rapidly deteriorated once I reached the second paragraph.
- racked 4y agoWhy?
- sho_hn 4y agoPaywall w/ blur filter.
- omegabravo 4y agofor anyone else suffering with poor sight, if you paste this in your console it should help. document.querySelector('.paywallActive').style='filter: none' of course reader mode also helps
- kqr 4y agoIs it not easier to select the paywall element in the inspector and delete it? Well, not easier than reader mode, of course, but easier than fiddling with styles.
- can16358p 4y agoFor the HTML-savvy, perhaps. But one-liner copy/paste/enter is an easier to instruct and practically apply for many.
- hoseja 4y agoThankfully (and hillariously), Firefox reader mode helps immensely with this specific vision impairment.
- differentView 4y agoThat can be cured with money.
- 4y ago
- didgetmaster 4y agoI couldn't find anywhere in the article where it gave an amount of the short position. Did this guy bet the farm on it? If so, he deserves praise (and the returns) for his insight. If, on the other hand, this was just one of dozens (or hundreds) of small short positions his fund invested in, then not so much. Anyone can bet small amounts all over the roulette table and then only tell their friends about the ones that won while ignoring all the ones that lost.
- silisili 4y agoIt specifically says at the end they refuse to give the amount. Given the research involved, and a well known firm, I'm sure it wasn't pocket change.
- didgetmaster 4y agoThey might have bet a million dollars on it, but if their normal short position is also around a million dollars, then I am not as impressed. If they wanted to show everyone how smart they were, I expected a quote something like: "We were so confident in our analysis that we invested 10x our normal short position in it!"
- arez 4y agoit's not about being smart or anything, they just explain how they figured it out, doesn't matter how much money they made, that's just focusing on the wrong things
- kqr 4y agoIt does matter, because it's very easy to construct an explanation for how you "figured it out" after the fact, if one of your hundred small bets happened to work out. The person doing it may even fool themselves!
- bredren 4y agoThere is a reason the interviewee pivots from questions about how big of a take to from the short to the situation “certainly not something to be celebrated.”
- triggercut 4y agoI remember listening to an episode of Odd Lots a couple of months back discussing how someone was using the the Fed Discount Window. https://podcasts.google.com/feed/aHR0cHM6Ly93d3cub21ueWNvbnRlbnQuY29tL2QvcGxheWxpc3QvZTczYzk5OGUtNmU2MC00MzJmLTg2MTAtYWUyMTAxNDBjNWIxLzhhOTQ0NDJlLTVhNzQtNGZhMi04YjhkLWFlMjcwMDNhOGQ2Yi85ODJmNTA3MS03NjVjLTQwM2QtOTY5ZC1hZTI3MDAzYThkODMvcG9kY2FzdC5yc3M/episode/YjU5NTQzM2QtMDgzOS00MjNmLTk2N2UtYWY4ODAxM2JjYTRh?ep=14 https://podcasts.google.com/feed/aHR0cHM6Ly93d3cub21ueWNvbnR... I'm not finance savvy enough to determine if this fits, but I've been wondering if some kind of event might follow
- loeg 4y agoAmusingly the interest rates episode from a couple weeks ago got into the relationship between deposits, customer interest rates, and rising rates on assets: https://podcasts.google.com/feed/aHR0cHM6Ly93d3cub21ueWNvbnRlbnQuY29tL2QvcGxheWxpc3QvZTczYzk5OGUtNmU2MC00MzJmLTg2MTAtYWUyMTAxNDBjNWIxLzhhOTQ0NDJlLTVhNzQtNGZhMi04YjhkLWFlMjcwMDNhOGQ2Yi85ODJmNTA3MS03NjVjLTQwM2QtOTY5ZC1hZTI3MDAzYThkODMvcG9kY2FzdC5yc3M/episode/MTRkMmY1MGYtM2EyZi00YzY5LWJjNzYtYWZiMTAxNWI1ODAx?sa=X&ved=0CAUQkfYCahcKEwjYpoj_n9T9AhUAAAAAHQAAAAAQAQ https://podcasts.google.com/feed/aHR0cHM6Ly93d3cub21ueWNvbnR...
- deleted 4y ago[deleted]
- i5heu 4y agoTLDR: Silicon Valley Bank (SVB), a lender and banker to the startup industry, was closed down by California financial regulators after a bank run triggered by its announcement that it was raising over $2 billion in capital through a share sale. SVB's downfall came as a result of a rapid change in liability composition, as interest rates rose and inflows of non-interest-bearing deposits at the bank fell below outflows. Non-interest-bearing deposits fell by $45 billion in 2022, forcing the bank to replace them with higher-cost liabilities, resulting in the bank being left with an empty bag and leaving the entire startup ecosystem frozen.
- windowshopping 4y agoJust wondering, why do posts like this consistently have an unpaywalled archive link as the top comment, and it's unreply-able? It almost seems automated except it's a different commenter every time. Is there some system detecting those comments and floating them to the top, then disabling replies? ( @dang )
- dochtman 4y agoI could see how they float to the top organically, so it might be just the unreplyable aspect that is automated?
- gpvos 4y agoI guess comments consisting only of a link are automatically set to be unreplyable? The posting and the floating to the top is just the normal posting and voting system, it seems to me.
- gpvos 4y agoHmm no, some link-only comments are replyable, so archive links must be handled specially.
- fwlr 4y agoI imagine it’s unreplyable to prevent hijacking - we all think we have something important to say, so there’s a temptation to put it as an unrelated reply to a top comment so more eyeballs see our comment. You’d want this in place regardless of whether the link is organically voted up or artificially pushed to the top for convenience.
- croes 4y agoIsn't it some kind of survivorship bias to ask the winners of such bets afterwards?
- 3np 4y agoYes. Their reasoning can still be interesting.
- kqr 4y agoBut is it more interesting than the reasoning of the losers? I'm tempted to say the losers' reasoning is more interesting. A winner's reasoning could be completely unrelated to the event at hand and we'd never know the difference. A loser's reasoning is definitely wrong in some way, so we can learn something from it.
- mym1990 4y agoGenerally yes, that’s how engineers figured out where to reinforce war planes so they could survive longer in battle. In markets the loser’s reasoning often comes down to poor timing. They see similar red flags but can’t quite catch the right time. Predicting markets is relatively straightforward, predicting when something will happen is infinitely harder :)
- kqr 4y agoI take issue with the characterisation of "poor timing" which makes it sound like a matter of accurately predicting an event occurring at some instant in time. Failure to do that teaches us comparatively little, much like failure to win the lottery. In reality, it's about picking a position that one can hold through various trajectories and that is profitable in most of the more likely ones. If one has assessed the actual trajectory at a lower probability than reasonable, that's still something we can learn from.
- mym1990 4y agoI mean I can give you that strategy right now: go buy index funds. You can be right 99% of the time and still lose money because the market always rewards based on risk. Conversely you can be right 30% of the time and make billions. With market timing you don't need to predict the instant something will happen, your time horizon really should depend on what your drawdown is. The predictions don't have to be single events, it can be a market environment. Timing a bear market when everyone is bullish, etc... Every time you short the market you effectively open yourself to infinite loss, whether you are leveraged or not. There are effective hedging strategies in place, but unless you're doing this for a living or a very serious hobby, its tough to figure all the pieces out. That is why staying on the buy side can be pretty helpful for not losing one's shirt.
- scscsc 4y agoCould anyone in the know explain how "shorting" works?
- eru 4y agoYou borrow some stock. You sell it. You wait a while. You buy the same stock again. You give it back. It's very similar to when you take a loan: You borrow some money. You 'sell' the money for goods and services. You wait a while. You acquire some money again. You give the money back. In both cases, you pay some interest while the loan is outstanding. (In both cases, you typically pay the interest with money. Instead of with small pieces of stock.) As always Wikipedia is worth a look: https://en.wikipedia.org/wiki/Short_(finance) https://en.wikipedia.org/wiki/Short_(finance)
- jpdb 4y agoA simple explanation is that you borrow a certain number of stocks, sell it, and re-buy at some point in the future (at a lower price hopefully) to return the number of stocks you borrowed. Imagine you think widgets that are worth $1 today are going to be worth $0.50 tomorrow. You say to me, "Hey jpdb, can I borrow 100 widgets and give them back to you tomorrow?" I say sure and you turn around and sell those widgets. Tomorrow, we meet up and you take your $100 and buy 100 widgets for the new price of $0.50 each. You return the 100 widgets you borrowed and you now have $50 in your pocket. In this example you have "shorted" widgets.
- settrans 4y agoShort selling on its own is trading on the hope that a stock goes down by borrowing shares from someone who owns them and immediately selling them. Your broker will match you to an owner who is willing to lend the shares if there are any available. To exit the trade, you buy back the shares you borrowed. Your profit from this trade is the stock's price when you entered the trade minus the price when you buy it back (i.e. you want to sell high and then buy low), less any financing costs from borrowing the shares.
- dvt 4y agoThe answers here are great, but I would also direct you to a more complete picture here: https://www.investopedia.com/terms/s/shortselling.asp https://www.investopedia.com/terms/s/shortselling.asp Shoring is, financially-speaking, quite complicated and can be very opaque. It's also fundamentally different than longing (not merely the "opposite").
- MrBuddyCasino 4y agoOf course the underlying issue (maturity mismatch) would be entirely preventable. Why the current banking system is setup in a way that makes regular banking crashes practically unavoidable: https://news.ycombinator.com/item?id=35106315 https://news.ycombinator.com/item?id=35106315
- pid-1 4y agoMy company has seen quite a few sell side analysts talking about SVB earlier this year, so I guess the risks were not unknown to financial markets. Problem is, we are in a scenario of great macroeconomic uncertainty. That can make borrowing costs (needed for shorting something) quite high, because everyone and their moms want to protect themselves from market downturns. So even if you guess correctly that some company will fail, you might still lose money if you're not lucky with timing. Many short sellers were squeezed in the last months, but we don't hear their stories on Fortune.
- mym1990 4y ago“Markets can remain irrational longer than you can remain solvent“. This was also the case with Burry and others shorting in 2008.
- heisenbit 4y agoOne may argue the markets were irrational during the ultra low interest rate period and this disaster here is the result of hoping they would return to irrational before liquidity ran out.
- mym1990 4y agoEh, during the low interest rate period things seemed to behave as one might expect: companies deploy capital and hire like crazy, companies have access to mountains of investment pools, home prices rise, inflation rises, etc... Many of the things happening today are contradictory, but eventually a domino falls to topple everything else. Knowing which domino does that would make you lots and lots of money, albeit maybe with some guilt as everyone else suffers.
- vsareto 4y agoBurry got lucky but has been wrong more recently. He’s basically an investment doomposter.
- 4y ago
- paulpauper 4y agoBleecker Street Research, of course, has made out quite nicely from the demise of Silicon Valley Bank (The team won’t comment on how much they made off their short bet). How much could it be? 60-70%? That is how much the stock fell. The problem with these kind of stories is you don't hear about all the times these firms sold short and or were wrong or lost lots of money before eventually being right and would have been better off with an index fund. It's easy in hindsight to explain what was wrong with the bank or why the trade was a success.
- skmurphy 4y agoRegulators took over SVB: trading was halted. It's unlikely stockholders will get more than a few cents per share so it's a 99.9% drop. The story was interesting because they explained how the bank got into such a bad situation that regulators had to take it over.
- thiscatis 4y agoWhat happens with short positions when something like this happens though? The firm is going to be liquidated so where would the shorter buy back the stocks to give back if they haven't exited by now (trading was halted)?
- skmurphy 4y agofrom https://www.investopedia.com/ask/answers/maintain-short-position-delisted-stock/ https://www.investopedia.com/ask/answers/maintain-short-posi... When an investor has a short position in a company that gets delisted and declares bankruptcy the investor never has to pay back anyone because the shares are worthless. The short seller owes nothing. That is the best possible scenario for a short seller. Eventually, the broker will declare a total loss on the loaned stock. At that point, the broker cancels the short seller's debt and returns all collateral.
- projektfu 4y agoIt depends if they also bought puts. Options can be suddenly very profitable.
- supernova87a 4y agoIsn't the question though, if you acted on the set of companies/banks that were showing these signs, how often would you be right and saved your money (or made money)? The analyses that tell you what led to a particular crash are hard to stomach as a reliable bet for the next time. I just saw this story: https://www.morningstar.com/news/marketwatch/20230310718/20-banks-that-are-sitting-on-huge-potential-securities-lossesas-was-svb https://www.morningstar.com/news/marketwatch/20230310718/20-... ("20 banks that are sitting on huge potential securities losses—as was SVB") Would you short Ally right now? Hard to make such a bet.
- pwarner 4y agoI think Ally is very focused on auto loans, so again industry concentration. They raised the rate they pay on their savings accounts yesterday. Will be interesting
- VirusNewbie 4y agoAlly focuses on consumers. My wife has an account there with less than 250k fdic limit. So if we hear it may be insolvent, we will just wait.
- DeathArrow 4y agoI wonder if the pie has been cooked enough and there aren't other vulnerable banks in the same position. Also I wonder if massive short selling most banks now doesn't make them trip over.
- expertentipp 4y agoOne day from bank run until interception by financial regulators, we live in fast times. Oh man, this Monday will be fascinating from the early morning!
- avidphantasm 4y agoSo basically the rapid increase in interest rates combined with lack of diversity in the bank’s clientele and investment choices quickly turned SVB into a collapsing inadvertent pyramid scheme?
- rjtavares 4y agoIt'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.
- jnwatson 4y agoIf 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.
- mynameisvlad 4y agoA $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 problem.
- jnwatson 4y agoAny system that requires new clients to pay for existing clients’ outflows is by definition a pyramid scheme.
- mynameisvlad 4y agoI 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”
- meghan_rain 4y ago[flagged]
- expertentipp 4y ago[flagged]
- napsec 4y agoSo you'd prefer articles be replaced entirely with outlines that only bullet point specific items? I suppose that's a position one can take, but I think many people prefer to read articles that include a coherent narrative. This one isn't even particularly long. If you'd prefer to read the ChatGPT summary you can certainly generate it.
- pas 4y agoNo, exposition and context is important, but this is irrelevant l'art pour l'art prose. As the comment said it adds nothing of value. The journalist could have spent a few sentences explaining why and how this short seller is giving an interview, why this bank matters, etc.
- xeromal 4y agoYeah, well, that's just, like, your opinion, man.
- highwaylights 4y agoBy the same token, did you need to put that in French? Did it serve a purpose? I don’t have a problem with you having done so, but I don’t have an issue with the article either.
- pas 4y agoAs far as I know it's a "technical term" that has a negative connotation, whereas a word-by-word translation doesn't. (I'm not a native English speaker, nor French, and I might be completely wrong on the semantics of that, because I'm just a lazy-ADHD autodidact when it comes to ... almost anything, really. So I welcome any criticism, tips, and FYI/explanations.)
- dustingetz 4y agochatgpt can read these reports, how long until quants can auto-detect these weaknesses that today are buried in TPS reports? (movie reference)
- aqme28 4y agoIf you’re asking when machine learning will be used to predict stock movements based on financial reports, it’s already been happening for years.
- IG_Semmelweiss 4y ago>>>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
- vajrabum 4y agoThe 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 stock or loan the value of the stock as an asset (hypothocate), except to the fed as their capital goes up and down. All of this makes much more sense if you think of the Federal Reserve Banks as legally mandated bank run insurance providers. See here: https://www.federalreserve.gov/aboutthefed/section5.htm https://www.federalreserve.gov/aboutthefed/section5.htm So yes, the whole purpose of the fed is to ensure that we don't have a systemic, cascading bank failure (keeping musical chairs going). Banking panics and ensuing failures were a widespread problem in the 1800s and early 1900s. The Fed was established after the particularly nasty 1907 banking panic which threatened to bring down most large banks in the US and destroy the national economy. https://en.wikipedia.org/wiki/Panic_of_1907 https://en.wikipedia.org/wiki/Panic_of_1907
- landemva 4y ago> 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 ..?
- ta988 4y agoSo when you short like that there is no risk for you as a borrower other than if the assets go higher? Do you need to have enough assets to cover a x-times the price of the stocks to insure your position?
- marckhoury 4y agoThere’s actually a lot of risk and costs when shorting. You need to pay borrow fees to borrow the stock, you need to post collateral that can be liquidated in the event that your position gets too risky, you need to post more collateral as the price of the a stock increases to cover the increased risk, and you can in theory lose an unlimited amount of money. You have to be right both about the stock decreasing in value, and the timing around when it will decrease in value. Otherwise your position might get liquidated before you can realize your possibly correct directional prediction. This is what the phrase “the market can remain irrational longer than you can remain solvent” refers to. Shorting is really hard.
- everybodyknows 4y agoMissed a couple: 1. Even if the price has not moved against you, your broker can decide the stock has become more volatile, and therefore a higher collateral ratio is required. 2. Regulators can halt trading, making it at least temporarily impossible to buy back the shares and book your profit on the short sale. Hence FTA: “You never short something thinking it will go into receivership,”
- cosgrove 4y agoShort seller seems to have a pretty sober take on the reality of it all. Reminds me of "just don't fucking dance." https://www.youtube.com/watch?v=7eYcWpgCb7o https://www.youtube.com/watch?v=7eYcWpgCb7o
- gmiller123456 4y agoWhat other predictions has this short seller made in a verifiable manner? It's really pointless to find someone who just guessed correctly once and take their advice. Particulalrly if their failed predictions are never made public, or are too abtract to be verifiable. I used to invest in gold and silver, expecting them to be stable investments. Back in mid 2008, I noticed a lot of large price swings. I made a few trades to exploit the swings before realizing the whole point of me investing in them was because I expected them to be stable. So I cashed out everything, and a few weeks later the economy (and the gold and silver prices) tanked. I don't consider myself a savy investor at all, I just got really lucky that one time.
- true_religion 4y agoThe guy isn’t asking people to believe in him because he is a prophet. They are saying, “this is some things I found suspect, and was right about so maybe this can help you make your own inferences later.”
- strus 4y ago> I just got really lucky that one time You didn't tho. Investing in gold should be a long-term investment, and in a long term price of gold trend is still rising. It was constantly rising till 2012, then fall a little bit in 2012-2016, and is rising again.
- neop1x 4y agoNot many people want to sit on slowly-rising gold for 20 years. People are often trying to find high-yield, low-risk compromise so they are trading instruments and switching between them instead. The point is that it is very difficult, practically impossible to time the market. So the commenter was right - he got lucky that one time. And if you were trading in the markets for many years, you would see that occasionally you would be lucky too. But unless you employed some kind of risk and money management, the other times where you would be wrong (and those times would definitely happen as well) losses would cancel out all your lucky profits. I was lucky a couple of times too and it means nothing.
- 4y ago
- WalterBright 4y agoWhat's frustrating about investing is everything is obvious in hindsight.
- hnthrowaway0315 4y agoI think the major short sellers already built their positions and are gradually covering by making noises on social media.