5 ms·

My 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,

by pid-1 4y ago

My 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 ago
  One 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 ago
    Eh, 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 ago
  Burry got lucky but has been wrong more recently. He’s basically an investment doomposter.
  - mym1990 4y ago
    Yep, and he also almost got wiped out in 2008 even though he was "right".
- CodesInChaos 4y ago
  And then there are central banks which can pump literally unlimited amounts of money into the market.
  - mym1990 4y ago
    Can and unfortunately...do.
- nico 4y ago
  This was also the case throughout 2020-21. And we are now seeing the effects.
DeathArrow 4y ago
In the case you short a bank, why not borrow the money from the same bank?
- JumpCrisscross 4y ago
  > why not borrow the money from the same bank? That loan is the bank’s asset. It doesn’t go away when the bank collapses.
  - DeathArrow 4y ago
    I know, but it would be funny.
- dctoedt 4y ago
  > In the case you short a bank, why not borrow the money from the same bank? To short a company's stock, you borrow the stock — although you do use money to pay interest on the value of the borrowed shares. [0] [0] https://www.investopedia.com/terms/s/shortselling.asp https://www.investopedia.com/terms/s/shortselling.asp
  - wolfi1 4y ago
    there is also naked short selling, if I got it right you need to have the stocks within 3 days of the closing date of the short, seems to work most of the time, the only failure in recent times was when Porsche shorted Volkswagen and and had to pay enormous amounts when the shorts were due (they shorted too much of them and had to buy them at any price to close the deal)
roland35 4y ago
Timing is exactly the challenge! The share price of $SIVB actually climbed pretty significantly since the prediction back in January before collapsing this week. You don't need to look too hard to see examples of share prices doing weird things despite reality ($BBBY most recently)!
- neop1x 4y ago
  This is very true. I have also tried shorting couple of times and while I got lucky a few times, there were trades where my PUT options expired just a week before a big downturn. :D And they say "market is perfect" or something like that in the sense that everything is priced in. So if you wanted to short in already-bearish market, the implied volatility would make it cost-prohibitive. And if you would try shorting in "good times" where IV is low, often you would see bullish market and your option value just slowly decreasing to 0... It is always about timing and predicting the future, one way or another.

by pid-1 4y ago

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 ago
One 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 ago
  Eh, 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 ago
Burry got lucky but has been wrong more recently. He’s basically an investment doomposter.
- mym1990 4y ago
  Yep, and he also almost got wiped out in 2008 even though he was "right".
CodesInChaos 4y ago
And then there are central banks which can pump literally unlimited amounts of money into the market.
- mym1990 4y ago
  Can and unfortunately...do.
nico 4y ago
This was also the case throughout 2020-21. And we are now seeing the effects.

DeathArrow 4y ago

In the case you short a bank, why not borrow the money from the same bank?

JumpCrisscross 4y ago
> why not borrow the money from the same bank? That loan is the bank’s asset. It doesn’t go away when the bank collapses.
- DeathArrow 4y ago
  I know, but it would be funny.
dctoedt 4y ago
> In the case you short a bank, why not borrow the money from the same bank? To short a company's stock, you borrow the stock — although you do use money to pay interest on the value of the borrowed shares. [0] [0] https://www.investopedia.com/terms/s/shortselling.asp https://www.investopedia.com/terms/s/shortselling.asp
- wolfi1 4y ago
  there is also naked short selling, if I got it right you need to have the stocks within 3 days of the closing date of the short, seems to work most of the time, the only failure in recent times was when Porsche shorted Volkswagen and and had to pay enormous amounts when the shorts were due (they shorted too much of them and had to buy them at any price to close the deal)

roland35 4y ago

Timing is exactly the challenge! The share price of $SIVB actually climbed pretty significantly since the prediction back in January before collapsing this week. You don't need to look too hard to see examples of share prices doing weird things despite reality ($BBBY most recently)!

neop1x 4y ago
This is very true. I have also tried shorting couple of times and while I got lucky a few times, there were trades where my PUT options expired just a week before a big downturn. :D And they say "market is perfect" or something like that in the sense that everything is priced in. So if you wanted to short in already-bearish market, the implied volatility would make it cost-prohibitive. And if you would try shorting in "good times" where IV is low, often you would see bullish market and your option value just slowly decreasing to 0... It is always about timing and predicting the future, one way or another.