Ritchie thinks this is good

Here’s the shorting the bond thing for anyone who’s nose starts bleeding when they try and grasp it: you give me £10 and I go out and buy you a coat, and I say yeah yeah yeah, you’re coat is in my wardrobe, I’ll give it to you later. But THEN –

It’s stocks they were shorting, not bonds. Well done to the P³ for showing his financial market knowledge there.

18 thoughts on “Ritchie thinks this is good”

  1. This Richard Murphy, who claims to want to ban shorting, is that the same Richard Murphy as the one who thinks every company is massively overvalued, or is it another one?

  2. The analogy doesn’t even work. There’s no “giving”, there’s no “buying” on behalf of the giver.

    The shorter borrows the bond from it’s owner, sells it and when it’s time to return the bond to the lender he hopes to buy it back cheaper and make the profit on the difference between what he sold it for and what he has to buy it back at.

    If he’s this clueless about basic market activities, the Chartered Accountants standards committee should revoke his membership and chartered status.

  3. Bloke in North Dorset

    I haven’t seen it mentioned anywhere, was it a naked short and if not who’s shares were they using?

  4. Perhaps there should be a notification system when somebody borrows your shares, a little popup that goes “Melvin Capital would like to borrow your shares, do you accept?” Because I’m sure a lot of people would refuse.

  5. The shorter borrows the bond from it’s owner, sells it and when it’s time to return the bond to the lender

    I was wondering what happens when hedge fund X goes bust between the selling and the buying. The owner loses the shares, I assume?

  6. “Melvin Capital would like to pay you £X to borrow your shares. Do you accept?”

    X has increased sharply in the past few weeks.

  7. Its also not how shorting stocks works.

    Like, at all.

    So I guess it doesn’t matter that he thinks stocks and bonds are the same thing.

  8. I mean, its a sort of risk premium against you not getting the shares back. And given that the borrowers can now be blown to smithereens by people with names like /u/bigdogscock_66 I suspect that risk has increased greatly.

    One thing I’m not sure about with these short positions – are you obligated to buy them back ON a particular date in the future or BY a particular date? If it is ON a date, you are a sitting duck for weeks.

    One other consequence – some trading platforms in the US aren’t simply stopping people trading in these securities, but actually selling them without their permission. A terrific way to fuck your own business model.

  9. Rob
    January 29, 2021 at 3:30 pm

    The shorter borrows the bond from it’s owner, sells it and when it’s time to return the bond to the lender

    I was wondering what happens when hedge fund X goes bust between the selling and the buying. The owner loses the shares, I assume?

    Yes. Which is why the lender will charge interest on the lending of the stock. Its not just ‘here you go, make sure to have them cleaned before you return them’.

  10. One thing I’m not sure about with these short positions – are you obligated to buy them back ON a particular date in the future or BY a particular date? If it is ON a date, you are a sitting duck for weeks.

    By. Not on.

    The speed at which this blew up is why the funds got caught short – if it had been a little slower they’d have been able to close most or all of their positions early and paid off the loans with far less losses (or even still managed a profit).

  11. One other consequence – some trading platforms in the US aren’t simply stopping people trading in these securities, but actually selling them without their permission. A terrific way to fuck your own business model.

    That’s kinda sorta not what is happening.

    See, when you buy a stock on these platforms there’s a delay between when you are told the transaction is complete and when it actually is. Normally, the platform floats the difference and it doesn’t matter. With these stocks there’s a ton of volatility so the clearing houses are demanding a larger margin and the brokers can’t cover that so . . .

  12. And in an enormous coincidence, one of the share platforms which shut down trading in this security, Robinhood, just happens to have as its biggest customer Citadel Securities, a subsidiary of the company which just happened to pump $2.75bn into Melvin Capital on Monday…

  13. “Melvin Capital would like to pay you £X to borrow your shares. Do you accept?”

    “A full-time professional hedge fund believes that the shares owned by you, a mere part-time amateur, are about to crash. Would you like to lend the shares to Melvin Capital for £0.0X or would you rather sell them yourself and get out while you still can?”

  14. “If he’s this clueless about basic market activities, the Chartered Accountants standards committee should revoke his membership and chartered status.”

    Something we’ve been hoping for for years… Unfortunately P³ seems to still have friends he has not pissed off enough to make that happen..

  15. The ICAEW only seems to take an interest if the offence involves acting in a professional context. Displaying your ignorance, stupidity and inability on your blog many times daily to debate coherently and politely is an area they don’t regulate. I once complained that he was giving the Institute into disrepute by spouting offensively worded nonsense and all they wanted to know was the customer’s name and the time and place it happened

  16. IIRC if you short the bonds and do a reverse repo (borrow) and then cover before the term (1 week/2 weeks are the most common periods, which get rolled) you still have the repo on till the end but you offset it with another repo to match the remaining leg, which may make or lose you some money as the market has moved.

    Short position is just an opinion, nothing sinister in it.

  17. Short position is just an opinion, nothing sinister in it.

    Sure, and I think most on here would agree with that.

    It is still lolworthy when the masters of the universe come a cropper though.

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