> On Wednesday Melvin said it had exited its bet against GameStop and repositioned its portfolio.
Is this true? Louis Rossmann pointed out they would have a huge incentive to lie about this (to prompt people to sell and drive prices down).
Is this true? Louis Rossmann pointed out they would have a huge incentive to lie about this (to prompt people to sell and drive prices down).
1. Short interest on GME is still high, even after they claimed to have closed their short position.
2. They have a "huge incentive" to lie about this, because people believe it would encourage a selloff.
That is the entirety of the evidence. It is uncritical despite the fact that it gets frenetically repeated on reddit. Here is the evidence which suggests they didn't lie:
1. That first argument doesn't prove what people believe it does. First, short interest is only officially reported twice monthly, and most cited data is out of date or estimated. More importantly, short interest is an aggregate measure which does not track specific positions. It only tracks all positions together. Other firms which haven't been burned by the price increase have opened new positions, hoping to short from the top tick (or thereabouts).
2. The second argument is reddit cargo culting "game theory", and it violates both logic and Occam's Razor. If you're a fund manager who lies to the public about closing a highly volatile position that could bankrupt you, you are facing securities fraud and violation of fiduciary duty, respectively. Either of those will pierce the veil of your firm and leave your personal assets liable for reclamation by the SEC and/or angry investors. You will be sued. You will lose.
Moreover, the "incentive" of this move is that you might prompt a selloff and get to keep your short position. It strains credulity to think someone would make such an uncertain bet with a huge psychological component when their firm is literally on the line. If you're wrong, your firm is dead and all of your personal assets are up for seizure in the ensuing fallout for the aforementioned reasons.
The alternative is that you just close the position, don't lie about it, and your firm survives and you just have a bad year. You are personally unscathed as the fund manager. And since you've had historically excellent returns and this was a 3 or 4 sigma event, long term you'll probably be fine. You'll have a new signal to incorporate into your portfolio risk management and you'll move on.
The problem with this is that it's easy for the CEO to later say "the journalist misunderstood" or "I said we covered some of our position (1% is 'some' right?)" or many other things.
Is there a definitive statement from Melvin themselves anywhere?
I understand your response. There is one assumption that I think marks the difference between what side of the line one falls on.
My understanding of your belief is that you think Melvin would not lie due to there being a large risk associated with lying.
One might also assume that Melvin would not be dumb enough to short over 100% of GME stock.
In exercise, I believe this to be the crux of the speculative argument that Melvin is dumb enough to use psychological warfare (which may have legal ramifications if they get caught) to try to get GME stock back down.
Okay as soon as I read this I knew I shouldn't be expecting much, but...
> My understanding of your belief is that you think Melvin would not lie due to there being a large risk associated with lying.
This really isn't just lying a little bit, and isn't just a large risk. If you're running a fund like this, purposely making materially false statements like this would be akin to jumping out of a plane without a parachute and somehow hoping for the best, while 5M angry redditors are purposely trying to make sure you crash into the hardest thing possible. This position of "well maybe he's lying, you can't definitively prove he's not!" position is so bonkers that it's closer to a conspiracy theory than an actual opinion.
> One might also assume that Melvin would not be dumb enough to short over 100% of GME stock.
This has been discussed in depth elsewhere. You're understanding of this concept is fundamentally flawed. Frankly, even if it wasn't, you're suggesting that a single firm shorted more than 100%? Or that both Melvin Capital and Citron both shorted more than 100%, and that somehow added up (with your misunderstanding) to 140%?
The argument being made is that the original funds never exited their original ~$10 shorts. So every $100 increase in stock price is a 10x increase in losses.
If someone re-entered at ~$300, a $100 increase would be a 30% increase in loses.
The scale of these is massively different.
I have absolutely no doubt that other firms have entered short positions.
Claiming that "Melvin may have re-entered afterwards" is obviously a possibility, but is not the same as having lied about exiting in the first place.
Basically, my point is: if your rebuttal to the question of "did they lie?" is "no, that's preposterous, it would be a death sentence for the firm", then your answer might be correct technically as to the literal meaning of the question, but you've missed the spirit of what was being asked.
There is no need for you to get feisty over an comment that I (who seems like someone you disagree with) posted on the internet. Perhaps this is a point where you can self-reflect on how you articulate yourself.
Please understand that I don't care anymore. I don't care if you think I'm out of line. Yes, I read and understand your comment. I just don't engage with people that have bad communication skills.
I am only writing this in an attempt to make you a better person.
The claim that Melvin closed their position is something of a game of "telephone" in that it was a CNBC anchor that claimed that "from what I understand" Melvin Capital is out of the stock, after he talked to the CEO (off camera).
Importantly, there was no recording of the conversation, just a journalist claiming a source said something. The fact he used "from what I understand" instead of a direct quote is telling.
Melvin themselves have not (as far as I can see) issued any kind of statement, written or otherwise, that clearly states they have zero position on GME any more.
All of the other stories about the claim simply state "according to CNBC".
My point is that as far as I can see, there is no evidence that Melvin are actually out of their position, other than easily-deniable comments that a single journalist claims "from what I understand" on.
Link here to the video from CNBC: https://www.cnbc.com/video/2021/01/27/melvin-capital-sells-o...
The full quote from Sorkin's segment, ~40 seconds into the video: "Melvin Capital is now out of the stock. They got out of the stock, from what I understand, yesterday afternoon." (https://twitter.com/cnbc/status/1354406938319216640). It could not be more clear -- "from what I understand" refers to the precise timing and not the overall fact.
> The claim that Melvin closed their position is something of a game of "telephone" in that it was a CNBC anchor that claimed that "from what I understand" Melvin Capital is out of the stock, after he talked to the CEO (off camera).
That's not a game of telephone, that's quoting a direct source. Sorkin talked to the CEO of Melvin Capital right before he went on air and then immediately reported it.
> just a journalist claiming a source said something
And it's not "some CNBC anchor," it's a well known journalist (Andrew Ross Sorkin) with a reputation at stake.
> All of the other stories about the claim simply state "according to CNBC".
Because CNBC got the scoop. It's journalistic etiquette!
> no recording of the conversation, just a journalist claiming a source said something
Every single article published in any newspaper ever is a journalist claiming a source said something.
> Melvin themselves have not (as far as I can see) issued any kind of statement, written or otherwise, that clearly states they have zero position on GME any more.
The CEO of Melvin Capital calling a prominent CNBC journalist counts as a statement, if you're willing to put aside your rabid paranoia for a few minutes and think critically instead of conspiratorially.
No, it's not. Not at all.
A quote is where the actual words someone said are put forth verbatim. What we got was a summary of what was said and that's exactly my issue with the statement - summaries leave wiggle room for people to come back later and say "well, that's not exactly what I said".
>Every single article published in any newspaper ever is a journalist claiming a source said something.
Yes, and there are conventions to make it clear when the journalist is directly quoting a source (the use of quotation marks) and when the journalist is giving their own summary of what the source said.
Yeah but your shorts will be in the money and you probably double your investments instead of losing 53%. There is more to gain than lose.
If you have a link you'd be able to share that'd be awesome.
See the links near bottom of the page, some are subscriptions though
And I suppose that's because short interest isn't going down? Aside from the fact that other short-interest sources (all unofficial, by the way) shows that short interest cooled down last week. it also ignores the fact that it's possible to close short positions by transferring to another fund. I'd imagine there's plenty of funds willing to short GME at $300.
Plenty? What type of mathematical model would support a move like that? Are hedge funds predicting a government bailout? Or are they certain retailers will close on Monday?
Do you really need a mathematical proof of this? If a stock is $30 and you think the FMV is actually $20. Then you'd expect to make $10 from shorting it. If it's at $300 you'd expect to make $280. So the higher the price, the more money you expect to make from it, and the more tempting it is.
>Are hedge funds predicting a government bailout? Or are they certain retailers will close on Monday?
No not really, a sibling comment explains it better than I can: https://news.ycombinator.com/item?id=25984493
And this is exactly why WSB's short squeeze theory is doomed to failure. It's not like once you beat Melvin that all of Wall Street just declares "okay, Gamestop is officially a $30 billion company and we will never bet against it again." The more WSB drives up the price, the more lucrative a short position becomes in the long run. And the more it attracts even more hedge funds into shorting. It's like a video game that has no ending, just the levels get harder and harder.
The difference with any traditional short squeeze is that there's always a catalyst that prevents the shorts from keeping their positions open. In the classic case it's a third party buying up a bunch of shares, then recalling them from the stock borrow market. In the Volkswagen squeeze it was the expiration of derivatives tied to Porsche's attempted acquisition of the company. WSB's original theory was that the gamma squeeze from options expiration would be the catalyst. But as of last Monday, those options were all deep in the money with crazy high implied vols. There's no gamma left to squeeze. WSB no longer even has a thesis, just memes.
With $3 trillion of AUM in the hedge fund industry, the only feasible end game is if WSB makes Gamestop the most valuable company in the world and criples the global financial system. Is it possible? Sure, lots of things are possible... I wouldn't bet on them.
I can virtually guarantee you that there won't be any meaningful short squeeze at current levels. The share price will be well below $100, before the short interest falls below 100%.
This can go on until GME becomes part of S&P 500. At this point WSB doesn't even need to do anything because pension funds, and other institutional investors etc. will end up buying GME.
Another good reason to assume this wouldn't happen: the existing system will not let it.
You may argue that that is "changing the rules" or "cheating" or "being on the institutions side!", and you're right, but I would assume that the government forces all GME positions to be liquidated and halts all trading, no matter no many retail and/or institutional traders get upset by it, before allowing the collapse of the global financial system (again).
No matter what game you're playing, there are always "superior" rules, that are not written down. No matter what game you're playing, one of the over-arching rules is "no crippling the global financial system".
Why do you think that the SEC, Fed, and all aspects of the US Government would sit back and knowingly let a new financial crisis happen? It doesn't really matter who it's not fair to, it wouldn't happen. You can argue who will get the short end of the stick in the end, and why it's not fair, but that's secondary to my point.
Another good example of this is claims (which yes, have fizzled out over the last couple of days) that Melvin Capital has lost $100B dollars already, and only has $13B in assets (which, if you account for a firesale, is likely much less than that). That amount of money is pretty much the practical maximum that you could get out of Melvin Capital, even if they have done the shady and illegal things that have been alledged. At a point you can't get blood from a stone, no matter how much you feel that you are in the right.
How do we know this won’t just sputter for another week or two and then end in the most anticlimactic way possible?
Not sure what you mean by this, but I presume you're referring to options expiration. Some people, with a tenuous/non existent grasp of this stuff were running around screaming "naked shorts" and thinking that Citadel and other market makers were going to need to buy massive amounts of underlying to deliver against their short calls. But the entire reason a gamma squeeze works is because the MMs are buying in their delta as it moves against them. So that was never a very good theory. Opex also means that a lot of gamma expired, which would offset whatever opex buying actually needed to be done.
> everyone just updated their takes to Monday instead
The average Robinhooder/Twitter jockey perhaps. What actually happened is that S3 Partners, who do predictive analytics on short interest (which are officially released fairly sporadically) have suggested that their early take on Thu/Fri trading is that shorts covered a fairly large amount. Given that this whole squeeze is a momentum game requiring coordination and confidence amongst the longs, taking out a huge chunk of the fuel would likely impact the confidence of a long, which in turn ruins the coordination.
> How do we know this won’t just sputter for another week or two and then end in the most anticlimactic way possible?
We don't, it could sputter on. It could go up, down, or sideways. GME could be permanently a $300 company for all we know. Trades don't deal in absolutes, but rather probabilities.