Scrutable

Millennie Al wrote: Sun Jan 31, 2021 2:32 am

Martin_B wrote: Sat Jan 30, 2021 6:38 am

Millennie Al wrote: Sat Jan 30, 2021 4:57 am

Please point to the "gigantic crash" of Black Monday on these graphs:
https://en.wikipedia.org/wiki/File:DJIA ... _(log).svg
https://en.wikipedia.org/wiki/File:FTSE ... e_1984.png

Then you can have a look for the dotcom bubble as well.

Well, you can see Black Monday fairly clearly on both graphs, where the FTSE dropped from ~2300 to ~1600 sharply.

It's a little more difficult to see on the Dow Jones graph, but there is a drop from ~2600 to ~1900.

Black Monday was a fairly significant event worldwide (in Australia, New Zealand, Hong Kong, and I think Japan) it's called Black Tuesday because those stock markets had closed before stocktrading-caused panic set in.

Yes, it is visible, but it's just a variation which is a bit bigger than usual. It's also fairly short term. In February 1986 the FTSE 100 rose above 1500. Black Monday, in October of the following year, brought it back down to a level which was still above that and from which it resumed climbing. If someone showed the graph with that period blanked out, I doubt many people would fill in the gap with a rise to 2,300+ in it. Despite all the fuss over it, it should have had minimal effect on ordinary people who use the stock market for their pension - which is a long term investment. For people who make their living exploiting the stock market, it was much more significant. If you are dealing in large amount of money and you expect to get millions of dollars in commission for 1987, then you might have ended up bankrupt as you can't afford the payments on the loans for your $20,000,00 house, other house, private plane, and large yacht.

The Black Monday crashes were reductions of ~30% in a couple of days; ordinary punters couldn't react quickly enough to limit their losses. And the stock market position in 1986 is pretty meaningless when considering something which happened in 1987. The markets took ~3 years to recover (not really short term). Anyone who had invested in stocks and shares for their pension (which the Tory government at the time were encouraging people to do) just lost large sums from their pension funds, and if you were retiring in the next 3 years you didn't get to recover.

That the fall was to levels some ~18 months before shows that the stock markets were probably over-inflated - the gradient of that rise is something the Dow Jones graph only matches back in the 1920s (just before the Great Depression); another occasion when the unregulated markets grew too quickly and inevitably shrunk. The FTSE graph shows similar gradients in the late 90s - another time when low regulation of markets encouraged risky investments.

Anyway, from twitter:

People who say $GME is overvalued don't understand the value proposition. It's no longer a stock, it's a store of value. It's the new digital gold. And for now it has only 3% of the $BTC market cap, still plenty of room to grow. My price target is over $9,000

Hedge fund Melvin Capital Management lost 53% in January amid a record rally in GameStop and other stocks the fund was betting against, a source familiar with the matter told CNBC.

The heavy losses come as retail investors piled into popular hedge fund short targets, including the struggling video game retailer. Shares of GameStop finished last week with a gain of 400%, bringing its total return this year to 1,625%. The stock closed Friday’s session at $325.

As recently as October it traded under $10. CNBC’s Andrew Ross Sorkin reported last week that Melvin Capital closed out its short position in GameStop on Tuesday afternoon after sustaining heavy losses.

Citadel and Point72 infused close to $3 billion into the fund to shore up its finances. Point72 slid 10% in January, according to a source with knowledge of the fund’s returns. Point72 declined to comment.

Citadel lost 3% in January, according to a source with knowledge of the fund’s returns. Citadel declined to comment. The source said the hedge fund was down 1% on its Melvin investment, which it made last week.

https://www.cnbc.com/2021/01/31/melvin- ... p-wsj.html

... Black Monday 1987 ...

Martin_B wrote: Sun Jan 31, 2021 5:12 am

Millennie Al wrote: Sun Jan 31, 2021 2:32 am It's also fairly short term. In February 1986 the FTSE 100 rose above 1500. Black Monday, in October of the following year, brought it back down to a level which was still above that and from which it resumed climbing. If someone showed the graph with that period blanked out, I doubt many people would fill in the gap with a rise to 2,300+ in it. Despite all the fuss over it, it should have had minimal effect on ordinary people who use the stock market for their pension - which is a long term investment. For people who make their living exploiting the stock market, it was much more significant. If you are dealing in large amount of money and you expect to get millions of dollars in commission for 1987, then you might have ended up bankrupt as you can't afford the payments on the loans for your $20,000,00 house, other house, private plane, and large yacht.

The Black Monday crashes were reductions of ~30% in a couple of days; ordinary punters couldn't react quickly enough to limit their losses.

The vast majority of ordinary punters lost nothing so they had no need to do anything.

And the stock market position in 1986 is pretty meaningless when considering something which happened in 1987. The markets took ~3 years to recover (not really short term). Anyone who had invested in stocks and shares for their pension (which the Tory government at the time were encouraging people to do) just lost large sums from their pension funds, and if you were retiring in the next 3 years you didn't get to recover.

If you were retiring in February 1986 you got a particular deal, if you were retiring the day after Black Monday, you would have got an even better deal, and despite further small losses, you would never have got a worse deal that those who retired before February 1986. Depending on the terms of your pension, you might have been able to defer buying an annuity, which would have got you an even better deal (both from the stock market rise and you being older). However, pensions are long term investments. If you were retiring in 1987 you should have been paying it for 20-30 year, over which time the growth was what you should have been relying on - not a short term speculation.

But, more fundamentally, you cannot claim that the loss at Black Monday is undeserved unless you also say that the gain up to there was also undeserved. If you don't like exposure to the stock market, you can always save up for a pension by buy-to-let, buying gold, non-commercial instruments (e.g. gilts), or just by stuffing money under your mattress. While use of the stock markets is voluntary, the government does push you very hard in that direction with workplace pensions. Use of non-market investment, however, is not voluntary: you are forced to participate in the state pension scheme whereby you pay National Insurance today in the hope that when you retire you will get a fair pension, but effectively you are guaranteed nothing.

I suppose the irony of the current situation is that when gamepost shares go down again significantly - which they will - it's a great time to short them. The battle for the retail investors isn't making the share price keep rising, it's keeping it this high for so long that all the shorting goes bust. I doubt they can win that battle, but let's see.

They now seem to think J P Morgan will go bust if silver goes up in price.

It won't. But solar panels just got a bit more expensive.

How are they making silver go up in price?

Silver price manipulation feels familiar somehow
Bunker Hunt

lpm wrote: Sun Jan 31, 2021 12:18 am You know what you could read about 2008?

The non-fiction book "The Big Short".

If you don't want to read a book, you could could watch the movie "The Big Short".

The heroes of the book and movie undertake a short of mortgage bonds and the short is portrayed as "big".

These scattergun posts are illuminating. I might be being sarcastic, but I'm asking awkward questions of you that you're completely ignoring.

Big Short. Rings a bell. Is that the one where financial services whizzkids package up sub-prime mortgages to such an extent that the whole industry doesn't understand what they're trading? (except for the handful of heroes of our film, obviously, who clean up).

Funny you should mention that film - the children of the families thrown into poverty as a result of that crash are very vocal on a particular reddit forum right now.

plodder wrote: Mon Feb 01, 2021 9:44 am

lpm wrote: Sun Jan 31, 2021 12:18 am You know what you could read about 2008?

The non-fiction book "The Big Short".

If you don't want to read a book, you could could watch the movie "The Big Short".

The heroes of the book and movie undertake a short of mortgage bonds and the short is portrayed as "big".

These scattergun posts are illuminating. I might be being sarcastic, but I'm asking awkward questions of you that you're completely ignoring.

Big Short. Rings a bell. Is that the one where financial services whizzkids package up sub-prime mortgages to such an extent that the whole industry doesn't understand what they're trading? (except for the handful of heroes of our film, obviously, who clean up).

Funny you should mention that film - the children of the families thrown into poverty as a result of that crash are very vocal on a particular reddit forum right now.

The point about the Big Short is your claim "the whole industry doesn't understand what they're trading" is incorrect. A few people did understand. They realised most people were underestimating the risk and over buying the bonds and overpricing the bonds. So they wanted to sell the bonds they believed were overpriced. How did they do that? By shorting the bonds. What was the effect of shorting the bonds? It sent signals through the market that there could be a problem. It deflated part of the bubble.

The ultimate result of the shorting was that the credit crunch began in summer 2007 - that's when banks stopped lending wholesale funds cheaply to reckless mortgage providers. These reckless providers were forced to be less reckless or went bust (e.g. Northern Rock). Action to rein in the madness happened a full year before Lehman etc actually went bust. The actions of these short sellers might have only been a small flashing warning light rather than a klaxon, but if the "shorting must be made illegal" knee-jerkers got their way there wouldn't even have been that.

secret squirrel wrote: Sun Jan 31, 2021 7:56 am Anyway, from twitter:

People who say $GME is overvalued don't understand the value proposition. It's no longer a stock, it's a store of value. It's the new digital gold. And for now it has only 3% of the $BTC market cap, still plenty of room to grow. My price target is over $9,000

FFS "store of value"? Newspeak for highly speculative investment prone to boom and bust and market manipulation. Pound notes stuffed under your mattress are better stores of value.

bjn wrote: Mon Feb 01, 2021 10:49 am

secret squirrel wrote: Sun Jan 31, 2021 7:56 am Anyway, from twitter:

People who say $GME is overvalued don't understand the value proposition. It's no longer a stock, it's a store of value. It's the new digital gold. And for now it has only 3% of the $BTC market cap, still plenty of room to grow. My price target is over $9,000

FFS "store of value"? Newspeak for highly speculative investment prone to boom and bust and market manipulation. Pound notes stuffed under your mattress are better stores of value.

For the record, the person I'm quoting is making a joke at the expense of GME and Bitcoin.

Northern Rock was not a reckless mortgage provider. Just a casualty of the credit collapse initiated by reckless mortgage providers in the US.

Lol no. They were a bunch of c.nts. They borrowed very short term in the money markets, lent out the money long term on 25 year mortgages, churned those mortgages round in securitisations and went out looking for more house buyers to offer cheap mortgages to. That mismatch between assets and liabilities is unbelievably reckless.

Any crunch in the short term money markets would have killed them. It didn't need to be a full-on credit crunch that threatened the global economy. There was a reason why they went under promptly in Sept 2007 rather than clinging on till Sept 2008 like Lehman and similar.

I, bizarrely, find myself agreeing with lpm, which is a first.

Shorting is definitely a necessary evil and I'd go back to my earlier point that all shares are individually identifiable and it is absolutely possible to prevent double lending and limit the proportion of shares that can be used for shorting. It is definitely important to have that canary telling us when a market is overvalued, but it is also incredibly important to limit any damage that excessive shorting can do.

When I worked at the stockbroker I could go into a customer's shareholding and see the serial numbers of the shares they owned if I wanted to, there was never really a need but it was an option, so I can tell you now AS A FACT that it is definitely possible to prevent the same share being lent more than once!

Lpm - Why didnt the market catch N Rock stupidity earlier?

(I mean that as a sincere question not snark)

Lol that the heroic whistleblowers are given as justification for the whole house of cards.

plodder wrote: Mon Feb 01, 2021 12:27 pm Lol that the heroic whistleblowers are given as justification for the whole house of cards.

You are so confused. Nobody in the entire world justifies the house of cards.

noggins wrote: Mon Feb 01, 2021 12:23 pm Lpm - Why didnt the market catch N Rock stupidity earlier?

(I mean that as a sincere question not snark)

Herd mentality? It's quite hard to be a lone person thinking the entire crowd around you is wrong. Mass delusions cause disasters - e.g. most of the population celebrating the start of WW1, thinking it'll be won by Christmas, looking forward to giving the bally hun a damned good thrashing. Quite hard to be the person saying oh f.ck this is going to be a disaster. Even if the flow of information is perfect, imperfect humans still need to act on it.

With hindsight you say, jeez these idiots were giving mortgages of 125% of property value. But at the time you say, wow these guys are so confident and are doing so well. It's like that Candid Camera thing of everyone facing backwards in an elevator causing the sane person facing forwards to gradually turn to fit in.

Norther Rock were fatally exposed to the drying up of credit but the reckless mortgage lenders were the ones selling mortgages to people who had low or no prospects of being able to keep up payments, gaming the system because they got paid to sell not to reject applications.

NR were only reckless in the way that if the supermarkets run out of food you'd be reckless to have reckoned it was cheaper not to keep full cupboards and an allotment.

Martin Y wrote: Mon Feb 01, 2021 12:58 pm Norther Rock were fatally exposed to the drying up of credit but the reckless mortgage lenders were the ones selling mortgages to people who had low or no prospects of being able to keep up payments...

This was originally the whole point. The bank would get the house when the owner couldn't pay the mortgage, so it could sell it to some other guy who wouldn't be able to keep up with the mortgage.

The ease of getting a mortgage caused house prices to go up which led to lots of building which then caused prices to collapse to the point where the the value was lower than the bank had lent.

I don't think over-building was the problem, it was the number of defaults rising and driving the prices below the loaned values.

Speaking of the Big Short, Michael Burry (the Christian Bale character who likes loud music and maths) was one of the earliest investors to notice the unusual circumstances of GME, and made a tidy profit:

Burry, who was portrayed by Christian Bale in the movie adaptation of Michael Lewis' book "The Big Short," could have made an even bigger profit. He owned 3 million shares in GameStop at the end of March last year, which would have been worth as much as $478 million on Monday. However, he reduced the position by about 38% over the next six months.

Along with Chewy cofounder Ryan Cohen, Burry has been agitating for changes at GameStop for a while. The Scion boss penned a letter to the company's directors in August 2019, arguing the low stock price and massive short interest suggested a lack of faith in management, and calling for a massive share buy-back.

https://markets.businessinsider.com/new ... 1030004676

lpm wrote: Mon Feb 01, 2021 12:47 pm

noggins wrote: Mon Feb 01, 2021 12:23 pm Lpm - Why didnt the market catch N Rock stupidity earlier?

(I mean that as a sincere question not snark)

Herd mentality? It's quite hard to be a lone person thinking the entire crowd around you is wrong. Mass delusions cause disasters - e.g. most of the population celebrating the start of WW1, thinking it'll be won by Christmas, looking forward to giving the bally hun a damned good thrashing. Quite hard to be the person saying oh f.ck this is going to be a disaster. Even if the flow of information is perfect, imperfect humans still need to act on it.

With hindsight you say, jeez these idiots were giving mortgages of 125% of property value. But at the time you say, wow these guys are so confident and are doing so well. It's like that Candid Camera thing of everyone facing backwards in an elevator causing the sane person facing forwards to gradually turn to fit in.

Oh I thought they used maths and data and evidence and highly sophisticated and reliable risk analysis. Do go on.

As for The Big Short itself, one of the things I found most shocking was that the credit raters (Moodys and S&P) were aware of the issue, but continued certifying the junk bonds way above their true value so as not to lose business to a competitor. That's the sort of structural issue that needs addressing if teh marketz are to function as intended and correctly value things.

I'd suggest that that kind of objective assessment doesn't necessarily benefit from the profit motive, and might be a role more sensibly allocated to a statutory regulator.

Anyway AFAIAA no big changes to regulation have happened that would prevent an analogous situation occurring again.