The Future

[Brant Gaede]

12 hours ago, Jon Letendre said:

Not semantics, an 11th owner of 10 shares.

The short seller is not the 11th owner, but who he sells to is.

At X point of time there are 11 owners of 10 shares?

--Brant

is it Miller time yet?

[Brant Gaede]

9 hours ago, Jon Letendre said:

In fact, the short seller must pay all dividends that occur while the trade is active, meaning until the short seller buys shares to cover his loan.

Why would the short seller be required to pay dividends, doesn’t the company that issued the stock pay those? The company does pay those, to all of the legitimate owners of their stock.

The owner that the short seller created out of thin air is also expecting a dividend and that is who receives the dividend payments the short seller is required to pay, four times a year.

The dividends go to the actual owner of the stock albeit in a   roundabout way. I cannot speak to the back office technicalities involved. However, the actual owner of shorted stock is the clearing house. When you look at your brokerage statement it shows you own x, y and z shares but you don't. Your broker doesn't have them, which is a good thing for if the broker goes bankrupt those shares are "safe" elsewhere. If I recall correctly some many years ago there was bad trouble with a major clearing house and Wall Street jumped in with both feet to keep the situation from getting out of hand.

--Brant

[Peter]

Notes. Modern corporate tax havens (such as Ireland, the Netherlands, and Singapore), differ from traditional corporate tax havens (such as Bermuda, the Cayman Islands and Jersey) . . . . end quote from Wiki.

Clearing house. Brokerage. I watched The Laundromat last night, Brant and it is a Creepy (to me) grade B film but it is informative and worth watching. The only off note to me was its vilification of the free state of Delaware. Through its economic freedom, 80,000 corporations are based there which may be more than the other havens including the islands. And Delaware is legal.  Peter

The Laundromat is a 2019 American biographical comedy-drama film directed by Steven Soderbergh, with a screenplay by Scott Z. Burns. It stars Meryl Streep, Gary Oldman, Antonio Banderas, Jeffrey Wright, David Schwimmer, Matthias Schoenaerts, James Cromwell, and Sharon Stone. The film had its world premiere at the Venice Film Festival on September 1, 2019. It was released theatrically on September 27, 2019, before being released for digital streaming on October 18, 2019, by Netflix. The film has received mixed reviews from critics.

Plot The film opens with Jürgen Mossack and Ramón Fonseca introducing themselves, the concept and system of money laundering, and acts as narrators for three stories of people around the world that are affected by Mossack Fonseca.

Ellen Martin and her husband Joe are on a pleasure boat at Lake George, New York when it suddenly capsizes, drowning Joe. When Ellen tries to get compensation from the boating company for Joe's death, she is unable to because the reinsurance company that the boat companies' owner and his son Matthew bought their policy from, was sold to another company based out of Nevis that is actually a trust to one of Mossack's shell companies, and is under investigation by the IRS for fraud. After her attempts to contact Mossack and the Nevis based company are unsuccessful, Ellen travels to Nevis herself to confront the manager of the trust, Malchus Boncamper, but he tricks and evades her and escapes to Miami only to be caught and arrested by IRS Agents at Miami's airport.

The second story is about Simone, the daughter of an African billionaire, Charles, who discovers that her best friend is having an affair with her father. In order to prevent Simone from telling her mother about the affair, Charles offers her shares from one of his investment companies that are supposedly worth $20 million dollars. She accepts his offer, but when she travels to Mossack's offices in Panama City to claim ownership of the shares, they turn out to be worthless as they are actually part of a shell company under Mossack that only existed on paper.

The third story is a dramatization of part of the Wang Lijun incident, specifically the death of Neil Haywood. Neil (renamed "Maywood" in the film), an intermediary for wealthy Chinese (played by Rosalind Chao) looking to funnel money abroad, visits a Chongqing hotel to meet Gu Kailai. He demands and pressures Gu (Rosalind Chao) for a much higher price if he is to continue to launder money for her family through one of Mossack's shell companies. Gu retaliates by murdering Maywood through poisoning the drinks that she serves him. She discloses the incident and reports Maywood to a party official who secretly records the conversation and reports her. The story ends with Gu and her husband Bo Xilai arrested for corruption and for Maywood's murder.

The film ends with the leaks of the Panama Papers and subsequent police raids on Mossack Fonseca, the brief imprisonment of Mossack and Fonseca, and the shutdown of the firm. However, the two, as well as Meryl Streep herself acting out of character, remind viewers that there are still many such companies in existence and the practice of money laundering and corruption through fake trusts and shell companies based in tax havens is still widespread.

Cast Meryl Streep as Ellen Martin / Elena / Herself Gary Oldman as Jürgen Mossack  Antonio Banderas as Ramón Fonseca Sharon Stone as Hannah David Schwimmer as Matthew Quirk Matthias Schoenaerts as Maywood Jeffrey Wright as Malchus Irvin Boncamper Will Forte as Doomed Gringo #1 Chris Parnell as Doomed Gringo #2 James Cromwell as Joseph David “Joe” Martin Melissa Rauch as Melanie Larry Wilmore as Jeff Robert Patrick as Captain Richard Paris Rosalind Chao as Gu Kailai Jesse Wang as Bo Xilai Nikki Amuka-Bird as Miranda Nonso Anozie as Charles Jessica Allain as Simone Amy Pemberton as Fetching Cristela Alonzo as Agent Kilmer Jay Paulson as Pastor Conners Charles Halford as Pyro Guy (uncredited) Shoshana Bush as Rebecca Rubinstein Norbert Weisser as Swiss Skier Marsha Stephanie Blake as Vincelle Boncamper Veronica Osorio as Maria

Production In July 2016, it was announced that Steven Soderbergh was set to produce a then-untitled Panama Papers project.^[3] Later, in April 2018, it was announced that Soderbergh would also direct the film, now titled The Laundromat . . . . 

[Jon Letendre]

54 minutes ago, Brant Gaede said:

At X point of time there are 11 owners of 10 shares?

--Brant

Correct.

Do you really not understand?

Some shares were borrowed and sold to a third party.

So how could an additional, vaporous, owner not have been introduced?

The clearing house is not that 11th owner but the person who bought the shares from the short seller is the 11th owner of the 10 shares. That 11th owner receives the dividends the short seller pays four times per year.

[Jon Letendre]

59 minutes ago, Brant Gaede said:

The dividends go to the actual owner of the stock albeit in a   roundabout way. I cannot speak to the back office technicalities involved. However, the actual owner of shorted stock is the clearing house. When you look at your brokerage statement it shows you own x, y and z shares but you don't. Your broker doesn't have them, which is a good thing for if the broker goes bankrupt those shares are "safe" elsewhere. If I recall correctly some many years ago there was bad trouble with a major clearing house and Wall Street jumped in with both feet to keep the situation from getting out of hand.

--Brant

The actual owners are who we and they think they are, not the clearing house.

You seem to have lost sight of the buyer of shares sold short.

He receives dividends because he is an owner of shares of the company.

He is the 11th owner of the 10 shares the company has issued.

[Brant Gaede]

5 hours ago, Jon Letendre said:

The actual owners are who we and they think they are, not the clearing house.

You seem to have lost sight of the buyer of shares sold short.

He receives dividends because he is an owner of shares of the company.

He is the 11th owner of the 10 shares the company has issued.

Okay, I get your point. The shorting has turned 10 shares into 11. The extra share disappears when the position is closed. The extra share is artificial and potentially very dangerous to the shorter. He has to buy a real share to cover.

 --Brant

[Jon Letendre]

On 11/7/2019 at 7:10 AM, Brant Gaede said:

It's a fallacy to assume stock shorting is gambling though it can be for gamblers. Shorting can stabilize the value of a stock when a company comes with bad news. The price pluments then the shorters rush to cover their positions by buying it. Then the news turns out to be not so bad and the price goes back up.

Shorting dampens overall market volatility, especially potential volatility, and makes actual stock ownership more attractive.

--Brant

Now, about price stabilization.

You focus exclusively above on the short seller’s later action of buying to cover his shares loan, but you ignore his earlier selling of stuff he doesn’t like and doesn’t own. We have to look at both.

While you are correct that his (later) buying acts to buoy a battered stock, the effect is evenly offset by his contribution to the battering in the first place, by adding selling pressure from thin air. He helps the recovery and he also helped the decline, so, his contributions to price stability are  -1 and +1 or, zero.

But the two actions of the short seller, selling short then buying to cover, are fundamentally different and this difference has a lot to say about price stabilization.

Let’s first examine his later buying to cover. This is after the stock price has declined precipitously and the public starts to see that the bad news is really not all that bad for the company, the price went down too far and it should be higher. Every investor on the planet has opportunity to see all this and become a buyer, we don’t especially need the short seller’s buying, there is no fundamental shortage of buyers.

Let’s next examine his short sale that actually came earlier. Bad news had hit about the company’s future prospects. Again, the entire investing public could see that the company’s prospects were negatively affected by the news and every investor in the world could understand that selling right then may have been wise. But who could sell, in a normal, no tricks allowed, world? Who could sell? Only those persons already in possession of shares could sell, not the whole damn investing world. There is a fundamental limit to the number of sellers and this fact contains the decline, in a normal world.

So the true contributions to price stabilization are -1.X and +1.0, making a net negative effect on price stability.

[Brant Gaede]

6 hours ago, Jon Letendre said:

Now, about price stabilization.

You focus exclusively above on the short seller’s later action of buying to cover his shares loan, but you ignore his earlier selling of stuff he doesn’t like and doesn’t own. We have to look at both.

While you are correct that his (later) buying acts to buoy a battered stock, the effect is evenly offset by his contribution to the battering in the first place, by adding selling pressure from thin air. He helps the recovery and he also helped the decline, so, his contributions to price stability are  -1 and +1 or, zero.

But the two actions of the short seller, selling short then buying to cover, are fundamentally different and this difference has a lot to say about price stabilization.

Let’s first examine his later buying to cover. This is after the stock price has declined precipitously and the public starts to see that the bad news is really not all that bad for the company, the price went down too far and it should be higher. Every investor on the planet has opportunity to see all this and become a buyer, we don’t especially need the short seller’s buying, there is no fundamental shortage of buyers.

Let’s next examine his short sale that actually came earlier. Bad news had hit about the company’s future prospects. Again, the entire investing public could see that the company’s prospects were negatively affected by the news and every investor in the world could understand that selling right then may have been wise. But who could sell, in a normal, no tricks allowed, world? Who could sell? Only those persons already in possession of shares could sell, not the whole damn investing world. There is a fundamental limit to the number of sellers and this fact contains the decline, in a normal world.

So the true contributions to price stabilization are -1.X and +1.0, making a net negative effect on price stability.

The shirts may have been put on over a considerable period of time with little effect on price. When the shit hits the fan then it's a rush to cover. Prices are short term frequently psychological and not so mechanical or as efficient as you seem to imply.

--Brant

[Jon Letendre]

1 hour ago, Brant Gaede said:

The shirts may have been put on over a considerable period of time with little effect on price. When the shit hits the fan then it's a rush to cover. Prices are short term frequently psychological and not so mechanical or as efficient as you seem to imply.

--Brant

No, the rush to cover does not come when the shit hits the fan, the rush to cover comes when better news arrives and the gloom lifts. As I mentioned in previous post, this means that the buys by short sellers come precisely when needed the least for price recovery, artificially speeding the recovery in price.

They worsen and hasten the decline by presenting magical additional selling pressure when news for the company is bad then they inject some meth for an extra speedy recovery after the crisis; thus their activity causes additional price swing (and speed of swing) on both ends,  a.k.a., price instability.

Regarding shorts’ effect on price; there is no such thing as additional selling pressure that does not act to press down on  price.

[Jon Letendre]

I know that in some cases short selling activities can reduce volatility, but the question is one of averages. Similar to how in economic theory the law of demand is safe from the occasional consumer who prefers the highest priced everything.

Financial and economic theory share a highly deductive procedure. The theories don’t require empiric confirmation, in fact such is often impossible. For example, look at all the debate over rent control. Economic theory conclusively demonstrates that rent control reduces maintenance, improvement, overall investment in the rental stock. But there will always be someone who wants a study. And of course a study may indicate that investment dropped following institution of controls, or a study may indicate investment grew following controls and both results are meaningless, for we already know that controls reduce investment. So whatever quality and quantity of rental stock you see, you can know that on average those rental units would be nicer, more updated, more renovated, leak less, etc., than they are, and there would be more of them available for rent, if there was no rent control.

That’s my take on a proper financial theory of shorting. I’m not of the opinion it should not be allowed, but I would be fine with it ending, too. It adds volatility. Traders like that — you can’t rapidly trade and profit that which is steady. As a long term investor, I don’t like extra volatility or the legalization of magic tricks to promote artificial extra trading in the stocks I own.

[Brant Gaede]

Don't let the ideas outrun the data.

--Brant