Credit default swap

I was bearish, uh, since 2007, 2006.

I saw a client selling protection, so going long risk on United States CDS, credit default swaps, that was yielding one basis point with a leverage of 100.

Obviously, the United States didn't default, but the margin call was pretty heavy.

This time around, the instruments don't mark to market.

The underlying's a lot more levered than United States CDS.

It's levered, you know, a lot more and, and, and more subordinated.

But there's no mark to market.

So that yield comes from government b- debt, from government bonds, not from the credit risk that you're taking.

That's what the smart money is doing right now.

When you say buying protection or insurance, is this like CDS? What are they buying specifically?

Right.

There's a lot of ways to skin that cat.

You can buy CDS.

You can short.

You can buy puts on, say, Bank of America, which are really cheap.

The question is whether or not the reasons for owning gold have changed.

And, you know, the crescendo of that was Oracle going to 341 as its credit spreads at 45.

Well, since then, it's down like 60-some percent, and its credit spreads are now trading like junk, 200 on the CDS, and the private market's 300. the market kind of figured it out then.

And to be fair, like the real bubble stocks or the real bubble assets actually did pop in that early October period, right? Bitcoin was at 125 and it's halved since then, right? The fake stocks like SMR and Oklo, which are like next generation small modular reactors, like Interesting technology, but again, not relevant to today from an economic model.

They were high flyer.

They're like, yeah, we'll take it.

And they would take the senior tranche.

And they take the senior tranche equity or income to pay for the mispriced CDS.

And so they bought CDS at like 1% that paid off 90 times, crushed it, right? Very smart guys, right? I mean, and so they're the guys who underwrote Corweave.

So if a mortgage defaults, the person who owns that insurance contract will get a payout.

So what people were doing were they were selling these credit default swaps on other people's mortgages to people who had nothing to do with those mortgages.

to these speculators who are trying to make money on people's defaulting.

So that's the credit default swap.

And the synthetic CDO would be full of these credit default swaps because they almost mimicked a mortgage.

You had the guy in this case paying premiums to this lady as if he was a borrower borrowing money to buy a house and paying interest payments.

So that's how the money was collected to pay for these synthetic CDOs.

They're made all season long.

The bond market is smarter than the stock market.

So keep an eye on Oracle CDS.

Keep an eye on the hyperscaler CDS.

The market is saying...

You know, they're issuing an awful lot of debt and we don't see the free cash flow to support it yet.

But time will tell.

And going back to the mid 90s, which I've shown you, you still had three 50 percent corrections in semiconductors during that five year boom.

So Oracle, I mean, record CDS spread, the cost to ensure 10 million dollars of bonds has increased.