Major Market Risk: Chamath Outlines Corporate Default Dangers in the Wake of Trump's Tariffs
110 segments
The thing that we haven't talked about
is with all of the
tariffs, with all of the
financing questions, with all of the
recession questions, short-term rates,
long-term rates, the one thing that we
haven't sufficiently talked about. It's
not really in the press, but it needs to
be talked about is there is a tremendous
amount of corporate debt that supports
these businesses today. And you would
say, well, if long-term rates go
down, there's no real risk. But the
tariff picture actually impacts
revenues, right? And the problem with
that is that there's a lot of companies
that have debt covenants tied to revenue
and ibida. And so this is what I spoke
about at the beginning of January, which
is the one risk that is
uncontrollable is what happens to
corporate debt and could we see a wave
of defaults and a wave of action. Nick,
you may want to just play the clip and
we can talk about what we can do about
this. This was my pick for the best
investment idea.
Go ahead. All right, here we go from
What do you got? So, let me preface this
by saying that this is a pick that 92
times out of 100 goes to absolute zero
and six out of the remaining eight times
you make 10x extra money and then the
final two times you make anywhere
between 100 to a,000 extra money. This
is a loser trade, but I would be long
CDS. So, what am I buying? I am buying
insurance. I'm buying insurance using
credit default swaps. I'm buying what's
called protection that there is no
default event in 2025. I would like a
little bit of an insurance policy in
2025 so that the men and the women that
we have voted in have the chance to do
their work in peace. I think that there
is a small chance of some volatility
next year. I hope it doesn't happen. I
hope that this trade loses money, but if
it hits, it will be the best performing
asset of 2025. And I just want to be
clear, this is not something I think
will happen. It's not something I want
to happen, but I do think that if you
look back in terms of just the tonnage
of dollars you can make and the massive
risk asymmetry that it presents to you.
When you look at the concentration of
the S&P, when you look at just the total
gross amount of debt that we have, when
you look at rate spiking, all of these
things say having a little insurance may
not be a bad thing. It has
hit. Nick, you can show the CDS
graph. So, this thing for every billion
dollars of risk you would have put on,
every billion dollars that you put on
would have cost you about a million
dollars. And that million dollars would
have made you about $7 million in about
3 months. Did you put it on? I'm not
going to comment on my my trades, Jason.
Oh, okay. But we tal we talked about it
off air already. But if you did put it
on, does that mean you're taking us all
to Italy this summer? No. What's
happening here? Are you getting a boat
for us to record from the all-in yacht?
No, but there may be some boats for sale
if this trade keeps going this way. Oh,
why is this important? The CDS actually
represents the structural risk in the
United States private economy, in the
corporate economy. And so, Nick, if you
just put it back on. So, when you see
these spreads blowing out, this is
actually a very important warning sign.
And this is actually a thing that I
think Scott understands well, Howard
understands well. I think they'll
translate this to the president. If I
have an opportunity to explain it, I
will. But this is a really important
market to pay attention to. This is what
was the canary in the coal mine for the
great financial crisis. This was the
stuff that showed us that there was a
big default event happening in the
mortgage side of the market. But then
that spilled over to the broader
economy. And so the tariff picture and
the recession picture will get played
out in this chart. And I think it's
something that folks can and should
probably pay tremendous attention to
because I think now that this trade is
in the money, the question is I don't
think we want this to happen. That one
sigma two sigma event where all of a
sudden this trade returns a,000x is
really
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