Gtarras

Panic in CDS Market to Cause Next Collapse in Equities

How about the reverse? ie CDX, which has gone parabolic in the past days, is to drop, and equities to pop? Citi reports current spread/yield are 13 (!) standard deviations from the mean... Good luck with your short... I, for one do not get that... GE CDS trades at 600 bps, which makes its cost of funding close to 10% (adjusting for swap rate), and people who short the economy go ballistic with joy... yep, you guys wont be affected by depression... But i dont think it will come to it... I worked at a credit desk and have an idea or two about how CDS is priced... If you think CDS is about prob of default , think again... it is all about equity volatility... heard of Merton models? however, ironically, CDSs affect the rate borrowing corps will get their funds at... this is so moronic, and was feeding on itself... if equities turn around (and i think they will), the pendulum will swing in the opposite direction, and now equities up/spreads down process will snowball the other way...