Major Market Risk: Chamath Outlines Corporate Default Dangers in the Wake of Trump's Tariffs

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