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Credit-Swap Traders Think Sears Will Fail In The Next Year

  • Last Updated:
  • Feb 21st, 2015 11:23 am
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Poll: Will Sears survive the next year?

  • Total votes: 0. You have voted on this poll.
[OP]
Deal Expert
Jun 14, 2001
15556 posts
1010 upvotes

Credit-Swap Traders Think Sears Will Fail In The Next Year

Credit default swaps are a confusing concept, since some forms resemble
gambling on the failure of a company without even owning any stock in it. As
a consumer, especially if you’re someone who likes to shop at Sears, you
should know that now that Radio Shack has declared bankruptcy, the hot
retailer that credit swap traders are betting will fail is Sears.
Credit default swaps can be used as a backup by investors who hold, say, a
loan taken out or a bond issued by a company with a shaky future. It’s a
fancy form of betting on the future of a company, and can be used to balance
out risk for debtholders. The party seeking to make money if the company
defaults makes regular payments to another investor who believes that the
company won’t fail. If the company does fail, the investor on the other end of
the swap makes a one-time payment to the investor who took out the swap.
It looks a little bit like taking out a term life insurance policy on a company.
This may be the most excited that anyone has been about Sears since
approximately 1992. The cost of a credit default swap can be a good proxy for
the credit risk of that company, and Bloomberg reports that it’s now more
expensive to take out a five-year swap than a one-year swap. That means
that the market believes Sears will declare bankruptcy sometime in the next
year.

http://consumerist.com/2015/02/19/credi ... next-year/

According to a previous Consumerist article credit swap trading played a role in the demise of Radio Shack (US).
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2 replies
Deal Guru
Jul 19, 2012
13564 posts
3821 upvotes
Montreal
terrible poll - you put one question in the title, then totally reverse it for the poll. I voted "yes" (they will fail) before realizing the 180-degree switch.
[OP]
Deal Expert
Jun 14, 2001
15556 posts
1010 upvotes
JackWhyte wrote:
Feb 21st, 2015 11:19 am
terrible poll - you put one question in the title, then totally reverse it for the poll. I voted "yes" (they will fail) before realizing the 180-degree switch.
The title was a statement - not a question (based on the article).

However if a mod wants to switch up the poll question fine by me.
Should we have open retail markets to bring more UK and US retailers to Canada?wegmans-tops-trader-joes-americas-favou ... #p27788812

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