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one thing i've noticed is that CDS markets seem to very strongly overreact and if i could find a way to go long a CDS index on 1 company (namely goldman) i'd think that it could be a profitable trade. i'd want to build a position though as the cost of insurance against goldman debt might rise as the extent of their exposure increases (they and mnay other banks might be practicing accounting tricks to get the total amount spread over a few quarters...though it may be more attractive to get it over with in one fell swooop...who knows what they'll choose to do)


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This is true - not being able to trade CDS as an individual in small denominations sucks in this market.

At the same, with the notional amount of CDS market being in gazillion dollars and big banks generally being net insurers/investors in this market, this does make you wonder about who's lost a ton (probably synthetic CDO investors) and may be forced to liquidate or deleverage.

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i'll offer you even money that goldman does not post any negative earnings in the next 3 quarters. to rephrase, goldman will post a positive profit for the next 3 (or 4 whatever you want) quarters. you can name your price.


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Nah, he won't take this bet on the basis that earnings don't mean anything when broker-dealers can just mark-to-whatever. Which is a valid objection, but I don't think brokerage firms are lying by much. Big commercial banks, on the other hand, I have no idea.