An outside summation of why I’m short GS

Courtesy of Tim Backshall:

This is a little complex but…GS CDS curve inverted yesterday and remains inverted today. Spreads a re lot tighter than they were the last time the curve inverted (middle of the crisis) but what this chart shows is the PV of the 3Y risk as a percentage of the PV of the 5Y risk.

We are at 69.4% which is actually more front-loaded than in MAR09 and only beaten by the 72.5% levels of SEP/OCT08.
The bottom line to us is that counterparty risk hedgers have gone wild here and loaded up on front-end risk.
By way of example, GS 3 and 5Y PVs were almost triple what they are now during that period.

If there are any equity analysts that are using any kind of discounted cash-flow approach to valuation of GS stock, then maybe a consideration of what this means for forward rates combined with the massively higher interest expense they will incur when they have to roll all $21bn of that TLGP debt – ouch…

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