4 ms·

Yup 40%, it's in the textbook, and as the other commenter nicely put it, it also seems like the financial equivalent of dark matter to me. We are living in tim

Yup 40%, it's in the textbook, and as the other commenter nicely put it, it also seems like the financial equivalent of dark matter to me. We are living in times of idiosyncratic risk and my approximations above are likely no better than hearsay. That being said I'm not rushing to buy or sell $CS stock even with my elevated risk tolerance and the seemingly low price.

6stringmerc 4y ago
I'm very interested in your term "idiosyncratic risk" having worked the Street and particularly fond of synthetics / swaps / GICs / etc. as a platform. My mental picture is a very unsteady hub and spoke like in Wipeout or something where the parties and counter parties are intertwined in ways that the dynamics are, as you put it, idiosyncratic.
cuteboy19 4y ago
What do you mean by idiosyncratic risk here? It seems as though you just read the word in an online forum where it was used in an context free manner. Read through investopedia.com/terms/i/idiosyncraticrisk.asp and tell me how it applies here?
- jmillikin 4y ago
  It's a bit gutsy to ask someone who casually drops a CDS valuation formula into a conversation to justify themselves against an Investopedia article, as if a retail-oriented content farm is the definitive resource on finance. To answer your question, "idiosyncratic risk" in this context means that an individual company might have problems that don't broadly apply to the rest of its industry. For example Credit Suisse might have management that is bad at running a bank, leading to repeated investment losses and regulatory actions well beyond what's normal for big multinational banks. Look at the CS balance sheets over the past few years, or its stock price and PE ratio, or hell just Google "Credit Suisse books loss" and look at how many times they tried to stick their fingers in the wrong cookie jar. They got hit by the Hwang thing, they got hit by Greensill, and apparently they can't even accurately report how much money they're making (losing). I wouldn't want to have any position on their equity either.
  - 49erfangoniners 4y ago
    Can those of us who aren't a bit gutsy get a translation of these super interesting points. I'm not asking for a tldr, this is fascinating shit. I'm just asking anyone who has the time and interest to teach us uninitiated about what the Hwang and Greensill things were and how this company is apparently getting their hands stuck in all the wrong financial cookie jars.
    - Mutjake 4y ago
      Personally I’d probably check Patrick Boyle’s videos from Youtube as a start. IMHO he tends to do a good job in summarizing these cases (bear in mind I might not be the best judge of that, of course): https://youtu.be/hhHdtDyQD90 https://youtu.be/hhHdtDyQD90 https://youtu.be/2t4lGmNDiHo https://youtu.be/2t4lGmNDiHo I’d also welcome any interesting further reading on the subject!
- trillic 4y ago
  I’m not going to stoop to your level and click your silly little link, as I don’t think there’s much investopedia can help me with this particular incident. However, if you’d like to learn more about $CS and Archegos I’d recommend reading the Report put out by $CS on the topic. Colloquially known as, “Credit Suisse Group Special Committee of the Board of Directors Report on Archegos Capital Management” https://www.sec.gov/Archives/edgar/data/1159510/000137036821000064/a210729-ex992.htm https://www.sec.gov/Archives/edgar/data/1159510/000137036821... It’s all about the material risks Archegos posed to Credit Suisse. CS failed to capture a number of specific risks which were intrinsic to Archegos’ specific trading strategy. I won’t go through them all but they explicitly call out “idiosyncratic risk” due to their use of equity total return swaps, baskets of them, to hide equity positions. The risk being if the components of the basket, which were may have been billed to be diversified, all the sudden begin to move violently and in sequence, it would be a material idiosyncratic risk to $CS. A large number of these swaps from 2021 are coming due this week and next. Including likely a large number today, March 15, which is a commonly used date for expiry of EuroDollar and Forex contracts, as well as presumably equity swaps as well? Now, what’s in those swaps? Who knows, the CFTC announced an exemption back in 2021 allowing NO REPORTING of swaps through at least the fall of this year, which has subsequently been extended through 2025. So we shall see how the dominoes fall and only after will they let us see how they were setup. https://www.cftc.gov/PressRoom/PressReleases/8422-21 https://www.cftc.gov/PressRoom/PressReleases/8422-21 https://www.cftc.gov/PressRoom/PressReleases/8618-22 https://www.cftc.gov/PressRoom/PressReleases/8618-22
acchow 4y ago
The 40% recovery rate isn't written down on the swaps actual terms? Edit: I asked ChatGPT. "The recovery rate of a credit default swap (CDS) is typically specified in the contract and agreed upon by the parties involved. The recovery rate is the percentage of the notional value of the underlying debt that the protection buyer would receive in the event of a credit event, such as a default, of the reference entity. To find the recovery rate of a specific CDS contract, you can refer to the contract documentation, which should include details on the recovery rate. This information may also be available from the CDS provider or through financial data providers such as Bloomberg, Reuters, or other financial news sources. It's worth noting that the recovery rate can vary depending on the specific CDS contract, the reference entity, and the prevailing market conditions. Therefore, it's important to confirm the recovery rate specified in the contract and to keep track of any changes in the market or credit conditions that could affect the recovery rate."

6stringmerc 4y ago

I'm very interested in your term "idiosyncratic risk" having worked the Street and particularly fond of synthetics / swaps / GICs / etc. as a platform. My mental picture is a very unsteady hub and spoke like in Wipeout or something where the parties and counter parties are intertwined in ways that the dynamics are, as you put it, idiosyncratic.

cuteboy19 4y ago

What do you mean by idiosyncratic risk here? It seems as though you just read the word in an online forum where it was used in an context free manner. Read through investopedia.com/terms/i/idiosyncraticrisk.asp and tell me how it applies here?

jmillikin 4y ago
It's a bit gutsy to ask someone who casually drops a CDS valuation formula into a conversation to justify themselves against an Investopedia article, as if a retail-oriented content farm is the definitive resource on finance. To answer your question, "idiosyncratic risk" in this context means that an individual company might have problems that don't broadly apply to the rest of its industry. For example Credit Suisse might have management that is bad at running a bank, leading to repeated investment losses and regulatory actions well beyond what's normal for big multinational banks. Look at the CS balance sheets over the past few years, or its stock price and PE ratio, or hell just Google "Credit Suisse books loss" and look at how many times they tried to stick their fingers in the wrong cookie jar. They got hit by the Hwang thing, they got hit by Greensill, and apparently they can't even accurately report how much money they're making (losing). I wouldn't want to have any position on their equity either.
- 49erfangoniners 4y ago
  Can those of us who aren't a bit gutsy get a translation of these super interesting points. I'm not asking for a tldr, this is fascinating shit. I'm just asking anyone who has the time and interest to teach us uninitiated about what the Hwang and Greensill things were and how this company is apparently getting their hands stuck in all the wrong financial cookie jars.
  - Mutjake 4y ago
    Personally I’d probably check Patrick Boyle’s videos from Youtube as a start. IMHO he tends to do a good job in summarizing these cases (bear in mind I might not be the best judge of that, of course): https://youtu.be/hhHdtDyQD90 https://youtu.be/hhHdtDyQD90 https://youtu.be/2t4lGmNDiHo https://youtu.be/2t4lGmNDiHo I’d also welcome any interesting further reading on the subject!
trillic 4y ago
I’m not going to stoop to your level and click your silly little link, as I don’t think there’s much investopedia can help me with this particular incident. However, if you’d like to learn more about $CS and Archegos I’d recommend reading the Report put out by $CS on the topic. Colloquially known as, “Credit Suisse Group Special Committee of the Board of Directors Report on Archegos Capital Management” https://www.sec.gov/Archives/edgar/data/1159510/000137036821000064/a210729-ex992.htm https://www.sec.gov/Archives/edgar/data/1159510/000137036821... It’s all about the material risks Archegos posed to Credit Suisse. CS failed to capture a number of specific risks which were intrinsic to Archegos’ specific trading strategy. I won’t go through them all but they explicitly call out “idiosyncratic risk” due to their use of equity total return swaps, baskets of them, to hide equity positions. The risk being if the components of the basket, which were may have been billed to be diversified, all the sudden begin to move violently and in sequence, it would be a material idiosyncratic risk to $CS. A large number of these swaps from 2021 are coming due this week and next. Including likely a large number today, March 15, which is a commonly used date for expiry of EuroDollar and Forex contracts, as well as presumably equity swaps as well? Now, what’s in those swaps? Who knows, the CFTC announced an exemption back in 2021 allowing NO REPORTING of swaps through at least the fall of this year, which has subsequently been extended through 2025. So we shall see how the dominoes fall and only after will they let us see how they were setup. https://www.cftc.gov/PressRoom/PressReleases/8422-21 https://www.cftc.gov/PressRoom/PressReleases/8422-21 https://www.cftc.gov/PressRoom/PressReleases/8618-22 https://www.cftc.gov/PressRoom/PressReleases/8618-22

acchow 4y ago

The 40% recovery rate isn't written down on the swaps actual terms? Edit: I asked ChatGPT. "The recovery rate of a credit default swap (CDS) is typically specified in the contract and agreed upon by the parties involved. The recovery rate is the percentage of the notional value of the underlying debt that the protection buyer would receive in the event of a credit event, such as a default, of the reference entity. To find the recovery rate of a specific CDS contract, you can refer to the contract documentation, which should include details on the recovery rate. This information may also be available from the CDS provider or through financial data providers such as Bloomberg, Reuters, or other financial news sources. It's worth noting that the recovery rate can vary depending on the specific CDS contract, the reference entity, and the prevailing market conditions. Therefore, it's important to confirm the recovery rate specified in the contract and to keep track of any changes in the market or credit conditions that could affect the recovery rate."