I rarely short stocks but in Sears case its to obvious. Credit Default Swaps are exotic securities that basically bet on the ability of a company to pay on its fixed income debt. Credit Default Swaps rise when the market believes a company is closer to default on its debt obligations and Credit Default Swaps fall when the market believes a company is less likely to default on its debt. Well, Sears Credit Default Swaps are now skyrocketing. The CDS’s are up over 700 basis points or 7% alone today. The CDS’s have doubled over the past two days. The credit markets are essentially betting that Sears will default on its debts causing it to possibly go bankrupt. The rise in the companies CDS’s is breathtaking. A story about David Tepper buying shares came out the other day which caused the shares to rise. This story is very misleading and caused an inefficiancy between the credit market and the equity market. I believe the equity market has not caught up with the credit market and Sears is far closer to default than we think. CIT bank recently withdrew a liquidity line from the company causing further financial stress. Now seems like a wonderful time to short the company as there is a brief disconnect between the credit and equity markets due to a misleading headline about a popular investor David Tepper buying shares. Review the chart above to see the astronomical rise in the companies Credit Default Swap rates. The writing is on the wall for Sears. Bankruptcy is near.

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