Broadcom is shopping for a hundred billion dollars.
Not through a bond offering. Off balance sheet, through a special purpose vehicle, in a structure that would be the largest deal of its kind ever funded.
Roughly $30 billion of junior debt, another $60 to $70 billion of senior secured paper that Broadcom guarantees a piece of.
Blackstone and Apollo are in talks to participate. Same two firms that backstopped Nvidia’s $500 billion compute deal.
Is it legal? Absolutely. But nobody does off balance sheet to the tune of $60 billion unless money is so stupid that it just needs the yield.
And Broadcom’s credit default swaps exploded the moment it hit the tape.
Let me break that down, because credit default swaps confuse the hell out of everybody.
Forget the word swap. The two words that matter are credit and default, and have you ever heard those used together in a positive light?
That’s the entire product. If a company defaults on what it owes, the swap pays you. They’re puts on a company’s ability to cover its bills.
So when the price of those puts soars the moment a company announces it wants a hundred billion dollars, somebody is telling you something.
Now, I want to be clear about what it does not mean. It does not mean anybody thinks Broadcom is going to default. It’s easy to service debt when you’re printing money every quarter.
It means the market thinks a hundred billion might be over their skis.
And the tell isn’t the price. It’s who’s buying. Nobody buys a credit default swap for fun. You buy it because you’re the one lending them the money and you want protection.
Except there are firms buying these for speculation right now. I know one of them.
When the crowd starts saying I’ll buy them, that’s your uh-oh.
Hyperscaler credit default swaps are already back near their July highs. Every name that issues new debt into this AI buildout sees the same spike.
This matters well beyond Broadcom, because all that corporate paper is competing for the exact same money that’s supposed to be buying Treasuries.
Which is why the Treasury announced a buyback on Wednesday and it lasted one day.
So let me tell you about a trade I put on in June.
Alibaba, on the 24th. About as boring as it got that week. Nobody on television was talking about it because everybody was busy chasing Sandisk, which had run 850% and would lose half its value inside a month.
I paid $90 for the trade.
That $90 was the floor. Lying dead on the floor, worst case, ninety bucks.
Then Iran shut the strait, the market came apart, and everybody I know was checking futures at two in the morning.
And I did the hardest thing in this business, which is absolutely nothing.
I ran a full training on this yesterday, including the Costco trade where I put in $222 and took 54% out six days later without having a single opinion about the company.
To your success,
Don Kaufman
