Coca-Cola Co KO is as safe as stock as there is… right?
Despite the SPDR S&P 500 ETF SPY being down more than 20% year-to-date, Coke’s stock is down just 5%.
But Boaz Weinstein, the founder of Saba Capital Management, tweeted a chart of Coke’s credit default swaps (CDSs), which show a decade high.
CDSs soar when there is speculation about the future of a company.
Investors use CDSs as a way to hedge against investments: If the underlying company goes bankrupt, CDSs skyrocket.
Famously, Michael Burry of "Big Short" fame, used CDSs to short the housing market by buying exposure to the underlying debt of companies heading toward bankruptcy. It’s not exactly clear why Coke’s credit default swaps have been trading higher, although its stock is down nearly 8% this past month, which is a lot for a “boring” stock like Coke.
"Better stock up while you can,” Weinstein said.
Assuming he’s talking about stocking up on soda cans and not CDSs, he hints at a future that few Americans can fathom: no Coca-Cola.
Coke was introduced in May 1886, 136 years ago. The company has survived the Great Depression, two world wars and the great recession in the mid-2000s.
Weinstein was likely being facetious. Coke isn’t going out of business anytime soon. But, as consumer trends indicate, healthier drink choices are preferred and Coke will need to show adaptability in order to thrive in the future.
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