Is This Company The Next Lehman?

Are we about to witness the most important global financial event since the collapse of Lehman Brothers in 2008?  Glencore has been known as the largest commodities trading company on the entire planet, and at one time it was ranked as the 10th biggest company in the world.  It is linked to trillions of dollars of derivatives trades globally, and if the firm were to implode it would be a financial disaster unlike anything that we have seen in Europe since the end of World War II.  Unfortunately, all signs are pointing to an inescapable death spiral for Glencore at this point.  The stock price was down nearly 30 percent on Monday, and overall Glencore stock has plunged nearly 80 percent since May.  There are certainly other candidates for “the next Lehman” (Petrobras and Deutsche Bank being two perfect examples), but Glencore has definitely surged to the front of the pack.  Right now many analysts are openly wondering if the firm will even be able to survive to the end of next month.

If you are not familiar with Glencore, the following is a pretty good summary of the commodity trading giant from Wikipedia

Glencore plc is an Anglo–Swiss multinational commodity trading and mining company headquartered in Baar, Switzerland, with its registered office in Saint Helier, Jersey. The company was created through a merger of Glencore with Xstrata on 2 May 2013. As of 2014, it ranked tenth in the Fortune Global 500 list of the world’s largest companies. It is the world’s third-largest family business.

As Glencore International, the company was already one of the world’s leading integrated producers and marketers of commodities. It was the largest company in Switzerland and the world’s largest commodities trading company, with a 2010 global market share of 60 percent in the internationally tradeable zinc market, 50 percent in the internationally tradeable copper market, 9 percent in the internationally tradeable grain market and 3 percent in the internationally tradeable oil market.

For months, I have been warning about the consequences of the crash that we have been witnessing in commodity prices.  We saw a similar thing happen in 2008 just before the financial crisis that erupted in the fall of that year.  If commodity prices kept going down (which they did), it was only a matter of time before firms like Glencore started imploding.

At this point, Glencore owes almost twice as much money as the entire firm is worth

Now there is every chance the merged operation could implode. If it does, it will be the resources sector’s very own Lehman Brothers moment.

With debt approaching $US30 billion and a market value of just $US16 billion, shareholders and those holding the debt are desperately looking for an exit.

The cost of Glencore’s credit default swaps – a financial instrument that insures against a default – soared overnight.

Actually, “soared” is a horrible understatement.

The cost of insuring Glencore’s debt is absolutely screaming into the stratosphere.  This is precisely what we would expect to see right before a “Lehman Brothers moment”.  Here are some of the specific details from the Wall Street Journal

Investors had to pay on Monday more than $790,000 a year to insure $10 million of Glencore debt against default for five years using credit default swaps, according to Markit, more than 40% higher than Friday. At the beginning of the year, the same insurance cost $154,000.

When Glencore goes down, they will take a whole lot of others with them.  That is because Glencore is tied to trillions of dollars worth of derivatives trades all over the planet.  According to Zero Hedge, we are looking at “the start of a self-fulfilling prophecy which leads to the Companys’s IG downgrade and the collapse of trillions in derivative notionals as what may be the trading desk of the biggest commodity counterparty quietly goes out of business.”

For years I have been ranting about the danger of derivatives.  In article after article I warned that they would play a starring role in the next financial crisis.

Now the reality of what I was warning about is staring us right in the face.

The “nothing is happening” crowd is completely and utterly clueless.  There are these people running around telling everyone that the stock market decline is “over” and that we aren’t about to experience another great financial crisis.

I don’t understand how these people can be so ignorant.  Global giants such as Glencore, Petrobras and Deutsche Bank are imploding right in front of our eyes.  As I write this, stocks in Hong Kong are down 744 points and stocks in Japan are down 677 points.  The stock markets of the 10 largest economies on the entire planet are all crashing, but the mockers are going to continue to mock.  They will continue to tell you that “nothing is happening” even in the face of undeniable evidence to the contrary.

And the sad thing is that many of these mockers are given air time on the big mainstream news networks.  They will tell you that stocks are “oversold” and that you should “buy the dip” because stocks are going to be going back to record highs really soon.

I wish that was true.  Unfortunately, the reality of the matter is that we are finally witnessing the bursting of the last great global financial bubble.  I really like how Bill Holter put it recently

In my opinion we are already well within the jaws of a meltdown/shutdown as liquidity is evaporating. There are a dozen developed countries with their stock markets already in bear markets (down 20% or more). All crashes come from oversold levels just as bank runs come on fast and are a surprise at the time. What is coming should be NO SURPRISE to anyone as we are looking at the end of not only an empire but of a flawed system which has endured for far too many years! This was a solvency problem in 2008 and “liquidity” was the incorrect tool used then. Now it is a bigger solvency problem with an illiquidity kicker attached …while the Fed has already used every tool imaginable and every last ounce of credibility. The loss of confidence in the issuer of the world’s reserve currency would be bad enough in an unlevered world, the loss of confidence in today’s “debt world” will be a DISASTER!

To wrap this up, do not let anything that may happen from here surprise you. The conditions are ripe for global currency crises and a shutdown of credit. The conditions are also ripe for hot war to explode in multiple venues. A meltdown or shutdown of markets will serve as a FINAL FLUSH of what remains left of the U.S. middle class.

We are steamrolling toward a global economic collapse that will be permanent and irreversible.

For months, I have been warning that we were witnessing a textbook example of what the lead up to a major financial crisis looks like, and now it is happening.  All of this was completely and totally predictable for those that were willing to look at the signs.

Unfortunately, there are way too many people out there that think that they know it all and that have a tremendous amount of blind faith in the system.

Now the system is failing, and that blind faith is about to be shattered.

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  • JohnDille

    GOOD GOD YOU ARE STUPID!!! YOU CANT UNDERSTAND SARCASM WHEN YOU SEE IT??? MAYBE ANOTHER GRIM DOSE OF THE REAL WORLD WILL HELP SHAKE YOU OUT OF YOUR EXTREME SELF CENTEREDNESS AND ARROGANCE….
    In the past 6 months, police have killed at least 234 Black people nationwide — an average of more than 1 person a day. 1 It’s a painfully familiar story:

    Police — driven by explicit or implicit anti-Black racism — brutalize or kill a Black person who is doing nothing more than shopping at the grocery store, driving home from work, playing in the park or reaching out for help;2,3,4,5 Law enforcement and police associations then criminalize the victim, often lying, filing false police reports or planting evidence to cover up the truth.6 The media jumps on board, but within just a few days or weeks journalists stop covering the story; the community and family are left brokenhearted, fighting a near impossible fight for justice, which is almost always denied.7

    We must stop this vicious cycle. As we know from past experiences, police cannot police themselves. Prosecutors rely greatly on police for help with their cases, which makes it far less likely they will risk the political fallout that comes with holding abusive and discriminatory officers accountable. If we want justice, we need to be ready to take matters into our own hands.

  • Joe Cabot

    You were working in a capitalist entity & didn’t know it? You might be as smart as you think. That said, you are still a capitalist and might want to quit trying to avoid it.

  • JohnDille

    GEE… I HAVE WORKED FOR 3 OR 4 OF THE LARGEST CORPORATIONS IN THE WORLD… AND THEY PAID ME ALMOST ENOUGH TO LIVE ON! SO… HERE I WAS PART OF THE CAPITALIST SCAM FOR A LARGE PART OF MY LIFE… AND I DID NOT EVEN KNOW IT!!! SORT OF LIKE A COW WHOSE BEEF GETS USED TO MAKE HAMBURGERS FOR MCDONALDS! PROFITABLE FOR MCDONALDS… NOT SO GREAT FOR THE COW!!!

  • Joe Cabot

    Hey, according to your tall tales you are making money via capitalism. Whether you are a small-timer or the biggest, baddest company on the block, this makes you a capitalist. Quit trying to avoid it.

  • JohnDille

    CAPITALISM IS LIKE BASEBALL… THERES US WORKING STIFFS WHO ARE LITTLE LEAGUERS… SOME OF WHOM ARE ARROGANT AND SELF CENTERED ENOUGH TO BELIEVE THEY WILL GROW UP TO BE BIG LEAGUERS… WE CALL THEM BRAIN WASHED REPUBLICANS… … AND THEN THERE ARE THE BIG LEAGUERS, SOME OF WHOM ARE THE MASTERS OF THEIR PROFESSION, AND WHOSE CAPITALISTIC EFFORTS HAVE MADE THEM BILLIONAIRES…. AT EVERYONE ELSES EXPENSE! CAPITALISM IS LIKE ANYTHING ELSE… THERE ARE ALWAYS WINNERS AND LOSERS… AND IN OUR SYSTEM… THE WORKING PEOPLE ARE ALMOST ALWAYS THE LOSERS… AND THAT IS BY DESIGN… THE BIG BOYS MAKE SURE THAT WORKING PEOPLE CANNOT POSSIBLY WIN… BECAUSE THAT IS HOW THE BIG BOYS MAKE THEIR BILLIONS…. BY EXTORTING AND ABUSING AND ROBBING US LITTLE LEAGURES BLIND!!!

  • g13man

    lol

  • daniel1154

    It was the left wingers in Germany that murdered them by the millions. Hitlers National Socialist party. Communism, socialism, fascism, all the same thing. All collectivism.

  • Joe Cabot

    Uh, goob, working people are capitalists too. Don’t attempt to martyr yourself. Just admit that capitalism feels good instead of hypocritically yapping about benefiting from it while yelling about how horrible it is.

  • JohnDille

    MOSTLY… I HATED WORKING 50 YEARS FOR ALMOST NOTHING…. BUT I STILL GOT UP EVERY DAY OR IN THE MIDDLE OF THE NIGHT… AND DID IT!!! DOES THAT MAKE ME A HYPOCRITE??? IN YOUR TOTALLY SELF CENTERED AND ARROGANT EYES, SURELY SO!!! I DESPISE GREEDY CAPITALISTS… JUST LIKE THEY DESPISE WORKING PEOPLE! BUT THEY CAN USE AND ABUSE US WORKING PEOPLE VERY DAY OF THE WEEK… AND WELL TRAINED PUPPETS LIKE JOE CABOT SEE NOTHING WRONG WITH THAT!!! BUT TURN THE TABLES… AND LET A WORKING STIFF MAKE MONEY OFF THE CAPITALISTS… AND JOE THE PUPPET SEES NOTHING BUT HYPOCRISY!!! WHAT A MORON!!!

  • Joe Cabot

    Thank you for confirming my previous post. It’s fun to watch you toss tantrums at republicans while hypocritically imitating them, and to watch you demonize capitalism while running your yap about how you are benefiting from it. Of course, your stories of day trading and market timing genius are undoubtedly another in a long line of figments of your capitalized imagination, as you regularly make claims of making money on the companies that get mentioned in the articles on this site just in time to fit your narrative.

  • JohnDille

    JOE CABOT THE ARROGANT IDOT WHO REFUSES TO ACTUALLY READ WHAT PEOPLE HAVE TO SAY…. AND WHO INSTEAD SIMPLY INSERTS HIS BIASES AND STUPID OPINIONS IN PLACE OF WHAT OTHERS HAVE ACTUALLY SAID. NO WONDER HE IS JUST ANOTHER STUPID RIGHT WINGER!!! I HAVE SAID… REPEATEDLY… THAT BACK WHEN I WAS A WORKING STIFF… I LIVED IN POVERTY. BUT NOW… I AM A WALL STREET TYPE PARASITE… AND I AM DOING REASONABLY WELL BY IMITATING THIEVING REPUBLICANS!!! AL IT TAKES TO GET RICH… IS MONEY! ABOSLUTELY NOTHING MORE!!!

  • JohnDille

    YOU RIGHT WINGERS MAKE A FORTUNE OF THE VERY SAME GOVERNMENT THAT YOU CONSTANTLY ATTACK. I GUESS YOU RIGHT WINGERS ARE JUST A BUNCH OF 2 FACED HYPOCRITES!!!

  • JohnDille

    AS A GROUP, JEWS HAVE LONG BEEN THE SMARTEST PEOPLE ON EARTH! SO… THEY HAVE INVENTED A VERY LARGE FRACTION OF EVERYTHING EVER INVENTED… ESPECIALLY CONCEPTS AND SYSTEMS LIKE… COMMUNISM… AND CAPITALISM… AND SOCIALISM… AND LIBERTARIANISM…. AND…. AND … AND… AND…. I GUESS THEIR SMARTS ARISE OUT OF THEIR WILLINGNESS TO ACTUALLY STUDY AND THINK,, AND TO BE INTELLECTUALLY COURAGEOUS! NO WONDER RIGHT WINGERS THROUGHOUT HISTORY HAVE HATED THEM!!! AND HAVE MURDERED THEM BY THE MILLIONS!!!

  • Joe Cabot

    You are one funny dude. Always here whining about poverty and your sad sack lot in life. Until an article like this, where suddenly you have the expertise to make a few thousand dollars overnight. Never shy about making up a story to fit your narrative, are you? Oh, and making money this way is part of that capitalist system that you hypocritically bash on a regular basis.

  • daniel1154

    Now that’s the Dillie we know and love. Tell us again how the Jews are responsible for communism.

  • g13man

    he also admitted that a company he invested in ,made that money off of poor people ! two faced lib he is !

  • JohnDille

    READ MY COMMENT AGAIN! I DID NOT SAY THAT FOREIGNERS CANNOT BE QUASI-REPUBLICANS… JUST THAT THEY ARE NOT NORMALLY CALLED REPUBLICANS. IF YOU ARE A GREEDY SELFISH SELF CENTERED THIEF, OR THE DIMWITTED SUPPORTER OF SUPER RICH AND/OR CORPORATE THIEVES AND TRAITORS… THEN YOU ARE A REPUBLICAN… OR QUASI-REPUBLICAN…. NO MATTER WHAT YOUR NATIONALITY IS… OR FROM WHAT PLANET YOU MIGHT BE FROM! WE HAVE TO THROW THE PLANET THING IN THERE… BECAUSE CLEARY, MANY REPUBLICANS… IF NOT MOST… ARE FROM SOME BIZARRO TYPE WORLD WHERE UP IS DOWN AND RIGHT IS LEFT AND WRONG IS RIGHT AND TOTALLY STUPID IS PURE GENIUS!!!

  • berky

    Your previous definition of Republicans made no mention of nationality. Are you now saying that only Americans can be a Dille-defined Republican?

  • JohnDille

    GLENCORE IS NOT AM AMERICAN COMPANY… AND MOST OF ITS BIG MONEY BACKERS ARE EUROPEANS. HOWEVER. GLENCORE IS JUST EXACTLY THE KIND OF COMPANY THAT RICH REPUBLICANS WOULD CREATE… IF THEY HAD THE VISION AND GUTS TO DO THAT SORT OF THING. I GUESS… FORTUNATELY FOR AMERICANS… REPUBLICANS ARE TOO SHORT SIGHTED AND STUPID TO CREATE ANYTHING LIKE GLENCORE… WHICH IS MONUMENTALLY HUGE… AND HAS ITS FINGERS IN EVERY COMMODITY PIE ON THE PLANET! IS GLENCORE GOING TO GO BELLY UP??? NOT LIKELY… IT IS BACKED BY SOME OF THE RICHEST PEOPLE ON THE PLANET. IN FACT… I JUST MADE A COUPLE OF THOUSAND DOLLARS ON GLENCORES BOUNCE OVERNIGHT, ALTHOUGH I GOT BACK OUT BECAUSE…. EVEN RICH EUROPEANS DO DUMB THINGS… THOUGH USUALLY NOT AS DUMB AS RICH REPUBLICANS HERE IN AMERICA!!! GLENCORE MAKES ITS MONEY STEALING FROM POOR PEOPLES ALL OVER THE WORLD… WHICH IS HOW ALL RICH PEOPLE MAKE THEIR MONEY…. AND SOONER OR LATER, THEIR ARROGANCE AND GREED AND CRIMINAL BEHAVIORS WILL CATCH UP WITH THEM… BIG TIME!!! NOW MAY BE JUST SUCH A TIME! ON THE OTHER HAND… THE GENCORE BUSINESS MODEL MAKE A HUGE AMOUNT OF SENSE… SO EVEN IF IT DID GO UNDER, ITS BACKERS WOULD SIMPLY CREATE ANOTHER COMPANY JUST LIKE IT…. AND CONTINUE MILKING VAST AMOUNTS OF WEALTH OUT OF THE POOR NATIONS OF THE PLANET!!!

  • daniel1154

    Come on Dillie. We know it’s the Republicans behind this.