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Is Glencore The Next Lehman? The World’s Largest Commodities Trading Company Is Toast

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Toast - Public DomainAre 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 billions 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.

  • Bill

    Michael, thank you for giving this”emergency alert”. You are so right about what is really about to turn every day life into a nightmare for everyone. Escape from destruction at this point is impossible no matter what the manipulators and the currupt media spew forth.

    Time to hold your survival bag tightly.

    • alan

      Its normal Tuesday in Korea, so it seems OK here.

    • Jazz

      Market futures up big so it’s Rally Cap Tuesday

      • Bill

        May not be up by day’s end, definitely not by week’s end. The distorters will soon run out of propaganda (again).

      • Bill

        Oops, first 1/2 hr of trading very jittery. Sounds like the headlines can’t keep up with the action!!

    • James

      Markets closed.
      SP 500 and DJIA are all up abit only percents of a percent

      • Bill

        The market was whipped up and down all day. At the end it caught the up stroke. Nothing has been fixed so the whole economy remains very unstable.

  • Itanimullikcuf

    October will be an ‘interesting’ month. Actually it is the October not September when most of financial downturns or crashes happened.

    • K2

      If nothing happens in october, you will proclaim ‘november’ as the month when all goes down, if nothing goes down in november, then ‘december’ will be proclaimed as the month when all goes down. If nothing happens by december, then ‘2016’ will be proclaimed as the ‘year’ when all goes down. I am not doubting michael’s intentions, i know he sincerely believes everything is gonna crash. So he wants people to prepare… his motive is to help people avoid getting the short end of the stick. But i think his ‘timing’ is wrong,not motive.

      We are in a slow downward spiral, which will take months to unravel, i doubt there will be a ‘financial’ explosion this time like the one in 08.

      • alan

        My thinking also, in ten years we will look like eastern Europe. However there is always the “black swan” that could turn things upside down real quick.

      • Jazz

        The bull market is here until at least 2017. Nothing to see here folks. Just move along.

        • Itanimullikcuf

          If this is a bull (rather a bullcrap) market for you I don’t want to see a bear market then :)

      • lmarkievich

        I agree, markets are so overvalued, this is normal. Will take time and not implode.

      • Liberty First

        I think that he is right that the odds are higher than in our lifetimes for an extraordinary crash to occur. That said, it does not mean that it will definitely happen. There is definitely going to be a lot of volatility and a slow ride down to much lower stock prices, but a catastrophe may or may not occur.

    • Jazz

      It’s called a “correction” people. Don’t understand why we have to assume it’s the end of the world as we know it. You know what they say about assuming.

      • Itanimullikcuf

        The World didn’t end in 1929 so nobody is telling that a stock market crash is the end. Besides stock prices are highly overvalued. They are a junk status and bubble will not go forever. Correction will be when Dow will fall to at least 12000 mark.

      • Hablo

        Yes; synoym: presume…
        “When you presume, you make a pres out of you and me…” There, fixed it for you…

      • John Byde

        “end of the world” sounds more interesting than “correction”

      • Infidel51

        You are right “end of the world” is a little dramatic. But end of the way of life we take for granted is not too far fetched.

    • Gay Veteran

      or November. or December. etc

      • Itanimullikcuf

        Or gay May.

        • Gay Veteran

          that’s June

    • John Byde

      And there’s always November, December, January and the next Shemitah, Blood Moon, goat’s entrails…

      • Itanimullikcuf

        I don’t believe in shemitah, blood moon or some african voo-doo mumbo jumbo. But we could prepare for incoming stock market crash or a massive terrorist attacks of 9/11 scale. Maybe not this month but chances are bigger with every passing month.

  • Fred

    Jim Bakker just called.

    BigFoot is at Mardi Gras. Really exciting.

  • miko

    so it looks like FED will announce QE4 any minute now.

  • alan

    Plunge protection team standing by….
    Fed printer standing by…
    Media to report on Bruce Jenners new wardrobe standing by….
    Jim Cramer standing by…

    • itscoming

      Good one. Expecially the PPT. LOL

    • Reader

      Where was the PPT in 2000, 2008?

    • Mel Mason

      yep exactly……… Really Folks we can do better than this

    • Karie Nolte

      Hilarious but sadly the truth!

  • HeyAHuman

    I definitely agree with the notion that the “nothing is happening” crowd seems completely dense and out of touch with reality. It’s like people ignoring their breaks squealing, then grinding, until they crash and render themselves permanently crippled. “Welp, I should have listened to Leonard. Guess the squealing and violent screeching sounds meant something. I guess my breaks really ARE bad.”

    • Jazz

      We are just in a correction. The Dow will be back to new highs before the end of the year. Get ready for the Bulls to come marching. Dow 20k by year end. The futures are up big right now and we will see higher highs in the days to come.

      • HeyAHuman

        So, what exactly are the bulls waiting for? Are they waiting until the Dow drops to 15K, so they can scoop up some really cheap, cutthroat stocks? Are these bulls on standby, waiting for utter pandemonium before they make their moves? Your comments lack reason.

  • Jazz

    Nah the markets have bottomed. Look at the market futures we are gonna bounce higher today. Off to the races and new highs just around the corner.

    • Itanimullikcuf

      You call 2000 points down a “bottom”? Wait until DJIA NYSE will hit 10000 or less.

  • http://karmaeconomics.blogspot.com/ lavista4u

    *****WARNING….As the world collapses around us…They will introduce new Technology to society.

    Common guys…WAKE UP….Its a Gigantic Con…Conspiracy within a Conspiracy….The reason commodities are falling and Petro Dollar crashing and Oil prices reaching ZERO levels is because they will be useless when the new technology is introduced.

    The are about to introduce Anti Gravitic Zero Point Field Tech as well as Portal Travel and Jump Rooms when the world crashes around us.

    ————–GET THIS****************

    This Glencore company is just few hours drive from CERN. Switzerland is the seat of Elite Power….From Switzerland came WWW. Tim Bernes lee who invented Internet worked for CERN..GOOGLE IT

    ———————————————
    Don’t be fooled by the Made Up Controlled Crash. These CEOs will just take new position when New technologies are introduced.

    You know better…No Elites who brought you the crash is going to Prison for a reason…LOL

    I put 500 USD that no Glencore guys are going to Prison ever…

    • chilller

      The only people who will be able to afford, or have any need for anti-grav and jump rooms, will be politicians and the elite because no one else could afford them. But the scum of the earth will clamor for them trying to escape the masses.

    • winrob

      As a retired physicist/ math/engr from Caltech (1954-94), may I point out that gravity is not really a “force” like electromagnetism, or the strong and weak nuclear forces. To neutralize gravity, you would need to compensate for the slight curvature of the 4-D continuum caused by the 8k mile diameter of the Earth. Rots of ruck!

      • Pierre Piché

        gravity could also be remnant of the strong nuclear force ,
        it is after all crossing multiple dimensions….

      • Orac4Prez

        Its the dark matter in the White house that is causing all of the global distortions in the economic gravity fields. Multi-dimensional multi-talented and drawing in even the Pope to the political vortex making Washington the centre of the earth.

  • Horiboyable .

    Take your pick where this calamity will begin, Turkey, Brazil, Mexico, Greece shale gas plays the 9 trillion in USD loans in emerging markets, Europe.
    What could possibly go wrong.

  • Horiboyable .

    I saw this event coming about 2011. I got rid of all my debt by 2012 and have since tried to build a firewall round my family. It hard to quantify something like this and how bad it will get so even though I think I am safe as I can be you must be always willing to revaluate your decisions and remake them later on.
    Like Michael I was absolutely convinced that this day would come, when they started repeating the same practices that got us in to this situation in the first place I didn’t think people could be so stupid. When the fed started printing history tells us that the first sign that a society is breaking down is when the state begins to debase their own currency. Ayn Rand wrote about it in her paper, the meaning of money.
    What astounds me is when you try an warn people about it they switch off and stick their heads in the sand. They would rather ignore realty but of course they don’t have the luxury of avoiding the consequences of reality.

  • K

    I must admit, I grow very tired of people who refuse to deal with reality. The warnings are there for all to see. There are none so blind as he who will not see.

    • Jazz

      The markets go up, the markets go down. This is a healthy correction and par for the course. Why do we need a warning? Buy on the dips. Invest for the long term. Buy and hold for 20 years and the rest is all noise.

      • HeyAHuman

        No offense, but your comments are all noise. Too much baseless optimism, and no realism. This isn’t a football game.

    • James

      Like the fact that corporate income and profit have not changed? Nor have economic indicators? And the fact that P/E ratios are at historic lows?

  • Heinrich van Rooi

    The next Lehman Bothers… The debt spiral. The Derivative market has been a marketing campain for too many companies trying to build up trillions when debt was become cheap in the early 2010’s and income for derivative trading soared when everything was just fine..now the reverse is about to happen..A prima get rich scheme becomes prima “out of business “scheme…..

  • G21

    Look with pity on those who advise you to invest in the stock market, and ignore their advice.
    The economy is no longer free market capitalism, which stock markets need to thrive. Marxism/Keynesian-ism/leftism/socialism have diluted and rotted the structure of the economy until it can no longer support healthy growth.

    • Gay Veteran

      you left out fascism (the merger of state and corporate powers)

    • James

      PS.
      The markets were never truly capatilist, companies still needed to meet certain requirements to be listed such as giving out a prospectus and filing 10-k’s every year, 10-Q-s every quarter, and 8-K’s whenever s**t comes up

  • Oz in Australia

    “Is Glencore The Next Lehman?” Most emphatically: YES!

  • Dow 25K in 2016.

    President Obama needs to address the nation. This will
    really help ease investor worries. Obama should inform Americans that 173,000 jobs were added last month. That the dollar is very strong relative to other currencies. The Dow losing 2300 points since reaching a high of 18,300 is completely unacceptable.

    Obama should tell Americans that the stock market is not
    rigged. Everyone should invest in the market because the long term gains aretremendous. The global economy is firing
    on all cylinders. There is no reason to be afraid.

    • Diamond_Jim

      The words “obama” and “ease worries” should never be used in the same sentence. His aim has never been to make the citizens more comfortable…please…

    • Itanimullikcuf

      I hope that this is sarcasm. If not – visit a doctor and change your prescription or take a half next time.

    • Karie Nolte

      And you are living on planet utpia. What are you smoking man?

      • James

        He is not smoking anything.

        173k jobs were added, the dollar is relatively strong
        Corrections happen all the time.
        Stock markets arn’t rigged. There common sense for the long term. Companies with low P/E ratios, great products, and growing sales/their stock is going to go up.
        The BRICS countries are developing and that will help the world tremendously.

  • Cyber Revengeance

    people will not wake up because their opinion is under control of major media and media is saying things will be alright by next month.

  • Dow 25K in 2016.

    Companies go belly up from time to time. I expect the Dow to be up to 20K by the end of 2015. BTW Obama has done a fabulous job
    managing America’s economy.

    • John

      Get real

    • Diamond_Jim

      Yes, we all know the gay agenda prez is “fabulous”.

    • Itanimullikcuf

      How much you earn for writing such a bullcrap?

      • James

        None.
        I feel like educating you idiots

        • Itanimullikcuf

          It may happen that you’re an idiot. An optimistic one. Just like Wall St.

    • James

      Very true, sometimes companies do have erratic stock patterns such as GILD
      I expect the Dow to be 16,700 by years end.
      Are you an insider for General Electric and you know something? :)

  • Dow 25K in 2016.

    I am very confident that Yellen could stop the downward trend of global stock markets. I think a $200 Billion a month QE program would do the trick.

  • henrytan73

    I start buying Ultrashort for Dow and S&P when index is at historical high. How far can it go when the QE stop?

  • Alwaystomorrow

    The Economic Collapse Blog Has Issued A RED ALERT For The Last Six Months Of 2015.

    Published 6/25/2015.

    93 days until 12/31/2015.

    Lets do a count down until the end of 2015 and see just what happens.

    ——————————————————————————

    By Michael S, on July 31st, 2015.

    “And I kind of appreciate the countdown. It reminds people of my warning, and perhaps it will give some readers a renewed sense of urgency.”

  • SunnyFlaSnotress

    I never hear of GlenCore..therefore, it can’t be important! :)

    “Glencore says it is ‘operationally and financially robust'”
    bbc dotcom/news/business-34388600

    • HeyAHuman

      That’s exactly what Goldman Sachs and friends were saying until the jig was up.

      • jsmith

        Yeah, that’s right. It gives the top CEO and managers enough time to bail out while the “ants” are left holding the empty bag while wondering out of the heavy glass exit doors!

    • jakartaman

      I thought Glencore was a single malt scotch?

      • John Byde

        Michael will not tell you it’s heading for half-malt or will be mineral water by morning.

  • Karie Nolte

    The Dow today below 16000, looks like the ticker tape of Santa Claus in the thro s of his last trip around the world….printing and giving away all that free money is killing him!

    • James

      Really?
      It closed at 16,049.13

    • Bad Santa

      Did anyone say my name?

  • Renov8

    This is one conglomerate of many that will fail once the cookie starts to crumble. Once this goes, you will see local government entities, followed by larger municipal groups join the collapse……..no one is immune to the chaos that will follow. Enjoy it while you can…….

  • Itanimullikcuf

    Today almost all global markets are in red but NYSE is in green. Somebody can explain why? Is this only as a result of a Fed worthless money pumped into Wall St? Because US Dollar is the only currency which has no parity in gold or other commodity- it’s a worthless piece of a toilet paper. It can be printed endlessly. This can’t go forever.

  • Jazz

    Bull market is resuming in US stocks. They have been oversold and keep bouncing at key levels showing there is MUCH more upside.

    • Mighty IDF

      Yeah, that’s one powerful market there. 300 pts down, 47 up.
      Don’t quit your day job.

      Unless you’re an investor.

      • James

        You can predict the markets directionality by mid day.
        Then choose SPY or SH to lock in gains.
        I did that all the time when I was a bond analyst and made a killing doing so

  • Chuck

    Glencore is non-issue. markets seem to care less. If it was big deal they would be crashing again. But they are not. All is blissful with markets.

    • Mighty IDF

      Yeah, real blissful.
      Japanese market “only” down 714 overnight.

      • James

        You realize that is 5% right?
        Not the 60% you make it sound like

        • HeyAHuman

          5% of the Dow is 800+ pts. If it dropped that much in a number of hours, they’d have to shut it down.

  • James

    Obviously the publisher does not realize that the derivatives that Encore is connected with are commodity futures, commodity binary options, and commodity forwards.
    Not stock options, ETF’s, and bond funds
    Please try again

  • ddearborn

    Hmmm

    There is nothing dangerous nor complex about the method of dealing with the collapse of such a contrived enterprise. Just let it go bankrupt. Dissolve any and all financial obligations and move on. This type of “bankruptcy” (intentional implosion) is only as damaging and costly as the powers that be want it to be.

    The threat of derivatives is simply a lie. Just tear up the contracts. Essentially do the same thing that the US did with the US auto company Unions. Simply rip up the contracts, absolve the parties of any financial responsibilities to any contractual agreements (in this case primarily the wage, benefit and retirement of the workers and a couple of banks)

  • John Byde

    Michael, can you stop using questions as headlines and just report facts? . Just tell us if Glencore does collapse instead of resorting to speculation, not matter how well-founded it is.

  • NHamigo

    The market is a house of freakin cards!!

  • DB200

    The “nothing is happening” crowd is completely and utterly clueless.
    IThis crowd is not very big outside the MSM. Most people I speak are very uneasy about what they read, hear and see in the news media.

    I sold all my stocks in July and August, thanks, amongst others, to the articles of Michael. This has saved me a couple of thousand dollars of avoided losses.

    So a big hug to you Michael!

  • Paraclete Parakletos

    Welcome to what happens after 30+ years of middle class killing, demand destroying, trickle-down/supply-side Satanomics coupled with governments letting the Corporate Caliphate take over setting regulations.

  • James

    One week later.
    Glencore just cut its dividend, released more stock, and sold assets and their stock become went up and flat.
    YAWN

  • James

    the week is ending and glencore is fine.
    If Glencore was bankrupt these deratives that such as options, futures, and forwards would be sold off. YAWM

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