Glencore, the Canary in the Coalmine?

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It would set off a huge chain of events.

By Christine Hughes, Canada. Chief Investment Strategist, OtterWood Capital:

We have recently experienced some relief in commodities and emerging markets due to the fall in the USD (see my post here), but a canary in the coalmine for the markets could be the commodity giant Glencore.

The chart below shows how Glencore’s stock and the credit default swaps spreads (inverted) have both rolled over again recently. Credit default swaps are contracts which are essentially insurance policies against borrowers going bust.

Right now Glencore is trying to be big and leveraged, and as Roger Lowenstein said in his book When Genius Failed, you can be large or you can be leveraged, but you can’t be both.

Glencore, as one of the world’s largest commodity traders, it provides a pulse for what is going on at the top of the market. If these guys were to go bust it would set off a huge chain of events that would be very negative for markets.

Glen

By Christine Hughes, OtterWood Capital

Markets like to move against trades that seem like ‘slam dunks.’ Read… US Dollar at a Crossroads

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  2 comments for “Glencore, the Canary in the Coalmine?

  1. BoyfromTottenham
    Oct 22, 2015 at 2:07 am

    Informative (and mercifully short) article, Christine. Sorry to be picky, but IMHO the graph would have been easier to comprehend if the CDS spread trace was not inverted (even though I know you wanted the graph to match the statement that both parameters have “rolled over again”). Nevertheless, thanks for the heads-up that we should all watch Glencore carefully from now on! (And good luck with your new PM)

  2. walter map
    Oct 24, 2015 at 11:34 am

    If Glencore blows up, and it looks like it will, many millions of people could be very hungry for a several days.

    That would be bad. The ensuing social disorder could take years to clean up, and maybe never.

    U.S. supply chains of all types are rigid, brittle, and not at all fault-tolerant. It’s just cheaper that way, and therefore more profitable, at least in the short run. After all, the current quarter’s profit projections are all that matters to the people who decide these things for everybody else.

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