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.
By Christine Hughes, OtterWood Capital
Markets like to move against trades that seem like ‘slam dunks.’ Read… US Dollar at a Crossroads