Via Investment Research Dynamics
The middle class in America is like the housewife who knows her husband is cheating on her but she chooses to ignore it and pretend it will stop. – Anonymous FOD – Friend of Dave’s
The system has been totally hijacked. Make NO mistake about it, gold was hit hard when the paper trading in London cranked up after the SGE had turned off its lights for the day. The reason: Glencore.
Anyone remember Enron? Probably not. Most people have already forgotten, mostly, that their taxpayer dollars were used by ex-Goldman CEO Henry Paulson to bail out Goldman Sachs in 2008 when he was Treasury Secretary. His primary motive was to preserve the value of the $250 million in warrants he still owned after he got to unload $500 million in stock – tax-free. Recently Zerohedge found a snapshot of Paulson laughing about the entire matter.
Glencore is going to make Enron look like a polite tea and cake break. Gold was smashed when paper London opened because the Fed, BoE and ECB can not under any circumstances let the price of gold spike up – like it should be doing – and thereby alert the world that there’s a big problem in the world of derivatives related to Glencore, among other “things” (Emerging Market FX contract, energy, Biotech ETFs, etc).
The issue with Glencore, since we all saw it coming which means the Central Banks saw it coming, is the degree to which the CB’s have been able to “brace” for its impact. The problem, however, is that just like Enron and the big banks before it, there is 100% probability that Glencore upper management has: a) lied about the market value of its assets, both on and off balance sheet; b) has lied about the true amount and nature of its derivatives exposure; c) has been lied to by rank and file who are in charge of accounting and reporting the data to upper management (trust, me I know this goes on because I saw it first-hand at Bankers Trust; and foremost, e) has NO idea the true nature of its total exposure to the full lunar eclipse world of OTC derivatives.
Given that Glencore management has fed the Central Banks a big bag of lies about the size of the risk exposure at the Company, it’s not probable that the Central Banks are properly prepared to put out the fuse on the nuclear derivatives bomb that has been lit. This is why the stock market is shitting the bed today and this why the price of gold was bombed like an ISIS camp by a joint effort of London and NYC bombers.
Just ask Jamie Dimon about this regard in reference to the London Whale blow up. Dimon admitted that he had no idea how large JPM’s exposure was at the time. The London Whale is a sea-algae molecule in size compared to Glencore and the entire body of OTC derivatives connected to anything Glencore has touched.
Can you smell middle class flesh burning yet? It’s starting to burn my nostrils…
Glencore Implodes: Stock Plunges Most Ever, CDS Blow Out To Record Up On Equity Wipeout Fears
Submitted by Tyler Durden on 09/28/2015 07:20 -0400
Update: And there it is: GLENCORE DEBT INSURANCE COSTS SURGE TO RECORD HIGH; 5-YR CREDIT DEFAULT SWAPS RISE 207BASIS POINTS FROM FRIDAY’S CLOSE TO 757 BASIS POINTS
* * *
Just last Thursday we asked whether Goldman was “preparing to sacrifice the next Lehman”, by which of course we meant the world’s largest commodity trading counterparty, Baar, Switzerland-based Glencore which just two weeks ago unveiled an unprecedented “doomsday” capital raising and deleveraging plan which, in retrospect, was not enough.
The punchline of Goldman’s report was that if commodity prices drop 5%, or even stay where they are, then Glencore’s investment grade rating – the most critical foundation of its entire trading operation where a downgrade to junk would launch a collateral and margin-call waterfall cascade a la AIG – would be lost. From Goldman:
Glencore’s trading business relies heavily on short-term credit to finance commodity deals and its financing costs would increase if it were to lose its Investment Grade credit rating. In addition, it could even lose some counterparties due to increased counterparty risk.
As we added on Thursday, “what a junking of Glencore would do, is start a collateral demand waterfall cascade that the cash-strapped company simply would not be able to sustain.” So having laid out the strawman, Goldman next, very conveniently, explains just what would take for the Investment Grade trap to slam shut: “it would only take a c.5% fall in spot commodities prices for concerns about its credit rating to resurface.”
Of course, Glencore’s leverage to commodity prices was first explained in our March 2014 post, in which we said buying Glencore CDS is the best and easiest way to bet on a Chinese credit and commodity crunch.
Fast forward to Monday morning when those who bought into Glencore’s equity offering at 125p less than two weeks ago on September 16, are already down a whopping 43% (we won’t even bother calculating the loss since the company’s 2011 IPO), following the biggest daily drop in Glencore history, with the stock mauled some 27% at last check…
… on the heels of a note from Investec which said nothing Zero Hedge readers did not already know, but which is spooking everyone else into realizing that the commodity trading Titanic may well be sinking.
In the note Investec notes that “using a PE-based approach to evaluate equity value going forward, in proportion to debt, we note that the heavily indebted companies (GLEN, AAL) could see almost all equity value eliminated under spot conditions, leaving nothing for shareholders…. GLEN recent restructuring may prove just the start for the majors if spot prices prevail – this supports our concern that we are still a distance from the “value point” in the sector.
In other words, even if commodity prices remain unchanged, GLEN equity could be doughnut. If commodity prices continue dropping, then – well – just read out prediction from last year.
It also means that bondholders are next in line to hold the equity after a debt-for-equity, which has also pushed Glencore’s bonds to record lows, with the GLEN €1.25b notes due March 2021 dropping three cents to 78 cents on euro, while the €750m bonds due March 2025 decline four cents to 67 cents. Both are at record lows.
If and when the bondholders realize a bankruptcy would leave them with negative enterprise value when netting out all the margin calls, we wouldn’t be surprised to see bonds trading below 50 in the coming months if not weeks.
Meanwhile, those who listened to our reco to buy Glencore CDS at 170 bps in March 2014 can take the rest of the year off. As of this moment, GLEN Credit Default Swap were pushing on 600 bps, 4 times wider, and on pace to take out the 2011 liquidity crunch highs. After that, it’s smooth sailing to all time wides and 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.
Glencore Default Risk Surges Above 50%
Submitted by Tyler Durden on 09/28/2015 11:30 -0400
Glencore is in total free-fall across all markets today. Most worrying for systemic risk concerns is the rush into credit protection that has occurred, as counterparties attempt to hedge their exposures. Forthe first time since 2009, Glencore CDS are being quoted with upfront pricing (something that happens as firms become seriously distressed). Based on the latest data, it costs 875bps per year (or 14% upfront) to buy protection against a Glencore default (which implies – given standard recoveries – a 54% chance of default).
Do not panic!!
These are the highest levels of risk since the post-Lehman systemic crisis…
As Bloomberg reports,
Derivatives traders started demanding upfront payments to protect against a default by the company, the first time that’s happened since 2009, according to data provider CMA
The cost of five-year credit-default swaps jumped so high that they effectively were pricing in 54% odds that the company defaults, CMA data show
“Glencore management need to make an official announcement to calm nerves,” said Darren Reece, a money manager at GAM Holdings AG in London, which oversees $127b
Annnnnnnnnnnnnnnnnnd…..there it is.
“Good Ol’ CDS” and the sudden need for liquidity. Sound familiar? Wasn’t that the song that went straight to the top of the charts in 2008?
Yup. And there’ll be more where that cams from, bank on it.
Backtable
And guess what else is circa 2008. You can bet your ass Goldman is short those Glencore CDS. They will make hundreds of millions when Glencore’s rating is cut to junk.
Just print a couple hundred billion and chill those niggas out. Why even go through this game every time some outfit bites the bag? Most people, myself included, don’t even fully understand what is happening.
If some favored bank has too much exposure to Glencore’s risk then that’s what the Fed will do anyway. I think the only reason we have to pay income tax is to make us believe it’s all on the up and up. Like the phony rationing of foodstuffs during WWII and the asinine metal scrap drives. All BS and all to make the homefront feel like they are participating in the war.
The Treasury can just print a couple of trillion a year and eliminate the income tax. But they won’t.
Glencore’s search for liquidity.
Glencore is selling it”s Araquaia Nickel property to Horizonte Minerals for a reported $8 million.
Glencore is now eating itself. That will continue until there is nothing left!
FLASH: UBS to blow lid off gold manipulation for prosecution protection.
The sharks begin to eat each other.
“You can bet your ass Goldman is short those Glencore CDS…”
But…but…that’s unpossible!
Goldman wouldn’t make bets for clients…just to bet against them!
They wouldn’t do that, Lloyd “Doin’ God’s Work” Blankfein wouldn’t stand for it!
Backtable
Have you read All the Devils are Here?
I wanted to vomit as I read what the “leaders” and executives of Goldman, BofA, Merrill, Lehman, Bear, Citi, and Countrywide did and said during the 2004 – 2008 time frame. They should all be shot and hung from lampposts.
I think All the Devils are Here and The Big Short are probably the two best books, of many, on the topic.
My personal favorite was Angelo Mozilo, corporate troll extraordinaire, walking Orange Faygo billboard, and personal sponge attendant for Christopher Dodd’s anal gland. I’m convinced he’s got a special place reserved at a poker table in Hell, right next to Pol Pot, Hitler, Cramer and Leona Helmsley.
Like Andy Griffith once said, “When the times comes, they ain’t gonna die like the rest of us. They’s just gonna nasty away.”
And even that’s too good for’em.
Admin says:
“They should all be shot and hung from lampposts.”
Great idea…but in what order…?
Above anon was me
Saudi Arabia has withdrawn as much as $70 billion from global asset managers as OPEC’s largest oil producer seeks to plug its budget deficit, according to financial services market intelligence company Insight Discovery.
“Fund managers we’ve spoken to estimate SAMA has pulled out between $50 billion to $70 billion from global asset managers over the past six months,” Nigel Sillitoe, chief executive officer of the Dubai-based firm, said by telephone Monday. “Saudi Arabia is withdrawing funds because it’s trying to cut its widening deficit and it’s financing the war in Yemen,” he said, declining to name the fund managers.
Saudi Arabia is seeking to halt the erosion of its finances after oil prices halved in the past year. The Saudi Arabian Monetary Authority’s reserves held in foreign securities have fallen about 10 percent from a peak of $737 billion in August 2014, to $661 billion in July, according to central bank data. The government is accelerating bond sales to help sustain spending.
“Foreign-exchange reserve depletion, rather than accumulation, is the new reality for Saudi Arabia,” Jason Tuvey, Middle East economist at Capital Economics, said in an e-mailed note Monday. “None of this should come as much surprise,” given the current-account deficit and risk of capital flight, he said.
Saudi Arabia’s attempts to bolster its fiscal position contrast with smaller and less-populated nations in the Arabian peninsular such as Qatar. The world’s richest nation on a per capita basis plans to channel about $35 billion of investment into the U.S. over the next five years as it seeks to move away from European deals. That’s on top of plans to set up a $10 billion investment venture with China’s Citic Group.
With income from oil accounting for about 80 percent of revenue, Saudi Arabia’s budget deficit may widen to 20 percent of gross domestic product this year, according to the International Monetary Fund. SAMA plans to raise between 90 billion riyals ($24 billion) and 100 billion riyals in bonds before the end of the year as it seeks to diversify its $752 billion economy, people familiar with the matter said in August.
While foreign-exchange reserves could sustain the country for years, analysts have said that using them to avoid further cost-cutting could put its credit rating at risk. The Saudi government, so far, has been short on specifics on how it will reduce spending, though planners are said to be considering measures long viewed as off-limits or unnecessary, including phasing out fuel subsidies and investing in renewable energy.
The country has a population about 30 million people, with spending forecast to reach 1,082 billion riyals this year according to Riyadh-based Jadwa Investment Co. The kingdom’s finances are depleted by continued subsidies, hand-outs to public sector workers and the Yemen conflict. The International Monetary Fund predicts the budget deficit will exceed 400 billion riyals this year.
Now official. Press release:
“Horizonte consolidates Araguaia Nickel project through acquisition of Glencore project.
Price $8 million USD
Glencore was founded by Marc rich. Remember that guy? He’s the one that the sleazy crook Clinton pardoned at the very end of his term. Rich was indicted by guiliani for “the largest tax evasion ever” in 1983. 51 counts of fraud, racketeering, and tax evasion, according to his biographer. He liked to make obscene amounts of money trading with America’s enemies. Rich also donated heavily to Israel. He worked with the Mossad. And he was buried in Israel.
I am shocked, shocked I tell you!
He reminds me of the crooked fat pig robert maxwell (not his real name), of UK publishing fame. He plundered his own company’s pension fund in part to support the Mossad. I believe the figure was around $700 million. According to gordon Thomas’s sources he was a “sexual monster”, in constant need of hookers, no doubt shiksas, (non Jews), derived from the Hebrew, meaning unclean animal or loathsome creature. He demanded that the Mossad return his money, which resulted in his being bumped off by said organization.
Which reminds me of another tribesman, Eli Pinkas, who swindled $140 million from Swiss banks in 1980, one of “the biggest cases of bank fraud in Swiss history”.
Which reminds me of one of the top crooks on the FBIs most wanted list: Aviv mizrahi, who along with rabbi aryeh greenes (hey, whatcha doing rabbi?) defrauded investors out of $33 million. Is he in Israel, our greatest ally? Israel is truly a light unto nations.
Speaking of books, everyone should read “den of thieves” by James Stewart. He was accused of being antisemitic by the usual suspects, because nearly all of the perps were Jews. Remember the firm kidder Peabody? It was a real WASPY firm. In the go-go 1980’s they reluctantly hired a Jew named marty Siegel so as to compete with the completely amoral jewish firms in the Jewish practice of hostile takeovers. It did not take long until young Marty was accepting suitcases full of cash from fellow tribesman Ivan boesky in exchange for insider info.
I am shocked, shocked I tell you!
The firm, damaged by the eventual fallout from the boesky business, finally came undone by a kneegrow Joseph Jett. Jews and kneegrows! don’t you love the diversity?