The Glencore Canary: A Corporate Debt Shocker?

By: Gordon Long | Sun, Nov 22, 2015
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A Highly Levered Player, In a Highly Levered Industry, Tied to a Highly Levered China

Full Report: Download pdf - - 8 Pages

We have felt since the announcement by the US Federal Reserve of its "TAPER" program that an inevitable collapsing commodity market in Emerging Economies would be the catalyst for the next crisis. We concluded in our Thesis paper "The Globalization Trap" that a good proxy for a slowing China would initially be commodity prices and in turn the levered players behind the massive commodity run-up.

Globalization Trap

Make no mistake about it, China is in the process of a hard landing which is being once again temporarily camouflaged by credit expansion! However, few appreciate fully that the global credit cycle has turned! It is always the first to turn with the catalyst being falling corporate free cash flows.

Glencore: Same Game, Different Game!

Buying the Credit Default Swaps of Commodity Trading Giant Glencore, had been an ideal way to trade the Chinese hard landing and there is a lot we can learn from Glencore about how the changing financial landscape will unfold.

Presently Glencore is the commodity trading firm getting most of the press because

It is a Highly Levered Player, in a Highly Levered Industry, Tied to a Highly Levered China

Be aware however, that it could just as easily have been the Vitol Group, Trafigura, Gunvor Group Ltd Mercuria Energy Group, Louis Dreyfus Commodities or Noble Agri. and there are more.

This group alone has recently raised at least $125 billion of debt . Why?? What is the panic?


A Trading Desk - The Counterparty Risk

We must appreciate that Glencore is first and foremost a trading desk which serves as a counterparty with trillions in derivatives notional exposure to virtually every other commodity using and trading entity in the world. It is then easy to appreciate why Glencore's IG (Investment Grade) rating is so critical.

Glencore is really not so much the Lehman as the AIG of the commodity world: without an investment grade rating, a self-reinforcing collapse will begin that could ultimately terminate Glencore's trading desk, in the process liquidating one of the world's biggest commodity trading counterparties.

Stay tuned, it is only beginning!

Read Full Report - A "Glencore" Was Easy to See Coming!

Commodities about speculation + demand

 


 

Gordon Long

Author: Gordon Long

Gordon T. Long
Publisher - LONGWave

Gordon T. Long

Gordon T. Long has been publically offering his financial and economic writing since 2010, following a career internationally in technology, senior management & investment finance. He brings a unique perspective to macroeconomic analysis because of his broad background, which is not typically found or available to the public.

Mr. Long was a senior group executive with IBM and Motorola for over 20 years. Earlier in his career he was involved in Sales, Marketing & Service of computing and network communications solutions across an extensive array of industries. He subsequently held senior positions, which included: VP & General Manager, Four Phase (Canada); Vice President Operations, Motorola (MISL - Canada); Vice President Engineering & Officer, Motorola (Codex - USA).

After a career with Fortune 500 corporations, he became a senior officer of Cambex, a highly successful high tech start-up and public company (Nasdaq: CBEX), where he spearheaded global expansion as Executive VP & General Manager.

In 1995, he founded the LCM Groupe in Paris, France to specialize in the rapidly emerging Internet Venture Capital and Private Equity industry. A focus in the technology research field of Chaos Theory and Mandelbrot Generators lead in the early 2000's to the development of advanced Technical Analysis and Market Analytics platforms. The LCM Groupe is a recognized source for the most advanced technical analysis techniques employed in market trading pattern recognition.

Mr. Long presently resides in Boston, Massachusetts, continuing the expansion of the LCM Groupe's International Private Equity opportunities in addition to their core financial market trading platforms expertise. GordonTLong.com is a wholly owned operating unit of the LCM Groupe.

Gordon T. Long is a graduate Engineer, University of Waterloo (Canada) in Thermodynamics-Fluid Mechanics (Aerodynamics). On graduation from an intensive 5 year specialized Co-operative Engineering program he pursued graduate business studies at the prestigious Ivy Business School, University of Western Ontario (Canada) on a Northern & Central Gas Corporation Scholarship. He was subsequently selected to attend advanced one year training with the IBM Corporation in New York prior to starting his career with IBM.

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