Tag Archives: copper

Glencore Mirrors The Entire Global Financial And Economic System

  • Collapsing fundamental economics
  • Plunging end-user demand for its products
  • Overloaded with debt
  • Hidden land-mines in the form of OTC derivatives

Who said “black swans” have to be hidden?   Glencore is in full view.  After a dead-cat bounce from a quick descent that took Glencore stock from 310 (pounds) to 68 in 5 1/2 months, the stock is rolling over again and headed lower:

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This isn’t just about the plunging price of copper, which is now back to its pre-financial system collapse price in 2008 and headed lower. Copper is responsible for generating only 36% of Glencore’s operating income.  This is about the plunging prices and demand for oil and all base metals.

It’s about a company (global financial system) that hides a lot of risk, debt, derivatives, corruption and fraud.  Point of example:  Glencore’s funded debt level is $50 billion and it has the capability to draw on credit lines that would take it up to $100 billion.  But the sleazebag snakeoil promoters cite Glencore as having $19 billion in “liquid” inventories so the debt number that gets quoted and widely accepted is $31 billion.   But it’s not.  It’s $50 billion.  And Glencore’s “liquid” inventory is the same base metals that are plunging in price from oversupply and lack of demand.

Furthermore, over 30% of Glencore’s EBIT is derived from what the Company lables as its “marketing” business.  But this is the legacy business that was originally Marc Rich’s commodities trading company.   It’s a corrupted commodities trading and brokerage business. That means it’s riddled with hidden counter-party risks and derivatives.  We don’t know the full extent of Glencore’s risk-exposure in this area because this an area that global financial regulators give financial firms a lot of breathing room with which to cover up the truth using insidious accounting schemes.  But what I do know for sure is that you can rip and toss out any of the research reports indicating the Glencore’s derivatives exposure is limited to $5.2 billion.   The real number is multiples of that.

With 50 billion (pounds) in funded debt and not including hidden off-balance sheet skeletons – Glencore’s debt to market capitalization (13 billion pounds) is nearly 4:1.  That is an extreme degree of leverage for a volatile, commodities-based business which is headed into an economic depression.

Glencore is a microcosm for the entire global economic and financial system.  Including and especially the United States.  And here’s the kicker.  Deutsche Bank is Glencore’s largest creditor.  We can also very safely assume that Deutsche and Glencore are counterparties to a vast web of derivatives contracts.   I’m sure Deutsche has also tried to off-load credit exposure thru the use of credit default swaps with hedge funds and other shadow banking participants.  But who are those counterparties and how is the risk of default on this “insurance” Deutsche has likely “purchased.?”  Glencore has the possibility of taking down Deutsche Bank, which in turn would take down the entire German system.

The rest will flow from there and there will be a lot of blood, including and especially in the United States.

Just like with Glencore, the true degree of ongoing economic collapse and financial risk exposure has been papered over with both QE and more debt issuance.  It won’t take much trigger a financial nuclear explosion.

I would suggest that this is why the Central Banks and the relateve propaganda machine have shifted into full-gear in their effort to prevent the price of gold from engaging in unfettered price discovery.  I would also suggest that this is why the U.S. conducted a highly visible Trident nuclear missile test along the west coast, in full view of Russia and China.

Glencore Stock Is Down 16% In Three Days

Glencore stock popped up last week after it announced a $900 million dollar streaming deal with Silver Wheaton. It involves Glencore’s share of the silver that is produced from the Antimina mine in Peru. But Glencore leveraged up to buy Xstrata in 2012, when silver was $32/oz. The amount of debt that Glencore was able to access for this transaction without doubt assumed a $32/oz valuation on Glencore’s silver assets. It only took 3 days for reality to reassert control over Glencore’s stock:

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The stock has plunged 16% since hitting 130 (British pounds) last Wednesday after the streaming deal was announced.

Glencore’s business is a general reflection of the entire global economy: A massive cesspool of too much debt supported by economic fundamentals which are quickly collapsing. Glencore’s stock has been repriced downward by 65% since May, when it hit 318 pounds.

This one is going to be a wild ride because the big banks with derivatives and debt exposure to Glencore will do their best to proliferate disinformation designed to cause upward spikes in the stock. But ultimately they can’t support of a collapsing economy and base metals commodities market.

Glencore derives 37% of operating income from copper. When the price of copper dives below $2, whichUntitled appears to be inevitable, it will be a disaster for Glencore. Citibank and Blackrock are among Glencore’s largest shareholders.

At some point in time the Fed is going to lose control of its ability to keep the U.S. stock market propped up.  That reality is inevitable but placing a bet on the timing of that reality is not easy.   However when the event occurs which triggers a complete re-pricing of the U.S. stock market, I suspect that the graph of the S&P 500 will look quite similar to graph of Glencore above.    The best advice I can give is that you should prepare accordingly, especially if you have the ability to get out of your retirement asset vehicles.

Glencore Stock Got Smoked Again Today

All we need now to pound the final death-nail into Glenron’s stock is for Cramer to issue an “all’s clear, time to load up on Glencore stock” call on Mad Money.

Down 4% on no meaningful fundamental news:

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Glencore has announced that it plans on “liquidating” some of its inventory in order to pay down its debt. Again, this article referenced Glencore’s debt load as $30 billion. But as I demonstrated with a graphic from Glencore’s financials, the Company has $50 billion in debt outstanding:

GlenronCF Debt

The $30 billion debt number is the number that Wall Street pimps and the financial media want market to believe, even though this number assumes that Glencore can sell its inventory at current market prices. Well, I’m hearing a lot of “noise” about this, let’s see it happen. If I were running a commodities hedge fund I would be shorting copper, zinc and iron ore futures ahead of this alleged inventory liquidation.

I think this report out of China is likely what spooked the markets and triggered the sell-off in Glencore stock – Steel demand evaporating at unprecedented speed:

On Wednesday, the deputy head of the China Iron and Steel Association warned that demand for the ferrous metal was waning fast. “China’s steel demand evaporated at unprecedented speed as the nation’s economic growth slowed. As demand quickly contracted, steel mills are lowering prices in competition to get contracts,” Zhu Jimin, deputy head of the China Iron & Steel Association, said on Wednesday at a briefing in Beijing.

Glencore is a commodities-based debt and derivatives roach motel.  I would not be surprised if a lot of funds/banks with long-side exposure to Glencore credit default swaps – as in, Deutsche Bank – start shorting the crap out of Glencore stock to try and hedge their leveraged exposure to Glencore.

And with the global economy – including the United States – quickly sliding into a nasty recession, I can’t wait to see what kind of nonsense spews out from December’s FOMC zoo gathering to justify another rate-hike deferral.

How Bad Will The Financial Collapse Be This Time?

The comparisons between the economic indicators in 2008/2009 and now have been coming ad nauseum.  The only way you can avoid seeing them is if you are a Fed official, a CNBC/Bloomberg/Fox Business talking head or a complete moron.

I wanted to keep this simple and just look at what is considered perhaps the best barometer of global economic activity:

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You’ll note that the price of copper is headed lower and is back to the price level where it was in the middle of 2008, right before the great financial collapse.  You’ll note that $3.6 trillion in Federal Reserve money printing – on top of trillions in Bank of Japan, ECB and People’s Bank of China money printing – has not been able to keep the price of copper from crashing again.

Is there anything that can keep the global financial system from collapsing?  Hint…

NYSE circuit breaker

Oil And Copper Plunge Monday – World’s Biggest Economies Are In Trouble

China, the EU and the United States.  The economic engines of the world.  China’s Shanghai Stock Exchange Composite index has plunged 27% since June 5th.  It’s down 3.3% as I write this.

Despite the political rhetoric and Wall Street propaganda, the U.S. and European economies are in recession.   There’s no reason to wait for an official declaration of this in the United States because the majority of the economic reports for at least the last six months have been negative to highly negative.

In the U.S. the economic contraction is led by a marked decline in consumer spending. Recall, retail sales actually declined .9% in December 2014 from November.  If you remove the effect of inflation on this metric, retail sales in December would be down over 2%. Note, this decline occurred in what is supposed to be the biggest spending month of the year.  As a reflection of the rapid decline of the consumer,  factory orders have now declined year over year for seven months in a row (source:  Zerohedge):

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To confirm and corroborate this trend in factory orders, this next chart shows the year over year percent change in rail freight carloads:

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If consumer demand declines, factory orders drop as do rail shipments from ports and factories.

Both of the above metrics are reinforced and confirmed by the action in the Dow Jones Transportation index:

DowJonesTransports

This index encompasses rail and truck freight shipping, UPS and Fed Ex, and other goods transportation companies.   It directly reflects the relative amount of consumer spending and industrial activity in the U.S. economy.   Year-to-date this index has diverged by a significant amount vs.  the Dow and the S&P 500.   This stock sector is telling us that the U.S. economy is tanking.

Monday the market gave us two more very loud signals that the global economy is starting to crash.  First, the price of oil plunged over 7% today:

OIL

Of course, the media propaganda attributed the drop in oil to reports that the U.S. and Iran are close an agreement on Iran’s nuclear program. The implication is that removing the sanctions would unleash a flood of Iranian oil on the global market. But this assertion, if not completely disingenuous, is seeded in complete ignorance. It’s been pretty apparent for several weeks now that the U.S. and Iran were getting close an agreement. All you have to do is listen to the howls coming from Fox News on this subject for  the past several weeks.

No Virginia, the plunge in the price of oil reflects declining global demand relative to global supply.  It’s pretty basic supply/demand economics, something which has proved to be over the heads of Keynesian economists.  In fact, I have suspected that the bounce in the price of oil of since mid-March was induced by a combination of technically-driven hedge fund short-covering and Fed-directed Wall Street intervention.  The motivation behind this price intervention would be to protect the Too Big To Fail Banks who are stuck with $100’s of millions in unsold oil shale company leveraged bank loans.  As long as the price of oil remains at a certain level, distressed oil shale companies can stay current on their interest payments.   A former colleague of mine who trades distressed oil debt agrees with my assessment.

Notwithstanding the US/Iran nuclear agreement “narrative” with regard to Monday’s plunge in the price of oil, the price of copper dropped 4%:

Copper

Just to be clear, Iran is not a significant source for the global supply of copper.  Copper is widely regarded as a bellweather indicator of economic health.  This is because copper is used in applications across most sectors of the economy – housing, factories, electronics – any application that uses wires, etc.   Clearly demand for copper is affected directly and indirectly by consumer spending.   Copper is approaching its low of the year, which is a price level not seen since 2009.

The carnage Monday in the price of oil and copper is significant on several levels.  First and foremost, it tells us that the global economy – including and especially the U.S. economy – is tanking.   Second, it is telling us that, despite the extreme effort by Central Banks to prop up the markets and hold the global financial system together, they are beginning to lose control.  There’s just too many holes springing open in the artificial Central Bank “economic dyke.”  Finally, I would suggest that there’s a strong probability that there will be derivatives bombs detonating which are related to Greek sovereign debt, oil shale company debt and a wide array of commodities, especially oil.

Of course, it’s only a matter of time before the Central Banks lose control of the price of precious metals.

This Junior Miner Was Up Over 9% Today

It is back to break-even from when I first recommended it and has outperformed the sector by significant about (28%) – it’s also up 6.5% from when I posted the original update last week:

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I updated the report from June and explain why I think this stock is outperforming and has the potential for significant upside over the next 12 months:   Junior Miner Outperforming The Sector.
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This Junior Mining Stock Is Outperforming The Sector – Update

This stock is green again today – with the mining stocks getting hit hard by the hedge funds/banks…

Since I posted this two days ago, the stock is up over 5% – I added a technical report which gives advice on accumulating this stock from DenaliGuide’s Summit subscription area.  You can access the updated report here:  Junior Miner Outperforming The Sector.  I explain why this stock can at least double in the next year.

I originally published a report on this Company in early June.  Since then, here is how it has performed vs. gold and the sector (click to enlarge):

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I have updated this report to reflect recent developments and I offer an explanation for why this stock has been outperforming the sector. You can access this report here:  Junior Mining Stock Report.

I know the management was in China late last spring meeting with several of the largest Chinese mining companies.  I believe the Company is engaged in very prelimary discussions about selling one of its huge copper projects to one of China’s largest mining conglomerates.   I’m pretty certain that’s why this Company’s stock has held up well since the takedown of the sector began in mid-July.

Even on its own, separate and apart from the possibility of any kind of M&A event, this stock is significantly undervalued.   It is currently generating royalty revenue from a big gold mine in Nevada.  That mine is going to be operating an expansion project in late 2015. This expansion will increase the Company’s royalty stream.

Furthermore, this Company has a massive prospect/project portfolio, a handbook of which is attached to my report.  As the price of gold and silver recover and move higher again, which will happen sooner or later, I believe this stock can provide close to a double in the next twelve months and a triple over two years.  That’s assuming the metals don’t go parbolic…(click on pic to access this report):

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New Research Report Is Up

The mining stocks are historically cheap now – “The mining shares are the cheapest ever.  I’ve never seen anything this distorted in my entire career”  – James Turk:

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That shows the ratio of the XAU index to the price of gold.  The junior miners relative to the price of gold are even cheaper.

I have written a new research detailing why I think EMXX is currently undervalued by a factor 3-4x its current stock price.  You can get access to that report here (click on image);

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Or just click here:  Research Reports