Submitted by PM Fund Manager Dave Kranzler, Investment Research Dynamics:
- 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 headed lower:
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 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 propaganda machine has 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.