Submitted by PM Fund Manager Dave Kranzler, Investment Research Dynamics:
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:
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, which
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.