Here’s how we view the markets at the Close today.
Click download link to listen on this device: Download Show
Today, the Dow experienced a strong reversal just prior to the Close; however, gold did maintain its somewhat lofty increase.
Depends on the amount of the increase. Don’t you think?
The canonization off HOLY AL Korelin is a possibility ! What you think Investors ?
I think Xing Xiang should not drink French wine or Belgium beer before it’s officially the week-end. 🙂
Best to you + hope all’s well + love
LPG
For some strange reason, I kind of doubt that Franky
And the result will be the same…stocks to rise, metals to decline
Hope everyone is well.
I tend to disagree with Richard about the demographic/immigration situation in Europe.
Irrespective of topology/geography, which does indeed plays a role – as Richard pointed out – I personally believe immigration is CHIEFLY a political matter. What I mean by that – and to be clear – is that immigration POLICIES are the first and main determinant of (effective) immigration.
My 2cts.
Best to all and GL investing/trading.
LPG
+1
Yeah, but they are falling apart in the good old U.S. of A.!
+1 LPG
What’s happening with U.S. immigration is absolutely by design. All the little Latin American countries are much better at keeping illegals out and race is NOT an issue. They have a tiny fraction of the financial resources of the U.S.; how is their success possible?
There is an agenda and U.S. sheeple are easily played because they don’t know history and therefore don’t suspect a thing.
Actually some of us do suspect a lot of things.
Then you’re not sheeple.
LPG- I dont understand..what else would it be..?!
thanks
Agatha,
Not sure my point came across as intended.
Best to you,
LPG
The countries that benefit most from the European Union – Luxembourg, Belgium, Germany and France (Luxembourg and Belgium because they benefit enormously from tens of thousands of EU civil service jobs.) – have an ideological goal of an ever-expanding ‘Europe’ that goes well beyond continental Europe.
They have long wanted Turkey within the European Union and, in recent years, there has been talk of bringing in North African countries into the EU. Further East they have their eyes on the Caucasus with countries like Georgia.
In some respects they operate the EU like a non-democratic ponzi scheme – they seem to be in constant need of growing it in order to, well, I don’t know what.
What is increasingly clear is that there is an ever-widening gap between the politicians of many of the EU countries, and their medias, and the people of the EU. In this regard LPG is right – the politicians seem to have decided on a mass immigration policy – it is political – which is totally at odds with the citizens of their own countries.
Many are now saying that they want to use immigration as a means to overthrow any opposition to the EU and how it is run – a case in point is the EU’s insistence to try and flood the UK, a long time thorn in the sides of the EU believers, with migrants. The belief being that migrants, grateful for a life in the EU, will then vote in any future EU elections, in the countries they are settled in, to remain in the EU. Remember, the UK has a vote on staying in or leaving the EU coming up in the coming years.
When Tony Blair was PM of the UK his Labour Party deliberately – they admitted this in recent years – hid their policy of mass immigration into the UK. They allowed in millions. Why? Well, the Labour Party is pro the EU and Blair had ambitions of being voted the first EU President.
There is so much more to this but, yes, LPG is right and so much of what is happening in Europe right now is political.
As per Chris’ comments on the environment we’re in:
https://www.youtube.com/watch?v=cG2x94Wp_Q8
🙂
Best,
LPG
I believe that I get your point.
Is Goldman Preparing To Sacrifice The Next “Lehman”
Tyler Durden’s pictureSubmitted by Tyler Durden on 09/24/2015 15:54 -0400
AIG Ben Bernanke Ben Bernanke CDS Central Banks China Citigroup Copper Counterparties Credit Default Swaps default Excess Reserves goldman sachs Goldman Sachs Hank Paulson Hank Paulson Investment Grade Lehman Lehman Brothers None Rating Agencies ratings Reality Recession Volatility
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One of the more “unmentionable” conspiracy theories surrounding the demise of Lehman Brothers in 2008 is that this “shocking” event was in fact a well-choreographed and carefully scripted “controlled demolition”, with the Lehman Bankruptcy – the event that officially unleashed the Great Financial Crisis – getting the express prior permission of both Ben Bernanke and Hank Paulson, a former Goldman employee, whose motive was the elimination of the one firm that was then Goldman’s biggest competitor in the FICC space, and whose subsequent bailout of his former employer (Goldman Sachs and all other insolvent banks) would lead to the preservation of trillions in worthless equity courtesy of the biggest taxpayer funded bailout in history, and with billions in excess reserves parked on Goldman’s balance sheet smoothing the bank’s transition through a historic recession.
Fast forward to this week when as we reported previously, following a surge in its Credit Default Swaps, the “doomsday” scenario for Glencore is now on the table, because the market suddenly realized that Glencore’s most valuable asset, not its mines, or its trading operations, but its investment grade rating, could be stripped away.
This is what we said, after we noted that GLEN CDS had just hit a multi-year wide of 464bps (precisely as we said it would over a year ago):
We expect this CDS blowout to continue.
What’s worse, if the company is downgraded from investment grade to junk, watch as the “commodity Lehman” scenario for Glencore, which much more than a simple copper miner just happens to be one of the world’s biggest commodity trading desks, comes full cricle leading to waterfall collateral liquidations and counterparty freeze-outs as suddenly the world is reminded that there is a vast difference between a real and a rehypothecated commodity, and that all collateral rehypothecation chains are only as strong as the weakest counterparty!
Long story short: if and when Glencore loses its Investment Grade rating, it’s more or less game over, if not for the company’s already mothballed mining operation then certainly for its trading group, where “junking” would lead to numerous collateral shortfalls and margin call waterfalls, reminiscent of the ratings agency downgrade of AIG that culminated with the US bailout of the insurer.
Therefore we were not surprised earlier today to see Glencore stock crash to a new record low below 100p even as the CDS blow out continued.
We were, however, very surprised by the catalyst, because the company that managed to successfully hammer Glencore, which in our view is nothing short of the commodity “Lehman” (or perhaps AIG) was none other than Goldman, which earlier today released a report which is essentially blueprint for not only how to take away Glencore’s precious investment grade rating, but taken a few steps further, how to unleash this cycle’s commodity “Lehman event” (once again, 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) and taken to the extreme, how to “force” the Fed to finally unleash the helicopter money should Glencore’s failure be the catalyst the pushes the entire world into a deflationary recession, if not outright depression.
This is what Goldman said earlier in a note titled “Much progress made but the song remains the same”
We update our estimates for Glencore following the completion of its equity placement on September 16, in which it raised its target of $2.5bn. We also update our estimates to incorporate our commodity analysts’ lower thermal coal forecasts ($58/54/52/t for 2015/16/17E) and lower met coal forecasts ($91/85/90/t), which impacts Glencore’s 2016/17/18E EBITDA by c.15-18%… On lower estimates we reduce our 12-month price target to 130p (was 170p).
Implications
Since announcing c.$10bn of debt reduction measures on September 7 and completing a 9.9% equity placing, shares have retreated a further 14%. In our view investors are not yet convinced that Glencore has gone far enough to totally allay fears that the industrial assets can service the new lower debt level. Our scenario analysis suggests that using GS estimates for commodities prices and FX rates, Glencore’s IG rating would be secure in the medium term, but our estimates for zinc, nickel and coal prices are higher than spot prices. When we run the same analysis using spot commodity prices and spot FX rates, most of Glencore’s credit metrics would be at the border of required ranges to maintain its IG rating. Finally, a 5% drop in spot commodity and flat FX would see most of Glencore’s credit rating metrics fall well outside the required range to maintain its IG rating, suggesting concerns would quickly resurface. Glencore has a few levers left – further lowering capex, signing streaming deals and releasing more working capital. Recent underperformance suggests that the measures exercised are insufficient and more is needed. We remain Neutral rated but expect continued volatility in the near term.
Why is Glencore’s IG rating so critical? As explained above, 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.
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.
That’s putting it mildly: 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
While Glencore’s announced measures have allayed near-term concerns about the potential for its credit rating to be downgraded, its high leverage to commodity prices is demonstrated in our scenario analysis, where we estimate just a c.5% drop in spot commodity prices would see concerns resurface about the potential for its credit rating to be downgraded. In addition, given the latest guidance on capex of c.$4bn in FY17, we believe there is limited flexibility for the company to make any further cuts while maintaining its production targets.
Wait, high leverage to commodity prices as the biggest risk factor? Where have we seen this before? Oh yes, in our March 2014 post (saying to buy GLEN CDS) which showed the one thing nobody was looking at at the time; Glencore’s, wait for it, high leverage to commodity prices!
For those who enjoy playing with numbers, here is Goldman’s real “Doomsday” scenario: the one which sees Glencore’s IG rating stripped. As Goldman admits, all it would take is a small 5% drop in commodity prices from here:
If commodity prices were to fall 5% from current levels – which we do not consider to be a far-fetched assumption given the downside risk to commodity consumption in China – we believe that concerns about its IG credit rating would quickly resurface. Under this scenario, we estimate that most of Glencore’s credit rating metrics would fall well outside the required ranges to maintain its IG rating, and as early as the next reporting period (FY15).
Although Glencore has a few levers left in the event commodity prices continue their leg down (such as deferring capex and executing streaming deals), the key point to highlight is that executing these options would take time. That said the recent announcement by Silver Wheaton that it is working with Glencore on the streaming deal highlights that management is focused on bolstering its balance sheet.
Charted:
It goes without saying that courtesy of HFTs and China’s hard landing, a 5% drop in commodities could happen overnight.
So if one is so inclined, and puts on the conspiracy theory hat mentioned at the beginning of this post, Goldman may have just laid out the strawman for the next mega bailout which goes roughly as follows:
Commodity prices drop another 5%
The rating agencies get a tap on their shoulder and downgrade Glencore to Junk.
Waterfall cascade of margin and collateral calls promptly liquidates Glencore’s trading desk and depletes the company’s cash, leaving trillions of derivative contracts in limbo. Always remember: the strongest collateral chain is only as strong as its weakest conterparty. If a counterparty liquidates, net exposure becomes gross, and suddenly everyone starts wondering where all those “physical” commodities are.
Contagion spreads as self-reinforcing commodities collapse launches deflationary shock wave around the globe.
Fed and global central banks are called in to come up with a “more powerful” form of stimulus
The money paradrop scenario proposed by Citigroup yesterday, becomes reality
Too far-fetched? Perhaps. But keep an eye out for a Glencore downgrade from Investment Grade. If that happens, it may be a good time to quietly get out of Dodge for the time being. Just in case.
This would send the markets into turmoil would it not, especially the other miners such as BHP, Rio, Anglo American, etc, etc, which would allow the likes of Goldman to pick them up cheaply?
Do I watch too many conspiracy dramas?
I think GS cares MORE about grabbing market share on the commodities trading side of business than picking up the equities cheap. Not than the latter doesn’t matter, but the former is more attractive over the long run.
If Glencore goes, there will be a little army of very smart commodities traders looking for a job… and I’m sure GS doors will be wide open for them. The more things change, the less they change.
My 2cts.
LPG
Typo above:
“Not thaT the latter doesn’t matter….”
Apologies.
LPG
They would also, no doubt, pick up lots of business going over the bones of Glencore.
If hyperinflation… or some kind of high inflation… is somewhere down the line then being able to snap up large positions in so many of the commodity miners now would reward them handsomely in the decade(s) to come.
Bob,
The point I’m trying to make is that by increasing mket share in the commodities business, GS can make money day in/day out on both side of the market.
If GS picks up assets on the cheap, yes they can make money, but 1) they need to commit a substantial amount of capital (but they can play via the options) and 2) they still need the assets price to go up.
My 2 cts.
LPG
I have no doubt that GS will be on the right side of the trade and, once they have positioned themselves accordingly, that commodities will not only rise but will soar.
Regarding Gary, you are correct.
IT only takes two(2) ….to have a conspiracy…..Jessie V.(?)
No, it takes 3 – you need someone to blog about it on the internet 🙂
ha,ha,ha…………….good one…………….
Nope. It always ends this way Bob. And it is indeed a sign of the bottom which is why these things happen just as stock prices meet their lowest of lows. Teck just had its debt downgraded to junk status and the stock fell hard. A little more and they are also at the dirty price bottom making them vulnerable to a hostile takeover or being pushed into insolvency. It is economic leverage over those who could not control their sheets in better times and so they will survive but only if they compromise with Wall Street.
Thanks for the heads up – had taken my eye off Teck.. but their debt levels were a concern to me.
Very interesting Agatha, thank you.
WHAT we do without zerohedge……………. 🙂
would….left out….
Peter Schiff…..good listen to at FSN………..and AlexJones……….
Side note:
Gold snapping $3 at the open in Asia.
LPG
Yellen struggling in the last min of her speech today…
Very strange…
MAYBE, she is having the BIG ONE………………
Maybe, the POPE is putting the pressure on……………..
IF, she had the BIG ONE…and was hospitalized , WHO is next in LINE…..?
BETTER YET,,,,,,,WHAT would the markets do?
A glitch in her programming or just a fly in the oinkment? 🙂 😮
It is VERY strange…..the guy asks her ‘are you ok?’..like the words disappeared on her script..there was that waving her hand across her face moments prior….
Latest on the Yellen end-of-speech “matter” from Zero:
http://www.zerohedge.com/news/2015-09-24/janet-yellen-falters-during-speech-receives-medical-attention-all-clear-given
LPG
its similar to elizabethan times…. & shakespeare isn’t it… inanity & reaction to power..
Much Ado About Nothing?
Janet Yellow still is talking as if the Gangster Reserve will raise interest rates this year.
Who on this planet believes this ossified bankster fossil and the rest of those Keynesian clowns?
Sheeple do~
Now yer talkin’ 😉
Today’s gold move is very impressive. It is also unique. We are going into month end, quarter end, weekend, option exploration, silver delivery month end. For the last few years, I rarely remember gold/silver can stay up. They usually start to go downhill from here until early next month. Are bullion banks start to lose control? very likely.
The Janet Yellen speech was interesting. She gave an interesting history of what they are looking at and doing, or not doing. Never telling the whole truth ( to be expected ).
I found my self hoping she was ok at the end of her speech. She must be under some intense pressure.
There is something really big going on right now given the country leaders, the pope, the big deal at the UN this weekend… Even Putin is there! And he wouldn’t be there unless a major change is going on. Remember, they ousted him from the G8! And now he’s back..?
Something’s -up!
Yellen says it is appropriate to raise interest rates this year.