Here's a primer on the latest firm that crushed your portfolio: Glencore

So there’s a company you may never have heard about, that in the next week or so could bring much pain to your portfolio and derivatives markets around the world.

Here’s how the company — Glencore — describes itself:

We are one of the world’s largest diversified natural resource companies, producing and marketing more than 90 commodities, with a network that spans over 50 countries
and around 181,000 people.

Anthony Hayward is the Non-Executive Chairman of Glencore. You may remember Hayward as the CEO of BP during the Gulf oil spill — the worst environmental disaster in history.

Well Hayward is now involved in what could be the worst derivative market meltdown in history.

So here is another What we do at Glencore:

Glencore is a leading integrated commodity producer and marketer, operating worldwide. Our business covers over 90 commodities encompassing
metals & minerals, energy products and agricultural products as well as related marketing and logistics activities.

So Glencore is a huge global player in commodities, which in this deflationary environment have seen their prices crater. Crude oil, coal, copper, iron ore and gold. All these materials have seen prices falling for the last six months, at least.

Over the last year Glencore’s stock price is down 79%, since its 2011 IPO the stock is down 87%. But if it was just an equity wipe out, all would be well except for the investors. A Sept. 16 secondary  offering on the equity side is already down almost 50% in two weeks.

Like AIG and Lehman before it,  Glencore uses overnight lending as liquidity for its commodity trading desks. Well, with a stock performance like this and credit default swaps soaring to Lehman-like levels, Glencore’s going to come crashing down like a house of cards within days as liquidity dries up.

Now of course no one — including Glencore or the Swiss government, where it is based — knows exactly how horrific a take down would be. The second or third derivative to fall on the bankruptcy is anybody’s guess. Think Lehman Bros taking out AIG. And an unwinding of its book is unthinkable due to size and scope.

So that’s the back story on a smallish commodity player going belly up and the shock waves rippling across the globe.

This post should be far more relevant come Wed. or Thurs. of this week. But I thought you would want to know now.


It's Austerity, not a Cliff

America cannot avoid the so-called Fiscal Cliff.

There is no cliff. It’s austerity. It’s the same austerity that is causing the Greek people to riot on the streets and set themselves on fire in defiance of the government’s policy of cutbacks in order to pay bondholders.

The Federal Reserve has one more quiver in its arsenal than Greece. It’s the dollar. Greece is unable on its own to cheapen the euro to help bail itself out of the debt spiral it and other southern European countries, ie: Spain, Italy and Portugal are presently going through. The fact that the euro is trading near $1.30 to the dollar is the proof that the fed’s unannounced policy is a cheap dollar. No one will say it but the market’s actions speak volumes.

While US price inflation is rising much more than any core CPI report states, wages, however,  are stagnant as 25 percent of the workforce struggles to find meaningful employment. So as prices climb and wages remain flat as they have for three years you have an increase of deflation, which the Federal Reserve is battling to combat. The central bank has few tools to fight deflation except creating another bubble to inflate the economy.

Meaningful employment equates to a full-time job with decent salary with health benefits.

I have requested from the Bureau of Labor Statistics numerous times what percentage of the US labor force falls into the category of having a meaningful job regardless of salary. They cannot provide that breakdown.

My hunch is that number may be astonishing low for new hires since 2007. Look how the hours worked for the week number has moved into the mid-30s since 2008 and has barely moved.

More workers are taking part-time positions without benefits in a struggle to make ends meet.

Back to the deflation aspect of the economy. The Fed’s one tool to combat deflation is asset bubbles. You can see that in their bond market manipulation otherwise known as Quantative Easing. Ben Bernanke is punishing savers with his ultra-low bond yields. Retirees and soon-to-be retirees are getting near zero interest on bond returns and saving accounts. The Fed wants to chase them into riskier investments such as stocks. This is the bubble aspects, equities.

As equities tick up on seemingly no news or better yet bad economic news, the bubble gets larger and thinner.

So while Congress and the Obama administration debate the tax rate on the upper 2 percent aas being the be all and end all of our economic problems, be aware the cliff for the middle class is coming.

There is no way taxes, social security contributions are not going to rise and rise significantly. We have a $16 trillion hole with more being requested by Washington as the debt ceiling will rise in the first quarter of next year.

There is little that can be done if we continue on the path of enriching entitlements.

More to come on this as I will be far more active on this blog in the near future.