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.


Yellen's nightmare on Wall Street

So what is the biggest nightmare that keeps Fed chief Janet Yellen?

A strengthening dollar with low rates will give Yellen and company fits since both factors will be a contributing factor to the next leg down in the global economy.

The scenario should play out something like this in the bond pits:

Insurance companies and money market funds with huge annuity holdings and pension plans struggling to find yield are going out with more exotic investments in derivatives, such as interest rate swaps.

The stronger dollar will play havoc in derivatives as trillions in paper become illiquid since there are so few players to move in and  sop up this paper due to regulations coming out of the financial crisis such as Dodd/Frank.

So Yellen is startled awake as she realizes that the Fed has to back stop tens of trillions in illiquid paper derivatives bringing the system to grinding halt.

This is not Hank Paulson’s three-page game plan to stop funds from breaking the buck or taking control of AIG.

This is where the US is forced to cut the value of the dollar by 50% to free up illiquid markets.

I will have more on this in the coming weeks, as we move through the summer and perhaps get closer to the nightmare on Wall Street coming true.