Wednesday, 7 October 2015

Glencore / Commodities Update: It's Serious

Source:  FT
The Glencore story is developing fast and there's spin aplenty in the air.  The company, and others of the commodities fraternity like Trafigura, wish it to be known that (a) they are nicely diversified and (b) there's no great Systemic Risk here:  "here are some arguments as to why commodities trading firms do not pose systemic risks".  Move along, everyone.

Well (c) Glencore may be diversified but the market sees it as a natural physical long position, and is treating it thus; and (d) whatever else, some of the firms we know about (i.e. the publicly held ones) look pretty under-capitalised - don't they ?!  Actually, very under-capitalised.

The oldest problem.  And that takes us back to Enron

Now look at the percentage of the FTSE that is represented by commodities firms of one sort or another (and see Stephen L's comment on pensions in the earlier post linked above).  Systemic risk?  O-oh yes.



CityUnslicker said...

I quite like the look of their bonds though; being neither widow nor orhpan.

The world of commods trading is the most bizarre thing on the planet and the biggest money maker by far and away. Form a queue of those wanting to join in.

I think Glencore will ride it out, albeit with a capital raise and a share price half og what it once was.

Steven_L said...

Looks like you called the bottom ND!