Thursday, September 24, 2015

Glencore As the Lehmann of Our Time (or the AIG, maybe the monoline? Northern Rock. yes, Glencore as the Northern Rock)

But I'm never going to be able to repeat headlines like "Northern Rocked, City Shocked" or "Rock Paper Scissored".
Oh well. From ZeroHedge:
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....MUCH MORE