In early 2014, when not a cloud was visible on the Commodity/Copper/China sky, we predicted that the best way to trade the upcoming Commodity/Copper/China Collapse is by going long Glencore CDS, the equivalent of shorting Glencore bonds (and implicitly stock).
Back then the CDS was at 170bps.
Less than two years later, going long Glencore CDS may have been the best risk/return commodity trade in the world, as over the weekend GLEN CDS blew out to new post-crisis highs of 1,128 bps, nearly 7 times wider than the 170bps from March 2014, but more troubling is that Glencore’s 2021 bonds just hit a 5 year low, taking out the September crash levels, and trading at about 64 cents on the dollar. These are currently rated “investment grade” by the less than credible rating agencies.
However, following the recent junking of Noble Group which has sent its stock price to 12 year lows and which hints that a bankruptcy is now virtually inevitable, we expect Glencore to be junked any day now, with the ensuing cascade of margin and collateral calls testing just how “systematically unimportant” the world’s largest commodity traders really are, because remember: the world’s favorite finance “expert” for Wall Street hire, Craig Pirrong, recently concluded that “Commodity trading firms are not a source of systemic risk.”
We’ll find out soon enough.
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