Archive - Sep 7, 2015

Don’t expect to see any end to desperation and instability in MENA, but do expect new demographic crises out of other regions: Indonesia, Ukraine, Pakistan, West Africa, and Brazil, with its cratering economy. It’s not inconceivable that China might bust apart politically, with centrifugal consequences. The global economy is contracting. We have indeed attained the limits to growth. Cheap oil is bygone and the capital infrastructure we have won’t run on expensive oil — including the oil industry itself. New technology or further central bank legerdemain is not going to fix that. We’re in population overshoot and a scramble is underway to bail on the places that just can’t support the people who live there. National boundaries will be defended. Sentimentalists will have to step aside. History is not a bedtime story about bunnies and kittens.

Early this morning Glencore finally capitulated and admitted defeat not only on its expansionary phase (it was just last year Glencore had approached Rio Tinto to engage in a merger), but on its shareholder "friendliness", with a stunning annoucement that it would proceed in a $10 billion debt reduction, issuing $2.5 billion in equity in the form of a rights offering, sell $2 billion worth of assets (such as "proposed precious metals streaming transaction(s) and the minority participation of 3rd party strategic investors in certain of Glencore’s agriculture assets, including infrastructure"), cut working capital by $1.5 billion, cut capex and its loan book by a further $1-$1.8 billion... oh, and it would also scrap its final $1.6 billion dividend as well as next year's interim payout, saving a further $2.4 billion. All this because our "best way to trade China's blow up" was finally picking up steam.

Rickards said that gold is like “fire insurance on your house” ... “Nobody wants their house to burn down but if it does you are glad you have some insurance”. 

Chinese stocks opened with a bang, and as we previously noted soared higher at the open after China's long 4-day holiday weekend, which however subsequently slowly (but very surely) fizzled, eating away at the hope that the 3-day drop in the Shanghai Composite would finally come to an end following comments from PBOC governor Zhou that the recent rout in Chinese stocks is almost over, and result in a relief rally in Europe and the US. Alas, all that was promptly swept away at the end of trading in China when the Shanghai Composite tumbled at close of trading to confirm just how unpleasant a "death cross" is coupled with loss of central bank control, and to push the Shanghai Composite down 2.5% for the day and 3.4% for the year.

News That Matters

This was a fairly quiet week in the market for the metals. The price action was elsewhere (e.g. equities and currencies).