The trade that has kept on giving ever since it was first presented here in March 2014 [9]as the best way to bet on the Chinese and Commodity collapse, and which has taken place just as predicted, continues to give. As a reminder, nearly two years ago we said to buy GLEN CDS (at 180bps) on expectations of a collapse in the price of copper - the one commodity whose fate is most closely tied to that of China, and to which Glencore had the biggest exposure.
Sure enough, China suffered a hard(ish) landing, copper plunged to decade lows, and Glencore CDS exploded to levels not seen since the financial crisis, prompting management to aggressively promise it will deleverage and cut back on money-losing excess production.
The plan worked, for a few months.
As of today, with Glencore stock once again trading near all time lows sliding as low at 75p, the company's default risk just hit 54%, the highest in 6 years, as a result of its CDS blowing out past 900 and wider than the intraday spreads hit in September as the following chart from Markit [10]shows.
Why is this important? Because recall that the collapse of Glencore was one of the catalysts for the August/September market swoon; it was never fixed but because it stopped bleeding wider, the "experts" thought it was contained. Alas, it isn't, and now the market is about to have a rude second wake up call that the world's most important commodities trader - which may be downgraded to junk any minute - is also facing an all too real probability of bankruptcy unless commodity prices somehow surge in the coming months.
