CDS

So far, it’s a different type of crisis – market tumult in the face of global QE, in the face of ultra-low interest rates and the perception of a concerted global central bank liquidity backstop. It’s the kind of crisis that’s so far been able to achieve a decent head of steam without causing much angst. And it’s difficult to interpret this bullishly. If Brazil goes into a tailspin, it will likely pull down Latin American neighbors, along with vulnerable Indonesia, Malaysia, Turkey and others. And then a full-fledged “risk off” de-risking/de-leveraging would have far-reaching ramifications, perhaps even dislocation and a collapse of the currency peg in China. China does have a number of major trading partners in trouble. Hard for me to believe the sophisticated players aren’t planning on slashing risk.

Some have started to ask: what happens if Glencore were to fail? Well, since Glencore is not just a miner, but probably the world's largest commodity trading desk, and is a key commodity counterparty for everyone, the answer is simple: Lehman... only this time in the commodity space.

The good news: the collapse in global market cap since May of 2015 is not the worst ever.

The bad news: the $9 trillion drop in combined market cap between the MSCI All World index and Chinese stocks, is the second highest ever, surpassed only by the $13 plunge in global market capitalization in late 2008.

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.

The world is in the waning days of a historic multi-decade experiment in unfettered finance. International finance has for too long been effectively operating without constraints on either the quantity or the quality of Credit issued. From the perspective of unsound finance on a globalized basis, this period has been unique. History, however, is replete with isolated episodes of booms fueled by bouts of unsound money and Credit – monetary fiascos inevitably ending in disaster. We see discomforting confirmation that the current historic global monetary fiasco’s disaster phase is now unfolding.

Turkey has cracked down on press "freedom" and whipped the public into a "terror" paranoia frenzy ahead of new elections set for November. The bottom line: while the Western media is preoccupied with China's censorship and stock market selloff witch hunt, a NATO member is busy nullifying a democratic election outcome and instigating a civil war, all in the pursuit of political power and all with Washington's explicit blessing.  

Update: even the rating agencies finally noticed - S&P: GLENCORE TO BBB/NEGATIVE FROM BBB/STABLE

Earlier today, Glencore stock plunged to a new all time low, after crashing nearly 20% in the past two days as investors with rose-colored glasses finally appreciate the dire reality facing the global miner. However, the best way to trade the beginning of the end for Glencore is not using stock at all.

This time around, when the bubble bursts, it won’t simply affect a particular sector or asset class or country… it will affect the entire system.

After last Friday’s GDP print which confirmed that Brazil slid into recession during Q2 - a quarter in which Brazilians suffered through the worst inflation-growth outcome in at least a decade - and after July’s budget data which confirmed that the country’s fiscal situation is a veritable nightmare, we got a look at industrial production today and boy, oh boy was it bad. So bad in fact, that it missed even the lowest analyst estimate.

Chinese stocks are opening lower: SHANGHAI COMPOSITE INDEX FALLS 4.6% TO 3,020.84 AT OPEN as PBOC fixes Yuan stronger for the 4th day in a row - the most in 5 years.

China credit risk has spiked to 2-year highs as traders increase positions dramatically.

News That Matters

"Gold and silver will be your only lifeboats as they are no one’s liability in a world where everything including the money in your pocket is someone else’s liability.”

When it comes to the complete economic and social devastation of Venezuela, lately the only thing readers seem attuned to is when will the social implosion lead to renewed political tensions which will likely result in another violent political overthrow, one which may or may not involve the local military. Today Venezuela took a step in that direction when its president Maduro declared a state of emergency in a border region near Colombia following an attack by smugglers in which three soldiers and a civilian were injured, resulting in 60 days of martial law in five municipalities of the state of Tachira. He also said the closure of the border, announced on Thursday, will be extended until further notice.

What began in early June with a surprisingly strong showing at the ballot box for the pro-Kurdish HDP has now ended precisely where many knew it would: with new elections.

"Short-term, markets seem intent on forcing either the Fed to pass in September, or the Chinese to launch a more comprehensive and credible policy package to boost growth expectations. Alternatively, a credit event in commodities (note CDS is widening sharply for resources companies – front page chart) may be necessary to cause policy-makers to panic. Markets stop panicking when central banks start panicking."