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Glencore and Valeant are still imploding

OWON: The Rothschild's Commodities mammoth has hit the rocks and is spewing its guts everywhere. They are leaking badly.

If Glencore goes, the Rotts are finished in London. The market will bury them.




Glencore and Valeant are still imploding – here’s how to profit


Sure Money Investor
By Michael Lewitt
13 January 2016

Things are moving fast in the markets – and if you don’t pay attention, you could lose your shirt.

Or you could gain the opportunity to earn big profits from the unwinding of the biggest debt bubble in history.

So without further ado, it’s time to update you on a couple of companies that I’ve warned you about before. They are coming apart at the seams and you are going to want to act quickly to profit from their problems.

Here’s what I recommend…


Glencore

Last year I warned you about the problems at Glencore plc (GLEN.L), a major commodity broker and miner. GLEN stock has collapsed from a 52-week high of £318.46 a share to £73.43 yesterday as the price of copper continued to collapse. This is the lowest price at which the stock has traded since September 29 after the stock collapsed by 29% in a single day.

Even worse, the price of insuring GLEN’s debt against default rose to a more than six-year high yesterday after one of its US subsidiaries, Sherwin Alumina Co., filed for bankruptcy. The protracted slump in aluminum prices took down the company. Sherwin plans to sell its assets to another Glencore subsidiary called Corpus Christi Alumina in exchange for forgiveness of $95 million debt plus $250,000 in cash. Another Glencore affiliate, Commodity Funding LLC, agreed to provide $40 million to Sherwin to fund its operations in bankruptcy. GLEN is clearly scrambling to shuffle around its failing assets.

In the meantime, the most important commodity for GLEN – copper – keeps falling in price. Copper for delivery in three months fell 1.9% to $4,399 a metric ton on the London Metals Exchange yesterday, its lowest price since April 2009 while the Bloomberg World Mining Index of 80 equities fell to its lowest level since June 2004.

GLEN’s 5-year credit default swaps are now trading at a spread of nearly 1000 basis points, which would effectively render it unable to finance itself if it needed to borrow money. This level means that the market predicts a 55% probability of Glencore defaulting over the next five years, but this really doesn’t tell the whole story. The way the credit markets work, when a company’s credit default swaps are trading at a 1000 basis point spread, it means that lenders are rapidly losing faith in the company’s ability to pay them back.

GLEN desperately needs copper prices to stop their decline. If this doesn’t happen soon, the stock is going to move much lower. And frankly there is little reason to believe that copper or any other major commodity is going to stop dropping in price for the foreseeable future.

For that reason, I recommend that investors buy June £50 puts on GLEN stock (ask price £5.00, last transaction £3.25). Note: Because this is a European option, you will not be able to exercise these puts until maturity.

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