Yesterday the Wall Street Journal reported:
Sarah Kent and Alex MacDonald, "Glencore Investors Zero In On Unit," The Wall Street Journal, C1:
"Glencore PLC's large trading division has moved into investors' cross hairs amid concerns that the $18 billion in short-term loans it uses to buy, sell, and ship goods is riskier than the company says"The problem is that oil producers' debt is going to deflate oil traders' house of cards. One strategy deployed by traders that may come into play is rehypothecation:
DEFINITION of 'Rehypothecation' Rehypothecation Definition | Investopedia http://www.investopedia.com/terms/r/rehypothecation.asp#ixzz3nQIZBceURehypothecation could be a major factor in leading to out-of-control deflation of the commodities bubble. It is hard to tell how much fraud has infused the commodities bubble but the more one looks at companies such as Glencore and Trafigura (see here), the deeper the rabit hole goes.... I recommend reading the following:
The practice by banks and brokers of using, for their own purposes, assets that have been posted as collateral by their clients. Clients who permit rehypothecation of their collateral may be compensated either through a lower cost of borrowing or a rebate on fees.
Capitalist Exploits, "There Will Be Blood - Part I," ZeroHedge, October 2, 2015. Available: http://www.zerohedge.com/news/2015-10-01/there-will-be-blood-part-i
"Could debt tied to oil and gas become the new subprime crisis? What if I told you that the amounts involved are LARGER than all of subprime?"
Majia here: See my previous posts for background on the commodities bubble that is deflating::