Thursday, March 3, 2011

Sign of a Market Top: World's Largest Commodities Trader Close to Massive IPO

The world’s largest commodities trading firm, Glencore International, which was founded by Marc Rich (He is no longer affiliated), is considering a massive IPO.

CNBC's Kate Kelly is reporting that Glencore is signaling to bankers that it expects to issue at least $7 billion in stock as part of an initial public offering to launch as early as April.

Glencore is a heavy trader in oil, gas, wheat, corn, aluminum, nickel, and just about every other raw commodity you can think of.

These guys are as shrewd as you can get. If they want to go public at this point, they likely see some type of top in the hot commodity markets. Given that Fed pumping last year is partially fueling the current commodity rise and almost all of the stock market gains, it may be a wise move. There appears to be a significant slowdown in Fed money supply growth since the first of the year. The Fed is still pumping money out, but most of it is ending up out of the system in excess reserves. If this continues, the commodity market will reverse its upward climb and the IPO window will be shut. Glencore may be trying to take money off the table before this happens.

That said, this does not mean that price inflation won't rage at the consumer level. Money printed by the Fed is just now seriously starting to hit that sector, so though commodities and the stock market will turn down, if money supply growth slows, this will not stop the consumer level price inflation. Remember, a downturn in the economy is about money moving from the capital goods sector to the consumer sector.


  1. Frankly, I think we're going to see it break out in a parabolic run before the crash. China will be the catalyst for both the up and down runs.

  2. I think it's an indication that we are approaching a top, but it is still several years away.
    Keep in mind that trading firms like Glencore generally do not have directional views on prices. They provide transaction services. The capital intensiveness of those services increases as the price of underlying inventory increases. Hence why they need outside capital to take on larger trades, acquisitions, and the merger with Xstrata.
    The internal politics of an organization can also drive going public: for example Jon Corzine wanted to run for public office and needed a small fortune, so he pressured a critical mass of GS partners into supporting an IPO.

  3. Good call, Wenzel.

    Goldman did its IPO at the tail end of the market boom under Clinton in 1999. Look what happened after.

    But GS didn't go fully public then, you know.

  4. Bob, love your work, thanks for a great blog

    Just a question for you: St Louis Fed data shows excess reserves have risen by just over $60 billion from 1/Oct/10 to 1/Jan/11, yet some $250 has been printed over this period. So only a quarter of the printing is flowing into excess reserves.

    Am I missing something here?

  5. @jgalt

    The money really started pouring into excess reserves after the first of the year.

    I cover the changes in excess reserves and required reserves on a regular basis in the EPJ Daily Alert.