Floundering Foreign Firm #1 — Brazilian oil and gas giant Petrobras (PBR): This energy company is getting crushed by falling oil prices and the sinking Brazilian economy. In fact, things are so bad in the world’s eighth-largest economy that the Brazilian real just hit a record low today. That has helped push Petrobras’ U.S.-traded shares down a whopping 73% in the past year.
Why is this a global issue? Because Petrobras is one of the biggest foreign debtors on the planet. It has a whopping $57 billion in dollar-denominated debt outstanding, debt that gets harder and harder to pay back with every decline in oil prices and the real currency.
Worse: Petrobras is far from alone. Brazilian companies overall raised $270 billion in the global bond market over the last few years when money was cheap and easy … and now they’re paying the price. Standard & Poor’s just cut Brazil’s sovereign debt rating to “junk” status for the first time since 2008. As a result, the cost of insuring its bonds against losses in the credit default swap market recently hit levels we haven’t seen since the great credit crisis in 2009.
In sum, the risk of a disorderly decline in PBR bonds and shares is rising every day. And because the firm is so large, it could rock the corporate and emerging market bond world to its core.
Floundering Foreign Firm #2 — German carmaker Volkswagen AG (VLKPY): This is no penny stock. This is a giant global firm with a market capitalization of more than $57.2 billion. That’s almost $9 billion more than General Motors (GM).
Its shares plunged a whopping 19% yesterday, then another 23% today amid widening allegations of shady activity. The company reportedly installed software on “clean diesel” cars designed to mislead Environmental Protection Agency testing equipment. It allegedly led to much lower emissions readings in the lab than car owners would actually achieve on the road.
Volkswagen just warned that 11 million cars around the world carry the questionable software. It’s setting aside a whopping $7.3 billion to cover potential costs to fix the problem.
But there’s no telling what the ultimate cost will be. What is clear is that the plunge in Volkswagen shares is putting immense pressure on Germany’s major stock averages. That, in turn, just drove the benchmark iShares MSCI Germany ETF (EWG) to a 26-month low.
Floundering Foreign Firm #3 — Global commodities giant Glencore Plc (GLNCY): This Swiss firm mines, markets, transports, and trades everything from copper, zinc, nickel, and aluminum to coal, oil, and agricultural products. Thanks to several acquisitions and growth initiatives over the years, it now employs 181,000 workers around the world.
That was all well and good when the commodities market was booming. But resources demand and prices are plunging now, putting Glencore on the ropes. The stock plunged as much as 16% today alone, the biggest one-day drop in history.
The company is desperately trying to raise cash by selling assets, suspending its dividend, shutting down mines, and diluting shareholders with the issuance of billions of dollars in new stock. But with a $30 billion debt load, and no help coming from sinking commodities, Glencore remains under serious pressure.
S&P and Moody’s Investors Service have been cutting their credit ratings and outlooks on Glencore, leaving the firm just two notches above “junk” territory. Should Glencore get downgraded to that level, it could spark a massive crunch in its global trading operations – and spread credit chaos throughout the commodities industry.
|Multiple crises are exploding on the global stage.|
Bottom line: Multiple crises are exploding on the global stage. They’re putting even more pressure on foreign credit, currency, and stock markets – and I believe it’s incredibly naïve to think that won’t reverberate here at home.
So for your conservative money, make sure you maintain a very high level of cash or hedge your risk using the strategies I’ve been outlining for months.
For your aggressive funds, consider turning this global turmoil into a juicy profit opportunity. That’s precisely what I’ve been doing in my Interest Rate Speculator service — and I’m confident the profits my subscribers have had the chance to rack up recently are just the beginning.
With that said, what’s your take on these brewing foreign crises? Are they something serious to worry about, or are you staying focused on opportunities here in the U.S.? What do you think will happen next in Brazil or the commodities market, and what kind of fallout will it have in the stock, bond, and currency arenas? Let me hear about it over at the Money and Markets website.
I talked about the risk to financial stocks in the wake of the Federal Reserve’s decision to leave rates unchanged again. That sparked some interesting discussions on the blog about the Fed, bank stocks, and the market in general.
Reader Dr. Donnie S. said: “The Fed has no maneuvering room — they can’t lower interest rates because they’re already at zero, and they can’t raise interest rates because they would be suddenly insolvent. All the bluster and insinuating words were just that, words! The Federal Reserve is so overleveraged, it has no policy tools left to combat a major crisis here in the U.S. or the world.”
Reader Frebon added: “The Fed is no longer an independent agency that looks at only two things, employment and inflation. They have added politics, foreign affairs and currency wars to their mandate. This is so stupid.”
Reader Will pointed to the political reasons the Fed is holding its firepower, saying: “The Fed continues to do what they do best: Kick the can down the road! They do not want all those rusty cans to pile up before the big event in November 2016. Can you imagine Obama and his Liberals wanting an economy that they propped up with low interest rates to come down on them just before the election?
“The Fed’s problem is that the demand for cars, houses and other financed purchases gets harder and harder to bring forward as the game progresses. Can anyone tell me what other reason the Fed had to delay a rate increase by now?”
Finally, Reader Howard concurred with my take on financial stocks. His comments: “I agree about the financials. Investors have become used to borrowing for outcomes based on low rates. Increasing rates and declining real values would create a headache for the banks. The Fed and the banks have brought these inflated values on themselves.”
Thanks for sharing. It’s obvious that volatility is rising and markets are teetering here, and I expect that dangerous environment to persist regardless of what the Fed does or says. That’s because policymakers are losing control of the beast they created, and there’s no stopping that process once it gets underway.
The only thing you can do as an investor is buckle up, prepare your portfolios, and make the best of a bad situation. I’ll continue to explain here in Money and Markets how I think you can best do that. And if you want to share your opinions, here’s the link. The floor is yours!
The Republican presidential field thinned a bit yesterday, with Wisconsin Gov. Scott Walker bowing out of the race. The move comes as Walker was running low on funds, and failing to break out of the crowded pack.
The CEO of Goldman Sachs (GS), Lloyd Blankfein, announced today that he has cancer and will undergo chemotherapy. The encouraging news? It appears to be a “highly curable” form of lymphoma.
I’ve been highlighting several of my troubling technical and fundamental indicators in recent weeks. They all point to lower stock prices ahead. Today, Bloomberg weighed in with a story about additional warnings that other technical traders are seeing.
Pope Francis just wrapped up his visit to Cuba, and is now visiting the U.S. for the first time. He will stop in Washington, Philadelphia, and New York this week.
Any thoughts on the warning signs Bloomberg mentioned today? What about the Republican election field – are you surprised that Walker threw in the towel? Any thoughts on other stories I did or didn’t cover? Then share them online when you get a chance.
Until next time,