Market Roundup
Dow -312.78 to 16,001.89
S&P -49.57 to 1,881.77
NASDAQ -142.53 to 4,543.97
10-YR Yield -0.07 to 2.10%
Gold -$13.90 to $1,131.80
Oil +$0.34 to $46.17
There was another drubbing in the commodities industry today – with one company in particular getting gored. I’m talking about Glencore PLC (GLNCY), which is based in Switzerland but trades here in the U.S. and in the U.K.

I mentioned the company a week ago. But in case you missed it, Glencore mines, markets, transports and trades everything from copper, zinc, nickel and aluminum to coal, oil and agricultural products. It employs 181,000 workers in more than 50 countries around the world.

Glencore shares have been plunging virtually nonstop in the past year, losing 76% amid fears the company could default on its $30 billion in debt. Then today, they plunged by a record 27%. As you can see in this chart, things look every bit as bad here as the major bank and broker stocks did in the 2007-09 bear market …

Swiss-based Glencore also trades in the U.S.

The problem here is that Glencore is a key link in the commodities supply and trading chain. If its debt is downgraded to “junk” status, or the company actually defaults on its debts, that could ripple throughout the capital markets because its trading counterparts could run for the hills.

Glencore is trying to ease concerns by putting chunks of its business empire on the block, and by selling $2.5 billion in equity several days ago. But analysts and investors remain skeptical those moves will be enough, and the cost of insuring its debt in the credit default swap market is soaring.

It’s not like Glencore is the only commodities company on the ropes, either. Look at giants like Petrobras (PBR) or Freeport-McMoRan (FCX). Or take your pick of countless shale oil and gas producers, not to mention coal companies like Peabody Energy (BTU) or Arch Coal (ACI).

The continued weakness in commodity prices is taking a toll on many sector-related companies.

They’re all in freefall, and it’s infecting the high-yield bond market overall. The iShares iBoxx $ High Yield Corporate Bond ETF (HYG) just took out its Aug. 24 spike lows, reflecting the plunge in junk bond prices and surge in yields.

That’s a lot of bad news for the markets to handle – and I sure as heck hope you’ve followed my advice from the past few months to get more of your money to safety. Cash, short-term Treasury funds, inverse ETFs, and put options are all viable investment choices here in light of the ongoing weakness I’m seeing.

So what do you think? Is Glencore big enough and bad enough to trigger a market-wide crisis, or is it a tempest in a teapot? Are you worried about other commodities firms, and potential bankruptcies there?

What about junk bonds? Is the weakness there a reason to shift more money to cash and inverse ETFs? I want to hear what you have to say on these matters over at the Money and Markets website, so please don’t hold back!

Our Readers Speak

I hope everyone had a good weekend, and I’m glad to see that many of you took the time to comment on the economic and market issues we’re facing.

Reader Ron S. weighed in with the following big-picture view: “The world is awash in printed-from-thin-air money, and equally awash in debt. The EU is heading for recession. China is drowning in empty cities. The emerging markets are in deep doo. America’s growth, anemic to begin with since the Great Recession, is slowing.

“Yellen has little left but talk. How can the markets go anywhere when they are already priced for near perfection? We will be 30 to 50% down by year end.”

Reader Cat added: “I think the central bank has lost control of the discussion. I have thought for a while that Chairman Yellen was selected to take the fall when the economy imploded.”

Reader Dr. John also said: “Uncertainty rules the day. With what’s going on in the federal government elsewhere, why should the Federal Reserve and Treasury be any different?

“Old folks like me don’t know what to do, and our financial advisers don’t, either. So, it’s stay heavy in cash until the market shows unequivocally that it’s going either up or down. Old folks can’t stand losses in investment assets, because we no longer have a day job to replace such losses.”

When it comes to Caterpillar (CAT), Reader Ken shared his take on why the firm is struggling: “My field is construction and I can tell you in no uncertain terms that regulations and useless paperwork now outweigh the actual work on any government project.

“We estimate our administrative costs are now 60% of the jobs. Cat is getting killed by regulators and regulations. We can’t buy new equipment when we have to spend all our profits on environmental consultants and lawyers.”

Reader Steve also pointed to Caterpillar’s ill-timed acquisition of Bucyrus-Erie in 2011 as a major source of trouble. His view:

“Cat doubled down on heavy capital goods for two very cyclical industries: Coal/ores mining and construction, which happen to both be tanking at the same time. This could be a failure of strategic planning on their part or an indication that major sectors of the industrial economy are in recession or a developing depression.”

Thanks for sharing. Cat is definitely struggling thanks to a combination of self-inflicted wounds and the global economic problems I’ve been writing about for a while now. Cat isn’t the only company struggling, either, so the upcoming earnings season could be a rocky one for industrial firms with heavy overseas exposure. That’s yet another reason why I remain extremely cautious on the markets here.

Any other thoughts you’d like to add here? Then use the website as your outlet.

Other Developments of the Day

● Republican speaker of the House John Boehner resigned at the end of last week, and now investors are left wondering whether the government will shut down soon or not. Hard-line Republicans are pushing for a shutdown rather than compromise on several contentious issues.

● It’s been rough sledding lately for aluminum giant Alcoa (AA). Hit by the downturn in commodities and stiff competition from Chinese metals providers, the stock has dropped more than 40% year-to-date. So in an effort to reignite investor interest and maximize the value of some of its assets, the company said it would split in two. The transaction is expected to close in 2016.

● Ahead of several key news developments this week, options traders are betting on major volatility, according to Goldman Sachs. The firm’s derivatives team pointed out that investors have been piling into straddles on the S&P 500 – a strategy that would only pay off if the index surges or plunges by a fairly large amount.

● Royal Dutch Shell (RDS/A) abandoned its plans to drill for oil off the coast of Alaska. It blamed lower oil prices, regulatory challenges, and other factors – and the abandonment of its drilling plans there will cost the company hundreds of millions of dollars.

So what do you think of Alcoa’s plans? The likelihood of even more violent swings in stocks? Any other topics I did or didn’t cover here? Let me hear about them over at the website.

Until next time,

Mike Larson