Pink Slime and Defaults Are Back

2 years ago when I first started writing to a much smaller audience, pink slime was in vogue which stirred my interest and I incorporated it into one of my earliest pieces, Credit Default Sickness.

Pink slime is best explained by Jamie Oliver in his video, Jamie Oliver VS Fast Food, Food Revolution, Pink Slime, McDonald, last year. http://youtu.be/zbPK9mF4xqU

Since then pink slime faded out of the picture only to quietly re-emerge according to CNN. http://cnnmon.ie/VjDwLW

pink slime

My reaction to Jamie Oliver last year was, how are we going to feed 7 bio people in the world then ? At 35 bucks a kg for beef (cheaper cuts), on average. And with cattle and hog prices up 30% on the year ?

Besides the Chinese food supplier scandal which has affected most of Asia with McDonalds, Starbucks, KFC and gang all dragged in, we have safer options like adding wood pulp (cellulose) into burgers to pad up the weight and volume.

The main problem with the markets and corporations is this. You have to follow. If McDonald’s pink slimes burger, BK needs to do the same to stay in business which is what led to the Lehman and Greece failing.

Pink slime is making a comeback along with new age derivatives that carry the refrains of the Lehman collapse as financiers now transform strawberries into securities (Source : NY Times) and California exchanges bonds for water (Source : Business Insider).

Food fraud to corporate fraud aplenty with bank failures erupting which makes us wary that “recovery” comes with risk because companies can recover 1. properly or 2. by cheating because the propensity to keep up with the Jones is high.

So far we have seen some high profile bankruptcies in the recent 2 months.

1. Revel Casino collapse in Atlantic City less than 2 years after opening. http://go.bloomberg.com/market-now/2014/08/12/look-works-ye-bankers-despair/

2. Espirito Santo Group, which is linked to Banco Espirito Santo, a company with 150 years of Portuguese  history resorting to fraud in recent times. http://online.wsj.com/articles/behind-the-collapse-of-portugals-espirito-santo-empire-1407879423

3. Let’s Gowex SA, a Spanish internet company now found to have indulged in fraudulent accounting. http://reut.rs/1sXnlzi

4. Corporate Commercial Bank in Bulgaria hit by bank runs after the government issued an international warrant for the owner’s arrest on charges of embezzelement. The fate of the bank remains unknown on the lack of a political consensus. http://www.reuters.com/article/2014/08/15/bulgaria-banking-corpbank-idUSL6N0QL1IU20140815

5. A wave of Russian travel companies in abrupt bankruptcies leaving tens of thousands of tourists stranded abroad. http://online.wsj.com/articles/economic-fallout-from-ukraine-crisis-leaves-russian-tourists-stranded-1407254973

6. African Bank Investments Ltd placed under creditor protection whilst under investigation with the central bank imposing losses on senior bondholders. http://www.bloomberg.com/news/2014-08-11/african-bank-charging-60-interest-rescued-to-help-poor.html

All these recent bankruptcies over and above Argentina’s current deadlock with bondholders and the fall of the 8th richest man in the world, Eric Bastista last year as OGX, his Brazilian conglomerate that fell late last year.

Yet, the current default rate and, in particular, spectulative default rate is holding near multi year lows according to Moody’s. https://www.moodys.com/research/Moodys-Global-spec-grade-corporate-default-rate-rises-slightly-in–PR_298984

2 years ago when I wrote about pink slime and the state of credit markets, I saw that there was no point in being healthy when everyone else is sick. The markets out did themselves in that regard, current junk bond spreads now trading where banks were just 2 years ago.

Now that pink slime is back, will we see the defaults start trickling in ?