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Horsemeat Scandal Goes Global As World's Largest Food Maker Pulls Tainted Pasta From Spain And Italy

First it was Ireland, then the entire UK, then Germany, and gradually it spread to all of Europe (except for France of course, where it was always a delicacy). But it was only once its finally crossed the Alps and made its way to the Swiss factories of Nestle, the world's largest food maker, did the horsemeat scandal truly go global. The FT reports that "the escalating horsemeat scandal has ensnared two of the biggest names in the food industry, Nestlé, the world’s number-one food maker, and JBS, the largest beef producer by sales. Switzerland-based Nestlé on Monday removed pasta meals from shelves in Italy and Spain and suspended deliveries of all processed products containing meat from German supplier, H.J. Schypke, after tests revealed traces of horse DNA above 1 per cent. Nestlé said it had informed the authorities....Nestlé withdrew two chilled pasta products, Buitoni Beef Ravioli and Beef Tortellini from sale in Italy and Spain. Lasagnes à la Bolognaise Gourmandes, a frozen meat product for catering businesses produced in France, will also be withdrawn."



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The Real Reason Boomers Buy Bonds

Day after day we are inundated with the apparent 'idiocy' of investors putting their hard earned money into Treasury bonds when they only earn 2% yields. Hour after hour, we hear why investors should buy stocks, 'get paid to wait', and bonds are in a bubble. So why is it that day after day, an entire generation appears to have found a new mantra of investing, preferring less risk to more, satisfied with less return as opposed to more. The simple answer comes down to two words - often misunderstood - risk and drawdown. While most consider the former to be some quantifiable measure of uncertainty (more is better because think of the upside potential); it is the latter that ends careers, crushes retirement hopes, and scars pysches for life - and is often ignored. As we discussed here previously - must read, comparing (risky uncertain cashflow stream) equity dividend yields to (risk-free certain cashflow stream) Treasuries is like comparing apples to unicorns, but more importantly as Boomers retire en masse, this chart explains why there is a third leg to the investment decision - risk, reward, and regret; and equity drawdowns are the real 'risk'. Oaktree Capital's Howard Marks explains...



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Guest Post: What Warren Buffett Doesn’t Understand About Investing

Warren Buffett’s aphorism: "price is what you pay; value is what you get" has been rightly celebrated. But to be a true value investor, it helps to have values. Courtesy of near-zero interest rates and global competitive currency debauchery, it is increasingly difficult to assess the value of anything, as denominated in units of anything else. The business of investing rationally becomes problematic when market participants are pursuing maximum nominal returns without a second thought as to the real (inflation-adjusted) value of those returns. In a global deleveraging that is likely to persist for some years, the heavily indebted countries will desperately need to attract foreign capital to help service their heavy debt loads. And in order to do so, they will likely devalue their currencies. There is an increasingly disorderly currency war going on out there, and the advantage of gold is clear – they can’t print it, they can’t default on it, and there will always be demand for it. Simply put, in the global currency wars, owning gold is like abandoning the battlefield altogether.



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2013 Earnings: Just Insert Hockeystick

We have discussed various incarnations of market-reality separation from underlying-reality but none had quite the unbelievability of the following chart of earnings-growth expectations currently foreseen by the consensus of linear-extrapolaters and hockey-stickers known as the sell-side. Behold - hope, defined...



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These 10 Stocks Account For Over 20% Of The S&P 500's Market Cap

The S&P 500 represents the broad US equity market. It is the bogey for countless herding asset managers and is seen as the professional's index as opposed to retail's Dow. But, a scratch under the surface of the magnificent 500 company index shows it to be extremely top-heavy. From Intel to Apple, the following 10 companies represent over 20% of the 500 name index - and these 20 stocks account for 42% of all S&P 500 margin.



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Guest Post: Adrift At Sea

The big story this past week, besides the annual State of the Delusion speech by Barack “It won’t add a cent to the deficit” Obama, was the fate of the passengers on the Carnival Triumph as their skyscraper sized ship was left adrift at sea for days without power. The ordeal at sea of the Carnival Triumph and the leadership displayed by the Carnival management and executive officers is a microcosm of our declining empire. Rather than deal with our reality, Obama chose the Carnival Cruise Line method of public relations - misinformation, denial and delusion. He has embraced the Big Lie concept as if he had created it. Our cruise of illusions and delusions is headed for troubled water. The math challenged citizens on this ship have been enjoying the 24 hour pizza buffet without the labor required to pay for the bounty. This voyage is reaching an end and the bill is coming due. The engine is on fire but the captain is telling us all is well. Eventually, everyone will know the captain lied.



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Visualizing The World's Megatrends In 2020

From 'the resurgence of religion' to 'food price volatility', cyber-viruses, urbanization, quantum computing, and peak water, Richard Watson's table highlights societal, technological, economic, and political trends that the world faces in the next decade. And if that wasn't enough, Bain & Co.'s 'Great Eight' trillion dollar growth trends should provide some food for thought as the US enjoys its vacation (although we wonder how soon until Q1 GDP misses are blamed on not only snow in the winter but also on nationally recognized holidays resulting in completely unforeseeable economic growth deductions: after all something has to be the culprit for the secular contraction, but never, ever the Fed's ubiquitous economic micromanagement and central planning).



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Guest Post: Is Europe Next For A Shale Natural Gas Boom?

Chevron and Royal Dutch Shell are getting an early start on shale exploration campaigns in eastern European countries. With the United States fast emerging as a shale natural gas leader, European economies eager to bolster their own energy independence are working to follow suit. Shell plans to spend more than $400 million to tap into Ukrainian shale, while Chevron has similar ambitions in eastern Romania. While regional shale gas production isn't going to match that seen in the United States, it's expected to eventually weaken the Russian grip on the region's energy sector. The U.S. Energy Department's Energy Information Administration estimates that, together, Bulgaria, Hungary and Romania may hold many trillion cubic feet of shale natural gas. That was enough to give U.S. supermajor Chevron the confidence to move ahead with an exploration campaign there. The company began taking on shale concessions in 2010 and has since announced plans to start exploration. If EIA estimates are close to accurate, there may be enough shale gas in Romania to cover its energy needs for the next 40 years.



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Interns At These Companies Are Getting Paid More Than You

And by "you", we mean of course the average American worker, who according to the Census Bureau averaged a full-time income of $4,400 per month, and whose plight has been documented extensively as making less and less on an inflation-adjusted basis every year, having an ever older average age, putting off retirement indefinitely, and whose lifestyle continues to deteriorate in line with the progressive elimination of the US middle class. But for every million or so disenfranchised workers, there are a few hundred lucky ones, in this particular case interns who work at companies that pay better than the average American worker. So if you are tired of making next to minimum wage, here is your chance to start afresh as an intern with zero experience at one of these 25 companies, while probably making more than the current jobs pays.



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The Japanese Yen Is Still 80% Over-Valued

In the 40 years or so since the end of the Bretton Woods system, we have seen competitive devaluations occur again and again. However as SocGen notes, it appears Japan just keeps coming out on the losing side. Based on Real Effective Exchange Rates (REER), Japan's currency is 80% stronger now than in 1971 while the US (and South Korea interestingly) are about 40% weaker. The Euro has remained in a relatively stable band as the rest of the world has de- or re-valued itself. The 20% or so drop in the JPY so far under Abe's guidance appears a blip on the REER radar screen compared to its peers but, at the other end of the spectrum, SocGen suggests the USD is notably under-valued on a Purchasing Power Parity (PPP) basis - even as 'the strong dollar policy' remains verbally in tact.



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Gas Prices Surge To Highest Ever On This Day At Fastest Pace In Four Years

Despite being weeks away from the start of the driving season proper, gas prices - at the pump - have been surging recently. With premium now over $4 nationwide (over $5 in SoCal - up 25 days in a row), this is the most expensive gas has ever been for the second week in February despite gasoline being relatively well supplied. Gasoline futures have ripped higher as unplanned maintenance, refinery closings, and rising crude oil prices (seemingly more central bank liquidity-driven than middle-east tensions) have impacted wholesale price expectations (and thus retail). The 44c rise is the fastest in four years and the year-to-date surge over 12% (outpacing stocks) is almost four times faster than average. What is more worrisome is the fact that seasonally the next month or two are when the biggest price spikes occur - which coupled with the tax-hike drag, will inevitably eat into people's spending habits and sentiment.



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European Bank CEO Admits: "The Whole Thing Is Doomed"

As the European parliament attempts to create a budget and Draghi repeats how the temporary lull in European growth is merely a prelude to a growth renaissance in the second half of the year (not to be confused with the verbatim lie rehashed by European dignitaries in 2012, 2011, 2010 and 2009), it appears a few leaks of truthiness are seeing daylight in the disunion. In a shockingly frank interview, the CEO of Saxo Bank describes the Euro's recent rally as illusory and that "the whole thing is doomed," as the continent is not supported by a fiscal union. As Bloomberg reports, Lars Seier Christensen says he would be a "seller of the EUR at anything near 1.40," noting that "right now we’re in one of those fake solutions where people think that the problem is contained or being addressed, which it isn’t at all." Confirming that the only thing holding the farce together is political not economic efforts, he sums the situation up perfectly: "people have been dramatically underestimating the problems."



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Guest Post: Why Don't People See

I meet people that still believe that the world is fine. They believe things like:

  • The US government has plenty of money.
  • Government cares for its citizens.
  • The economy cannot crash.
  • We are not in a recession (Depression).
  • The lives of their children will be better than their own.
  • The government can continue to print money to fund promises they cannot afford.

Despite these untenable beliefs, these are not stupid people.



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Key Macro Events In The Coming Week

2012 Q4 GDP has been weak in G3 and indeed Europe more broadly, (however it has generally surprised to the upside in Asia), consequently, the momentum of business sentiment will be key to watch. The Euro area flash PMI, German Ifo and the Philadelphia Fed survey are released this week (the China flash PMI will be released on Feb 25). The consensus expects a further small rise in the Euro area services and manufacturing readings. The week also brings a batch of central bank commentary, where the focus will be on references to currency strength; these include the RBA minutes followed by testimony, a speech by RBNZ governor Wheeler, Bank of Thailand policy decision and Bank of England minutes. The Federal Reserve will release the minutes from the last meeting and they may contain important clues on the bias of the Committee with respect to how long it expects the current QE program to last. Additionally, the Committee may have discussed the potential merits of outcome-based guidance for balance sheet policy, which may be reflected in the minutes.



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Platinum Spikes Following Report Of People Shot Outside Amplats South African Mine

The tender (and doomed to fail) truce obtained several months ago between miners and platinum mining companies is formally over, following reports from Johanesburg that at least five workers have been shot outside of the the Rusetenberg mine by security officials during a standoff between rival unions. Reuters adds: "Johannesburg - At least five workers were shot on Monday after security guards at an Anglo American Platinum mine in Rustenburg opened fire following clashes between rival union factions, eNCA television said. The station said it believed one worker at the Siphumelele shaft had been killed."



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