Sbarro's Bizarro World

January 7, 2011
Credit rating for LI-based Sbarro Inc. falls

In its third-quarter report, Sbarro noted that the company was "highly leveraged" and faced increasing commodity costs, particularly for cheese and flour. The company also pointed to a number of factors - its pressing large debt payments, low cash on hand, general economic uncertainty and no available means to restructure or refinance debt - that raised "substantial doubt regarding the company's ability to continue as a going concern."

January 10, 2011
Sbarro Said to Hire Kirkland to Advise on Restructuring Options

Sbarro, which owns or franchises more than 1,000 fast-food Italian restaurants, is discussing restructuring its debt as well as potentially filing for bankruptcy, said the people, who asked not to be identified because the talks are private.

This news makes no sense. Paul Krugman assured us that speculation is not responsible for rising commodity costs and that deficits saved the world.

Perhaps we now live in Bizarro World?

In one episode, for example, a salesman is doing a brisk trade selling Bizarro bonds: "Guaranteed to lose money for you".

Bloomberg: Inflation Indexed Treasury

5-Year: -0.28%

Barring serious deflation, these bonds are guaranteed to lose purchasing power for you if held until maturity. In the event of serious inflation, then expect to lose even more purchasing power as the inflationary gains are taxed.

Does it really take a huge leap of logic to think that there might be some commodity speculation going on right now, that maybe QE is responsible for it, and that maybe, just maybe, it can't actually save the world over the long-term?