[ad_1]
These debt-laden companies are not doing enough to cover even their interest payments. This is never a good sign.
According to Bank of America Merrill Lynch, the number of zombie companies in advanced economies has been established at 536, accounting for 13% of the total.
This is a surprising figure considering the strength of the global economy in 2018. In fact, the number of zombie companies is not far from the peak of 626 recorded at the height of the of the Great Recession, said BofA.
"Last time, it was easy to be a zombie because everybody's profits were going down," said Michael Hartnett, BofA's chief investment strategist, in an interview.
So, what's the excuse this time? Economists accuse the era of extremely low interest rates.
The easy money allows companies to borrow cheaply. And low rates encourage investors to play on riskier companies.
The Federal Reserve has kept interest rates close to zero for nearly a decade and has inflated its balance sheet up to $ 4.5 trillion.
"Central banks have pushed interest rates to zero, so no one can go bankrupt," Harnett said.
Misuse of resources
Borrowing money, especially at affordable rates, is not a bad thing at all. The addition of debt allows companies to invest in the future by building new plants, buying equipment, hiring workers and looking for new generation products. And easy money has helped to breathe life into the global stock markets, inspiring confidence along the way.
But zombie companies are useless.
"You keep businesses afloat that should not be in business," said Hartnett. "These companies use resources – such as capital or labor – that could be used more effectively elsewhere."
To stay alive, zombie companies need more and more capital. They often have to use the capital markets to get more.
This is not just a post-crisis problem.
The BIS document revealed that the presence of zombie companies had "increased" since the late 1980s – a period of stubbornly low interest rates. While only 2% of advanced economy companies were zombies in the late 1980s, the authors indicated that this figure had climbed to 12% in 2016. Rather than recovering or getting out of the zombie state after a bankruptcy, businesses tend to stay longer.
The phenomenon is not healthy because of the way it undermines the rest of the resource economy. But this might not become a problem as long as interest rates remain low.
The problem would be that if the historically low unemployment rate in the United States and the shortage of skilled workers lead to a rapid increase in wages. This would force the Fed to resume aggressive interest rate hikes.
"If inflation starts to surprise upward, these zombie companies suddenly have a much bigger problem," said Hartnett of BofA.
2. Work report: The report on US employment for March will be released on Friday and will give a better idea of the rise in wages.
Some fear that the February figures indicate that the economy lacks available manpower after 101 consecutive months of job growth.
This rejection suggests the possibility that Brexit or the United Kingdom will be eclipsed outside Europe on April 12 without an agreement on April 12. Parliament will hold a second vote on alternatives to the May deal on Monday.
4. Second quarter mailing coup: After a horrible end in 2018, stocks recorded one of their best first quarters. The S & P 500 has gone up 13%, its best quarter since 2009.
"A big start to the year has suggested that bulls could stay in charge for the rest of the year," said Ryan Detrick, senior market strategist at LPL Financial recently. "In fact, 9 times out of 10 the S & P 500 was up at least 10% in the first quarter, with the rest of the year also in the green.
5. Coming this week:
On Monday – February retail sales in the United States; US ISM manufacturing
Wednesday – US ISM Services
Friday – report on jobs in March in the United States; Meeting of EU Finance Ministers
[ad_2]
Source link