The Death Of The Zombie Corporation
This is something that we heard about for years. Yet, in spite of the forecasts, these companies keep pushing forward. The reason this was possible is because of "Ponzi Debt" whereby these companies keep acquiring more debt to meet their ongoing expenses, including debt servicing.
In this video I discuss how interest rates and the upcoming economic headwinds are starting to make financing tighter. With the 30 year over 3%, many investors are going to start heading there as opposed to chasing yield via junk bonds. This is going to spread throughout the economy.
▶️ 3Speak
0
0
0.000
Congratulations @taskmaster4450le! You have completed the following achievement on the Hive blockchain and have been rewarded with new badge(s):
Your next target is to reach 51500 replies.
You can view your badges on your board and compare yourself to others in the Ranking
If you no longer want to receive notifications, reply to this comment with the word
STOPCheck out the last post from @hivebuzz:
all this is going to continue to bring many more problems to the economies and not only now but in the coming years
The global economy needs a clearing out so it is not a bad thing. It will be painful though.
Posted Using LeoFinance Beta
I was surprised when I learned that even Tesla is a zombie company. I think the debt economy is shaking the markets harsher than before. It does not look good for the global economy 😣
Posted Using LeoFinance Beta
The difference with Tesla is they have growth. True Zombie companies tend not to have revenue nor net income growth.
Posted Using LeoFinance Beta
View or trade
BEER.Hey @taskmaster4450le, here is a little bit of
BEERfrom @pixresteemer for you. Enjoy it!Learn how to earn FREE BEER each day by staking your
BEER.There are just way too many zombie companies amongst the largest companies. The government tends to bail them out because they hire so many people. Do you think QT will help the zombie companies or not?
Posted Using LeoFinance Beta
Summary:
In this video, Task discusses the concept of Zombie Corporations, which are companies that are not generating enough income to cover their expenses and are relying on taking on more debt to stay afloat. Task highlights that about 20% of companies in the S&P 500 are considered Zombie Corporations. He explains how higher interest rates, potential recession, and increasing prices are creating a challenging environment for these companies. Task also mentions Evergrande as a prime example of a Zombie Corporation, emphasizing the impact on the Chinese real estate market. He discusses how these corporations typically rely on funding from the financial sector through junk bonds and the risks associated with it. Task predicts that many of these Zombie Corporations may not survive the upcoming economic challenges and emphasizes the importance of profitability for companies moving forward.
Detailed Article:
Task starts by addressing the issue of Zombie Corporations, companies that are struggling to cover their expenses with their income and are resorting to taking on more debt to sustain operations. He notes that this is not just a US phenomenon but a global concern, with around 20% of S&P 500 companies falling under this category. Task explains that these companies use new debt to service existing debt along with their regular expenses, which is unsustainable in the long run.
The looming threat of rising interest rates poses a significant challenge for Zombie Corporations, as it increases the cost of servicing their debt and acquiring new debt. Task acknowledges that while interest rates may fluctuate in the short term, the current trend is unfavorable for these struggling companies. The potential onset of a recession further compounds the situation, as reduced consumer spending can lead to declining revenues for these corporations.
Task points out that the inflationary pressure and increasing prices are squeezing people's discretionary spending, forcing them to focus on essential expenses only. This shift affects Zombie Corporations negatively since their products or services are not considered essential, putting additional strain on their financial health.
Drawing on the example of Evergrande, a prominent Chinese developer facing financial distress, Task illustrates how the ripple effects of a Zombie Corporation can impact an entire market. He discusses how these companies often turn to the bond market for funding, relying on high-risk junk bonds to secure necessary capital. However, with changing market dynamics and diminishing appetite for risk, the funding sources for these corporations are drying up, leading to a precarious financial situation.
Task anticipates a wave of challenges for Zombie Corporations in the near future, emphasizing that many may not survive the upcoming economic headwinds. He highlights the importance of profitability and warns that the era of companies like Uber and Airbnb, which prioritized growth over profitability, may be coming to an end. Task believes that a shift towards investing in profitable companies is imminent, signaling a change in the investment landscape.
In conclusion, Task emphasizes the impending demise of Zombie Corporations and the necessity for companies to prioritize profitability in a changing economic environment. He expresses optimism for a shift towards sustainable business models and profitability-focused investments in the future.