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The single worst thing ever allowed was to tie CEO and other principals' compensation to stock price. This changed the incentive from growing the business to financially engineering the stock price.
That was Clinton when he wouldn't allow companies to deduct any wage over $1 million per year. That's when all public companies started awarding executives with stock options. It's was the principle cause of soaring executive compensation. It was mid 90s, I was there, I witnessed it and was warned about it. almost 30 years later it the principle reason shares outstanding are so high. Stuns me to this day every time I read a companies financials how many fully diluted share are outstanding.
It's not a good thing, but it's a symptom. Fiat Currency is ALWAYS the real problem! It leads to ALL OTHER mal-investments! Not a wonder The Bible talks about 'honest weights and measures'. All else is immoral!
Thank you for this episode, Adam. I believe that the zombie corporations are equivalent to the 2008 toxic mortgage-backed securities. Where I see contagion creeping into the market will be through the failure of the primary holders of their debt creeping into the ancillary holders portfolios. As they are required to mark the market they might face a liquidation requirement in their other positions. Btw. I’m not sure if you could short some of these companies because the market is probably not very liquid.
WOW! Gentlemen, for years I've been advising my family to be careful when investing in the stock market because it's mostly a Las Vegas show, fraught with butchers ready to take you to the slaughterhouse. Admirable discussion. thank you.
Thanks for this podcast! The Federal Reserve with low interest rates forced us in the last 30+ years to become speculators instead of savers. Terrible!
So much for the VooDoo economics of Milton Friedman. Not surprising as the FED is LED by brain dead Ex Wall Streeters. Ads & Data do not a product make. So if keep wages flat, your employees can not buy what they make.
Wow, another great interview. It's the third segment I've watched, and they've all been excellent. I never get this close to binge watching anything or anyone. The whole interview was fantastic, but when Adam started in theorizing about why younger people are putting money in the stock market, or crypto, or?, is a lottery mentality. 100% accurate. I really feel for young people. I've screwed up in many ways despite having a much easier environment not to. The hand they've got to play is really gonna be a rough one to win, or even recapture your ante. Lottery odds aren't going to help much. Good luck to them. Thanks again for the program.
Thank you very much for this perspective. You probably saved me a lot of lost opportunity and aggravation. My plan was to buy the most oversold big cap stocks after capitulation. I have to rethink my strategy now, but I'm happy do do it.
@@brantrichardson1949 We haven't seen anything yet. Wait until dividends are yielding over 9%. That is the end of most bear markets as stock p;rices have been decimated.
Very timely subject matter. I have a family member who has a director level position in a very well known zombie company. I worry that her position, her stock in the company and her pension are all at risk.
Thanks so much for your interviews that offer us the truth which so sadly isn’t the way it generally goes. We need people who actually care about people making decisions that effect the real lives of real people. So sad and dangerous. Time to wake up.
This is a great and important interview. What a clear overview of the rot that's infected the system and a clear elucidation of how we're in the Fourth Turning.
@Adam - Love your content and interviews, and I agree with 99% of it. Question for you: Have you considered interviewing guests that have a different point of view and who's outlook is different from yours and Wealthion's. I love having my core beliefs reinforced by you and your guests, but i think it's also valuable to have those beliefs challenged by other good faith, well-reasoned, independent opinions. Open discussion leads to wisdom. Thanks for all you do!
Excellent Interview! I've known a little about Zombie Companies, but I thought they were only newer ones like Doordash, Uber, and Carvana. I did a search on the term and find that there are Old Standbys that also fit those criteria such as Carnival Corp, Boeing, Macys, and American Airlines. I had no idea that such huge well-known corporations are just barely scratching to get by. If there are 3000 of these, we are in for one heck of a debacle. My Pension actually partially comes from a Zombie. Yikes! I think this will be an even bigger factor in the upcoming Recession than crashing home and auto prices as well as subprime auto loan defaults and Deflation. I am increasing my savings starting today.
One of Catherine Austin Fitts most approachable pieces of advice from her “actionable intelligence” series is to get. your. money. out. of. giant. conglomerate. banks. Use instead small local credit unions and banks.
Thanks very much, Adam, for an excellent program. To be honest, I am glad that the Fed's latest policies are helping the market shed itself of these companies that should have lasted as long as they have.
It's nobody's responsibility to save anyone who invests anywhere. There is no guarantee implied or otherwise and nor there should be. taxpayers who saved and did the right thing should not have to bail out anyone anywhere at any time.
Telsa failing would be the greatest thing to even happen to the stock market in my lifetime. It would return investors back to the realm of sound researched based allocation of capital. I'm so tired of these pretend companies that are only successful because of gov't subsidies and speculation. Telsa is funded by investors that work on capital hill, people like Pelosi, Sanders both sides of the aisle. Nothing would make me happier than to see them lose it all.
Looking at EXELA chart/fundamentals it does look like a zombie company but has around 16-17k employees... But my question is how long can a company be unprofitable and still have a chance to profit and grow in the future?
Great subject and guest. I'm surprised there hasn't been more detailed coverage of this manufactured phenomenon caused by zero interest rates. Would be great to see tables summarizing the companies, the key data and timelines. Have you considered a slightly more dense, compressed format?
Man I wish I had that zombie list at the end of the July/August rally. I did well shorting AAPL but could have done it with a lot lower risk and more profit.
In compiling this list of "Zombie" companies, I wonder whether David has factored in the amount of corporate bonds in these Zombie companies that the FED has purchased. The FED could keep them alive forever by simply not requiring them to repay the loans.
I have heard the term of "zombie companies" (zcs), but how many zcs exist in the S%P500 and in the whole stock market? Heard that the zcs in the S&P is 20% and can take the S&P down by as much as 40%. I am trying to figure what are the actual numbers.
Great guest. Volcker did step in and worked with an administration and Congress Powell helped make this mess and has an administration and Congress that is working against his efforts Zombie companies not only benefited from cheap money and speculative investing. Hasn’t Apple borrowed over a hundred billion dollars? October Zombie and Frankenstein companies
We've created casino capitalism by manipulating a fiat currency. It is rooted in 1971 and the severance from the gold peg. This gave discretion to monetary authorities and politicians over the currency. We can mark the opening of the casino in the foreign exchange markets that exploded exponentially with floating currencies. The next stage was the complete financialization of the real economy with derivatives, debt products, securitization, real estate, etc. leading to excessive leverage and concentrated risk. Sadly, our policymaking authorities did not learn the lesson of 2000 or 2008 and just doubled down on the gambling casino, creating this massive transfer of wealth to asset holders. There will be a reckoning at some point bc the only real cure is a massive repricing of assets to reflect fundamental values. This implies a political revolution.
Nice to meet the Face on the other side of the Desk.. So the appropriate cure for what is consuming business brains is improved financial management advice, not destroying the affected people.
The point about politicians is astute and I agree. Politicians have incentives for short-term sugar highs, by creating/ignoring problems and kicking the can to the next person. It's a fundamental flaw in our system, and I don't know how it would be fixed without endless investigations and holding prior politicians responsible which could be abused. I DO BELIEVE, however, it should be a prosecutable crime for a politician to provide material harmful lies and also for insider trading, and these are objectively provable.
There are humans born without ability to feel pain (it's CIPA) and often in childhood they get severely injured, because there's no obvious cue to take a hand off a hot stove.
This reminds me so much of pre-2000 blowup! This good interview could have been shortened .... felt like it was being stretched out to fill a time slot.
All business are like that practically 100 percent cannot burn 12 -24months . Most cannot survive more then 6 months . What genius you have on this show
Could you put together a program that discusses the financial value of Tesla. The aspects of the investment side of its place in the stock market and the speculation of day traders and big whale traders, What is the good, the bad and the ugly!
Excellent guest. Your points about how us millennials and gen z view the markets really hit home. I've been really reluctant to even match my employer's 401k contribution as I've felt (and still do, in many ways) the money would better be used for hard assets (house, land, etc). I have no interest in speculating the market, but I will admit that has prevented me from really leveraging it to my benefit as well. I've got a pretty healthy portfolio for a 30yo with a family of 6 and single income, but it'll be interesting to see how the next few years unfold. Definitely going to be deploying our savings for once-in-a-lifetime opportunities on houses, vehicles, and other necessities. Then maybe leverage the markets. Maybe.
Our amazing New Zealand North Island ski field on Ruapehu went bust yesterday. I have been going there for 35 years it is magnificent. The border closures and lockdowns and lack of tourists strapped them for cash the government want to destroy business so would not help despite being a major draw card for visitors. Very sad day and a example of the Marxist regime New Zealand is under. It is the start of many large business collapses here in New Zealand. In my business I now demand 50% deposit and cleared funds in my account prior to delivery of goods. If these requirements are not met they can go elsewhere. In 08 I was the business I was in was owed $880k it took 2 years to get it back as everyone used the GFC as a excuse to not pay. Never again. The Fed lifting until something breaks? Their mandate is inflation at a average of 2% I suggest the system is already broken as the main role of the Fed and our central bank here in NZ is low inflation it is out of control here in NZ more like 12 to 14% a oil shock will completely nail us.
I was expecting an interview about Zombie companies, but it feels like I just got an hour of Fed complaining. I would have expected more discussion and a deeper dive into the dynamics and issues with either specific companies or case studies.
Watching this for the 2nd time (great episode), I wanted to say one thing - You said 3 asset bubbles in 25 years means people don’t learn. I disagree 100% - the leadership learned that asset bubbles make them rich, so they keep playing a game they’re winning at. Asset bubbles are not there because of retail investors suddenly being stupid, they are systemic & driven by public policy.
Austrian Economics is becoming more popular because it is the ideology of feudalism dressed up as liberty and that is where we are headed. Free market is a term Adam Smith invented, coming out of feudalism, meaning to be free from the landlord rentier class. Today, the rentier class is monopolies and the banks (FIRE, finance, insurance and real estate). Adam Smith meant for a market free FROM economic rents, and by not addressing this issue at all, the Austrians want a market left free FOR economic rents. To actively free the market from economic rents is the classical role of government, where the Austrians see no role for the government in the economy. This would simply mean direct rule by the rentier oligarchy, otherwise called feudalism.
David said that we came from a nobody to the most powerful country on the planet essentially and that alot of that has to do with our ability to allocate capital more efficiently than other countries because of the stock market. But, it wouldn't have anything to do with the fact that we have the reserve currency, would it?
The ETF's DRV and DRN which are Real Estate Bear or Bull ETF's in a sense epitomize the Zombie situation except it is in housing. The zombies, however, are homeowners. As their equity gets eliminated, by a drop in home values, the debt to equity rises for each homeowner rises. DRN has collapsed as home prices fall but DRV is soaring because housing is collapsing, and once we look under the hood and into the financials of home buyers, who bought in the past three years, as their costs rise, and they risk losing their jobs, they be come more and more zoombiefied. In six months if you have tons of cash, owning a bigger home will be easier, but existing a larger home will be more difficult which will place more pressure on banks.
Some of these zombie companies like Uber/Tesla/Crypto etc I struggle to follow. I use Uber and dont use normal taxies, I presume tesla is revolutionizing the EV market, blockchain is a bit overpriced but the technology has potential. Some zombies make sense but surely there must be a network effect aspect that can survive a bear market or is not linked to specific scenarios. there is way too much risk against innovation.
I disagree on GameStop they are debt free and almost 1 billion in cash on hand they also have been revamping their business to make it more profitable and they are on the Fast track to making a good profit. With over 55% of the free float company Direct Registered with computershare.
Key takeaway, Stock picking must be really hard. He hasn't even decomposed the craziness behind the index funds. Thank goodness the 2 year and 3 year coupons are around 4.25 nowadays.
You say do not buy dip. You do clarify - don't buy zombies on the dip What is wrong with buying good company stock when it drops? That's 2 different things I don't like buying in the inflated stock markets we have seen in recent years
1:03:00 we have compliance systems that would show us their trades in real time, why don't we use them? I have to use a compliance system that only lets me use six Brokers so that way it can get all of my trades in real time. If they want to trade fine, but we should see it real time....
