In fairness, you can’t blame this all on Biden: China is the main culprit for Wuhan Flu. Of course, Biden, along with so many Progressive Build Back Better leaders, are not only not helping, but, making things worse
For a year now, I have argued that the increase in inflation would be persistent, that its causes include not only bad policies but also negative supply shocks, and that central banks’ attempt to fight it would cause a hard economic landing.
When the recession comes, I warned, it will be severe and protracted, with widespread financial distress and debt crises. Notwithstanding their hawkish talk, central bankers, caught in a debt trap, may still wimp out and settle for above-target inflation. Any portfolio of risky equities and less risky fixed-income bonds will lose money on the bonds, owing to higher inflation and inflation expectations.
How do these predictions stack up? First, Team Transitory clearly lost to Team Persistent in the inflation debate. On top of excessively loose monetary, fiscal, and credit policies, negative supply shocks caused price growth to surge. COVID-19 lockdowns led to supply bottlenecks, including for labor. China’s “zero-COVID” policy created even more problems for global supply chains. Russia’s invasion of Ukraine sent shock waves through energy and other commodity markets. (snip)
It is much harder to achieve a soft landing under conditions of stagflationary negative supply shocks than it is when the economy is overheating because of excessive demand. Since World War II, there has never been a case where the Fed achieved a soft landing with inflation above 5% (it is currently above 8%) and unemployment below 5% (it is currently 3.7%).
Nouriel Roubini goes through quite a few different problems facing the U.S. and the world, mostly the 1st World, which results in
But U.S. and global equities have not yet fully priced in even a mild and short hard landing. Equities will fall by about 30% in a mild recession, and by 40% or more in the severe stagflationary debt crisis that I have predicted for the global economy. Signs of strain in debt markets are mounting: sovereign spreads and long-term bond rates are rising, and high-yield spreads are increasing sharply; leveraged-loan and collateralized-loan-obligation markets are shutting down; highly indebted firms, shadow banks, households, governments, and countries are entering debt distress.
If I was into conspiracy theories, I would think this is something that the U.S. and global elites want. Nah, right? Because they would never take advantage of the middle and working class when a huge worldwide problem (cough…COVID…cough) hits to institute their authoritarian agenda, right?
Anyhow, while we’re on economics, here’s another big problem
Zombies are real. Well, at least “zombie companies” are real.
Loosely defined as economically unviable firms that need to borrow to stay alive, an era of cheap money and high-risk investing has fueled the rise of the walking dead in the business world over the past decade.
David Trainer, the CEO of the investment research firm New Constructs, believes there are now roughly 300 publicly-traded zombie companies.
And with interest rates soaring, money isn’t as cheap as it used to be, which means zombie companies are facing a reckoning that will affect both investors and the economy as a whole as recession fears mount.
How many are there?
Goldman Sachs recently estimated that some 13% of U.S.-listed companies “could be considered” zombies, which it called “firms that haven’t produced enough profit to service their debts.”
But in a study last year, the Federal Reserve found that only roughly 10% of public firms were zombie companies in 2019 using slightly more rigorous criteria. And in an even more confusing turn,Deutsche Bank Strategist Jim Reid conducted a study in April 2021 that found that over 25% of U.S. companies were zombies in 2020. (snip)
Trainer and his team have built a list of roughly 300 publicly-traded zombies that they closely track, and while most of them are smaller firms, some have been in the public eye of late.
Stocks like the online car retailer Carvana and the once-high flying stationary bike maker Peloton made the list, along with the meme-stock favorites AMC and GameStop.
Carvana doesn’t surprise me, especially since they are offering way, way too much to buy cars, and stores keep getting suspended to operate by states. Nor does Peloton, which over-produced during COVID, and recently laid off a lot of people. AMC, as in the movie theaters, was a surprise, and could see most or all of their theaters go goodbye. Gamestop was also a surprise, but, I guess people do not have to rely on stores for games anymore. This could see a lot of companies fold and a lot of people lose their jobs. As some point out, though, this will free up a lot of capital that will stop going to zombie companies and go to ones which can turn a profit.
