EC Stocks Rise As Zombie Companies Proliferate

Share prices on the major US exchanges are hitting all-time highs at the same time that both the number and percentage of companies that do not make any money at all are rising.

According to the Wall Street Journal, the percentage of publicly-traded companies in the U.S. that have lost money over the past 12 months has jumped close to 40% of all listed corporations--its highest level since the Nasdaq bubble and outside of post-recession periods.

In fact, 74% of Initial Public Offerings in 2019 didn’t make any money as opposed to just 25% in 1990—matching the total of money-losing ventures that IPOed at the height of the 2000 Dotcom mania. The percentage of all listed companies that have lost money for the past three years in a row has surged close to 30%; this compares with just over 10% for the trailing three years in the late 1990s.

The insane behavior of markets can be blamed squarely on central banks and their zeal to perpetuate asset bubbles by forcing interest rates into the sub-basement of history. This, of course, causes savers to leap far out along the risk curve in search of a yield that is far greater than the asinine 2% inflation target from which the Fed has vastly eclipsed long ago.

This market insanity isn’t completely lost on those who occupy the C-suite in corporate America.

According to a recent survey of U.S. corporate CFOs done by Deloitte, 77% of respondents said stocks are overvalued, while just 4% said equities are undervalued. And, a full 97% of respondents say that an economic slowdown already has begun, or will start sometime in 2020.

Perhaps the reason why the Fed has the REPO market in the Intensive Care Unit is precisely because corporate bond prices are nearing the edge of a gigantic chasm. The Federal Reserve Bank of NY is so concerned about the liquidity of money markets that it had to add another $83.1 billion in temporary liquidity to financial markets on Thursday, Jan. 9th alone—adding to the pile of about a half-trillion dollars’ worth of fresh monetary expansion since mid-September of last year.

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Michael Pento is the President and Founder of Pento Portfolio Strategies, produces the weekly podcast called,  more

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Moon Kil Woong 2 months ago Contributor's comment

Stocks aren't overvalued if rates and inflation remain very low, especially if the Federal Reserve eases more. That said, what is bad is the fact we have artificially low rates and rates are going lower not higher. When we do hit a recession, it will get nasty fast.

Leslie Miriam 2 months ago Member's comment

So sure a recession is coming? I feel like people always say that. Seems like fear mongering to me.

Gary Anderson 2 months ago Contributor's comment

The Fed is trying to engineer a recession proof economy. If nominal interest rates go negative it may be more difficult to do so. And real interest rates are negative and may be starting to lose ground.

Gary Anderson 2 months ago Contributor's comment

And this is a sober warning, the biggest bubble is the corporate debt of zombie companies.

Beating Buffett 2 months ago Member's comment

Yes, very sobering.

Gary Anderson 2 months ago Contributor's comment

Jamie Dimon said he would not buy a negative interest bond unless forced to! The Fed has to stand its ground against Trump's negative nightmare.