What Are Zombie Corporations?

July 6, 2020

* Currencies push the envelope VS the dollar… 

* JP Morgan thinks stocks will rally forever…. 

Good day… And a Marvelous Monday to you! WOW! What a great long weekend for yours truly! Starting on Thursday with my last visit to the wound center! Yes, I said my last (Hopefully I don’t ever have to go back!) visit to the wound center… After 15 months I’m finally 100% healed! , and now my challenge is to keep my legs from swelling up and putting strain on that new skin… I finally got in our pool on Saturday! First time since the summer of 2018! But I caused the water level of the pool to rise too high, and had to get out! HA! It may be against the county law to shoot off fireworks, but people around me didn’t care, and the loud bangs went late into the night on Saturday… Good for them! The great Johnny Rivers greets me this morning with his song: Summer Rain….

Well… while the U.S. grilled hot dogs, brats, and hamburgers the rest of the world was open for business on Friday, but most of the action for the week, was on Thursday, with skeleton crews only on board for Friday, for if the U.S. isn’t around, there’s no liquidity, and no reason to go out on a limb… So, on Thursday, we saw the currencies claw back at the dollar and end up with some nice gains for the day… The euro gained 2/3 of a cent, the Aussie dollar (A$) gained 3/4 of a cent, and so on… All those gains were held on Friday, with little to no change in the currencies’ levels.

And in a change of direction, the overnight markets last night didn’t buy dollars and sell the currencies! In fact, the currencies continued to move higher VS the dollar overnight. The euro is back above 1.13, for instance… 

Gold didn’t have such a good week, and ended the week up $3 from where it started the week, but in between there was some back and forth, that had Gold closing the week at $1,774.40. Friday’s Gold trading was a joke… with just 34,000 contracts traded on the day, and the price was down one thin dime on the day… So, we start today, with Gold up in the early trading today, by $5…  so we have that going for us, eh?

One of the things that keep me dazed and confused is this price difference between the current spot price of Gold $1,778, and futures contract to the nearest expiration date, of $1,787…. So, basically, if you want to buy Gold in the futures market, you’ll have to pay $1,787…. So why would anyone do that, when the spot price is $9 cheaper? But they do… and they have their reasons, and it’s those reasons that keep me dazed and confused!

Well… I received a call from Dennis Miller over the weekend, Dennis was putting together a letter, in which he talked about the zombie corporations… OK… I’ve mentioned this before, publishing guru, Bill Bonner talks about zombie corporations all the time, but I thought to myself, have I ever really explained what a Zombie Corporation is? A Zombie company is one unable to service its debt through current profits and is either paying interest only or rolling over its borrowing to stay in business.

The U.S. Government allows this to continue, because…. Well, so many Americans would be out of jobs if these Zombie Corporations were allowed to fail… But what if I told you that these Zombie Corporations are failing anyway? In May Bankruptcies soared to 722 just in May, and that beat April’s number of 562! I told you last week about the operator that owns Pizza Hut and Wendy’s  (NPC) filing for bankruptcy and while sitting in the waiting room at the wound center on Thursday, I heard that Cirque Du Soleil had filed bankruptcy with $1 Billion in debts…. What’s a Fed to do in a case like this?

And then in reading my fave letter, Grant Williams’ Things That Make You Go Hmmm… He found this from Forbes: (Forbes): The federal government may be worried about a lot of things, but officials don’t seem to have their eye on the retail ball. It appears that their primary concern (from a federal perspective), only relates to big labor or to big business. Anything in-between is apparently not ringing their bell. Republican talking points favor large corporations or payroll tax cuts. Democratic talking points extend to unemployment benefits and health care. Someone needs to realize, that if retail workers don’t have jobs because their companies are strapped for cash, then all the benefits they want to provide (in preparation for reopening) are meaningless…

And so ends my diatribe on Zombie Corporations… They existed before the pandemic, and with the pandemic they’ve become a major sticking point for the economy…

Speaking of the economy… I read this weekend that the IMF has stuck their toe into the economic forecasting waters… The IMF said that the global economy will shrink this year by 4.9%, which is worse than their previous forecast in April of a 3.2% decline.

The problem with this is that the U.S. has the largest Economy in the world, so that means that a large part of that decline will come from us…

Hey! Remember when the Congressional Budget Office (CBO) told us earlier this year that the deficit in the U.S. would be $1 Trillion for 2020? Well, they had to go back to the drawing board and add in some new deficit numbers, which now they say the U.S. deficit for 2020 will be $3.7 Trillion and $2.1 Trillion in 2021….

Of course that doesn’t count any new stimulus deficit numbers… And we all know they’re coming, because…. Well, it all goes back to the Zombie Corporations… The Fed seeing these soaring Corporate Bankruptcies will have to come ups with some new Alphabet lettered plan to bail out the small businesses too!

Well the news on the virus continues to amaze me… Texas has the virus counts mounting, and New York, the former epi-center of the virus, as the counts falling.. Florida is seeing their counts mount too…  But the thing I lie to point out is that the death tolls are falling… Which means…  I don’t know, nobody knows, but the deaths are falling and that’s a good thing! 

I really can’t believe this damn virus is still causing problems… And until there’s some kind of change in this spread, or a medicine that can attack the virus, I would think that the economy is on a ride on the slippery slope, and everything that goes along with this virus is on the upside of the slope. I had previously thought (wrong it turns out!) that once the sun warmed up it would bake the virus away… But that obviously hasn’t happened…  By the end of this week, it’s supposed to be 100 degrees, but I guess that doesn’t help… UGH!   

JP Morgan issued a report on stocks that was interesting… They opined that given the strength of the virus, and no cure-all around, that the Fed would have to continue to provide liquidity with their alphabet named stimulus programs and that all means that interest rates aren’t going higher, and in the end, they believe that all of this will be good for stocks going forward.  I would have to agree with them, to a point…  It’s all good until it isn’t…  

The U.S. Data Cupboard was busy in last week’s shortened work week, and all of the data was better than expected, but one must remember here that these data prints are comparing data to the previous month, which means they came from such large holes….  Take the Employment data… Yes, in the last two months we added back over 6 Million jobs, and that’s good, but in no way does it make up for the over 30 Million jobs that were lost… I’m just saying… 

This week’s Data Cupboard doesn’t have much for us in the way of real economic data, so it will be second and third tier prints all week, and I doubt the markets even take a peek at them.  So, the dollar is on its own this week, I have to wonder if that’s a good thing or bad thing… But it doesn’t matter what I think here, because Trader Sentiment will rule the roost once again… 

To recap…  The currencies ended the week on a high note, and continued to push the dollar bugs into a hole, in the overnight markets last night. Gold only gained $3 on the week, but is up over $5 in the early trading today, so maybe Gold can get back on the rally tracks more firmly this week.  Chuck explains Zombie Corporations, and why they are allowed to continue to take up space. And there’s lots of talk about how deep of a dive the economy will go…. The IMF, The World Bank, and Forbes all contribute this morning… 

For What It’s Worth… I sometimes listen to The Bridge on Sirius XM and they run a commercial for the station by playing an artist, and then saying that “The Bridge was built on songs like that”… Well, receiving news like I did last week reminded me of that slogan, and so therefore, “it’s articles like this that The FWIW was made for”…. This is about medicines to treat COVID-19, and how one is being warehoused, (because it’s cheap), and one is going to cost us an arm and a leg to have it administered… Guess which one is moving to the top? All that can be found here: https://needtoknow.news/2020/06/faucis-remdesivir-costs-9-per-dose-will-be-sold-at-3000-per-treatment/?utm_source=rss&utm_medium=rss&utm_campaign=faucis-remdesivir-costs-9-per-dose-will-be-sold-at-3000-per-treatment

Or, here’s your snippet: “The Association of American Physicians and Surgeons filed a lawsuit against Department of Health and Human Services and the FDA for “irrational interference” by the FDA with timely access to hydroxychloroquine (HCQ), which has shown great success in treating Covid-19. HCQ is being sidelined despite having been approved for malaria in 1955, it is reported to be 91% effective in treating COVID-19, and it is inexpensive, costing only $1 per treatment to manufacture. All but four states have imposed restrictions on outpatient use of this drug. Major pharmaceutical companies (Novartis, Bayer, Teva, and others) donated nearly 50-million doses of HCQ to the Strategic National Stockpile, but most of it still sits in warehouses because state governments are preventing its use.

Dr. Fauci has been promoting remdesivir, which has only shown modest results with COVID-19 patients, despite taxpayer funding $70-million to Gilead pharmaceutical, the CDC, and the National Institutes of Health to develop it as a treatment for Ebola, which flopped due to severe side effects and almost zero curative effect. Patients must be hospitalized in order to receive remdesivir. Bloomberg reported that the cost to manufacture remdesivir is $9 per treatment, but Gilead said it will cost over $3,000 for a six-vial treatment. Gilead spent over $5-million in lobbying Congress in 2019.”

Chuck again… I’m beside myself over reading this article! I’ve always been aware of Big Pharma, and their stranglehold on people that are sick, needing medication, and knowing that there are natural remedies out there that are for free, but doctors cannot prescribe them… And, I fully understand that it takes years of research, to develop a drug, and then even longer to get it approcved by the FDA, and that Big Pharma have to recover their costs… But come on! And now this… $9 to produce the drug, cost to the patient: $3,000… I shake my head in utter disgust….

Market prices  7/6/20: American Style: A$ .6966, kiwi .6540, C$ .7381, euro 1.1310, sterling 1.2505, Swiss $1.0630, European Style: rand 17.0495, krone 9.4017, SEK 9.2765, forint 311.89,  zloty 3.9511,   koruna 23.6083, RUB 71.39, yen 107.53, sing 1.3915, HKD 7.7498, INR 75.33, China 7.0608, peso 22.26, BRL 5.3112,  Dollar Index 96.76,  Oil $40.62,  10-year .69%, Silver $18.23, Platinum $823.97, Palladium $1,921.20, and Gold… $1,777.24

That’s it for today…  There was something else I wanted to talk about this morning, and I didn’t jot it down so I would remember it, and well, I forgot it… I know it’s something good, but… Oh well, it will come to me  at some point today! Well, did you have a Incredible Independence Day Holiday? Ours was low key, but I had fun any way! There was a lot of yummy food around, and so I ate it! Well, Summer Camp started last week for Baseball Players… I’m not sure they’ll get to play games this year with this virus spreading again…  I sure hope so, I could use some baseball games right now! I really truly want to see Jack Flaherty pitch again! Still can’t remember what I wanted to talk about, so I’ll end this with  the Allman Brothers singing their song: One Way Out….  And with that, I hope you have a Marvelous Monday, and will Be Good To Yourself!

Chuck Butler