Highly indebted US companies control over 2 million jobs
US, WASHINGTON (ORDO NEWS) — High-indebted zombie companies control nearly 2.2 million jobs, while the US faces a deep crisis in the labor market, CNBC writes.
Companies occupy most of the US industry, from large conglomerates to restaurants and bars that have suffered so much during the coronavirus pandemic and related social distance measures that have cut a hole in the US economy.
They are usually referred to as companies that continue to operate even without a revenue stream to pay off their debts.
At the sector level, they range from 233 thousand jobs in industry to conglomerates to 738 in the insurance business according to data compiled by Arbor Data Science.
The US unemployment rate rose to 14.7% during the coronavirus pandemic, as more than 23 million Americans were unemployed at the end of April.
It was actually easier for some of the largest companies to attract more debt during the current crisis, as Federal Reserve intervention breathed new life into the corporate bond market. Their stock prices have also rebounded aggressively.
However, it also caused some concern in the market that the current rally could lead to overheating.
“The outperforming zombie companies over the past month and a half may be directly related to the extremely speculative nature of the rally in terms of pressure from buyers,” said Liz Ann Saunders, chief investment strategist at Charles Schwab.
In particular, Saunders said that there are big “bull” bets from small-volume option traders, day traders, and even those who usually indulge in sports gambling.
“This is due to the growth of” zombie companies, “she said.” That’s where there was an impetus. It kind of feeds itself in a very, very speculative part of the market. ”
Over the past two months, US companies have increased record levels of debt amid a welcoming climate linked to the Fed’s commitment to support the corporate bond market.
“Zombie companies are those companies that are able to take loans in fact cheaper than they should, given their income, and they can stay in business,” said Steve Blitz, chief American economist at TS Lombard. he added less that “the Fed supports liquidity in the corporate market, it does not support loans in the corporate market, that’s the difference.”
The difference is that the central bank seeks to support the movement of markets, but does not seek to become a major player, and its programs are aimed at the functioning of the market, and not at the choice of winners and losers.
“They are not talking about“ zombie firms, ”but about firms that would otherwise simply close,” Blitz said. Companies “can say: look, we can borrow money over the next few years.” “These are not grants,” he emphasized.
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