Steve's note: The Melt Up is back on. But as a DailyWealth reader, you also know the other side of the story... the inevitable, crushing Melt Down. That's why today, we're sharing a warning from my colleague Mike DiBiase. He explains that stimulus efforts will save many companies in the short term but in the long term, many are headed to zero...
The pandemic has led to lower sales and ever-increasing piles of debt for most people and companies. And that's only going to make another growing problem worse...
I'm talking about "zombies." These are companies that can't afford their debt. They don't earn enough profits to cover interest... let alone repay their debt when it comes due.
They're like the walking dead... only kept alive by creditors willing to lend them more money to pay off their debt as it comes due.
Even before the COVID-19 pandemic caused the economy to slide into a recession earlier this year, the number of zombie companies in the U.S. was approaching an all-time high.
And now, it's even worse...
A record 18% of U.S. companies are zombies today, according to the Bank of International Settlements.
That's higher than the 14% before the last financial crisis... and it's even higher than the previous peak of 17%, set back in 2001. Take a look...
To put it simply, corporate debt has never been more burdensome than it is right now... Nearly one in five U.S. companies can't afford their debt. That's an alarming statistic.
As the recession drags on, with many companies still struggling to bounce back from the pandemic-related shutdowns, we expect the percentage of zombies to soon surpass 20%.
The next chart tells a similar story... It shows U.S. corporate debt as a percentage of cash profits. The higher the ratio, the more burdensome the debt... and the lower the chances it will be repaid. You can see that this ratio is also now higher than it has ever been...
The truth is, many companies have only been able to keep paying their bills during the COVID-19 pandemic by borrowing. But you can't borrow yourself out of a crisis. Even if a COVID-19 vaccine became widely available tomorrow, this debt wouldn't go away.
Eventually, all of this record-setting debt must be repaid or refinanced.
For many companies, the shift to a remote and digital economy means sales and profits will never recover to pre-pandemic levels. And with lower sales and profits for these companies, their prospects are looking less likely with every passing day.
That leads me to a simple conclusion... Much of this debt won't ever be repaid. The only way it will be cleared off the books is through bankruptcy.
We're certain to see a massive wave of bankruptcies in the coming months and years. It's just getting started...
So far this year, 124 U.S. companies have defaulted on their debt, according to credit-ratings agency Standard & Poor's ("S&P") including 57 in the second quarter. That represented the highest number of quarterly defaults since 77 companies defaulted in the second quarter of 2009, at the peak of the last financial crisis.
You can tell where the default rate is headed by looking at the number of credit downgrades. This year, more than 2,100 companies already have been downgraded. That's already 40% more than the previous annual record of roughly 1,500 downgrades in 2009.
While downgrades are at all-time highs, corporate credit quality is at an all-time low...
The number of companies with the lowest credit ratings ("B-" or lower) that are on negative credit watches or with negative credit outlooks from S&P are known as "weakest links." And the number of weakest links hit an all-time high in September. The U.S. is home to more than 400 of these companies.
Here's why that's important... The default rate increases dramatically the further you go down the credit ladder. The default rate for the weakest-link companies is around five times higher than the overall high-yield default rate.
In other words... with a record number of weakest links muddling through a weak economy, I expect the default rate to soar. And when it happens, you will see fear return to the stock and bond markets once again. It could make the sell-offs in March look like blips on the radar.
Editor's note: You don't have to be a victim when fear returns to the markets. In fact, that's when Mike's unique investing strategy really shines... The greater the fear, the larger the profits. Just ask one of our subscribers, who used the same approach in 2009 to make a 660% total return in three years... Get the details here.
"Not every company will be able to withstand the pressure," Mike says. With the coronavirus still weighing on the world's economies and central banks watering down their currencies, the dam holding back the debt flood is about to break... Get the full story here: 'Debt Dams' Are Weak... And COVID-19 Is Bringing the Flood.
You don't have to be a victim of a credit-market "explosion." With the extreme volatility we're seeing today, you can still sleep well at night if you know how to protect your portfolio. Read Mike's simple guide to find out how: Five Steps for Avoiding the Credit-Market 'Bombs.'
THIS SHIPPING GIANT IS A BULLISH ECONOMIC INDICATOR
Todays chart shows us one sign of economic strength
We often use certain companies and sectors as real-world economic bellwethers. They can tell us if goods and services are in demand, and if people and businesses have the money to pay for them. While COVID-19 has been tough on many industries this year, todays company shows that business is picking up, at least for now
CSX (CSX) is a $70 billion shipping giant with about 20,000 miles of railroad. Its one of the nations leading providers of rail-based transportation And since it moves a wide range of products across the country, its performance helps us see when commerce is humming along. Although CSXs latest quarterly results fell year over year, the company saw a record rebound in volume from the second quarter. And it expects to see these increases continue into 2021.
Similarly, shares of CSX sold off with the rest of the market from COVID-19 fears in March. But the stock is up roughly 90% since then, recently hitting an all-time high. Its a sign that the U.S. economy isnt out of juice yet
- Explained: How zombie films may have prepared fans for Covid-19 pandemic - The Indian Express - January 15th, 2021
- Rob Zombie and AC/DC finally find their way onto 'Jeopardy!' - WAAF - January 15th, 2021
- The 10 best and worst cities to survive a zombie apocalypse revealed - The Sun - January 15th, 2021
- Zombie Capitalism Feeding On Death And Debt Lurches Into Fascism And Default Bomb - Scoop.co.nz - January 15th, 2021
- Zendaya, zombies and asteroids: The best new films coming to Netflix in 2021 - CBC.ca - January 15th, 2021
- How The Zombie Apocalypse Prepares You For The COVID-19 Pandemic - American Council on Science and Health - January 15th, 2021
- Magic: The Gathering - Kaldheim's Necromancy Cards Are INTENSE - CBR - Comic Book Resources - January 15th, 2021
- Did Watching All Those Zombie Movies Prepare You For The Pandemic? Research Says Yes! - Forbes - January 12th, 2021
- Zombies Could Stunt the Bank Recovery - The Wall Street Journal - January 12th, 2021
- The Walking Dead: Earth's Safest City Has Mastered The Zombie Apocalypse - Screen Rant - January 12th, 2021
- US Zombie Companies Are Now $2.6 Trillion in Debt. What Does That Mean for Investors? - Motley Fool - January 12th, 2021
- Brave History January 12th, 2021 - APRIL WINE, DEEP PURPLE, ROB ZOMBIE, RAGE AGAINST THE MACHINE, LED ZEPPELIN, MERCENARY, THE BLACK CROWES, ICED... - January 12th, 2021
- How dealing with a zombie pandemic taught my students to think fast and think ethically - CEOWORLD magazine - January 12th, 2021
- Good News: Wyoming a Great Place to Survive Zombie Apocalypse - laramielive.com - January 9th, 2021
- Best Zombie Anime You Need to Stream Right Now - OtakuKart - OtakuKart - January 9th, 2021
- Zombie Apocalypse 2021? Some Twitter users think Nostradamus predicted Russian scientists will cause a plague of the undead - Monsters and Critics - January 3rd, 2021
- Prabhas to unveil trailer of upcoming Telegu film Zombie Reddy on January 2 - Republic World - January 3rd, 2021
- Discover What It Means To Be A Zombie In Adventure Game Surviving The Humans - TheGamer - December 31st, 2020
- Resident Evil Reboot Promo Art Reveals First Look At Zombie As Filming Wraps - We Got This Covered - December 31st, 2020
- Rob Zombie Appears on Cover of New Revolver Issue | Revolver - Revolver Magazine - December 31st, 2020
- Mahesh Babu and Ranveer Singh Fight off Zombies in Viral Video - News18 - December 31st, 2020
- SNP accuses UK Govt of wasting millions of taxpayer pounds on 'zombie' Scotland Office - HeraldScotland - December 31st, 2020
- Wolves could hold the key to preventing 'zombie' disease threatening US deer populations - Telegraph.co.uk - December 31st, 2020
- Rob Zombie, Ghostemane and Poppy Appear on Covers of New Revolver Issue - Revolver Magazine - December 31st, 2020
- 'Zombie' greenhouse gas lurks in permafrost beneath the Arctic Ocean - Livescience.com - December 26th, 2020
- Abadon turned into a zombie and took a bite out of Hikaru Shida - Cageside Seats - December 26th, 2020
- Millions of mink infected with coronavirus to be BURNED after 'ZOMBIE uprising' from grave - Daily Express - December 26th, 2020
- The Dead Rise Once Again With New Marvel Zombies Pops From Funko - Bleeding Cool News - December 26th, 2020
- Resident Evil Reboot Original Video Game Zombie Revealed as Filming Wraps - MovieWeb - December 26th, 2020
- Anna and the Apocalypse: Every Song Ranked From Worst To Best - Screen Rant - December 26th, 2020
- Monroe County ordered to absorb the cost related to zombie homes in towns - RochesterFirst - December 26th, 2020
- Fear The Walking Dead mystery: Who is patient zero? - Undead Walking - December 26th, 2020
- Im worried that Hikaru Shida is turning into a zombie after being bitten by Abadon - Cageside Seats - December 26th, 2020
- The zombie comedy you need to watch on HBO Max - Looper - December 26th, 2020
- Call of Duty Zombies: The 5 Best Easter Eggs (& 5 Of The Worst) - TheGamer - December 26th, 2020
- Every Type of Zombie in Back 4 Blood | Game Rant - GameRant - December 22nd, 2020
- Holidays, celebrities and the zombie apocalypse - Washington Times - December 22nd, 2020
- Army of the Dead Prequel Cast Revealed by Zack Snyder in Set Photo - Collider - December 22nd, 2020
- 'Zombie Campaigns' Continue To Accrue Money, Years After Congressional Candidates Have Stopped Running - KJZZ - December 22nd, 2020
- Don't Wait to Wind Down 'Zombie' Subsidiaries - CFO - December 22nd, 2020
- Marvel Zombies & 9 Other Timelines Where Everything Went Wrong - CBR - Comic Book Resources - December 22nd, 2020
- JOEY DIABOLIC Releases Cover Of WHITE ZOMBIE's "Creature Of The Wheel" - bravewords.com - December 22nd, 2020
- South Koreas Zombie Companies Are Scarier Than the Movies - The Wall Street Journal - December 21st, 2020
- Will the Fed Ever Stop Propping Up Zombie Companies? - Yahoo Finance - December 21st, 2020
- Gangsters are PAID taxpayer cash to hand over weapons like zombie knives - Express - December 21st, 2020
- Newly discovered fungi turn flies into zombies and devour them from the inside out - Livescience.com - December 19th, 2020
- Zombie apocalypse simulation model indicates where we should hide. - The UBJ - December 19th, 2020
- BACK 4 BLOOD First Impression: Returning To Zombies With Originality - GameTyrant - December 19th, 2020
- New Zealand's highest court find that zombies do exist in New Zealand after all - Lexology - December 19th, 2020
- Fear not the zombie companies; focus on dealing with them - The Business Times - December 19th, 2020
- How to play on the Holiday-themed Die Maschine map in Black Ops Cold War Zombies - Gamepur - December 19th, 2020
- Sahar Tabar: Angelina Jolie 'zombie' lookalike reveals real face on TV after release from Iranian prison - MEAWW - December 19th, 2020
- Everything Everything reveal zombie-themed visuals for 'Black Hyena' - hotpress.com - December 19th, 2020
- Trapped in an elevator with zombies: Longtime friends from Syracuse debut movie on Amazon - syracuse.com - December 14th, 2020
- Do you hunker down or hit the road in a zombie apocalypse? - Undead Walking - December 14th, 2020
- Shaun Of The Dead Characters, Ranked By Likability | ScreenRant - Screen Rant - December 14th, 2020
- Breach is Exactly the Zombie-Space Adventure You're Looking For - Bleeding Cool News - December 14th, 2020
- Iconic The Walking Dead zombie was nearly a bit different - Undead Walking - December 12th, 2020
- Cap's a zombie, T'Challa is Star Lord, and the sky's the limit in the first trailer for Marvel's What If? - Yahoo Entertainment - December 12th, 2020
- England weapons scheme offers cash for zombie knives and knuckledusters - The Guardian - December 12th, 2020
- Zombie companies feed off the living - The Japan Times - December 12th, 2020
- The 10 Best Survival Games That Don't Feature Zombies | Game Rant - GameRant - December 12th, 2020
- 10 Best Zombie Movies of All Time, Reviewed - The Manual - December 8th, 2020
- Firefly Games teams up with Apple Arcade to release Zombie Rollerz: Pinball Heroes - GlobeNewswire - December 8th, 2020
- Every Rob Zombie Movie Ranked Worst To Best - WhatCulture - December 8th, 2020
- 'Zombie Reddy' Teaser: The Undead Rise During The Cornavirus Pandemic In This Prashanth Varma Movie - Mashable India - December 7th, 2020
- Zombie Companies Have Raised Nearly $1 Trillion During The Pandemic - The Motley Fool - December 7th, 2020
- Call Of Duty Zombies: The 10 Best Wonder Weapons, Ranked - TheGamer - December 7th, 2020
- 2020 Gift Guide: For the Zoom zombie - National Post - December 7th, 2020
- Judging the Zombie - National Review - December 5th, 2020
- Scary stuff: Colson Whiteheads Zone One might make us all zombies - Rolling Out - December 5th, 2020
- 'Zombie Rollerz: Pinball Heroes' from Firefly Games Is Out Now on Apple Arcade alongside a Major Update to the Excellent 'Grindstone' - Touch Arcade - December 5th, 2020
- Korean Zombie calls out Zabit: That fight would bring the fans to their feet - Bloody Elbow - December 5th, 2020
- Denmark to dig up thousands of 'zombie mink' culled to prevent coronavirus spread | TheHill - The Hill - December 3rd, 2020
- Every Rob Zombie and White Zombie album ranked from worst to best - Louder - December 3rd, 2020
- DCeased: The Final Twist Makes It The Opposite of Marvel Zombies - Screen Rant - December 3rd, 2020
- Here's why the military got absolutely wrecked by zombies in '28 Weeks Later' - Task & Purpose - December 3rd, 2020
- Zombie Reaganism Is Alive and Well - National Review - December 3rd, 2020
- The Walking Dead season 1 zombie that's important - Looper - December 3rd, 2020
- The One Crucial Way Zack Snyder's Army Of The Dead Honors George Romero - Screen Rant - December 3rd, 2020
Reviewed and Recommended by Erik Baquero