Hirst: It’s Time to Let Zombie Companies Go

Your Real Vision Daily Briefing for April 30, 2020

Real Vision’s Managing Editor Ed Harrison sits down with Roger Hirst to discuss what’s going on in markets today.

  • The last day of a month often sees big moves like equities selling off and more bond purchases, but this is normal rebalancing.
  • Savings rates are shooting up, which shows that the velocity of the fiscal stimulus is very low as consumers prioritize debt repayment and savings over spending.
  • Corporate bailouts are perpetuating the model of supporting zombie companies and penalizing more productive ones that aren’t so close to bankruptcy, which will negatively affect the vitality of the economy.

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The first and last day of the month often see the biggest moves in markets, but Roger Hirst told Real Vision’s Daily Briefing today that investors should take these days with a grain of salt, as the moves represent normal rebalancing.

Hirst said one of his biggest questions going into the new month is whether we will see the market roll over after hitting the 62% retracement mark, as historical models suggest, or whether the Fed’s massive liquidity injection will continue to take us to the upside.

In the real economy, where the Fed’s stimulus money has yet to really penetrate, dismal economic data is driving downward momentum and the velocity of stimulus funds is very low, as people choose to pay down debt and add to their savings rather than go out and spend.

Hirst said that while the consumer has tenaciously held in during other financial downturns, this time, it is the consumer who has been hit the hardest.

“Unless the consumer bounces back to exactly where they were, we’re going to see a slowdown in the largest part of most developed economies,” he said.

Another threat to the long-term vitality of the economy is corporate bailouts, which in the US and Europe are effectively rescuing low-efficiency companies on the verge of bankruptcy and penalizing more productive, better run businesses. 

Hirst said that it is time to stop perpetuating the model of supporting zombie companies and let companies that have been a drag on productivity go.