Summary
“Zombie” refers to a fictional undead being created through the reanimation of a human corpse. The term comes from Haitian folklore, where a zombie is a dead body reanimated through various methods, most often through magic.
Article:
From people to companies, shopping centers to cities, and even entire countries, the concept of zombies is pervasive. There’s even a Zombie cocktail and a rock group by that name, adding a touch of intrigue to these undead entities.
A zombie is used to depict something that appears dead in a form other than an animated one. A Zombie apocalypse refers to a swarm of zombies that swoop in to overwhelm the people, leaving few survivors.
The concept of a zombie apocalypse is an imaginary depiction of something in real life that appears, like a shopping center, a section of a city, or an entire town. Crime, vacancies, and chaos can lead to a location being referred to as a zombie apocalypse because breathing life leaves only a void of death.
Zombie Cocktail:
A zombie cocktail refers to the name of the "knock you on your ass" drink made of light rum, dark rum, 151 proof rum, vodka, freshly squeezed lime juice, bitters, grenadine syrup, grapefruit juice, and soda. There are variations of this drink that all contain two characteristics: extremely high alcohol content and a participant who turns into a "zombie" after consuming one of these drinks. This cocktail was invented in 1934 by a waiter at Hollywood’s Don the Beachcomber restaurant as a solution to a hangover. A patron, after consuming the cocktail, stated that he felt like a zombie. I refuse to confess whether I have had that experience, but I'll plead less than a fifth.
Zombie Companies:
What is a zombie company? It’s a concern for the economy. Zombies refer to companies that earn little or no profit, or barely enough profit to continue operating and servicing debt. Such companies tend to run monthly, by scraping together enough cash flow to pay wages, rents, fixes, or expenses, but not earn enough to pay for interest payments or principal reductions of accrued debt. They are unable to pay off their debt. Never mind the thought of research and development, or reserves for replacement.
The original plan for all zombie companies was to increase business so that economies of scale would eventually work. The increased profit would become available to reduce debt, and all participants could live financially ever after. Some zombie companies operate in the crony system of special tax incentives to prop up the appearance of economic viability. Any guess about who I am referring to? Can’t say it? It would be politically incorrect! Zombie companies usually resort to issuing additional stock and/or taking on more debt to keep operating. Of course, when their lenders discover their stressed financial condition, then borrowing costs go up or may stop. Many zombies can function for years under this condition, until economic headwinds become turbulent, the government quits subsidizing, lenders quit lending, the stock and bond holders discover the life support condition of the “living dead," “zombie stocks,” or a bankruptcy occurs.
Loose monetary policy by the Federal Reserve tends to feed zombies and helps keep them alive. When the market shifts, interest rates rise, business constricts, and customers disappear, the company’s insolvency will become more apparent and will eventually go bankrupt. A zombie’s life expectancy is usually precarious because of the slim possibility of success. Hope in becoming an early adopter with a high profit margin with a new miracle drug, new electric car, new advanced technology, or a new and improved gadget is preferred, but hope is not a sustainable strategy.
Some zombie companies’ employees have many people, and gain so much political power, in our crony capitalist system, that they will assume that they can rely on the "too big to fail" philosophy, and will have the government bail them out. This means encouraging these companies to take risks, while enjoying financial successes, but in the event of failure, shifting the risk to taxpayers. Remember the terms, risen from the dead and reanimated by various means, such as General Motors and AIG.
It is estimated that 1 in 10 US companies is a "zombie" with a high probability of failure. Let’s not mention disruptive technologies that constantly take what appeared to be a practical strategy but may become obsolete overnight for these members of the walking dead.
Zombie Consumers:
How about another form of zombie referred to as a "zombie consumer"? This type of zombie, much like a company zombie, operates similarly. They accrue debt and complexity in life until there is no possible financial exit. The only options are to borrow more, get more credit cards, or go bankrupt. Many zombie consumers spend 105% of their annual income, and credit cards are the "brains" they need to eat to stay alive. Their need for an expensive set of new tires or an engine overhaul would constitute a crisis for these zombies. You may be shocked to learn what percentage of American consumers can be considered "zombie consumers." Another article, perhaps?
Zombie Homes:
Homes that are in the process of foreclosure, where the owners vacate, but the lenders have not completed their procedure to regain ownership of the property. The properties are left with no maintenance, no security, and become run down, creating a blight in the neighborhood. If enough homes in the neighborhood fall into this category, then the entire neighborhood becomes a Zombie Neighborhood.
Zombie Countries:
How about a “zombie country?” The US Gross Domestic Product is about 30. 33 trillion dollars per year. The cost to operate the federal and state government, including the 22 million government employees, excluding military employees, and pay for all the demands, including medical, entitlements, housing, and military, is approximately $5 trillion per year. The government currently only raises about 4 trillion through taxation and other income-generating schemes. The difference is created by printing fiat money and taking on more debt by issuing US Treasuries and US Bonds, all of which become obligations of the taxpayers. A discussion for a later date is that the top 20% of the taxpayers pay more than 80% of all the taxes.
A zombie country may have direct debt, including US Treasuries, US Bonds, Corporate bonds, and direct borrowing. Still, it also relies on a concept called “underfunding, off-balance sheet, and accrued obligations," hidden from the public eye. How about 220 trillion for the USA only?
Just think about all the countries in the European Union and Japan, which went on a buying binge, investing sovereign funds into stocks, bonds, and debt. Their mood may dramatically change when they wake up one day and discover a house-of-cards collision while they try to unload “zombie” securities! The Chinese Government owns over 12,000 companies full of zombies.
Pricing Fundamentals:
If you invest $1,000 and at the end of the year you receive back $1,100, you earn 10%. But in an economic system where there is no relationship to earning and value, then the future becomes nebulous, or value must be redefined. In the U. S securities market, the value is around $60 trillion. But, for a price earnings ratio calculation, the real value is about 1/2 or $30 trillion. If investors start to expect yields rather than a future illusion of profits, then expect the bubble market to deflate.
How about an investment that has no intrinsic value, has no potential for creating income, other than going up in value? Meet, Bitcoin and its variations are used as a store of value. In a bubble economy where the bets are all on future profits illusions, the term Zombie investments is appropriate.
Zombie overview:
Whether it be companies, governments, or consumers, it’s helpful to understand the concept of the "Zombie businesses." The meaning may have changed over the years, but the core definition remains the same. When a large mass of brain-dead "zombies" participates in the same habits or activities that the above entities engage in, it will most likely end in financial destruction. After all this, maybe it’s time for our "Zombie" cocktail! While at the same time, I intend to sift through my old 45 vinyl record collection and enjoy the timeless hits “Time of the Seasons," "She’s Not There,” and “Tell Her No.” From the mid-60s British rock band, The Zombies.