Over the past few months, the US stock market has experienced a whole series of declines. Meanwhile, economists warn: the real collapse will come in 2019.
The situation is very similar to that which preceded the great financial crisis of 2008 and may be exacerbated by a curious factor – the excess of so-called zombie companies, which have no chance of surviving the austerity policy installed by the System of Federal Reserve.
Analysts at the nation’s largest investment bank Goldman Sachs have estimated that the US economy will feel the consequences of the stock market crash this fall early next year. By the second quarter, these consequences will “erase” up to 0.75% of GDP.
At the same time, experts believe that the October falls are just a test of the crisis that the market will face in the new year. One reason for this is the excess of indexed funds, of traded investment and of other passively managed funds.
For example, highlights expert Natalia Dembinskaya, if during the crisis of 2008 these funds had 30% of the market, nowadays the rate is 83%.
“As there are not enough active investors, there is no one to buy even the very cheap assets,” says Goldman Sachs currency strategist Marko Kolanovic.
What are zombie companies?
Already the main threat to the American stock market, according to more and more experts, is the huge number of so-called zombie companies, that is, companies that do not generate profits and live on debt.
The reason for its accelerated increase was, in fact, a long period of low interest rates. Now the ever more rigid policy of the Federal Reserve System does not leave zombie companies any chance to survive, as borrowing new loans is too expensive, while paying the old ones is not possible because the expenses of these companies with the credits previously granted outweigh the profits.
According to the Bank for International Settlements, the share of zombie companies in states belonging to the Organization for Economic Cooperation and Development has reached the dangerous rate of 12%. That is, every eighth company will decree its bankruptcy in the coming months.
On the one hand, Dembinskaya writes, this can be considered as a sanitation, but on the other hand the abundance of “living dead” in the economy creates the real threat of a new crisis on a grand scale.
Rates will grow
Despite Trump’s fierce protest, which asserted that the Federal Reserve System had “gone mad” and became the main threat to the US economy, it decided to continue tightening its policies, arguing first and foremost the “revitalization” of the economy.
This year, for example, the agency changed the interest rate three times. By the end of 2019, it plans to do it three more times. Each time this happens, debt servicing becomes an increasingly complicated task, first and foremost for the mentioned zombie companies.
The most curious thing, sa8e Dembinskaya, is that one of them is the well-known American corporation General Electric, that is on the verge of bankruptcy.
Since the beginning of the year, the industrial giant’s financials have dropped 56%. Nowadays, its capitalization is three times lower than in 2007.
According to experts, it is precisely the bankruptcy of the oldest US conglomerate that can cause a sharp drop in the stock market and, as a consequence, a global financial crisis.