Stocks Finish Lower to End Today's Session

Catch Up Quick

• Billionaire fund manager Steve Cohen agreed to buy the New York Mets for $2.4B

• The global image of the U.S. has plunged during the pandemic (Pew Research)

• Scientific American endorsed a presidential candidate (Biden) for the first time

• A bipartisan group of 50 House members unveiled a ~$2T coronavirus relief bill

• Apple unveiled new iPad and Apple Watch models at its product reveal yesterday

• Vandalism following the death of George Floyd has costed >$1B (Axios)

• Yelp data shows 60% of pandemic business closures are now permanent (CNBC)

• Hurricane Sally blasts Alabama with rain & flooding as a strong Category 2 storm

• U.S. GDP data of this past summer from the Fed shows a slowing economy

• Eurozone economic sentiment rises to the highest in 16 years

• YouTube launched a TikTok rival in India called Shorts

Wednesday Insight

• Snowflake disclosed that Berkshire Hathaway and Salesforce Ventures each will purchase $250M in shares as part of its IPO today— while the company will be reaching a huge valuation right off the bat, it's worth keeping an eye on, as its business is positioned well with respect to multiple momentous trends, such a big data, data warehousing, and cloud computing, among others

Thought of the Day

• Central Banks have recently brought and committed to near zero interest rates in an effort to promote greater borrowing to, in turn, stimulate investment, spending, and economic recovery

• However, an unforeseen, yet under discussed byproduct of extremely low rates has been the increase in “zombie companies” (companies kept alive solely through excessive borrowing, generating enough cash flow to cover their interest expense but not principal repayment)

• It was recently reported that zombie companies could soon represent 1 in 5 U.S. firms

• This is a huge negative with respect to the utilization of scarce resources and commercial productivity

• However, Central Banks are in a tough spot, as raising rates would slow economic activity

• We opine a feasible solution to reducing zombie company activity without raising rates is to make the path to bankruptcy easier

• While seemingly paradoxical, this would incentivize lenders against keeping “zombie companies” alive past their expiration

• Furthermore, this would decrease national corporate leverage (which could very well balloon to lend huge future problems) while increasing the efficacy of debt capital markets

The Bottom Line

• At the end of the day, companies who survive the pandemic as a result of the perpetually excessive borrowing amid a low rate environment are likely living on borrowed time

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