Valuetainment - December 12, 2023


Zombie Companies： The Impact of 0% Interest Rates


Episode Stats

Length

16 minutes

Words per Minute

223.30652

Word Count

3,646

Sentence Count

256

Misogynist Sentences

4

Hate Speech Sentences

1


Summary


Transcript

00:00:00.000 You ever heard the phrase zombie companies?
00:00:01.700 Let me explain to you what zombie companies are.
00:00:03.300 These are companies that are making enough money
00:00:05.260 to pay their bills, pay their debt payments,
00:00:07.200 but not enough to invest into growth.
00:00:09.420 In other words, these are companies
00:00:10.500 that should be going out of business.
00:00:12.220 They're hanging on to somebody else's market share
00:00:14.100 that this other company could do a better job.
00:00:15.860 And by the way, why are they still around?
00:00:17.380 Because today, according to Bloomberg Total Return Index,
00:00:21.180 18% of companies are part of zombie companies today,
00:00:25.600 barely making it.
00:00:26.460 Some big names you need to know about.
00:00:27.820 You know what it was in 1997?
00:00:28.940 Only 1%.
00:00:30.020 We went from 1% in 1997, that's 25, 26 years ago, to 18%.
00:00:35.420 That's an increase of 1,700% growth in companies
00:00:39.740 that don't make money, barely pay their bills,
00:00:42.420 don't reinvest.
00:00:43.400 Why are they still around?
00:00:44.740 We're gonna talk about that today
00:00:46.000 and why you should know about that today.
00:00:56.360 Okay, so if you give value out of this video,
00:00:57.960 give it a thumbs up and subscribe to the channel.
00:00:59.660 So the whole concept of zombie companies
00:01:01.540 was started in Japan called the Lost Decade.
00:01:04.340 This concept originated in Japan during the 90s
00:01:07.240 following the collapse of the country's asset price bubble.
00:01:10.540 These companies were characterized
00:01:11.980 by heavy reliance on bank financing
00:01:14.360 to remain operational.
00:01:16.000 Meaning, if I don't get any loan,
00:01:17.580 I can't meet my expenses.
00:01:18.860 I'm going out of business.
00:01:19.680 Number two, inefficiency and poor performance.
00:01:21.760 Number three, inability to generate sufficient earnings
00:01:24.300 to cover operating costs and debt obligations.
00:01:26.940 Now, here's the kicker.
00:01:27.800 The cause, the reason for so many zombie companies
00:01:30.160 was attributed to forbearance by banks
00:01:32.620 that are unwilling to let borrowers fill.
00:01:34.780 You know this whole concept of too big to fill?
00:01:36.360 They're like, no, no, no, no, no.
00:01:37.200 We can't let them fill
00:01:38.200 because it's like the drug dealer
00:01:39.920 doesn't want to get the addict
00:01:41.480 so addicted to drugs that he kills himself
00:01:43.800 so he comes back buying drugs.
00:01:45.520 They're so addicted to debt
00:01:46.880 that you don't want to kind of let him go out of business
00:01:48.880 because they're still making the payments.
00:01:50.300 Does that kind of make sense?
00:01:51.000 Guys are getting paid the commission.
00:01:52.800 Not necessarily good for economy, by the way,
00:01:54.480 but that's what's happening.
00:01:55.400 Government policies aimed at preserving
00:01:57.000 employment and social stability
00:01:58.640 and economists argued
00:01:59.820 that the survival of zombie companies
00:02:01.580 hindered economic recovery.
00:02:02.980 Resources were diverted from productive firms
00:02:05.280 to support ailing companies.
00:02:06.800 Let me get this straight.
00:02:07.520 You got five companies.
00:02:08.560 Three of them are doing a good job.
00:02:09.940 These two guys are doing a shit job.
00:02:11.480 We give them money to keep performing
00:02:13.560 at D-level standards
00:02:14.800 rather than give this market share to these guys
00:02:17.060 or let a new company come and disrupt these guys.
00:02:18.980 No, no, no.
00:02:19.380 Let's keep giving these guys money.
00:02:20.560 Why?
00:02:21.060 Can you imagine how ludicrous that is?
00:02:22.500 That's like an NBA coach
00:02:23.740 letting the player keep playing
00:02:25.240 and he's shooting three for 20,
00:02:26.960 but you keep giving them the shots.
00:02:28.280 Why would anybody in their right mind do that?
00:02:29.840 That's what these banks are doing.
00:02:31.160 And innovation and productivity were stifled
00:02:33.180 by the protection of inefficient firms.
00:02:35.680 So what happened in 2008,
00:02:37.180 this is when zombie companies
00:02:38.640 became famous and popular in the US
00:02:41.100 because of this program called TARP,
00:02:43.220 which most people don't know what TARP stands for.
00:02:44.760 Most of us know what TARP is,
00:02:45.920 but TARP stands for, you ready?
00:02:47.300 They're just telling us what TARP is.
00:02:49.260 It's troubled asset relief program.
00:02:52.460 This is like a person
00:02:53.960 who can't pay their credit card payment.
00:02:55.800 They're like, let's keep giving them more credit cards
00:02:58.260 because he's gonna keep making credit,
00:03:00.080 but his debt keeps getting bigger.
00:03:01.660 Why are we doing that?
00:03:02.680 Because let's destroy him
00:03:04.500 because he's gonna be a slave
00:03:06.060 to credit card companies.
00:03:07.320 And Visa just had record-breaking profits
00:03:09.340 because interest rates today
00:03:10.760 are at the highest they've ever been
00:03:12.400 in credit card companies.
00:03:13.400 So imagine if credit card companies are like,
00:03:15.160 dude, let people keep making these interest payments.
00:03:17.180 This is awesome.
00:03:18.120 Except imagine you're doing that
00:03:19.180 to multi-billion dollar companies.
00:03:20.620 They're slaves to this debt
00:03:22.640 that they own to the slave owner,
00:03:24.660 which is a debt holder.
00:03:26.160 If you read scripture,
00:03:27.320 you know what it says to the person that owns the debt.
00:03:29.720 They own the other individual.
00:03:31.280 These companies are owned by the debt holder.
00:03:34.560 You know what's crazy
00:03:35.060 with this whole concept of zombie companies?
00:03:36.500 You know how many people are gonna be zombies
00:03:37.960 and they don't even know they're individuals.
00:03:39.460 They're working at a company.
00:03:40.440 They don't know what's going on.
00:03:41.320 They're casual.
00:03:41.880 They haven't read a book for a while.
00:03:43.140 They're not even doing their business planning.
00:03:44.560 Boom!
00:03:44.960 They're gonna lose their position.
00:03:46.140 Somebody newer and hungrier
00:03:47.100 is gonna come and take their position away from them.
00:03:48.880 Same thing applies within corporations and companies.
00:03:50.820 Some people are gonna go into the new year, 2024.
00:03:53.000 They had a great 2023.
00:03:54.160 They got money in the bank,
00:03:55.080 but they're not paranoid.
00:03:56.000 They're not looking.
00:03:56.600 They're not planning.
00:03:57.220 They're not preparing.
00:03:57.900 They're the same person.
00:03:58.680 They go into 2024 being the same person.
00:04:00.500 All of a sudden, boom!
00:04:01.440 The market kicks their tail.
00:04:02.620 This is why I wrote this book called
00:04:04.220 Choose Your Enemies Wisely.
00:04:06.800 Business planning for the audacious field.
00:04:08.640 We have put a few years,
00:04:09.880 thousands of hours into this book.
00:04:11.260 It comes out December 5th.
00:04:12.540 If you want 2024 to be the beginning
00:04:14.240 of the greatest years of your life,
00:04:15.640 go order the book.
00:04:16.580 Choose Your Enemies Wisely.
00:04:17.600 Click on the link below.
00:04:18.780 Highly recommend you also order the Audible.
00:04:20.540 It's like, tell some stories in Audible
00:04:21.820 that's not written in the book.
00:04:23.020 And make 2024 the beginning
00:04:24.580 of the greatest years of your life.
00:04:26.360 The term zombie company resurfaced
00:04:27.880 in context of the U.S. financial crisis of 2008.
00:04:30.820 Government bailouts,
00:04:31.720 particularly through the $700 billion
00:04:33.500 Troubled Acid Relief Program,
00:04:35.180 were criticized for rescuing
00:04:36.820 failing financial institutions.
00:04:38.260 Critics argue that bailouts perpetuated
00:04:40.780 the existence of zombie companies.
00:04:42.840 Government support prevented market forces
00:04:45.040 from weeding out poorly performing firms.
00:04:47.220 Taxpayers' money, your money, my money,
00:04:49.620 was used to prop up businesses
00:04:51.280 that were unlikely to recover.
00:04:53.600 The impact of zombie companies
00:04:54.780 on the U.S. economy is debated.
00:04:56.240 Some argue that their presence
00:04:57.340 hinders economic growth and innovation.
00:04:59.580 Others maintain that zombie companies
00:05:01.280 provide employment and contribute
00:05:03.440 to economic stability,
00:05:05.200 which means let's keep low standards.
00:05:07.040 As long as people got jobs, who cares?
00:05:09.420 Let's maintain low standards
00:05:10.580 rather than increasing the expectation
00:05:12.500 for companies to say,
00:05:13.880 stop making so many dumb decisions.
00:05:16.320 Stop making so many decisions
00:05:17.440 that are bad for the investors.
00:05:19.520 Make better decisions.
00:05:20.560 If you don't,
00:05:21.200 let's give you the market share
00:05:22.240 to somebody else that's making better decisions.
00:05:23.920 By the way,
00:05:24.300 if that company goes out of business
00:05:25.720 and they got 10,000 employees,
00:05:27.060 what do you think those 10,000 employees
00:05:28.540 are going to go to?
00:05:29.200 To the other seven competitors,
00:05:30.440 they're going to go get a job elsewhere.
00:05:32.000 Because that market share of customers
00:05:33.720 is going somewhere.
00:05:34.960 So the risk isn't on the employee.
00:05:36.760 The risk is on the employer
00:05:38.120 not doing a good job
00:05:39.140 with the money that they have.
00:05:40.540 So now watch this.
00:05:41.180 In 2021, Goldman Sachs reported
00:05:43.400 that some 13% of US listed companies
00:05:46.420 could be considered zombies.
00:05:47.940 This is just two years ago,
00:05:49.080 which it called firms
00:05:50.360 that haven't produced enough profit
00:05:52.220 to service their debt.
00:05:53.620 You haven't produced enough profits
00:05:56.740 to service your debts.
00:05:58.240 Bring it to you.
00:05:59.360 You haven't made enough income
00:06:01.080 to pay off your debt.
00:06:02.680 If you don't pay off your debt,
00:06:04.300 what comes next?
00:06:05.900 Bankruptcy.
00:06:06.440 If you're an individual
00:06:07.440 or decrease your lifestyle,
00:06:09.560 but not if you're running a corporation,
00:06:11.500 there is give them more debt
00:06:12.820 to service the debt
00:06:14.300 that they already couldn't have.
00:06:15.440 Let me just continue reading this
00:06:16.600 because this makes no sense to me
00:06:17.700 and I'm sure it doesn't make sense
00:06:18.520 to you either.
00:06:18.980 The Federal Reserve study
00:06:20.080 found that roughly 10% of public firms
00:06:22.200 were zombie companies in 2019.
00:06:24.000 Public firms on the stock market.
00:06:26.880 One out of every 10 company
00:06:28.120 on the stock market
00:06:28.880 is a zombie company.
00:06:30.260 This is pre-COVID
00:06:31.080 when the economy
00:06:31.860 was doing actually good.
00:06:33.480 Finally, a Deutsche Bank
00:06:34.960 studied by Jim Reed in 2021
00:06:36.740 found, you ready,
00:06:38.720 that over 25% of US companies
00:06:42.300 were zombies in 2020
00:06:44.520 and according to the IMF,
00:06:46.640 this number was only 1% in 1997.
00:06:49.920 How in the hell did this happen?
00:06:52.380 Low interest rate money
00:06:53.880 being given away to people
00:06:55.200 that money was so cheap
00:06:56.520 and they kept paying all the stuff
00:06:57.840 that they were paying off
00:06:58.600 and all of a sudden
00:06:59.380 now the rates being high,
00:07:00.260 they're sitting there saying,
00:07:01.640 what the hell are we going to do now?
00:07:03.540 What are the ways
00:07:04.100 government going to bail us out now?
00:07:05.700 You know how they're going to sleep today?
00:07:06.860 They have no clue
00:07:07.300 what they're going to do.
00:07:08.060 But you know why
00:07:08.420 they're probably sleeping
00:07:09.040 like a little baby?
00:07:09.900 Because they know daddy's
00:07:11.140 going to come and build them out.
00:07:13.280 And you know who daddy is?
00:07:14.780 Me and you
00:07:15.560 who fall for these people
00:07:16.860 we vote for
00:07:17.660 and we give away
00:07:18.540 billions of dollars
00:07:19.580 to these companies
00:07:20.480 to not go out of business
00:07:21.600 because poor these companies
00:07:23.240 that made some bad choices
00:07:24.340 and God forbid somebody
00:07:25.800 like an Elon Musk
00:07:26.740 will come out and piss them off
00:07:28.020 and do something better.
00:07:29.060 Go f*** yourself.
00:07:32.380 Is that clear?
00:07:33.560 Hey Bob.
00:07:34.460 No, what a bad guy he is.
00:07:36.480 Let us keep going golfing
00:07:37.820 three, four times a week.
00:07:39.120 Shame on you Elon Musk
00:07:40.240 for being a little too driven
00:07:41.400 and taking market share away from us.
00:07:43.340 You don't deserve that.
00:07:44.520 We do because we went
00:07:45.440 to the right schools
00:07:46.020 and you did not.
00:07:46.840 Are you freaking kidding me?
00:07:48.320 You know what?
00:07:48.680 That sounds like a little baby crime.
00:07:50.680 But that's exactly
00:07:51.540 what's going on with these guys.
00:07:52.880 So let me give you
00:07:53.360 some zombie companies
00:07:54.080 and you're going to be like,
00:07:54.800 well I probably don't recognize
00:07:55.700 these zombie companies.
00:07:56.440 You ready?
00:07:56.700 Here's five of them for you.
00:07:57.980 Sears Holvings Corporation
00:07:59.260 once a retail giant
00:08:01.060 Sears faced
00:08:01.960 significant financial struggles
00:08:03.560 and was often classified
00:08:04.640 as a zombie company
00:08:05.720 due to its mounting debts
00:08:07.040 and declining sales.
00:08:08.100 The company filed
00:08:08.580 for bankruptcy in 2018.
00:08:09.800 By the way,
00:08:10.300 that's what should happen.
00:08:11.380 Breaks my heart
00:08:12.200 because the founders
00:08:13.060 worked their asses off
00:08:14.320 to build this company
00:08:15.320 that's been around
00:08:16.020 for God knows how long
00:08:17.140 but the people running
00:08:17.980 the company today
00:08:18.800 destroyed it.
00:08:19.700 And guess what?
00:08:20.500 That's okay.
00:08:21.760 That's exactly
00:08:22.460 what should happen to them
00:08:23.380 as it's a funeral
00:08:24.560 for a company
00:08:25.580 but the existing leaders
00:08:27.040 that were hired by the board
00:08:28.140 were not the right leaders
00:08:29.480 and they caused
00:08:30.420 a legendary company
00:08:31.520 like this to go out of business.
00:08:32.720 Number two,
00:08:33.120 JCPenney.
00:08:33.900 This American department store chain
00:08:35.160 faced similar challenges
00:08:36.060 to Sears struggling
00:08:36.820 with large debts
00:08:37.440 and failing to adapt
00:08:38.220 to changing retail trends.
00:08:39.320 JCPenney was also often labeled
00:08:40.680 as a zombie company
00:08:41.840 before filing bankruptcy
00:08:42.900 in 2020.
00:08:44.360 Number three,
00:08:44.900 Toys R Us.
00:08:45.460 The toy retailer
00:08:46.120 struggled with large debt load
00:08:47.800 making it difficult
00:08:48.620 to invest in stores
00:08:49.380 and online sales.
00:08:50.180 It was considered
00:08:50.780 a zombie company
00:08:51.640 before declaring bankruptcy
00:08:52.840 in 2017.
00:08:54.740 iHeartMedia Inc.,
00:08:55.460 the largest radio station
00:08:56.460 owner in the United States,
00:08:57.440 iHeartMedia faced
00:08:58.280 significant debt challenges
00:08:59.760 and was often referred to
00:09:00.960 as a zombie company
00:09:01.820 and filed for bankruptcy
00:09:02.800 in 2018
00:09:03.740 to restructure
00:09:04.620 its massive debt load.
00:09:05.860 GE,
00:09:06.600 massive company,
00:09:07.500 took a lot of money
00:09:08.220 from the government,
00:09:08.980 didn't they?
00:09:09.400 For a period,
00:09:09.940 GE was also considered
00:09:10.940 a zombie company
00:09:11.960 due to its high level
00:09:12.980 of debt
00:09:13.280 and struggling business units.
00:09:14.540 However,
00:09:14.960 it has since taken steps
00:09:16.280 to restructure
00:09:17.120 and reduce its debt.
00:09:18.580 And by the way,
00:09:19.060 keep in mind,
00:09:19.480 some of these companies,
00:09:20.280 the financial situation
00:09:21.360 can't change for them.
00:09:22.060 AIG got $183 billion
00:09:23.680 from the U.S. government,
00:09:24.880 us,
00:09:25.340 and Bob and Moshe
00:09:26.120 ended up paying that back
00:09:27.240 with a CFO,
00:09:27.980 David Herzog,
00:09:28.780 some $21 billion in interest.
00:09:30.400 They paid it back
00:09:30.840 within a few years.
00:09:31.560 I was there when this happened.
00:09:32.780 I had dinner with the CFO
00:09:33.660 one time in 2012
00:09:34.980 or 13 in Chicago
00:09:35.980 at Ritz-Carlton
00:09:36.600 while they were going through this,
00:09:37.660 2011 or 12.
00:09:38.760 So in some cases,
00:09:40.420 it did work,
00:09:41.300 but not in all cases.
00:09:42.520 If in one or two cases
00:09:43.800 out of 30 cases it worked,
00:09:45.100 should we keep doing it?
00:09:45.820 If in nine out of 10 cases
00:09:47.380 it worked,
00:09:47.740 should we do it?
00:09:48.360 Yes.
00:09:48.760 But if it's two and seven,
00:09:50.260 should we?
00:09:50.760 If it's two and 10,
00:09:51.520 should we?
00:09:52.080 No.
00:09:52.380 Let capitalism do its part
00:09:54.140 and see what takes place.
00:09:55.360 But no,
00:09:55.660 they're not letting that happen.
00:09:56.620 That's why we're at 25%
00:09:57.940 of zombie companies
00:09:59.000 according to Deutsche Bank,
00:10:01.060 Jim Reed.
00:10:01.600 So I want to show you
00:10:02.060 a couple of charts.
00:10:02.620 If you take a look
00:10:03.160 at this one here,
00:10:04.020 this is a share of U.S. zombie firms
00:10:05.480 from 2015 to 2020.
00:10:07.080 Okay,
00:10:07.280 the red is listed
00:10:08.380 on the stock market.
00:10:09.640 The gray is private.
00:10:11.140 If you look at this,
00:10:12.060 2015,
00:10:12.640 2016,
00:10:13.200 2017,
00:10:13.800 all of them keep going up.
00:10:15.360 Why?
00:10:15.620 Because the rates
00:10:17.080 have been kept at 0%,
00:10:18.960 nearly at 0%
00:10:20.040 for God knows how many years,
00:10:21.140 nearly eight years.
00:10:22.200 Then,
00:10:22.740 when 2017 comes around,
00:10:25.040 what does Trump do
00:10:25.920 in 2016,
00:10:26.660 2017?
00:10:27.500 They start increasing rates
00:10:29.120 because we can't be
00:10:30.560 at 0% to 1%
00:10:31.400 this entire time.
00:10:32.340 So go back to the chart
00:10:33.320 now,
00:10:33.560 the list is in private.
00:10:34.340 What happens to them?
00:10:35.220 Notice the zombie companies
00:10:36.460 decrease
00:10:37.020 the next three years.
00:10:38.020 2017 drops,
00:10:39.280 2018 drops,
00:10:40.380 2019 drops.
00:10:41.480 And by the way,
00:10:42.200 you know the companies
00:10:42.820 I just listed?
00:10:43.580 You know when Toys R Us
00:10:44.320 went out of business?
00:10:44.980 In 2017.
00:10:46.700 You know when
00:10:47.160 JCPenney went out of business?
00:10:48.340 2020.
00:10:48.880 You know when Sears
00:10:49.380 filed bankruptcy?
00:10:50.160 2018.
00:10:50.720 You know when
00:10:51.080 I Heart filed bankruptcy?
00:10:52.220 2018.
00:10:53.000 Why?
00:10:53.440 Because the rates
00:10:54.040 started going up.
00:10:55.200 They're like,
00:10:55.520 wait a minute,
00:10:55.880 we can't keep borrowing money,
00:10:57.100 we better get our act together.
00:10:58.580 The correlation
00:10:59.320 between these two
00:11:00.260 tells a story.
00:11:01.920 But by the way,
00:11:02.600 just to be
00:11:03.360 straight up here,
00:11:04.680 the President Trump
00:11:05.540 wasn't for Powell
00:11:06.700 increasing the rates,
00:11:07.760 even though he put Powell
00:11:08.740 in there for the Fed share.
00:11:09.880 Powell raised it
00:11:10.660 because he felt
00:11:11.360 that's exactly
00:11:12.020 what was needed.
00:11:12.660 So watch this.
00:11:13.700 Neither President Trump
00:11:14.980 nor President Biden
00:11:16.340 has been happy
00:11:17.040 with what Powell
00:11:17.680 has been doing.
00:11:18.540 That's why Powell
00:11:19.420 is actually a good
00:11:21.100 Fed chair
00:11:21.900 because he's doing
00:11:23.100 whatever he can
00:11:23.800 to help the economy.
00:11:24.820 It's not an easy job.
00:11:26.060 But to me,
00:11:26.660 we got to keep
00:11:27.260 increasing rates
00:11:27.960 because if we keep
00:11:28.680 them low the way we are,
00:11:29.540 lots of these zombie
00:11:30.460 companies are going
00:11:31.100 to be everywhere.
00:11:31.700 It's going to be
00:11:31.880 a lot of fake success.
00:11:33.200 Some of this fake success
00:11:34.100 got to be exposed
00:11:34.820 by the rates going higher
00:11:35.860 through the pruning process
00:11:36.960 that we got to go through
00:11:37.860 that we haven't for a while.
00:11:39.360 So this next part
00:11:40.120 is going to be
00:11:40.440 a little bit technical,
00:11:41.080 but I'm going to try
00:11:41.640 to explain it to you.
00:11:42.220 I think you need
00:11:42.680 to know this part
00:11:43.320 because there is a format
00:11:44.560 to find out
00:11:45.320 who is two years away
00:11:46.460 from going out of business.
00:11:47.620 There's actually
00:11:48.020 a formula for it.
00:11:48.760 When you look at this,
00:11:49.500 the current zombie companies
00:11:50.620 based on Federal Reserve
00:11:51.640 parameters,
00:11:52.520 the average number
00:11:53.360 is around $374 million
00:11:54.740 and has a net negative
00:11:56.420 return of 3.4%
00:11:58.440 on the asset.
00:11:59.320 So there's a few things
00:12:00.320 when they look at this.
00:12:01.120 It's called the ICR,
00:12:02.460 one of them.
00:12:03.300 The interest coverage
00:12:04.260 ratio is calculated
00:12:05.300 by dividing the earnings
00:12:06.660 before interest and tax,
00:12:08.140 EBIT,
00:12:08.640 not EBITDA,
00:12:09.560 by the total amount
00:12:10.300 of interest expense
00:12:11.380 on all of the company's
00:12:12.920 outstanding debts.
00:12:13.920 The second one is
00:12:14.800 the debt ratio,
00:12:15.920 which is the debt ratio
00:12:16.960 is fundamental analysis measure
00:12:18.240 that looks the extent
00:12:19.180 of companies leverage.
00:12:20.300 And then you have
00:12:20.760 compound annual growth rate
00:12:22.560 called CAGR.
00:12:24.020 All right,
00:12:24.200 so the question becomes
00:12:25.020 as an investor,
00:12:25.700 can you kind of go out
00:12:26.640 there and find out
00:12:27.300 what company is about
00:12:28.160 to be on this list
00:12:29.080 that is potentially
00:12:29.860 a zombie company?
00:12:30.560 There's actually a formula
00:12:31.400 for it.
00:12:31.720 A couple of people
00:12:32.280 came out with a theory.
00:12:33.580 One of them is called
00:12:34.360 the Olson model,
00:12:35.100 which predicts bankruptcy risk
00:12:36.760 using a multi-factor
00:12:38.040 financial algorithm
00:12:39.040 developed by Dr. James Olson
00:12:40.760 in 1980.
00:12:41.620 Any percentage value
00:12:42.720 above 50% indicate
00:12:44.280 the risk of a firm's
00:12:45.360 bankruptcy within two years.
00:12:47.200 And the second model
00:12:48.040 is the Altman model
00:12:49.200 used to predict
00:12:50.040 whether a firm
00:12:50.820 is likely to go into
00:12:51.680 bankruptcy within two years
00:12:52.760 and uses many variables
00:12:53.860 from the income
00:12:54.660 and balance sheet
00:12:55.320 for the analysis.
00:12:56.180 The stress is considered
00:12:57.200 high with a value
00:12:58.860 below 181.
00:12:59.740 So if you want to go
00:13:00.480 a little bit more
00:13:01.000 into technical details of it,
00:13:02.300 we'll put the link below.
00:13:03.100 But I just kind of want to show
00:13:04.000 you some of these companies.
00:13:04.800 When you look at this,
00:13:05.600 they graded it
00:13:06.460 from the highest to lowest.
00:13:07.420 These are some of the companies
00:13:08.340 that are on the verge
00:13:09.860 of filing bankruptcy.
00:13:11.840 Look at the names
00:13:12.340 on this list
00:13:12.860 you may recognize.
00:13:13.960 AMC, look at the score.
00:13:15.320 Negative 0.85
00:13:16.520 on the Altman Z score.
00:13:18.140 It's got the Olson score
00:13:19.060 there as well.
00:13:19.720 The other one
00:13:20.140 is Virgin Galactic.
00:13:21.320 How about Lionsgate Entertainment?
00:13:22.860 What about Norwegian Cruise Line?
00:13:24.500 This is the formula
00:13:25.440 they're coming up with
00:13:26.300 to say there's a very high likelihood
00:13:27.840 these guys are about
00:13:28.480 to go out of business.
00:13:29.080 By the way,
00:13:29.480 Bed Bath & Beyond,
00:13:30.140 another great example there.
00:13:31.280 They stood out
00:13:31.880 as one of the most investors
00:13:33.120 should stay away from
00:13:34.780 some of the biggest problems
00:13:36.380 included share value
00:13:37.480 that they have been
00:13:38.260 falling steadily
00:13:38.980 for nearly a decade,
00:13:40.140 location in or near malls
00:13:42.220 which have not performed well
00:13:43.760 for several years,
00:13:44.940 desperate attempts
00:13:45.660 to lower overhead
00:13:46.540 by closing about
00:13:47.280 200 retail stores,
00:13:48.400 negative operation profits,
00:13:49.720 more than $4 billion in debt,
00:13:51.060 increased competition
00:13:51.880 from smaller
00:13:52.580 and online sellers.
00:13:54.020 And by the way,
00:13:54.580 you don't have to be
00:13:55.120 an accountant
00:13:55.540 or a CPA certification
00:13:56.620 to understand this.
00:13:57.360 But just look at this here.
00:13:58.280 Bed Bath & Beyond.
00:13:59.020 From 2010,
00:14:00.060 year over year quarterly growth.
00:14:01.600 You see the green?
00:14:02.260 Green is good,
00:14:03.200 red is bad.
00:14:03.800 Good numbers,
00:14:04.660 2010,
00:14:05.580 still good numbers,
00:14:06.520 11,
00:14:07.260 12 is still good numbers,
00:14:08.540 13 gets a little scary,
00:14:09.920 14 shows up,
00:14:11.040 15 a little bit of profits
00:14:12.380 and then the red keeps
00:14:13.340 getting bigger and bigger
00:14:14.580 and bigger and bigger
00:14:15.200 and bigger and bigger.
00:14:16.400 Would you invest
00:14:17.040 into this company?
00:14:18.020 Check this out.
00:14:18.620 Bed Bath & Beyond
00:14:19.160 had a chance
00:14:19.640 to turn itself around
00:14:20.540 when Mark Triton
00:14:21.500 became CEO
00:14:22.200 in November of 2020.
00:14:23.340 Unfortunately for the store
00:14:24.260 and its shareholders,
00:14:25.080 the COVID-19 pandemic
00:14:26.060 ruined those plans.
00:14:27.780 Bed Bath & Beyond
00:14:28.420 could survive.
00:14:29.320 Right now though,
00:14:29.940 it has the hallmark
00:14:30.880 of being a zombie company,
00:14:32.440 doing its best to pretend
00:14:34.200 it can still live
00:14:35.140 a normal life.
00:14:36.380 By the way,
00:14:36.580 I don't want to overwhelm you
00:14:37.300 with a ton of different stories.
00:14:38.160 I can't give you a lot of stories.
00:14:39.020 Some say Uber may be
00:14:39.900 a zombie company,
00:14:40.980 even though when you look
00:14:41.780 at Uber's numbers here,
00:14:42.740 their operating income
00:14:43.800 over the years,
00:14:45.000 2019,
00:14:45.560 2020,
00:14:46.080 2021,
00:14:46.420 it's been in the negative
00:14:47.820 for a while.
00:14:48.480 This is the first time
00:14:49.200 they've had back-to-back quarters
00:14:50.340 where they're actually
00:14:50.880 starting to make some money,
00:14:51.880 right?
00:14:52.160 But that could be one where,
00:14:53.760 hey,
00:14:54.000 like Amazon used to say,
00:14:55.040 don't invest into Amazon
00:14:56.040 if you're not with us
00:14:56.820 for the long run
00:14:57.480 because you're not going
00:14:58.300 to make money.
00:14:58.760 I'm reinvesting everything
00:14:59.780 and then boom,
00:15:00.320 guess what?
00:15:00.700 He didn't make profits
00:15:01.400 for a long time.
00:15:02.240 Then he was right.
00:15:03.620 So that may be the case
00:15:04.520 with Uber.
00:15:05.180 Another example could be Ford.
00:15:06.440 Some are calling Ford
00:15:07.360 a zombie company
00:15:08.320 because they've had
00:15:08.920 three years of sales growth
00:15:10.240 being under 3%,
00:15:11.160 but the government
00:15:11.800 just gave them $9.2 billion
00:15:13.360 to bail out.
00:15:14.200 So guess what?
00:15:14.620 Now all of a sudden
00:15:15.140 their numbers are looking good.
00:15:16.240 The debt made them look good,
00:15:17.320 but without that,
00:15:17.880 they were constantly,
00:15:18.540 and now you're going to be EV.
00:15:19.780 Now you're going to be
00:15:20.260 the next Tesla.
00:15:20.920 Who knows?
00:15:21.420 But the reality is
00:15:22.240 some of these companies
00:15:23.060 are big companies
00:15:23.720 that are zombie companies
00:15:24.640 and Ford could be one of them.
00:15:26.020 So if you got value
00:15:26.800 out of this video,
00:15:27.380 give it a thumbs up,
00:15:28.020 subscribe to the channel.
00:15:28.840 The one thing I will tell you
00:15:29.600 is if you got value
00:15:30.200 out of this video,
00:15:30.780 I did another video
00:15:31.800 that is on the consulting industry
00:15:33.820 and how some people
00:15:35.300 became so successful
00:15:36.200 they stopped asking other people
00:15:37.560 what's a better way of doing it.
00:15:38.700 They stopped learning.
00:15:39.620 They just kind of got,
00:15:40.400 well, we've been doing it here
00:15:41.360 for 20, 30 years.
00:15:42.440 What are we going to be doing?
00:15:43.480 Boom.
00:15:44.140 Went out of business.
00:15:44.900 No, market's changing.
00:15:46.220 Things are changing.
00:15:47.020 The other day we have a guy
00:15:47.940 that's cutting clips for us
00:15:49.100 and we're paying this guy
00:15:49.980 20 bucks a clip,
00:15:50.860 10 bucks a clip.
00:15:51.580 Okay, we'll do this for you.
00:15:52.660 Now AI,
00:15:53.560 you literally upload
00:15:56.020 and this three hour video,
00:15:57.900 the AI picks the top 20
00:15:59.740 best reels in it,
00:16:01.260 puts the video,
00:16:02.160 cuts it creative,
00:16:03.120 adds the captions,
00:16:04.400 adds the description.
00:16:05.400 You don't do any of it.
00:16:06.540 That's AI disrupting
00:16:07.900 the entire industry.
00:16:08.980 But those who are not
00:16:09.900 looking that way,
00:16:10.700 all of a sudden,
00:16:11.480 boom,
00:16:12.080 somebody new comes in,
00:16:13.060 takes that market share
00:16:13.860 away from them.
00:16:14.420 So if you've not watched
00:16:15.660 the video on consulting,
00:16:16.600 highly recommend
00:16:17.220 you watch that video.
00:16:18.520 Take care, everybody.
00:16:19.180 Bye-bye, bye-bye.