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Zombie Investing

November 21, 2012

At The Motley Fool “The Zombie Movie Mr. Bernanke Should Avoid” by Alex Dumortier, who refers to the FT article ZombieLaw posted and also to Japanese zombies:

…creative destruction motors capitalism forward and is key to the system’s resilience; obstructing that process risks making the system more fragile.

I was reminded of this by a story in yesterday’s Financial Times, according to which a U.K. insolvency industry trade body now estimates that one in 10 British companies are now “zombies,” in that they are being maintained by the life support machine of extra-accommodative monetary policy and lender forbearance. Incidentally, the Bank of England doesn’t deny this phenomenon may be occurring. In fact, the central bank itself highlighted this risk in its most recent inflation report. For the full horrors wrought by a massive outbreak of zombie companies, I refer you to the Japanese experience from 1990 through the present day.

As an investor, one should avoid zombie companies like the plague…

See also The Independent: “Worry about the zombie economy, not zombie companies” by Ben Chu:

one might also diagnose the problem not as zombie companies, but as a zombie economy. Demand has one foot in the grave. If spending levels across the economy picked up, one would expect many of those struggling companies to return from the living dead.

Recall previous ZombieLaw posts about zombie banks in the zombie economy

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