Because this is the last trading day prior to Thanksgiving, you can expect a lethargic stock market today, with low volume and volatility. Stocks are flat this morning: the Dow Jones Industrial Average (DJINDICES:^DJI) is up 0.13% as of 10:10 a.m. EST, while the broader S&P 500 (SNPINDEX:^GSPC) is down a fraction of a point.
The macro view
Since it looks to be a slow day, I thought this might be the opportunity to think about a "background" risk, rather than events that are being extensively covered, such as the fiscal cliff or Greece's aid tranche.
In the four-plus years since Lehman's bankruptcy, I have gained increasing respect for Ben Bernanke's performance at the head of the Federal Reserve (which may be a bit unusual; I suspect most people either started out fans or were already critical and have become increasingly so). However, I continue to believe that Bernanke underestimates the threats posed by distortions in risk asset pricing resulting from extraordinary monetary policy. Furthermore, 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.
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