Pop culture often reflects the more insidious trends at work beneath the surface of society. Take America's current fascination with zombie shows like The Walking Dead. I manage a large portfolio of corporate bonds, but when I peer into my Bloomberg Terminal, I am confronted by the walking dead daily. I am referring to zombie credits–seemingly healthy bonds issued by institutions with dubious economic net worth and unsustainable business models.
The animator of these corporate corpses is none other than the Federal Reserve and its quantitative easing program. No industry outside banking has benefited more from the Fed's largesse, and the yield hunger of investors, than retailers.
Screams and moans. Cries of despair. The smell of burning cash. Voracious appetites for capital that can never be satiated. Those should be the sounds coming from the boardrooms of two legacy retailers, J.C. Penney and Sears Holdings Sears Holdings. Yet these zombies somehow continue to anchor shopping malls.
Indeed, both retailers have tapped capital markets post-2008 despite materially deteriorating financials. It's a popular trend among legacy retailers–layer on debt to live another day.
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