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The long-term nature of the COVID-19 crisis will eventually cause margin compression and balance sheet destruction of whole sectors, particularly leisure and consumption in developed markets like the US and Europe, Ed Harrison and Roger Hirst said during today’s Real Vision Daily Briefing.
Harrison said he thinks entire sectors will become non-profitable and governments will have to step in. When that happens, he doesn’t expect shareholders will be allowed to make money when companies are getting bailouts, and as a result, some equities will go to zero.
Hirst said that corporates have failed at their fiduciary requirements by fiddling the books to pay CEOs and shareholders. The genuinely important companies for nations should be allowed to wipe out the equity holders and their debt and should be nationalized, he said. This would keep jobs going and avoid a taxpayer handout, and the companies could always be sold off again down the road.
Harrison and Hirst both agreed that eventually, governments will go after companies that are not paying taxes, especially winners like Amazon (NASDAQ:AMZN).
In the UK, the potential for a “clean” Brexit seems to be growing. Hirst said that this is reflected in the pound testing the 120 level.
“There’s uncertainty, but there’s an increasing possibility that a clean Brexit is coming back onto the table because of this environment,” he said.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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