David Stockman, writing for Agora, is promoting a newsletter that utilizes a proprietary predictive method, that he says is highly accurate at detecting when stocks are in a bubble. As evidence, he cites in his new video promotion, the case of the Las Vegas Sands casino company, which this proprietary predictive method scored at the greatest possible risk of being in a bubble, (a score of ’1’, in which any score below 30 is risky and risk increases with decreasing numerical value) shortly before LVS went bust.
Stockman’s new video promotion describes something he calls Carmageddon, a disaster involving subprime loans made to automobile buyers who have questionable credit. Stockman predicts this disaster could happen as soon as July 3rd. In the video promotion for his bubble-score newsletter, he promises to give subscribers the details on 3 investments that will profit significantly, from the effects of a market move triggered by the instability of these subprime auto loans.
I note that Morgan Stanley’s research department has expressed concern about deep subprime auto loans that have been bundled into high-yield high-risk bonds.
Another factor affecting deep subprime auto loans is the turbulence going on at Uber. Many Uber drivers complain that they don’t earn enough money on what Uber pays them from sharing rides, to pay the cost of maintaining or replacing their cars, which means that if one intentionally goes out on the road seeking Uber passengers, one doesn’t make enough money doing that, to sustain it as a business. A recent article in The Information, also about Uber, examines the New York City Uber drivers’ car buying, which seems to be dominated by a handful of companies that charge extremely high interest on cars they self-finance and supply to Uber drivers, taking the car payments directly from the Uber driver’s Uber account weekly, and leaving behind in the account, whatever remains, for the driver to live on. One Uber driver earned just over $800 in a single week’s work, and just over $500 of that was taken out of the account to make his weekly car payment, and the balance was what he had to live on.
Uber, though, is still held by a bunch of venture capital firms. It’s stock is not publicly traded.
Does anyone know of a company that has a lot of money tied up in these deep-subprime auto loan bonds?
Or might Stockman be talking about banking firms like Wells Fargo, that bundled the deep-subprime auto loans together into bonds and then sold the bonds? A panic move out of the bonds would cause a lot of harm to the bond owners, and if the bonds actually stopped paying interest, the bond holders might sue the bank that issued the bonds. A third issue would be the laws and regulations arising from the 2008 subprime mortgage crisis: Banks that engaged in bundling these car loans, were subject to those new laws and regulations, notably the Dodd-Frank Act. If in fact the Dodd-Frank Act prohibited and regulated many different things that weren’t really relevant to causing the 2008 Subprime Crisis, but left it completely legal to do the one thing that was the major cause of the 2008 Crisis (namely bundling small debts together and issuing bonds based on them), there might be adverse impacts on companies that profited from Dodd-Frank and/or lobbied for it’s passage.
Fidelity Investments have a position in Uber, according to an article I read, but I haven’t confirmed that.
Who else here has any ideas about what David Stockman’s talking about?
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