Chit Chat Stocks - Carvana, Ally Financial, And Collapsing Consumer Lending? (Impact On Economy)

Episode Date: August 6, 2025

On this episode of Chit Chat Stocks, Brett speaks with Laks from Unicus Research on data their research firm is tracking in regards to car loans (including Carvana), student loan impact on credit scores, and deteriorating consumer balance sheets. They discuss: (03:45) Exploring the Used Car Lending Market (07:10) Analyzing Ally's Position in the Market (15:26) Understanding Asset-Backed Securities (ABS) (28:18) Carvana: A Battleground Stock (32:35) Shorting Carvana: Risks and Considerations (33:11) Carvana and Ally: A Troubling Relationship (34:47) Fraud Allegations and Market Realities (37:53) The Deteriorating Car Lending Market (38:20) The Impact of Student Loan Resumption (41:56) Consumer Spending and Economic Implications (44:00) The Rise of Buy Now Pay Later (BNPL) Services (48:21) Consumer Financial Health at Risk (55:26) Future Outlook: Can Consumer Spending Recover? Unicus Research website: https://www.unicusresearch.com/ Twitter/X: https://x.com/UnicusResearch ***************************************************** JOIN OUR NEWSLETTER AND FREE CHAT COMMUNITY: https://chitchatstocks.substack.com/  ********************************************************************* Chit Chat Stocks is presented by Interactive Brokers. Get professional pricing, global access, and premier technology with the best brokerage for investors today:  https://www.interactivebrokers.com/  Interactive Brokers is a member of SIPC.  ********************************************************************* Fiscal.ai is building the future of financial data. With custom charts, AI-generated research reports, and endless analytical tools, you can get up to speed on any stock around the globe. All for a reasonable price.  Use our LINK and get 15% off any premium plan: ⁠https://fiscal.ai/chitchat  ********************************************************************* Disclosure: Chit Chat Stocks hosts and guests are not financial advisors, and nothing they say on this show is formal advice or a recommendation. Learn more about your ad choices. Visit megaphone.fm/adchoices

Welcome to Chit Chat Stocks. On this show, hosts Ryan Henderson and Brett Schaefer analyze businesses and riff on the world of investing. As a quick reminder, Chit Chat Stocks is a CCM Media Group podcast. Anything discussed on Chit Chat Stocks by Ryan, Brett, or any other podcast guest is not formal advice or recommendation. Now, please enjoy this episode. Welcome into another edition of the Chit Chat Stocks podcast. My name is Brett Schaefer, and today we have a new guest to the show, Lax from Unicus Research, the founder of Unicus Research, an investment analyst team focused on timely short ideas

that has covered the likes of Peloton, Opendoor, and Carvana with much success in the last five years. Today, we're going to be focused on the car lending market. We're going to be focused on student loans, buy now, pay later, and the broader consumer spending and the American economy. So first, Lax, welcome to the show. What is Unicus Research? What do you focus on and what sort of short research do you guys target?

Thank you, Brad. Thanks for having me. And Unica's just focuses on short ideas, and we provide detailed research on them. So the way we choose them is, I'll start by saying what we don't do is we don't do cult stocks. And I have repeatedly said this on many podcasts, no cult stocks, no stocks that are 52-week high, because I would rather leave something on the table than chase them when it's rallying. And the stocks we choose, we first try to do our primary research, so to speak, before we recommend them. SolarEdge is one of the classic examples that we did was we spoke with more than hundreds of installers, distributors nationwide and try to get the pulse of what the product is and whether the product works.

And those are the, you know, you can do whatever you want. The company can do whatever they want in the fundamentals and how they lay it out and beat the earnings. But if their product does not work, then that's the catalyst. So we gathered the information that way. And then we did the fundamental research and analysis and presented it to our clients when the stock was at 329. And that's when everyone I could, if I have a penny for every single analyst on the sell side, writing a research that this is the future. And we are saying to our clients, short any stocks you could borrow, any shares you could borrow. So that is the level of research we have been doing.

We researched electric vehicles when SPACs were the next big thing. So, yeah. Yeah, well, clean energy, solar. There's been a lot of opportunities, let's say, in the last five years in that sector. But today we're going to be focusing on, first at least, the used car lending market. If anyone follows, which they should, follows the Unicus Research account on Twitter. For any of the listeners, we will include the link to the Twitter and the newsletter to subscribe to their newsletter in the show notes. We're going to be talking, and you guys have talked a lot about the car lending market, specifically connections between Ally, Carvana, some risks out there. I think I just want to start with a broad question, and we can go into any follow-ups that I might have.

What have you guys been researching, and what risks are you seeing within used car lending or car lending in general? car market is very um i'm looking for a appropriate word that won't get me in trouble but car market is kind of um tightly knit uh community so to speak and so you have the dealers you have wholesalers you have auction houses you have um repo companies you have and the banks, they all are in this together. I would not on the record say whether they are colluding, but they're all in this together, right? So when we started looking at car market, it was around 2021 when everybody was getting stimulus checks. And that's when you can see people um buying cars so when you get a stimulus check you see certain amount of population started

to pay down their debt pay off their debt and this boosted their credit score and then the other uh people started to see and that is a very small fraction of people but most of them you know splurged on house splurged on cars splurged on things that you know they are very depreciating So then you have OEMs like Stellantis of the world started to manufacture cars. They wanted to meet the demand. So now all of a sudden you have this demand and the car companies overestimated the demand. That's the right way to say it. And manufactured a lot of cars.

And what happens when you manufacture something in a rush to meet the demand is you lose focus on simple things. like quality check and you ended up seeing cars in the flooding the market and dealers dealerships with cars that have problems multiple problems we're not going to get into that but the quality control the quality aspect of the cars that have been coming into the market is not up to the part shall we say and and that's when we started looking into the consumer credit and we started to see buy here, pay here. That's the car version of buy now, pay later. We started seeing a lot of predatory type of interest rates that is being applied to the consumers. We started tracking negative equity. Negative equity is pretty much you buy a car for $50,000 and paying down the

debt the value of the car goes down and when you try to go back to trade in the car the car value has already reduced and that is still the amount you owe to the bank so we started seeing this over the past from 2021 2022 okay i want to talk ally first i think and then we can maybe spread out from there um i followed the company uh for the last few years it's been an interesting story the i think let me maybe frame it what the management team there would say and then you can say where whether you disagree they would say that 2021 there was a reduction in inventory because of the supply chain issues you use car prices rose and they over earned during that time and then in 2022, they made some slightly bad loans, which they then shored up and have made better loans

lately in 2023 and 2024. And the numbers they show on their investor presentations seem to indicate that their credit metrics are improving and they're still earning good. Good amount of numbers are a good amount of net interest income when write offs aren't that bad. All the numbers that anyone might care about. Where are you seeing the concern that Ally might not be posting in their quarterly results? You're really putting this question in such a way that I might get trouble with Ally. But no, I see your point. So it's not just Ally, I'm going to be very clear. And to take a step back, you initially said about Carvana. We recommended Carvana as a shot back in 2022, first quarter, when the stock was around 83. And we wrote a cover when the stock

was around $4 in December 2022. After that, we have been staying on the sidelines. I wanted to address this because I don't want any assumptions. So we have been staying on the sidelines for two reasons. One, it's a cult. Two, we have been getting a lot of questions saying, but yeah, it's a fraud. Short selling is, you know, it's challenging. You know, it's hard to pick the top. It's hard to pick the bottom. But one thing is there are a few golden rule that we have internally and we live and die by it, so to speak. Otherwise, our clients will get burned. We will get burned. And it's hard because fraudulent companies can survive longer than investors can stay solvent. And this has been proven right over and over and over again.

GameStop and Carvana. So we have been staying on the sidelines since 2022 December and up until now. People ask me, but it's a fraud. yes but no one cares the market keeps the stock keeps going up that as long as they keep the fraud running the stock will keep going investors thumping that it's a fraud right in front of the stock is not going to do anything there is no regulations there is no um enforcement of regulations. So saying it's a fraud is now going to make the stock go down. But as we have been focusing on Ally for the past two, three years, taking a step back is that we started to see

things in the equity side. No provision for credit losses. Provisions for credit losses are not increasing. Charge-offs are flat. It's negligible. And there is not a huge impact that would say, oh my God, Ally is going to go down. The originations are good. They have been claiming that they are only focusing on prime borrowers. And there are a lot to So I'm going to start with the credit score. Credit score is something that lost its reputation for being a better gauge for providing credit to the consumers for two reasons. one is very backward oriented. It's not forward oriented. There are a lot of language models coming up in banks and proprietary models that tracks everything that in your bank account. If you're overdrawn for the past two weeks back to back, you're not going to get credit.

banks track them if you have a huge withdrawal of cash maybe for your personal reasons the artificial intelligence tracks it and say oh you're withdrawing too much money maybe i shouldn't should not be giving you credit so your availability of credit is tracked by artificial intelligence not much from fico these days having said that in 2021 One, all the stimulus money, consumers are paying down debt. Then it boosts their credit scores. Then they have, then the subprime consumers, consumers who are, for lack of better words, fiscally not responsible, they are getting more credit because they have paid down the

debt, which means that they are doing better. So they get more credit. They spend more, right? So you have subprime being a prime. So when Ally is saying we have been giving loans to prime, I kind of find it hard to believe because the prime might technically not be a prime. So Ally started to do that, and you won't see any of that in the balance sheet. So over the past three weeks, we started creating a credit and funding market analysis, pretty much a black box, where we are tracking Ally accounts receivable trust in the asset-backed securities market from 2022 up until 2025, trust by trust, month by month. tracking every single loan that's issued.

And we've been running this for Ally. We have been running this for Karvana because this data, Brett, is not available anywhere. It's not available on Bloomberg. It's not available anywhere. And we started creating this for our clients to see if we can triangulate when Ally will be forced, not by regulators, not by consumers, in case of Carvana, not by investors who are saying it's a fraud,

it very well might be, but by the credit data that's available on the asset-backed securities. companies like ally and carvana are filing with sec on a monthly basis the repos for their loans the charge up for their loans and whether there was any modifications which is kicking the can down the road right so it's all available in the asset-backed securities Now, credit side of the market and the equity side of the market, I mean, I might be wrong, but they have usually functioned in their own path. When you overlay the credit side of the market onto the corresponding equity side of the market, you can actually see the real problem. That's when we started to poke into the Carvana, you know, and started to go into Ally.

Okay. A couple of follow-ups there. One, I think to bring all the listeners up to speed, can you explain the asset-backed securities market? What is ABS and how does that process work? And then maybe some follow-ups on Ally. Are you tired of moving money between your bank account and brokerage account? Well, with Interactive Brokers, there's no longer a need to have a separate high yield cash account. Interactive Brokers offers up to 3.83% interest on instantly available cash. That means if you've got some cash sitting in your brokerage account and you're waiting to deploy that money until you find your next great investment, now it's actually going to be earning something in the meantime. This is just one of the hidden advantages

that comes with being an IBKR customer. They simply do not cut corners. And I constantly find myself surprised by just how much they're willing to do for customers that other brokerage platforms are not if you're interested in checking them out head on over to ibkr.com restrictions apply interactive brokers is a member of sipc so just an overlay asset-backed securities is where you bundle up the loan and you sell it on to to um people any rolling buyers and to hold that loan, you pay them a coupon rate, right? So higher the risk is, the more the coupon rate will be. And to do that, Ally collects a servicing fee from the trust.

And asset-backed securities is off-balance sheet. So if Ally keeps all these loans on the balance sheet, if a loan is 30 days past due, 60 days past due, 90 days past due, it automatically goes to the repo. And it all has to happen right away. And any auditor who's signing up on this will say, hey, you have to write it off. hey you know car is you can't keep this this as a collateral because car is a depreciating asset with asset-backed securities you bundle them and take it out of your balance sheet it becomes an off balance sheet transactions um and that's that way whatever is happening on your books is clean and your stock price is not affected the headlines are not screaming that there is a problem in your

balance sheet or your fundamentals. It's off balance sheet and nobody is crazy enough to go through trust by trust, month by month to figure out what's going on and what's the problem. And that's why companies choose to put their loans in ABS. What is the size of Ally's ABS loans if you're able to figure that out? Let me give you an example of 2022 Trust One. So it's a bundle. Think of it like a Santa Claus Christmas bundle. So you have 2022, Ally has, I believe, two or three trusts. Each trust will have a certain amount of loans, and it has over collateralization buffer, and it has reserve buffer. what happens is so for 2022 I don't have the data in front of me it's all we explain it in our our newsletter you're welcome to check it out but in 2022 I believe give or take 59,000 some odd loans of the consumers the value of the loans total to roughly a billion point five give

or take, or $1.8 billion, give or take. And this will, this started in May 2022, June 2022, July 2022, and all the way to December, sorry, July 2025, the same loan get amortized, you know, as a consumer pays them off, as a consumer gets repoed, it goes into the repo section. So what what's been happening we spoke with our wholesalers and wholesalers were saying yeah ally is really not technically repoing the cars uh i'm like what do you mean when a consumer i don't know 2007 2008 there were scenarios where um mortgage uh people who can't pay mortgage come had a scenario where they came and said we can't pay this much mortgage. And there were some cases where, you know, the banks would be

like, how much can you pay? And then extend the LTV. So the same thing with car. Well, I can't pay $1,000 on my Porsche every month. Okay, so how much can you afford? So I can only afford like $200 a month. So you make the amount payable as $200 and then extend the terms of payments to 90 plus months or whatever the months they have. So it's kicked down the road and the consumer keeps paying $200. I'll give you an example. My husband went for a haircut and it's not a fancy place and the woman who's cutting his hair said oh i'm thinking of buying a posha right i have a dealership tell me that zero down and it's only 1500 per month and then i can pick it up pay it off in like five to ten years that's a problem so tell okay well i'm using ally as an example and

again there's other companies as you mentioned it's not just ally but i just want to they're a prime example here and i have the numbers in front of front of me they're claiming let's say Okay, net charge off rates have been stable, I guess, and their retail auto coverage, they also say it's well within, you know, their ranges, their delinquency rates, they are also stable. So they haven't stated any to their investors, hey, look, we're seeing a huge deterioration in the fundamentals. If your example there is true and there's a bunch of loans out there in the car market, when does this start showing up? How large will it be? Who does it impact? I guess that's kind of a tough question, but when does it show up?

No, it's actually a tough question. We figured it out in a sense when what we did was we did all the credit side of the data. We overlaid it and did a liquidity modeling on top of the financial statements. We figured out how much this vintage loans will affect the equity part of allies and how it's going to eventually affect and by how much the earnings per share for ally. And the 2022 vintages will be kicking in in 2025 second half, 2026 and 2027. And we break it down for our clients. We are still working on the report, but we will be publishing it this week to our clients where we can pretty much, we triangulated roughly how much of earnings per share Ally will take ahead if they do not take any actions. Because the buffers in every securitized bundle, they have breached more than 50 to 55 percent of over collateralization amount.

And when that bundle, when that OC drains out and the reserve amount drains out on the ABS, Ally has to pretty much replenish it back into the ABS. And then you will have the turbo payment will kick in, which means Ally is not going to get any servicing fee for taking care of those ABS. bundles. It's very, it gets overly complicated. And we parsed it out data by data. And we can say with confidence, X amount of EPS hit will happen to Ally in later fourth quarter of 2025. How much in first quarter, second quarter, third quarter in 2026, so on and so forth. And remember, this is only for the loans that are in the ABS side of Ally. There are still loans on the balance sheet of Ally. That's a completely different story.

Tell us about that story. What does that look like? What did you guys uncover? We just, I don't want to reveal it because it's an ongoing aspect for our clients. So I just want to leave it at that. All right. No worries. No worries. A little tease. The last follow up on that is who are the ABS loans getting sold to? You know, the Ally. Let's just go for the listeners here. The dealership originates a loan, sells it to Ally. Ally packages it in these ABS loans and sells it to who? Another bank, pension, what have you? Banks, hedge funds. Okay. Individual investors, I was shocked to hear that because individual investors should not be holding this bag. Individual investors should not be the exit liquidity for this crap.

Forgive my language, but this ABS loans, student loans, we haven't started on BNPL ABS market, student ABS market, auto ABS. Because of the risk of the loan and because of the very lucrative coupon rates, these are also held by individual investors. It's already on your pension funds, mutual funds, anything and everything. Individual investors are holding this and I have problems with that because the odds of them, the odds of the people who are selling this explaining the risk clearly to the individual investors is very low. They are just buying it or if you are consulting for individual investors for retirement and what are the chances that they will clearly explain what's in this basket of ABS that they're investing in, the risk quality of it, whether it will deteriorate and how it will eventually impact and at what tranche level they are coming under.

Because if it blows up, you know, a certain level of investors, there is a waterfall method. There are certain level of investors will get paid first, whether these individual investors will be paid last or will they ever be paid. I don't know if these risks are clearly conveyed to the individual investors. spread. And that is concerning. I agree. I agree. I think I could ask many more questions of the ally, but we got to move on for the listeners. I want to talk Carvana. You mentioned them earlier. Let's call them a battleground stock. There's some people that are extremely bullish. There are some people that are extremely bearish and make fraud accusations. They had the crazy stock price that you mentioned earlier. They went down 98% and now they've recovered to,

I think pretty close to, or a new all-time high. How does Carvana connect to the situation? I'm looking at their numbers just in the first quarter, and I think maybe you're about to explain this. They are a huge funnel, it seems like, for the loan market. They had $2.66 billion in origination of finance receivables, and then they sold off about the same amount to investors. So how does Carvana connect and what have you guys researched with that company? All right, folks, if you are a regular listener to Chit Chat Stocks, then you know that we use Fiscal.ai, formerly known as FinChat, daily. Fiscal.ai is our complete stock research terminal. It's where we have our investment dashboards.

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The link will be in the show notes. We are, to be transparent, we are not looking into the equity side of Corona at all. We are looking into the asset-backed securities market. And just to clarify, there are a lot of wholesalers, at least the wholesalers that we spoke with, are bullish on Carvana. And there are a lot of dealerships. Some view Carvana as the future of buying and selling.

and Amazon is, which not many people are talking about, Amazon is in the dealership business. It's tying up with Honda, Hyundai, or whatever. I haven't followed up in a while, but Amazon is in that business. So, Carvana, from the insider's point of view, Frauds aside, you know, the wholesalers and auction houses, they think Carvana has a future, right? And we haven't looked on the equity side. When we recommended Carvana as a shot in December, in first quarter 2022, our thesis was people who were paying cash to buy cars via Carvana were not getting their title deeds.

So there were a lot of lawsuits back then, and there were not many shorts following it. So we recommended it as a short at 83, keeping the legal documents and lawsuits as a core cusp of those theses. And we wrote a cover. Since then, we have not looked into the equity side of Caruana. Now, we are looking on to the ABS side of Carvana and we are trying to figure out at what point it will seep in into the equity side. We are still running our programming and we don't have the data. We will have it like later this week for our clients. But right now, shorting Carvana is risky.

I know I'm going to get a lot of pushback from this. When you are shorting something and your thesis is strong and you have everything lined up to point that it's a fraud, but the stock still goes up, shorting that is going to bankrupt anybody faster than the company is going to go bankrupt. I'm not saying Carvana is going to go to the moon, and I'm not saying that it's not a fraud. What I'm saying is trying to find a top in Carvana is suicidal for shots at this moment. And that's why we are doing the work we are doing on the asset-backed securities, because we were similar to Ally that we were able to triangulate at what point this is going to impact the earnings per share

on the equity side. When we triangulate that for Kervana, and if you call me on the show again, I can for sure say, this is when the equity is going to take a dump and this is when it's going to be a problem for Kervana. But right now I don't have the data, it's still processing

and I can come back and happily share them with you. So what is Carvana's relationship with Ally? Because I think from what I've read in the past, they source a lot of loans for them. Is that correct? Carvana sells loans, their asset-backed securities, the loans via Ally. And they have been doing that mostly subprime via BridgeCrest. Okay. okay so that's that's the that's the relationship that they sell loans to ally their loans

okay and maybe let's be charitable what are the because you using the word fraud people are going to be asking why what are the potential reasons carvana is acting fraudulently uh what is evidence that you guys have uncovered let me be clear i said people are saying yes yeah exactly yeah in denver came out with the report everybody says it's a fraud and my point is carvana or any stock can very well be a fraud but if the stock keeps going up the way it's going that clearly indicates, no matter how tight your thesis is, a fraudulent company, doesn't matter whether it's Carvana, XYZ, can survive longer with whatever they are doing

than a shot can stay solid. That's what I was trying to convey. Exactly. Understandable. So I think maybe to sum this part of the conversation up, is the general idea that the use not just used car market the entire car lending market is in much worse shape than all of these companies are telling investors yes how you have consumers can't sorry go ahead no i was gonna say how bad how how bad is it how who else can it impact what does this flow through to the rest of the economy it's bad the repos are getting suppressed or

coming out right the companies um we heard from multiple sources that ally is repoing cars in a lot and people some of them voluntarily surrendering their cars because they can't make the payment. So initially, around 2023, Ally and other lenders were saying to consumers who wants to voluntarily repo their cars that, hey, what can I do to make you not repo the car, like surrender the car? Then the consumers apparently said, and this has been recorded for so many, for a couple of years, that we can make $800 a month payment, we can make $300 in payment. That's when Ally and other lenders started doing modifications. So if you see in the asset-backed securities, there is a huge scenario called modifications, modifications

where you change the term of the loan in the middle of the, when the loan is going on, and this extends when the loan matures, and it also suppresses the repossessions. It also adjusts, Ally and other lenders adjusted, if you're a 90-day delinquent, they adjusted the terms in such a way that the 90-day delinquency is correct. So no matter what you see, you will always see the loan current, not delinquent. So the information that's coming in the mainstream media is charge-offs are low, repos are low, because everything is made current.

And now in 2022, when they made things current, and that current situation now is 90 days late and double time defaulted, And now it's going to show up in the second half of Ally, Ally's financial statements. So we are surprised that they didn't increase the provision for credit losses when they reported their second quarter earnings. And they haven't filed their 10Q yet. So, yeah, the car industry is in a worse situation than anybody believes. All right.

Well, I'll be fascinated to keep watching it. That's a lot of great insights on that. definitely be watching Ally for the rest of this year. Let's move into two other ones. We're going to do student loans and then BNPO. I think these are, at least from my perspective, I haven't known what to think about either of these markets. I've heard the last, say, three or four years, ever since the student loan pause stuff, there's people that either come out and claim very boldly, it's not a big deal when this resumes it's only a small part of people's expenses or there's other one other people that for the last three years have been banging the drum that when the

student loan payments come back uh it's going to deteriorate consumer spending fico scores all that jazz what i think a lot of the maybe people concerned about student loans have turned to is almost a boy who cried wolf situation where it didn't impact stuff for a time. And now I'm seeing at least anecdotally, I've had friends talk to me that, oh, hey, I have to restart paying this. Oh, you know, this is impacting some of my expenses. What is now that we're finally back normal repaying student loans? How large of an impact is that? What is the number? How many people are in this area or situation where they weren't paying for three years and now okay now i have all these monthly expenses back paying back these loans

um there are multiple amount of data that they are but what i can say is nearly close to 10 million of student loan borrowers are currently in default give or take i might be off by some numbers, but roughly $10 million, and their income and paycheck will be garnished effective fall. I don't know whether this, when the fall comes near, whether this will be kicked again down the road, but as of now, yes. But our take is that is irrelevant. The reason I'm saying that's irrelevant is around April or May, there was an announcement that student loan resumption will be reported to the credit rating agencies. And that has begun.

And when that started, there are consumers who are student loan defaulters losing 100 points, 150 points on their credit score. So our point is, it's almost irrelevant whether they will garnish those student defaulters or not. The impact that reporting to the credit rating agencies have on the credit score is really taking a hit on consumer spending. Because the credit card companies are cutting credit access to consumers. because if you see consumers, you have mortgage or rent, you have car payment, you have insurance on top of it, then you have medical bills, then you have credit card bills, then you have BNPL bills, then you have student loan.

Right. Now the student loan was gone or paused and now it's coming back and the money has to come from somewhere else so that that other part of the spending is going to get impacted. Go ahead. Go ahead. I was going to say, it's interesting how it can impact the FICO scores where someone that was supposedly a good credit risk is now going to be much, much worse. And I just wonder who, what type of sectors, companies could this come back to bite? Retail.

Consumer retail. Manufacturing. because you don't have consumers who are you going to manufacture it to. This era is going to be very, very profitable for defense, for artificial intelligence and other data-driven aspect of business models. Consumer spending is going to be completely collapsing.

And on top of this, to layer on top of student loan debt and BNPL getting reported to the credit rating agencies. On top of this, you have this one big, beautiful bill act. We are apolitical. We are not leaning left or right. We just don't care. We care about the facts and presenting the facts.

In this one big, beautiful bill, there are two things that's going to impact the customers. You have the Medicaid losses. There are 11 million enrollees, a massive drop, even as the services are needed the most. The Medicaid is going to be cut and it's going to impact the people that need that Medicaid to afford health insurance. Listen, Brett, there are a lot of things going on on Twitter saying that, hey, you know, so-and-so is misusing it. I'm not talking about them. I'm talking about the people who really, really need this.

And there is another aspect of the bill is Supplemental Nutrition Program Assistance, SNAP, is cut by $186 billion. And that is going to impact kids. That's going to impact families who rely on it. So you're cutting the food supply to a group of population that can, they cannot afford anything. People are buying groceries using BNPL. Right, yeah, that's not, I guess, the best situation. Let's talk BNPL. So, again, I've been fairly, well, I don't know exactly what to think about the BNPL players.

On the one hand, there are, like you just mentioned, people saying, hey, someone's financing a fast food order with a BNPL provider. Now, on the other hand, there's some people that might claim, well, this is just another form of credit. Just why is it not different than making a payment with your debit or credit card? And maybe what research have you guys done to look at the loss rates and how these loans are performing? So BNPL is – I'm not going to go deep because we are not recommending any BNPL companies as a short, not as of now. Because $15 billion are in consumer BNPL debt. It might look trivial, but what happens is a firm and other BNPL companies, it's not about BNPL anymore. It's more about how they are morphing into data tracking companies.

So you have BNPL companies having their own LLM model, tracking every single thing the consumers are doing in their personal finance. They are tracking their checking account. They are tracking the savings account. They are tracking where you eat, what you buy. You're buying more of X and less of Y. You are not paying, say you are not paying your student loan, and that will be tracked by the LLM model created by the buy now pay later company, Klarna, for example. And that will impact how they give you credit. so uh i we wouldn't we are not seeing bnpl companies as you know credit card companies

giving credit access we are seeing them much more than companies that are providing credit to the consumers and that is actually scary if you look into it these companies are tracking consumer spending what they are where they are buying their shopping habits everything and then they are deciding should i even give credit to this consumer so there are a couple of stories and one of them is a guy who's on time payment paid everything on time no default on BNPL, no default on his car, no default on anything. When he went and tried to swipe the BNPL or use BNPL on checkout lane for whatever grocery store, it got denied. And the reason it gave for denial is name mismatch or address mismatch or whatever it is.

But that is more than that. It's it's you might have gotten a parking ticket. You might have gotten something. It's tracking everything. And so I would suggest everybody sees BNPL as much more than just a company providing credit. Interesting. Interesting. I've never heard it from that perspective before. to sum up we're talking a lot about consumer spending consumer loans all of that you know

the car market student loans bnpl uh the stuff you mentioned with the new big beautiful bill impacts on medicaid and snap is your guys's whole general i wouldn't say thesis but what the direction you guys are thinking of is consumer financial health, consumer balance sheets, individual balance sheets are at major risk of deteriorating over the next couple of years. They have deteriorated. They are just running on fumes like BNPL. Consumers have tapped out of their savings.

And if there is an emergency, most people don't have $5,000 to cover their bill or even $1,000. I'm talking about the subprime. Gotcha. Yeah, 100%. What metric, let's say I'm a listener here, I'm an investor and I want to make sure I'm not exposed to some major risk with that. what numbers are you guys looking at to indicate that or show that consumer health is weakening or that your thesis is correct uh let's say okay each quarter what what sort of numbers either broad or company-based are you guys tracking that are most important to show whether the thesis is right or wrong? We are tracking the repos. We are tracking the reposition, of course. We are

tracking the manufacturers, of course. We are tracking the manufacturer's earnings call. We are in every single earnings call to understand the pulse of the consumer. We have been recommending CACC on and off. That is like as payday lending as you could go. And we are tracking the recovery rates of these loans. The recovery rates are falling, which means consumers do not care that if CACC is going to take them to court. They just do not care. And most importantly, I wanted to share this with you. Let me get this data. Sorry, one second.

We are seeing the bankruptcy, the personal bankruptcy going sky high. So bankruptcy is quietly spiked, 11% year over year. This is personal bankruptcy. Chapter 7 liquidation surging 15%. percent, fastest pace since GFC. That's the latest number. Student loan delinquencies tripled the pre-pandemic levels. BNPL is a completely shadow layer. Credit card medical bills, they have the interest rate of more than 20 percent. the revolving credit is high and companies like um critical companies like american express and

others are cutting the credit availability based on how the consumers are performing on their other credit cards so because of the student loan if your credit score drops 100 points american express notices it you might have a platinum card with like fifteen thousand dollar uh credit limit but it will cut to like $8,000. You won't have any more $15,000. So all these things are happening quietly. People cannot comprehend this in a way that we expect them to because it's not hitting the headlines. In headlines, you're saying everything is great. Credit is available. things will be fine if the interest rate gets cut the answer for that is it's not going to be fine because our economy the entire economy functions on a lag if the federal reserve increases the

interest rates if it cuts the interest rate it takes six to ten months to actually impact something. The impact is not immediate. So every action, every policies takes time to have an impact on the economy. Yeah, I'm glad you mentioned interest rates there because I know there's a lot of, whenever I talk with someone or you read about it, people say, well, when the Fed lowers interest rates, everything will be okay. And that doesn't necessarily mean the case. It's not some fail-safe of going to save the economy. I have the, sorry, I have the data that you're asking for, if I can. So Klarna's Q1 net losses doubled.

41% of the users missed a payment in the past year. Yeah, well, that's pretty stark. Yeah, and AutoLoan's 90-day delinquencies hit more than 5%. It might not look like a big number, But if you just see the numbers or number of repositions, bankruptcies, personal bankruptcies, corporate bankruptcies, and student loan, if you put them all together, you can see there is a problem. I would be, let's see, I'm not coming up with the right word here. we didn't write anything down about pre-show about talking about housing but i wanted to ask if you guys just because that's been such at least on our show we've talked about it um not

necessarily a hot button issue but what's happening with this unaffordability stuff do you see that at all impacting some of the consumer spending um basically what i'm saying is the high mortgage rates high home prices pricing out everyone um have you done any work on that does that fit into this matrix or is that an entirely different story for the mortgage for just um basically the fact that a lot of people say my age are loading up with mortgages that are 40 50 percent of their incomes because they want to buy a home and if you've done any research in that regard if not no worries no no no that's so our expertise is consumer credit bnpl autos and in old asset back security side melody is a perfect person for you to talk to about

anything related to home okay no thought i'd just ask but that's all right before we get out of here final question um we typically when we talk to someone you know they might be bullish on a Doc, can we ask what could go wrong? Since you are very bearish on consumer spending, I thought I'd flip it around. What do you think could cause the American economy or consumer spending, consumer financial health to thrive over the next five years? Why would things not get worse from here? Why would things not get worse from here? From a consumer spending perspective, I know it can be different than the economy as a whole, but yeah. Consumer spending, for consumer spending to go up,

we need to be in a severe deflationary environment. But it's a trap, right? You are in a deflationary environment, then you have unemployment going through the roof. And then, you know, people are getting laid off in spades. So, consumer spending will continue to grow on products that are essential for day-to-day survival, right? Consumers need to spend on gas. Consumers need to spend on groceries.

In all the basic necessities, you will see it go up. that's the i mean anything that's extra things like clothing i i don't see it go anywhere over the next year maybe after a year it will thrive but consumer spending is going to go worse before it gets better so i'll say like a year after okay fascinating stuff thank you for joining the show tell listeners more about your work unicus research give a quick elevator pitch about what you do and again for anyone that's listening to this whole show the link to the website newsletter and sub stack or excuse me excuse twitter account will be in the show notes for people to check out well thank you brett for having me i hope the information i

shared whatever i could uh helped your listeners there are some things we cannot touch so i could and I'll share it. We provide actionable short investment ideas to institutional investors and accredited investors. And we are also created a latest recent product as a black box model that tracks every single asset-backed securities on auto or any kind of loan that you want. And we overlay it with the liquidity model to pretty much triangulate how it's going to impact the equity uh sorry impact the equity side of things earnings per share and when so that is a pretty uh recent product but uh this is what we do and if you're interested in any of this feel free to let us know all right beautiful thank you to all the listeners uh let's hit

the disclosure when we get and then we'll get out of here we're not financial advisors anything we say on this show is not formal advice or recommendation ryan i earn a podcast guest may hold securities discussed in this podcast, may have held them in the past, and may buy, sell, or hold them in the future. Thank you, LAX folks, once again, and we'll see everyone next time.