Speaking Of Cars ...

Photo by Dan Meyers on Unsplash

It’s fitting that I wrote a story for LuckBox Magazine this week about the state of the auto industry and the future of Ford Motor Company (F) and General Motors (GM).

You’re better off buying a two-year bond than owning either. But I can make the case for Ford based on its Ford Pro program. That said… neither are companies I pay much attention to.

Instead, from an academic standpoint, the stock that has fascinated me the most over the last three years is Carvana (CVNA). This company is bonkers. Americans are so lazy that they are buying cars from vending machines. I’m not a fan of Carvana’s business - at all - because it’s very clear that their cars are vastly overpriced when you assess Blue Book value. But… they basically said: We’ll bring you the car if you pay us more… and instead of putting in handling fees, we’ll roll it up into the loan.

Carvana just reported a profit today for the first time. The stock traded at $360 in August 2021, as all the COVID-19 and at-home madness peaked.

Just 13 months later, the stock traded at $4.00. Now, it’s up 583% in a year.

There is absolute madness in this stock. But what I have noticed - time and time again - is that this stock does VERY well when our Equity Strength Signal is positive. And with rising liquidity and plenty of momentum, it’s probably poised to move higher. This is also one of the most heavily shorted stocks in all of finance. Roughly 40% of the float is short - so with this earnings report and this momentum - it could get out of hand fast.

That said… the next time momentum turns negative, expect the shorts to pile on again. The valuation will be insane when the dust settles at the end of the day. It may be even worse than Nvidia’s PE multiple.

The other thing: The repo men are coming with U.S. consumer credit challenges ahead. Auto dealers are starting to face a severe buyers market - and massive levels of oversupply. And interest rates are not going down anytime soon. I’ve repeatedly been on the record saying no cut until at least July.

New York Fed Bank President John Williams today echoed that sentiment.

“At some point, I think it will be appropriate to pull back on restrictive monetary policy, likely later this year. But it's really about reading that data and looking for consistent signs that inflation is not only coming down but is moving towards that 2% longer-run goal," he said.

As I’ve said before… don’t try to short until you see the red in their eyes…

Or the red in our signals.

With Global Liquidity strong… it’s a hard time to be a bear.

I repeat that it’s time to take what the market gives you…

I’ll be back tomorrow with an update on next week. I have some planning around a new project, and I will be writing a really interesting story (set for release in late March) about American surveillance. It’s a scorcher.

More By This Author:

Republic Risk: Low Volume, Maximum Cool
Holy Inflation... and the Week Ahead
"Undependable" Collateral and the Cost of Living Crisis

Disclosure: None.

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