BREAKING- Another Subprime Lenders Just Went Bust (What You Need To Know)

Another subprime lender just went bust. So does this mean these subprime bankruptcies that we've been seeing lately are going to lead to a subprime crisis like we saw in 2008? I'm going to reveal the answer to that question in three simple fast steps. Step number one, let's go over the auto implosion. And there really is no other word for it. This thing is a total collapse. But it actually makes sense if you think through what's been happening behind the scenes, kind of underneath the hood. So we'll start by looking at a chart, a very ugly chart that's getting even uglier. And this is CarMax. Now I'm sure you guys know what CarMax is. You've got one in your local area. You probably drive by it on the way to work right next to the Walmart and the Dick's Sporting Goods. That seems like that's where they always are. And all they are is a corporate glorified used car dealer. But look at what has happened to their share price. Well, first and foremost, we go from today's date all the way back to January. So this is a year to date chart. On the left, we go from 42 up to 90. You can see we're down more than 50%, 50% from this high. Okay, so let's think this through. So we've got three things going on or that have happened over the past, let's say, five years that have led to where we are today in this subprime debacle that could lead to a subprime crisis. And oh, by the way, in step number two, I'm going to go over the most recent subprime bankruptcy. And then in step number three, I'm going to tell you how I'm actually making a lot of money on this. Okay, but getting back to one of our keys for step number one, this blue line represents subsidies. Okay, got it. Red line represents the amount of inflation. How much have your living expenses gone up over the last, let's say, four or five years? And then the black line is your actual income. Now, all of you know that your incomes have not gone up at the same rate as inflation over the past five years. You don't need a whiteboard video to tell you that one. But what we had are these subsidies. So these subsidies actually increased the purchasing power for the average Joe and Jane in aggregate total, in aggregate total, and especially the average Joe and Janes that are buying used cars. So their purchasing power went up, but it gradually went down, down, down, down, down when the subsidies ran out to a point now where it's getting real close to the income. Pretty much all the subsidies are gone. And therefore, you have this huge discrepancy between income and the price of stuff. And what that means is the purchasing power for the average American has gone down substantially since 2019. Now, I know a lot of you right about now are probably saying, George, all these stimmies. That was just something that we did in 2020 and 2021. Was that into 2022? I don't know. But that was three years ago. But we have to realize that these subsidies were in the form of things other than just checks coming to you in the mail, such as student loans. Remember, those didn't have to be repaid. But all of a sudden, Trump gets in office. Yikes. We're not only not going to forgive those loans, but now you got to pay them back. And if you don't pay them back, it's going to really, really impact your credit score, which means it's going to be harder or more expensive for you to buy a house or to buy a car. All right. So this is the next key for this step of the video. It's really the bullwhip effect. Now, you guys probably know what the bullwhip effect is by watching my videos, but this is kind of a different spin on the bullwhip effect. So the bullwhip effect is really all of these businesses see this demand, massive demand right here for their stuff. Or maybe it's a restaurant with these massive demand every night. It's packed. There's lines. We don't have a reservation for two weeks. So what do they do? They hire more staff. Then maybe they start another location because they think this demand is going to last forever. But what they don't realize is it's only a temporary sugar rush. This demand is artificial. So then when the demand declines, now all of a sudden they've got all this staff or these locations they don't need. So what do they do? They start laying people off or they start closing locations. That's basically another form of the tide going out. But what's happened is pretty much the exact same thing, but we've seen it in lending. So the subprime lending. So all of these, let's call them shadow banks or private credit. They saw this artificial demand. They thought it was going to last forever as well. So let's keep lending and lending and lending and lending and not really worry about the collateral or with the collaterals being rehypothecated. And then the people that are actually doing the borrowing, they're like, hey, why not just go ahead and rehypothecate this collateral? If we're going to pledge it over here, we'll just pledge it over there and pledge it over there. Is that illegal? Yeah, but who cares? Nobody's going to get hurt because we're going to easily pay back all of these loans because demand is so high. But then what inevitably happens is this blue line starts to go down. We get close to the black line and then fantasy meets reality. And in this fight, I can assure you, reality is always going to win. And that's exactly what we're seeing play out right now in CarMax shares and all of these subprime lenders going bust. So then the next question becomes, OK, George, well, who was it that actually went bust? Who was the subprime lender? Is there any systemic risk? And will this lead to a subprime crisis similar to what we saw in 2008? I'm going to answer that question for you right now. Step number two, let's go right over to Bloomberg and you can see the title Prima Lens Bankruptcy Renews Focus on Subprime Consumer Strain. So the company that just went bust was called Prima Lens. Now, they are basically in the private credit business. They're a shadow bank. So what they would do is they would borrow from a depository institution, commercial bank, and then they would lend to what I've been calling XYZ Garbage Corporation with a triple F credit rating. Now, I'm just making up the triple F credit rating, but I'm doing that so you understand the concept. Basically, you have a bank and they can't lend to Garbage Corporation, but they can lend to Prima Lend. So they'll lend to Prima Lend because that checks all the risk management boxes and all the regulatory boxes. And then Prima Lend will just take that and then lend the exact same money to Garbage Corporation and then they'll go ahead and pocket a spread. And why were they doing this? Because when you say it out loud, it sounds insane. It sounds way too risky. They were doing this because of the bullwhip effect, because of what I just talked about on step number one. Everybody thought this artificial demand was just going to last forever. But unfortunately, it doesn't. And we're seeing the whole industry having to pay the fiddler right now. So the key takeaways here, Prima Lend Capital Partners filed for bankruptcy after months of negotiations with creditors following missed interest payments on its debt. The company said it was pursuing a sale in bankruptcy court and will continue to fund and service loans. What are they going to say? Of course, they're going to say that. Are they? I don't know. I wouldn't hold my breath. Prima Lend's filings come as low income Americans are falling behind on car loans at a high rate, sparking worries that other troubles may be lurking after years of easy credit. And so far, this might not be exactly like 2007 and 2008. But as you can tell by these key talking points, it sure does rhyme. But if you haven't been staying current on, let's say, the subprime bankruptcy news, I want to highlight the fact that this Prima Lend's going bust is just one of many. We had Tricolor go bust. And they were probably one of the entities that was actually borrowing the money and isn't paying back. I think they're a buy here, pay here type of used car dealer. But it's not just Tricolor. Of course, then we had First Brands. And then we had Zion, the regional bank that had big problems in March of 2023. They're coming out along with Western Alliance saying, oh, shoot, by the way, we're going to have to take a big hit on our balance sheet because we were lending to these entities that were basically committing fraud with their collateral. And they were pledging the collateral to multiple entities. Why? Because of all the moral hazard that was created by these subsidies. Right now, we're just seeing the knock on effects. This is basically the really, really horrific hangover after one hell of a party. That pretty much summarizes the entire video. So do I think there's enough systemic risk here to lead to something like we saw in 2008? I'm going to answer that question for you. And I'm going to tell you the strategy I'm using to make a lot of money on these subprime blow ups right now. Step number three. So does this lead to 2008? My answer is no. But it really doesn't matter. Here's why. Remember 2008, 2009, 2010? For most of you, you were adults, you were alive, and you remember exactly what it was like. Well, we saw in the news every single day that banks were blowing up and there was this thing called the GFC and asset prices were definitely going down dramatically. But in the real world, in the real economy, with the average Joe and Jane, how did it impact them? Well, the unemployment rate went up. So the labor market got extremely weak. We also had disinflation. And in fact, in a quarter 2009, we had outright deflation. But unfortunately, this wasn't the good type of deflation. This was when asset prices are collapsing, and therefore prices of things go down. But that doesn't mean the standard of living is increasing. So in good types of deflation, that's a result of producing more goods and services. So the standard of living actually increases as prices are going down. But this was the bad type of disinflation and deflation where demand is actually going down. Fun fact, that's how you differentiate between the two. The bad type of deflation is when demand goes down. The good type of deflation is when demand is actually increasing or the result is demand going down or demand going up. Okay, getting back to this. But what I'm saying here is this was basically a pretty severe recession outside of what was happening in the financial economy. And in fact, the NBER came out and said that this was actually a recession. They came out a year late, by the way, like they always do. But they announced that it was official. We've had a decline or contraction in the actual economy. So right now, what we're seeing in the subprime blowups here, I don't think this leads to a recession. I think it is the result of us heading into a recession. You see, you could argue back in 2007-2008 that subprime was kind of the catalyst for us going into a recession. But today, I think it's the exact opposite. The economy is slowing and it might actually go into a recession as a result of everything we talked about in step number one. That's causing the tide to go out and therefore we're seeing who is swimming naked. So that's why I say I don't think this leads to a GFC. It's much different. But the net result for all of us, the average American, is the exact same. Now, will the NBER come out and announce that we are officially in a recession in 2025 or 2026? Who knows? Because let's remember, they actually need data on the jobs market to determine whether or not we are in an official recession and we might not get, or who knows when we'll get the data. But the bottom line is for 75-80% of the people that actually live in the real economy, and I think all of you would agree with me on this, their standard of living is much lower today than it was in 2019. And unfortunately, it's continuing to decline. So regardless of what the central planners say, it still feels like an economic contraction. So now let's get into the fun part. How have I made money on this? I'm sure a lot of you will be like, well, you probably just shorted Carmax, George, and got lucky. Not really. Not really. Because remember what Paul Tudor Jones just said. He thinks this is a massive bubble in the stock market, a massive AI bubble. I think there's a lot of other bubbles as well. But he said he doesn't know if it's 1999 or 2000. And that's a big, big difference. Because in 1999, the stock market went up by like 50%. And then in 2000, as we all know, it went down by about 50%. So you got to get your years correct. So the last thing that I want to do in my own personal portfolio is outright short a stock because it could just go parabolic because we're in a complete mania. Now before I go on, I want to make sure I'm very, very clear. This is not personal investing advice. I'm simply sharing with you guys what I've done in my own portfolio that's worked extremely well. But at the end of the day, remember that I am no professional. I'm merely an amateur that's just disclosing and opening up the kimono for you, the viewer on YouTube. Okay, so what I did is when Carmax came out with these horrible, horrible earnings, I said, okay, this makes sense based on my overall macro view and the things we talked about in step number one. So I do want to take a short position, but I'm going to try to offset that short position, if that's the right word, with a long position in the S&P 500. So I'm just simply playing the spread between Carmax or garbage corporation and a conglomerate of other corporations that might be garbage, but maybe a little less garbage relative their price than Carmax is. So editor, go ahead and throw up a chart of what has happened over the past week, just so the viewers can get an idea of how this concept works. We can see that Carmax has gone down substantially, but then the offset to this, which is the S&P 500, has gone up slightly. So it's worked out to the point where maybe the last week I made 2.5, maybe 2.8% on this spread increasing between the two. And again, why I'm structuring the bet this way is because I don't know if we're in 1999 or in 2000. I don't think anybody knows. But what I'm more confident in is that this garbage corporation is worse than the other garbage corporations, like we said, in the S&P 500. So I'm just betting on the differential between the two increasing regardless of whether the S&P 500 is going up or down. And if you'd like more strategies like this, I've got good news for you. October 29th, I'm going to be doing a free webinar where I'm going to reveal three contrarian strategies the pros use to invest in times when we're in financial bubbles. And I can assure you it's not buy and hold. It's not buy the dip. And it isn't just take 10% of your paycheck and go long in S&P index fund. Most of the time, it's the complete opposite of that. And the huge bonus is that just for participating or just for attending this webinar, I'm going to give you a $500 coupon code for Rebel Capitalists Live 2026. This is the incredible investment conference that I have been doing since 2021. And that's going to take the price of a general admission ticket all the way down to 99 bucks. So you've got everything to gain and absolutely nothing to lose. We'll go ahead and put a link in the description below so you can register for this free webinar and I'll see you October 29th.