The Coming Carvana Bankruptcy is JUST The Start | Fed CRASH.

hey everyone me Kevin here well it looks

like carvana might be carduna or car

bankrupt or just bankrupt so the first

thing that I did when I started seeing

some of the stories about carvana

potentially going under is of course I

immediately thought about open door

because their balance sheet looks

terrible their expenses are terrible and

like we do in our course member live

streams on almost a daily basis I go

right to the balance sheet the balance

sheet and the cash flow statement are

the two statements that are most

critical obviously income statement

helps for understanding net loss but let

me give you a little bit of an idea of

what's going on here so I Consolidated

this already this is a company that has

about 500 million dollars in

unrestricted cash and and I'm just

rounding some of these numbers doing

this on the go here they have about two

and a half billion dollars of cars the

problem is they're selling their cars

for barely a profit in fact when you

jump over to their income statement you

could see that they've never been

profitable as a business however they do

generate a gross profit when they sell

their vehicles so for example in the

three months ended September 30th they

were able to bring bring in about 359

million dollars in gross income that is

basically cars sold minus cars bought so

they were able to generate a gross

profit of 359 million dollars the

problem is just their SG a so selling

General and administrative expenses were

656 million dollars in the last quarter

on top of that they paid 153 million

dollars in interest that works out to

1.7 million dollars a day in interest

that they're throwing away uh plus some

other expenses of about 58 million

dollars basically the last quarter they

lost about half of a billion dollars 508

million dollars to be exact but last

year during the used car boom where

there was a shortage of used carbs but

these cars were selling for substantial

substantially large values the company

was still losing money on a nine-month

basis they lost 100 million dollars and

on a three-month basis ending in Q3 they

lost 60 million dollars so they haven't

been profitable over the last two years

and the nine months ended this year they

lost almost one and a half billion

dollars now they've been offsetting a

lot of that with stock based comp so not

real cash expenses when you have stock

based comp but it's still an expense of

the business right and instead they've

been financing in just the last three

months their financing activities helped

them generate three billion dollars of

cash and in the nine months compared to

2021 they generated about 1.8 billion

dollars in debt so needless to say this

is a company that's not surviving

because they're actually operating a

profitable business they're surviving

because they're borrowing which in a

recession is really really bad because

what happens interest rates go up and so

lo and behold when you add up the debts

you look and you see oh my gosh they

have 1.9 billion dollars in current

liabilities that means money that's due

within the next 12 months 1.9 billion

dollars and and I mean talk about

deadlines like look we know on Friday we

have a coupon code expiring coupon code

PP for the amazing programs on building

your wealth where we do this kind of

fundamental analysis in our live streams

almost every single day which is

phenomenal but we look at this we go 1.9

billion dollars due within the next 12

months you have 500 million in cash so

maybe you've got three months of a run

rate given that last quarter you lost

about 500 million dollars in cash oh

sorry that was over the nine month

period because of all their borrowing

either way their net loss was well in

excess of that uh their net loss was

about 508 million but their their cash

expense was a little less because of

stock based comp but anyway the point is

we've got 500 million dollars in

unrestricted cash 2.5 billion dollars in

cars so they need to sell about 70 of

the cars that they have in inventory

ASAP just to be able to satisfy their

current debts of 1.9 million dollars but

on top of that they have an additional

6.6 billion dollars in extra long term

liabilities this is a company that is so

heavily upside down with an unprofitable

business model and so what's happening

today well not only do you have an

analyst who cut the price target for

carvana to one dollar but you have wed

Bush who uh completely unrecommended the

company they remove their recommendation

for the company and that has that in

addition to what I'm about to tell you

has led the stock Diplomat about 30

today it's already been down like 95

percent from its all-time highs which is

insane that you could still lose 30

percent after you're already down 95 but

that's the way math works out anyway

listen to this carvana stock plunged to

a record low on Wednesday after the

group or I should say a group of its

debt holders debt holders holding about

70 percent of the outstanding debt

formed a cooperation pact so here's how

this works when a business is about to

go into bankruptcy usually in bankruptcy

Corps the creditors the the people who

are owed debt fight over the leftover

assets are like no we'll take these cars

we'll take these computers we'll

liquidate that we'll take that and we'll

try to pay our debt back

but the problem is these are all

unsecured so they're not in like a

particular order of who's owed what and

these are companies these are these are

massive companies like uh Apollo Global

Management BlackRock Pimco these are

huge institutions that hold some of this

debt and they've formed a packed uh

representing about four billion dollars

of outstanding debt and they're agreeing

to negotiate together in the event that

carvana goes into bankruptcy well news

of this pact is sending the market

freaking out because all of a sudden now

people are realizing oh my gosh that

means carvana is about to go bankrupt

and not only do we have news about this

potential pact but oh and I did want to

mention it was oh it was actually wed

Bush that did end up lowering their

price Target from nine dollars to one

dollar so I wanted to clarify who that

was it was also them they removed their

recommendation recommendation set them

to underperform and set their price

Target to a dollar but in addition to

that

right after we got information that they

were or that a pact was being formed for

the outstanding debt we hear now from

Bloomberg that carvana is Consulting

with lawyers and investment bankers

about options for managing its debt

that's in other words the precursor for

chapter 11 bankruptcy because when these

kinds of companies start going to

advisors at law firms it's because

they're sitting down going all right

do we have the ability to continue

operations do we just liquidate go with

the chapter seven or do we go with like

a chapter 11 or 13 and do some form of

restructuring bankruptcy because there's

no way we're going to be able to get rid

of this like 8.8 billion dollars in

liabilities we're we're screwed and I

want to be clear about that that's about

1.9 in current and then another 6.6 in

long term that works out to about what

is that 8.5 billion in long-term

liabilities again they've got assets of

about two and a half of vehicle

inventory but if they have to Discount

that inventory another 10 then they

really only have 2.25 of inventory right

terrible situation to be in this

honestly reads exactly like open door I

think Open Door is going to be closed

door next but this if you want to see

what a company looks like that's going

bankrupt like Revlon went bankrupt that

tried to meme stock because people

thought it was going to be a Hertz I did

a course member live stream and I'm like

do not in like this is a hot potato

don't go anywhere near this hashtag not

personal financial advice I am a

financial advisor I am a licensed

financial advisor but obviously I don't

know you're a circumstance chances so I

can't give you personal financial advice

I sell courses on building your wealth

and I run an ETF but again I can't give

you personal financial advice and you

can learn more about all that in the

links down below but uh folks this is a

company that does not have pricing power

you have no PP here PP very very small

you don't have pricing power because

you're subject to the whims of of what's

almost a commodity a used car now used

cars technically are not a commodity but

you're subject to the whims of the used

car market and if all of a sudden new

cars are slashing their prices or

getting disinflation in new cars that

pushes down used cars obviously and now

we're starting to get a glut of used

cars people can't Finance new cars

because the people who could have

financed new cars already got new cars

during the pandemic when rates were low

now the only people that I'm hearing

anecdotally that are walking into car

dealerships or people with subprime

credit scores they walk in they say

things like yeah I got a 750 credit

score and then their credit gets run and

they got like a 550 and they can't

qualify for anything you know their

interest rate goes from maybe a prime

credit score of a seven percent interest

rate on a car to like a 12 percent event

and then they can't qualify to buy

anything they're they're if anything

they'd have to downgrade from the from

the clunker they have now it's it's

terrible it's a terrible situation but

again if you want to look at companies

and see what balance sheets look like

when companies start going bankrupt you

look at Revlon you look at Open Door

which I think is the next victim to fall

on this and you look at carvana here

it's just a completely terrible balance

sheet in addition to that I want you to

think about what this is going to do the

Federal Reserve right the Federal

Reserve does not intend for people to

lose their jobs they don't intend for

people to go bankrupt but when the

Federal Reserve forces a recession

that's the side effect that's the

consequence and the Federal Reserve

looks at this and goes and says you know

what this means our interest rate hikes

are working this is how we start on the

path of disinflation we get rid of the

froth we get rid of the excess and

people have to go bankrupt companies

have to go bankrupt people have to lose

their jobs there are plenty of other

jobs available so a bad company goes

bankrupt and the other people go get a

job somewhere else I know that's easier

said than done but that's just the view

of the Federal Reserve and it's a

difficult period of time but this is the

kind of stuff that's going to help lead

us to a distance inflationary

environment remember disinflation means

less inflation but it could even turn

into a deflationary environment which is

actually the opposite of inflation is

where prices are actually going down

rather than just rising at a slower rate

just to visualize that for a moment this

is what like inflation is is prices

going up right disinflation means prices

are still going up but they're going up

at a slower slope if you can kind of

visualize that right that's disinflation

from this and then of course this is

disinflation from that right deflation

is when prices actually go down

so uh this this is a contributor to that

but but uh this is a you know look the

used car business has not been one that

you've wanted to be in for a very long

time uh for during the excess during the

euphoric period shift I believed made a

great investment but I did make it very

clear that I about probably about 18

months ago at this point that I don't

believe it makes sense to be in a used

car business when there's actually a

shortage of cars now we have a lot of

cars now we're in the opposite position

right but you don't have any pricing

power now but then when you have a

shortage of cars the other problem and

this could have been carvana's issues

last year as well when you have a

shortage of vehicles to sell a company

that makes money on the transaction like

carvana or shift is not going to do well

and so this is why and I've mentioned

this in dozens of live streams anyone

who was paying attention knows I've been

out of shift for a very very long time

it's because anytime you have a

transaction based business you're going

to see transaction Revenue decline when

there's a shortage guess what's going to

happen next year I believe looking

forward there are going to be thousands

of real estate agents who not only leave

the industry but companies like Redfin

and expi while they could go up because

the ocean of the stock market might rise

next year you're probably going to see

these companies report terrible

transaction revenues because they're

going to be fewer home sales it's the

same thing in cars so it's very very

logical you you really want to focus on

on companies with PP pricing power Open

Door carvana are not that any used car

seller is not that a real estate agent

based business is not that I actually

really strongly believe

and I've maintained this belief all year

long that companies like the chip

manufacturers all have bottomed

um not earlier in the year they started

bottoming in the summer and have really

gotten closer to their bottom uh in the

summer to now

chip manufacturers have pricing power

and they're probably their bottoming

process and and companies uh I know it

sounds ironic to say it now but it I

still the thesis has not changed for

Tesla Bentley's terrible Miss uh on on

forecast for Chinese sales is just an

indicator of what's happening with Tesla

so anyway these are my thoughts let me

know what you think in the comments down

below we'll see the next one thanks

goodbye