This is what a bubble looks like; Another warning flag for Carvana; Stan Druckenmiller says to 'let the bond market speak'; Watch out for this 'jury duty' scam
1) Following up on yesterday's e-mail... This is what a bubble looks like: The 10 best-performing stocks in the S&P 500 Index this year (through August 14) are all beneficiaries of the AI-infrastructure boom.
Here's the list, courtesy of Charlie Bilello:
I was curious what the same list looked like in the last stage of the Internet bubble. So I made this request to Claude, ChatGPT, and Google Gemini:
Give me the definitive historical-constituent top 10 S&P 500 stocks with exact December 31, 1999 to March 10, 2000 percentage gains.
(March 10, 2000 was the day the Nasdaq Composite Index peaked. And I added "historical-constituent" to mean stocks that were in the S&P 500 at that time, excluding ones that were added later.)
All three large language models struggled with this difficult question. But ChatGPT came the closest, listing these 10 stocks:
• NetApp (NTAP)
• Qualcomm (QCOM)
• Analog Devices (ADI)
• Oracle (ORCL)
• Lam Research (LRCX)
• Teradyne (TER)
• Applied Materials (AMAT)
• Corning (GLW)
• Adobe Systems (ADBE)
• Apple (AAPL)
Note that all are tech stocks, reflecting the Internet craze at the time.
It reminds me of what Mark Twain is reputed to have said: "History doesn't repeat itself, but it often rhymes."
2) Also in yesterday's e-mail, I added CoreWeave (CRWV) to my "Stinky Six" list of stocks to avoid – now making it the "Stinky Seven."
Another stock on the list is used-car seller Carvana (CVNA), which I've warned about two dozen times (archive here). It's down 24% since I added it on December 12, versus an 11% gain for the S&P 500.
Two of my smartest friends, Herb Greenberg and Chris Irons (aka Quoth the Raven), recently wrote about the latest problem that could weigh on Carvana – involving a major shareholder of its stock. (Here's a New York Times article about it.)
Herb summarizes the incident well:
What will happen to the 8% stake of Carvana Class-B stock owned by billionaire Mark Walter, who seems to be in liquidation mode since news broke that he is being investigated for potential fraud by concealing over $16 billion in related-party loans and investments to his own companies.
And Chris added (for paid subscribers):
[An] investor with a significant economic interest in Carvana's equity [Walter] was simultaneously connected to institutions helping finance the purchase of the loans that are central to Carvana's economics.
That strikes me as exactly the kind of related-party arrangement investors should scrutinize carefully, especially because it is hardly the first time questions have surfaced about who exactly is buying Carvana's loans, the main transaction that allows Carvana to post "gain on sales" and impressive looking net income every year...
[Why] do related or potentially conflicted parties keep appearing around the demand side of Carvana's loan machine?
I agree with Chris' conclusion:
I find the repeated overlap among shareholders, directors, family-controlled companies, loan servicers and potential purchasers of Carvana credit to be noxious.
Between the legitimate risks inherent in subprime auto lending, growing consumer stress and this continuing series of questions about related parties and the ultimate buyers of Carvana's loans, this remains a company I would not touch with a ten-foot pole, much less own for the long term.
Among my Stinky Seven, I think CoreWeave is the most likely to go to zero... But Carvana is a close second.
3) The 30-year U.S. Treasury bond yield recently hit a 19-year high – above 5.3% – amid mounting inflation fears, escalating conflict in the Middle East, and ballooning government debt.
In response, Treasury Secretary Scott Bessent announced last Wednesday that the Treasury would at least double the size of its government-debt buybacks. This briefly caused the yield to drop by 0.1%, but it has mostly recovered since then.
I agree with this op-ed in yesterday's Wall Street Journal by legendary investor Stan Druckenmiller: Let the Bond Market Speak. He believes the intervention is a mistake:
The market's verdict was swift and correct: This wasn't liquidity management, it was price management – and a mistake far larger than $4 billion suggests...
Governments defending prices against fundamentals always lose. The only variable is how much they spend before conceding. The U.S. shouldn't put itself on the wrong side of that trade, not with the most important price in the world, and not when that price is trying to say the one thing Washington most needs to hear: Let the bond market speak.
He recommends the following:
You can't buy your way out of a solvency conversation with liquidity tools. You can only postpone the conversation and raise the eventual price.
What should happen instead is straightforward. Return buybacks to their stated purpose: small, scheduled, off-the-run liquidity operations announced at quarterly refundings, never off-cycle responses to yield levels. Term out the debt honestly and pay the price the market sets. If the 30-year must trade at 5.5% to clear, that isn't a crisis. It is an invoice. Then do the only thing that durably lowers long-term yields: address the primary deficit. Reform entitlements gradually and honestly, through means testing, indexing changes, eligibility adjustments phased in over decades – so that the burden is shared across generations instead of dumped on the youngest.
The reward is enormous: A credible fiscal package would do more for the long end of the curve than a buyback program 1,000 times this size.
4) Another day, another nefarious scam... From the WSJ: The 'Jury Duty' Scam That Cost This Family $25,000:
The sheriff's deputy chatted breezily over the phone about his three young daughters as Kimberly Fudge drove through gritty streets and lush Florida byways on a grim errand: gathering thousands of dollars in bail to avoid arrest for missing jury duty.
When Fudge, 38, a manager in the finance department of a government contractor, reached the drop-off point, she balked. It was a convenience store with abandoned gas pumps and a cryptocurrency machine inside. She was told to scan a QR code and feed the machine $4,000 in cash...
A team of at least five scammers, playing different roles with dead-perfect Florida accents, would keep her on the phone for nearly 10 hours and talk her into handing over $25,000.
"They had me scared," Fudge said. They could read her texts and see her internet searches. "They knew my Social Security number. They knew how much I had in my bank account. They had every single thing about me."
You can't be too careful!
Best regards,
Whitney
P.S. I welcome your feedback – send me an e-mail by clicking here.