Would You Finance a Latte at 10%? Wall Street Is Betting You Will

When you take a step back from the world and think about how whacky some of the trends that surround us are... well... it's a bit unnerving. 

It happened to me the other day when a friend texted to tell me that they could finance their coffee from Starbucks.

... What?

After a search online, it turns out to be true. You can finance a coffee from Starbucks using the buy now, pay later (BNPL) trend. For four weekly payments of $1.625... you can get that $6.50 latte.

It's ridiculous.

And it's why now, more than ever, I really, really dislike Affirm (AFRM) and companies like it.

It's not hard to understand why.

Inflation is – and has been – above 2% for nearly two years.

Credit card debt hit an all-time high of $1 trillion recently (and is maintaining the level).

Debt is expensive with interest rates as high as they are. We’re beginning to see delinquencies rise, which is probably due to the expense of debt.

In short, companies like Affirm prey on the average U.S. consumer.

The teaser rates of 0% interest are simply untrue, even if those are the most advertised. Services like Affirm do check shoppers’ credit ratings, and interest-free loans at the former company only accounted for 26% of its products last quarter.

Interest-bearing loans stretched as long as five years accounted for 74%, according to the firm.

"Oh, you can't afford that right now? Maybe you can in the future. And we'll put a nice premium on top of it just to make sure."

Wall Street surely believes in it. They believe that this system works. Which is why AFRM has nearly tripled in two months.

In the short term, Wall Street may be right. In the long term, though, they're wrong. And that's where our advantage is today.

Bottom Line: Even though it seems great to not have to worry about the future and pay less right now, it’s usually the wrong move to make.

You pay more over time, and what you’re buying usually isn’t worth what it costs to your declined purchase power.

In under two months, AFRM is up 173% because of an announced partnership with Walmart (WMT).

Once reality sets in and there’s declining demand or increasing delinquencies, look out below.

A valuation of $15 billion for a company that relies on financing lattes is much too much.

I’d avoid the stock at all costs and, for more speculative traders, a put option (which benefits from declining prices) six to twelve months out could profit handsomely.