Friday Edition SPAC Opportunities

We saw a much-improved jobs report this morning with 379,000 new jobs created last month. That's well above analyst expectations of 179,000. While some analysts are not happy that 355,000 of these jobs are in leisure and hospitality, I would point out that we need those jobs to come back. An enormous portion of those businesses that closed forever were in leisure and hospitality, so it's good to see some other folks getting back to work.

Stocks rallied initially but began selling off later in the morning. Technology stocks are getting wrecked again today but have turned positive this afternoon.

The spike in Treasury yields is not helping stock prices very much as we close out the week either.

SPACs are also getting absolutely slaughtered today.

This is not unexpected. The reality of too much money chasing too few quality deals meant that this had to happen. Electric vehicle companies with zero sales are not worth $6 billion on any planet.

SPACs have a long history of making poor deals. Contrary to some of the scammer promotions you see out there right now, Wall Street is not shutting all of these wonderful companies out of the IPO markets. Many of these companies do not pass even the piss poor thresholds and standards of Wall Street Investment Banks and could not even find a penny stock promoter to bring the public.

Private equity and venture capital companies are cheerleading the creation of all the SPACS last year and this. The pool of likely buyers willing to overpay for their portfolio companies has risen dramatically in the past 18 months. They no longer need to find a broker to run the IPO or get a deal to pass a competitor's due diligence to dispose of assets. There are now billions of dollars sloshing in SPACS whose deal-making ability runs the gamut from sharp-eyed to less than talented.

Something like 70% of all SPAC mergers trade lower during the first year after the merger closes. Reading over a list of closed deals over the past couple of year is like watching the first few minutes of Saving Private Ryan. A few make it off the beach, but most are scraps of blood and bone on the beach.

There will be opportunities to make some money on the short side of things for the more aggressive among us. I will be spending some time on this idea as the market continues to climb the wall of worry. If you want me to post some of the short-selling opportunities I see out of this mess, let me know.

SPACs are going to deal with Gresham's Law to no small degree. There will be some great deals like the upcoming KKR SPAC offering (KAHC)and the Oyster Point (OSTRU)deal that is floating around out there that you should be trying to buy below trust value.

Sam Zell's Equity Distribution Acquisition Corporation is near the $10 trust value again. If it goes below it, you should be a buyer.

If I can invest in something close to a risk-free basis with KKR and Sam Zell, I am very much inclined to do so.

I am not so inclined to pay $15 for $10 worth of cash on a prayer that some dude who used to work for Google (GOOG) will make a good deal.

Some of these companies will be good businesses that have too high of a price tag right now. When that overvaluation is eliminated, there may well be some opportunities to buy cheap companies and maybe even use the warrants to leverage our purchases a bit.

For now, stick to the rules, buy below trust value and redeem any announced deal that does not immediately pop in price.

We saw some selling this week, with the S&P down about 1.5% and the NASDAQ 100 off by almost 3%.

I am hopeful we see some more selling next week. A decent pullback in stocks and bonds will create massive opportunities in banks, SPACs, and closed-end funds that could allow us to lock up enormous long-term profits over the next few years.

Today's Friday Addition will be cut short by the need to pick up the world's most beautiful granddaughter for a sleepover at her doting grandparent's house. I see lots of chicken nuggets, chocolate ice cream, swing sets, and Disney Plus in my immediate future.

Posted to The Community Bank Investor… on Mar 05, 2021 — 2:03 PM
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