[Market Madness] Edition 0103
Baby Games
It’s an app for teens
Well folks, the drama continues and is more and more like a soap opera than anything else. You can find the articles down in the Quick Takes, but the gist of it comes down to mudslinging between China and the U.S. as well as Donnie, being the supreme being that he is, claiming governmental ownership to proceeds of the sale because he’s the one making it possible. If you’re sick of this, you’re certainly not alone. The poor teens and tweens don’t even understand why they might not have their favorite app anymore.
While the rest of the world move forward with their lives, the U.S. continues to drag itself through the mud both in its response to the coronavirus as well as the murky economic recovery track. All the while, Congress is stagnant on developing a stimulus package and the Donnie administration is worried about a mobile app full of dance videos. We truly cannot make these things up.
Market participants turn back to earnings and case numbers today as we saw a selloff in the futures and into mostly muted open. Bankruptcies by big names as well as continued layoffs weigh heavily on the shoulders of optimists. Another big bummer for investors is the extended wait for the release of additional stimulus. Feelings regarding the stimulus are fading altogether as hiccups continue to delay any steps that could be considered progress. By the end of the day, the major indices were able to hold onto miniscule gains, but nothing near session highs. Overseas, Asian indices crushed it overnight and European markets were mixed. Elsewhere, gold and oil were up, and volatility was down on the day.
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Fundamentals
Tuesday’s Close:
Dow Jones: +0.62%
S&P 500: +0.36%
NASDAQ: +0.35%
U.S. Dollar Index: 93.24
US 10 YR: 0.504%
Crude OIL: $41.56
Spot Gold: $2015.00
Market Madness Portfolio: +0.39%
COVID 19 Global Cases: 18,364,694
Indices Overseas:
Nikkei 225: +1.70%
Hang Seng: +2.00%
FTSE 100: +0.05%
TEDRATE: 0.16
LIBOR (3 month): 0.24900%
SPACs
Special Purpose Acquisition Companies (SPACs) have recently become a booming trend. My interest in these peaked yesterday as I was looking for interesting talking points for today’s edition. I was reading this article that talks about the latest EV motor company to unveil a Telsa-competitor truck as well as take itself public through one of these SPACs.
The financial world is full of complex and difficult to understand financial shells and products, and the SPAC is newer on that list.
“A special purpose acquisition company (SPAC) is a company with no commercial operations that is formed strictly to raise capital through an initial public offering (IPO) for the purpose of acquiring an existing company. Also known as "blank check companies," SPACs have been around for decades. In recent years, they've gone mainstream, attracting big-name underwriters and investors and raising a record amount of IPO money in 2019. In 2020, more than 50 SPACs have been formed in the U.S., as of the beginning of August, raising some $21.5 billion.” (excerpted from Investopedia article)
They’re definitely confusing, so don’t worry. Typically, they are formed by a group of investors who are interested in pursuing financial deals within one particular industry. Their path to bringing a firm public still falls within the general IPO idea, but with a twist. This path has become favorable to smaller, private companies, who are currently in the VC pipeline and looking to go public. Research suggests that selling to a SPAC yields almost 20% increase in sales price as compared to a traditional PE path. Additionally, big banks are also grabbing the bait and becoming interested in being underwriters for SPAC IPO deals.
Naturally, the next group of people who will want it are the retail investors and investment managers to further include these type of deals into their portfolios. In comes the world of ETFs! Bloomberg reported yesterday that a new ‘blank-check’ ETF is in the works. In a new filing with the SEC, “the Defiance NextGen SPAC IPO ETF will primarily track shares of companies that listed on exchanges by merging with special purpose acquisition companies, rather than those that held a traditional IPO… The ETF will be passively managed and trade under the ticker SPAK.” (excerpted from Bloomberg article)
CFRA Research’s Todd Rosenbluth weighs in on the potentiality of this upcoming fund:
“‘Investors are big fans of investing in and talking about IPOs, but the IPO ETFs don’t get the same love,’ said Rosenbluth, head of ETF and mutual fund research. ‘I also wonder if there are going to be enough SPAC IPOs to provide the necessary diversification for a new ETF. But asset managers are eager to skate to where the puck is possibly going, even if demand is not clear.’” (excerpted from Bloomberg article)
As we look ahead, there is the potential for this new ETF to take advantage of the SPAC market that has not yet been fully integrated into other IPO-type ETFs. If they can do that, and there is a substantial pool to pick from for diversification purposes, then they might be able to compete with the other IPO-ETF dogs and make a name for itself.
Quick Takes
Donnie argues that the U.S. government is entitled to major portion of TikTok sale price because he made it possible. (via WSJ)
More updates on COVID 19. (via CNBC)
Donnie, the self-proclaimed CEO to America. (via NY Times)
China bytes back at U.S. and Donnie for TikTok ‘smash and grab.’ (via CNBC)
Trump and company may come under investigation by Manhattan District Attorney for bank and insurance fraud. (via CNBC)
Ford CEO Jim Hackett to retire, Jim Farley to take over. (via CNBC)
More on the weird seed deliveries. (via WSJ)
Massive explosion recorded at a Beirut port. (via WSJ)
General Banter
The reader might enjoy the following banter:
Why can’t we just give the CDC back their COVID 19 case responsibilities? Its becoming apparent that those now in charge cannot develop the appropriate bar chart.
Reader’s Corner
I’ve finally decided to adjust the long-standing joke that was the Reader’s Corner. It has been replaced with “General Banter” and I will reserve the “Reader’s Corner” to actually highlight comments and ideas from readers.
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