Wall Street’s Magical – SPACs About to Become the Best Investment of the Period.
$75B will be returned in the next 6 months to investors in SPACs.
In October 2021, I told you the story of Donald Trump and the magical SPAC, showing you how the former US president was able to earn $4 billion in a few days, from nothing.
Since then, with the current Bear Market, interest in SPACs has fallen sharply. So much so that some people may have forgotten what it is all about.
SPAC stands for Special Purpose Acquisition Company. A SPAC is a listed empty shell. A blank check is given to stars whose mission is to acquire, with the money raised, within two years of the fundraising. An acquisition that is instantly listed by merging with the listed empty shell.
What is the purpose of this crazy Wall Street innovation? The goal was to gain time to list unlisted acquisition targets very quickly.
If these SPACs were so successful in 2021, it is because we were in a period where free money was flowing. Investors didn't know where to put their money, and financiers didn't know what to do to attract that money and take very generous commissions in the process.
This craze for SPACs was a testament to the euphoria in the markets. Everything was going well at the time and everyone was applauding.
Since then, the crisis has come and gone ...
Investors, who have invested more than $250 billion since 2020, are realizing that most of these SPACs are fools, with a few rare exceptions, including some in Europe, and that the targets acquired are often overpaid with valuations that collapse as soon as they are listed.
The euphoria has subsided and it is time for disillusionment for SPACs, which already seem to be on their way out. Finally, rest assured, SPACs will come back to the forefront at the next speculative bubble in the financial markets. You know this as well as I do.
Where things get a little more interesting is that in this wacky Wall Street product, there is a mechanism that protects investors. When SPACs identify their target and the merger between the SPAC and the target is going to happen, investors can get their money back if they are not happy with the choice of target.
Investors get back 100% of their initial investment. They also get their money back if, at the end of the two years, SPAC has not found an acquisition.
Where things get fun is that in the next 6 months, more than $75 billion invested in SPACs two years ago will be returned to investors because no target was found, or because the SPAC “promoters” know that investors will not follow if they identify a target.
So that money invested 18-24 months ago is going to return zero, but zero when the markets crashed, especially the tech that that money would have probably been invested in if it hadn't gone into SPACS, that's a great performance!
So investors put in 100 18 months ago and they're going to get 100 back today ... Invested in tech, that 100 would only be worth 60 to 70. In cryptocurrencies, they would be worth even less. So SPACs have become competitors to savings accounts...
Final Thoughts
SPACs are a bubble investment, which, with very few exceptions, were supposed to make greedy investors lose money. And against all odds, these SPACs will turn out to be one of the best investments of the period.
All by accident. You only see this on Wall Street...
Some reading
Donald Trump and the Magical SPAC — How To Make $4 Billion in a Few Days From Nothing. This shows the excesses in which the world of finance currently finds itself.
When Hyperinflation Rhymes With Chaos — The Story of Zimbabwe With Inflation of 231,000,000% in 2008. Robert Mugabe’s land reform ruined a country that was once the breadbasket of southern Africa.
Europeans Are Choosing Recession at the Risk of Putting Democracy to a Critical Test. A choice that is both courageous and perilous.
Renminbi Liquitidy Arrangement — China’s New Project to Undermine the American Dollar King. To achieve his ultimate goal, Xi Jinping will have no choice but to knock the US dollar off its pedestal.
Bottom or Not Bottom for Bitcoin? Here Are Some Thoughts on the Matter. Looking where you need to will help you see more clearly.