THOSE FREAKING SPACS

We started warning you last February. That’s February of 2021. We warned that these SPACS were like buying $5 bills with $20 bills. Little did we know that in many cases, you were buying $1 bills.

We used the term “money grab!” We warned that another outcome, another bubble of the Powell printing press brigade were these SPACS. As usual, Wall Street took advantage of a frothed up but unwary public that would buy anything at any price regardless of company, regardless of valuation, regardless if there was even a business. Week after week, more names came out. Week after week, we took count of those names. It did not stop Wall Street.

Just about every company was promising to merge with an electric vehicle start up, a battery start up, a self-driving start up or some sort of biotech with hardly any sales or no sales. Sure…that would work. Why the SPACs? Because even in a frothed up market, many of these names would never pass muster for an IPO. So away they went.

As the bubbles popped, it was uncovered that a couple of these so-called electric vehicle start-ups were full of it. One CEO from NIKOLA (NKLA) was indicted for false and misleading statements (we call them lies) while that same company paid $125 million to settle the fraud charges. That stock went from $94 down to $6. How about that Lordstown Motors (RIDE) whose stock has dropped from $32 to under $2? It was actually valued at over $5 billion at its highs even though no cars were sold. The CEO was embarrassed on air as he had to walk back his lies on pre-orders. He’s gone!

But that is just 2 names. Since the highs for the SPACs, the markdowns have been huge. Even a Virgin Galactic (SPCE) that was promoted so much…a high of $63 and now $7. At the highs, it had an almost $20 billion market cap. Last we looked, very little in revenues.

But yesterday, something else happened. We do not know exactly what happened but gather someone or some entity who owned a ton of this stuff, blew up. Dozens of these names dropped anywhere from 15% to as much as 50% yesterday and on huge volume as the game continues to be up. Maybe it was a blow-up or maybe it was a fat finger. Maybe they even bounce them up some. Just know that when all is said and done, valuation always matters. It matters right now.

The shame of all this is there will probably be some decent companies coming out of this. We will keep on watch for those companies but leave no doubt, our thoughts on one big, gigantic money grab have indeed come to fruition. Most of the companies merged are start-ups or close to start-ups. Most of the companies were merged at valuations beyond the beyond. Beyond the beyond is no more. Even companies with revenues but big losses like a Buzzfeed (BZFD) has gone from a high from $14.77 to $2.23 today.

This must be a lesson for all going forward. Central bank induced bubbles create crazy. To this day, we remain worried that every time market gets a bid during the downtrend we are in right now, GAMESTOP gets bought to a certain extent. In the end, again, valuation matters. And coming out of bubbles, it really matters. Never forget this.