That ain’t workin’, that’s the way you do it; Money for nothin’ and your chicks for free

The headline above were it to actually occur would not surprise me one iota. What better way to monetize your avid following than forming a SPAC? What better way to take in a huge pile of money for doing practically nothing with minimal risk?

And therein lies the problem with SPAC’s: the only requirement for sponsors is a complete indifference to their investors. In a zero-sum game, for every dollar the investor puts into a SPAC, he/she receives 80 cents and the sponsor receives 20 cents. There is no magic to be had, no alchemy whatsoever, because when looking at the total universe of 242 SPAC’s created in 2020, collectively they will perform no better than the market – minus 20%.

That’s because sponsoring a SPAC has nothing to do with investment prowess and everything to do with promotion. Perfect for a guy like DJT. It also requires a tremendous amount of shamelessness. Once again perfect, no?

Since I’ve begun my skeptical writing’s about SPAC’s several months ago1, I’ve tried to maintain a balance between amusement over asinine investor behavior and laissez faire. SPAC’s are not a revolutionary new financing tool as cited by investment bankers, they are simply a huge fee generating machine. And if past performance is an indicator, they are not good investments. As I stated on Day 1:

SPAC’s are a direct transfer of wealth from the middle-classes to the ultra-wealthy

Though at under $100 billion dollars of total issuance, and only a fraction of that being raked off2 the amount we’re talking about is not systemic. Yet I have become increasingly worried about the true ramifications of a game with such terrible outcomes for the majority of investors. Pitchforks anyone?

In the meantime, it’s all perfectly legal, and a license to print money3 for those whose self-interest outweighs the greater good. Short of putting up billboards saying “Don’t Buy SPAC’s” and similarly themed advertising on the Superbowl, there’s no way to halt naive investors from fueling this transfer of wealth.

Unless something really huge were to occur in the SPAC bubble and shine a nationwide spotlight on it. So step on up DJT, there’s gotta be a banker somewhere willing to do anything4 to break into this racket.

1. though as I mentioned in my first post, I’ve marveled at their dubiousness for years [↩]
2. which could be as high as one-third! [↩]
3. almost literally [↩]
4. anyone? [↩]