Immune. Stocks rose yesterday on yet more optimism that this virus will be licked… at some point soon… hopefully. Shares of Pfizer (PFE) rose with news that the US Government ordered $2 billion worth of a yet-to-be-approved vaccine.
N O T E W O R T H Y
SPAC-tacular. “What do you mean by that, Mark?”, you ask. I mean to tell you a little bit about an old concept that has become more fashionable lately. Don’t worry, I am not referring to the return of mullets, high-waisted jeans, and neon colored clothing. I am referring to Special Purpose Acquisition Companies (SPAC). You may have heard a friend throw the name around or you may have even picked it up in the financial news. A SPAC is a company that is formed to raise public money which will eventually be used to acquire ownership in one or more existing companies. SPAC’s raise money through Initial Public Offerings but have no real business other than to be a placeholder for a future business. Raised funds are typically kept in an interest bearing escrow account until a target is identified and acquired. They generally have two years to complete an acquisition or the funds must be returned. Buyers invest in SPACs based on the creators' track record and hope that an eventual acquisition will be a high flyer. They are often referred to as blank check companies which, kind-of, has a negative ring to it, but Wall Streeters are happy to use the term nonetheless. SPACs really took off in the 1990s and have a checkered past due to their risk and the nature of their formation. They are regulated by the SEC under Rule 419, though that doesn’t completely protect investors from fraudulent behavior or management making a bad investment decision. In the past two years SPAC issuance has picked up with around $13 billion raised in 2019, up from just around $2 billion raised just 5 years prior in 2014. From the looks of things, it does not appear that trend has ended with this year’s market volatility. Yesterday, billionaire investor Bill Ackman IPO’d Pershing Square Tontine Holdings (PSTH), raising $4 billion for a future unknown acquisition. He is a billionaire, so he must know something about making good investments. You may recall his very public argument with another billionaire investor Carl Icahn over their opposing views on Herbalife. Ackman lost on that one, as he did on a sizable investment in pharmaceutical company Valeant, which also played out in the media. He obviously has made some profitable investments, notable amongst them was an investment in Wendy’s which led to the spinoff of Tim Hortons. One thing to take into account about SPACs is that they can be very lucrative for founders who typically have a large stake in the entity. Investment bankers too are big beneficiaries of SPACs as they collect fees in not only the public offering but also the mandatory acquisitions that follow. What about the investors? There have been some notable SPACs recently that may give us some confidence. Those include electric truck maker and recent Wall Street darling (depending on what day you look at it) Nikola Corp (NKLA) and DraftKings (DKING). Both of those have exceeded their IPO prices. Another notable SPAC transaction is Virgin Galactic (SPCE). That one didn’t do so well, initially trading sideways, until its price took flight early this year. It has been a rough ride since, but ultimately the stock has more than doubled since its debut last year. Upside: yes, risky: for sure. As with all blank checks, due diligence is critical, but in the case of SPACs, trust in the manager is just about all investors can get. PSTH went public yesterday at $20 per share and closed up by +6.5% at $21.30.
THE MARKETS
Stocks rose yesterday on strong housing data and a Government announcement that they will be buying $2 billion worth of Pfizer’s vaccine… when available. The S&P500 climbed by +0.57%, the Dow Jones Industrial Average rose by +0.62%, the Russell 2000 eked out a +0.18% gain, and the Nasdaq Composite erased an early deficit to advance by +0.24%. Bonds climbed and 10-year treasury yields slipped by -1 basis point to 0.59%.
NXT UP
- Initial Jobless Claims (July 18) may come in at 1.3 million even with last week’s new claims.
- Existing Claims (July 11) are expected to have fallen slightly from 17.338 million to 17.1 million.
- The Leading Index (June) is expected to have risen by +2.1% after climbing by +1.28% in the prior month.
- This morning's earnings highlights include beats by Danaher, Doe, Air Products, Tractor Supply, Southwest Airlines, PulteGroup, Quest Diagnostics, Travelers, American Airlines, AT&T, and Kimberly-Clark. This morning’s misses include Blackstone Group and Twitter. After the bell we will hear from VeriSign, Mattel, Intel, Edwards Lifesciences, Skyworks Solutions, eHealth, Boston Beer, and FirstEnergy.