International
SPACs Are Doomed To Crash In The Rougher Markets
SPACs Are Doomed To Crash In The Rougher Markets
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Special purpose acquisition companies (SPACs) are having their moment in the sun. Indeed, it sometimes feels like private companies looking to go public is the only part of corporate finance that hasn’t taken the summer off.
Q2 2020 hedge fund letters, conferences and more
I wrote about Pershing Square Capital Management’s freshly launched SPAC, Pershing Square Tontine Holdings, in the August issue of Activist Insight Monthly. Perhaps Bill Ackman’s only misstep is this quote in the Financial Times: "It's no longer really a SPAC," he said. "It should be called a SPARC — special purpose acquisition for real companies."
Now that the vehicle has raised a record $4 billion from outside investors, it’s a waiting game to see whether the management team can strike a deal to buy a minority stake in a private company, alongside the less important question of how big it can go. Like most SPACs, Tontine has two years to find a partner to invite to the dance.
The Recent Uptick In SPACs
The big picture question of whether the recent uptick in SPACs – there were more in 2018 and 2019 than in the previous six years combined, according to Dealogic, a data provider – is a permanent change will take just as long to resolve. To answer it, sponsors need to close deals that deliver lasting value and stay ahead of changes in the economic environment, such as a stabilization of stock markets, that could shift the momentum back to initial public offerings and direct listings.
There are plenty of signs that the market is maturing and institutionalizing, putting checkered performance records behind them and ushering in an era of SPAC 2.0, as Abernathy MacGregor’s head of M&A and Activism, Pat Tucker, put it in a webinar cheekily entitled SPAC to the Future yesterday.
According to Sebastian Fain, a partner at Freshfields Bruckhaus Deringer, allocators are already rewarding sponsors with a track record of successful SPACs with better terms. His colleague, Michael Levitt, noted that a few SPACs have dispensed with the warrants that traditionally offer insurance to those buying into a SPAC’s IPO but dilute existing holders.
The appeal of SPACs is partly in their sponsors, who must be better at identifying a public-ready company and negotiating a takeover than their peers to justify their involvement, but also an issue of timing. According to Lucy Wang, a managing director at JP Morgan, some target companies have successfully negotiated down sponsors’ benefits – "'the promote' in Wall Street" lingo – when the sponsors are running out of time to strike a deal or risk forfeiting their capital.
But 2020 may be a particularly attractive environment in some respects that may not last. Morrow Sodali Senior Director Kevin Kelly suggested that retail investors are currently piling into SPACs before and after mergers are closed. That factor may have been behind some impressive initial returns for the vehicles that brought Nikola and Draft Kings public. But retail shareholders may exit the market more suddenly than institutional capital in the event of a recession, causing volatility. And low retail turnout during shareholder votes may complicate future corporate actions that depend on such approval.
SPACs are also generally preferred by hedge funds in their initial stages and therefore face a rebalancing of their share registers at some point. Companies do not get to choose when that happens outside of an IPO, despite the best efforts of their investor relations teams.
All of which is not to say that SPACs are doomed to crash on the rocks of rougher markets ahead. A comparison with activist investing may be instructive – despite divergent performance, there has not been a great shakeout in the industry and new entrants have replaced those suffering redemptions.
Moreover, many companies that have gone public in recent years stumbled even in benign markets, perhaps as a consequence of waiting until their growth potential was tapped out, perhaps as a result of investors growing weary of cash vacuums. Yet some, including Spotify, got a boost from the coronavirus pandemic.
Stockpicking hedge funds have some way to go to rebuild their credibility after years of lagging markets. Doing it by making new stocks out of private companies is a risky but potentially rewarding way to do it.
People Paying Attention To Gabriele Grego's Recommendations
Gabriele Grego’s record as a short seller is so good that people pay attention to his recommendations on the long side – long after the inverse stopped being true for long activists. This week Grego revealed that his Quintessential Capital Management had supported Oasis Management in its push for change at Japan’s Sun Corporation earlier this year and is still invested in the company in the hopes it will spin off its Cellebrite cybersecurity subsidiary and repurchase shares. Interest in Japan has remained strong through 2020, even as the results of activist campaigns has been mixed.
Effissimo Capital Management and Fir Tree Partners fell short at Toshiba and Kyushu Railways, respectively. However, Accordia Golf’s sweetened offer to consolidate its ownership of Accordia Golf Trust led Hibiki Path Advisors to withdraw its opposition this week. So while spinoffs, bumpitrage, and buybacks are largely on hold most of the world over, Japan may be in for the busiest proxy season of all next year.
Quote of the week comes from the investor group seeking to oust Sean Moriarty as CEO of Leaf Group (you may have heard PEAK6’s Rachel Saunders discussing the campaign on episode 44 of our podcast). For all the talk of companies being vulnerable on their executive compensation and treatment of employees during the coronavirus pandemic earlier in the year, there were few examples of activists taking them to task, until now:
"Shockingly, less than 60 days after receiving [paycheck protection program] money and cutting employee pay, the board gave Mr. Moriarty a $200,000 cash bonus. If Leaf Group had enough money to pay Mr. Moriarty a large cash bonus in June, why had it reduced the salaries of the company’s workforce weeks prior to that?"
The post SPACs Are Doomed To Crash In The Rougher Markets appeared first on ValueWalk.
International
Germany Is Running Out Of Money And Debt Levels Are Exploding, Finance Minister Warns
Germany Is Running Out Of Money And Debt Levels Are Exploding, Finance Minister Warns
By John Cody of Remix News
German Finance Minister…
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By John Cody of Remix News
German Finance Minister Christian Lindner is warning his own government that state finances are quickly growing out of hand, and the government needs to change course and implement austerity measures. However, the dispute over spending is only expected to escalate, with budget shortfalls causing open clashes among the three-way left-liberal coalition running the country.
With negotiations kicking off for the 2025 budget, much is at stake. However, the picture has been complicated after the country’s top court ruled that the government could not shift €60 billion in money earmarked for the coronavirus crisis to other areas of the budget, with the court noting that the move was unconstitutional.
Since then, the government has been in crisis mode, and sought to cut the budget in a number of areas, including against the country’s farmers. Those cuts already sparked mass protests, showcasing how delicate the situation remains for the government.
Lindner, whose party has taken a beating in the polls, is desperate to create some distance from his coalition partners and save his party from electoral disaster. The finance minster says the financial picture facing Germany is dire, and that the budget shortfall will only grow in the coming years if measures are not taken to rein in spending.
“In an unfavorable scenario, the increasing financing deficits lead to an increase in debt in relation to economic output to around 345 percent in the long term,” reads the Sustainability Report released by his office. “In a favorable scenario, the rate will rise to around 140 percent of gross domestic product by 2070.”
Under EU law, Germany has limited its debt levels to 60 percent of economic output, which requires dramatic savings. A huge factor is Germany’s rapidly aging population, with a debt explosion on the horizon as more and more citizens head into retirement while tax revenues shrink and the social welfare system grows — in part due to the country’s exploding immigrant population.
Lindner’s partners, the Greens and Social Democrats (SPD), are loath to cut spending further, as this will harm their electoral chances. In fact, Labor Minister Hubertus Heil is pushing for a new pension package that will add billions to the country’s debt, which remarkably, Lindner also supports.
Continue reading at rmx.news
International
You can strike gold and silver investment opportunities at Costco
Costco (NDAQ:COST), known for its wide array of products, also offers a distinct opportunity for investors: gold and silver.
The post You can strike gold…
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With gold prices hovering around all-time highs, one of the top warehouse retailers and Canada’s favourite grocer has brought the precious metal to its consumers.
Costco (NDAQ:COST), known for its wide array of products ranging from groceries to electronics and sporting goods, also offers a distinct opportunity for investors: precious metals. While the retail giant might not be the first place that comes to mind when thinking about gold and silver investments, Costco’s offerings in Canada have caught the attention of savvy investors looking to diversify their portfolios.
Let’s delve into what Costco Canada has to offer in terms of gold and silver investments and explore the potential benefits and considerations.
Gold and silver bullion at CostcoCostco began selling 1-ounce 24-karat gold bars, in the United States in October 2023 priced around US$2,000 and sold more than US$100 million by November.
Observing Costco shoppers can provide interesting economic and cultural indicators. Just like the early days of COVID-19 in 2020 when consumers emptied pallets of toilet paper, the supplies of gold and silver at Costco might reveal how confident the public is in Canadian currency and the economy.
Costco Canada stocks a selection of gold and silver bullion available online at Costco.ca, providing investors with the opportunity to add physical precious metals to their investment portfolios. Gold and silver bullion are typically offered in the form of bars or coins, each carrying intrinsic value based on the metal content.
(Source: Costco.ca) Benefits of investing in gold and silver Portfolio diversification: Gold and silver have historically served as a hedge against inflation and economic uncertainty. By adding precious metals to their portfolios, investors can diversify risk and potentially protect their wealth during times of market volatility. Tangible assets: Unlike stocks or bonds, which exist only as digital entries or paper certificates, gold and silver bullion offer investors tangible assets they can hold in their hands. This physical presence can provide a sense of security and stability, especially during turbulent economic times. Liquidity: Gold and silver are globally recognized as valuable commodities, making them liquid assets. Investors can easily buy and sell gold and silver bullion in various markets around the world, providing flexibility and accessibility. Store of value: Throughout history, gold and silver have maintained their value over the long term. While fiat currencies may depreciate because of factors such as inflation, political instability or economic crises, precious metals have proven to retain their purchasing power over time. Considerations when investing in precious metals Price volatility: Like any investment, the prices of gold and silver can fluctuate based on supply and demand dynamics, geopolitical events, and macroeconomic factors. Investors should be prepared for price volatility and hold a long-term perspective. Storage and security: Owning physical precious metals requires adequate storage and security measures to protect against theft or damage. Investors might opt for secure vault storage services or invest in home safes to safeguard their bullion. Transaction costs: When buying and selling gold and silver bullion, investors might incur transaction costs such as premiums, commissions or storage fees. It’s essential to factor these expenses into investment decisions to accurately assess potential returns. Costco also marks up its precious metals at a few hundred dollars above its market value, but you will likely find it slightly cheaper than what the big Canadian banks offer, if their stock isn’t sold out. Market timing: Timing the market is notoriously difficult, and attempting to predict short-term price movements in gold and silver can be challenging. Instead, focus on the long-term fundamentals and consider dollar-cost averaging as a strategy to mitigate market timing risk. Why buy gold and silver at Costco?Already up more than 5 per cent since the beginning of the year, the value of gold is expected to continue to climb this year. Earlier this month it hit record highs above $2,181/oz. as speculation rises around the prospects of June interest rate cuts.
… but is it a good investment?In an interview with CBC Radio’s The Current, Will Huggins, an associate professor of finance and economics at McMaster University’s DeGroote School of Business called this a good marketing strategy by Costco, but believed that buying gold from Costco doesn’t offer any advantage compared with the big Canadian banks.
“It’s not like a herd of cattle or some land or a corporate entity that we can keep bringing new people into,” he said. “It’s just a yellow rock.”
(Source: Costco Wholesale Corp.)
Final thoughts on buying gold and silver
Costco Canada’s offering of gold and silver bullion presents an intriguing opportunity for investors seeking to diversify their portfolios with tangible assets.
Investors are looking for inflation-proof opportunities and as Stockhouse’s recent Thematic Insights report details, the gold supply has remained essentially flat over time, so it is never diluted and is essentially immune to inflation.
Whether you’re a seasoned investor looking to bolster your portfolio’s resilience or a newcomer exploring alternative investment avenues, the availability of gold and silver bullion at Costco Canada may offer a convenient and accessible option to incorporate precious metals into your investment strategy.
While investing in precious metals carries certain benefits and considerations, it is important for investors to conduct due diligence, assess their risk tolerance, and consult with financial professionals before making investment decisions. As with any investment, prudent decision-making and a long-term perspective are key to navigating the complexities of the financial markets.
Costco Wholesale Corp. (NDAQ:COST) stock last traded at US$725.63 on the NASDAQ and C$34.01 per share on the NEO Exchange.
Join the discussion: Find out what everybody’s saying about this stock on the Costco Wholesale Corp. Bullboard, and check out the rest of Stockhouse’s stock forums and message boards.
The material provided in this article is for information only and should not be treated as investment advice. For full disclaimer information, please click here.
The post You can strike gold and silver investment opportunities at Costco appeared first on The Market Online Canada.
bonds covid-19 nasdaq stocks currencies commodities gold canadaInternational
Home buyers must now navigate higher mortgage rates and prices
Rates under 4% came and went during the Covid pandemic, but home prices soared. Here’s what buyers and sellers face as the housing season ramps up.
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Springtime is spreading across the country. You can see it as daffodil, camellia, tulip and other blossoms start to emerge.
You can also see it in the increasing number of for sale signs popping up in front of homes, along with the painting, gardening and general sprucing up as buyers get ready to sell.
Which leads to two questions:
- How is the real estate market this spring?
- Where are mortgage rates?
What buyers and sellers face
The housing market is bedeviled with supply shortages, high prices and slow sales.
Mortgage rates are still high and may limit what a buyer can offer and a seller can expect.
Related: Analyst warns that a TikTok ban could lead to major trouble for Apple, Big Tech
And there's a factor not expected that may affect the sales process. Fixed commission rates on home sales are going away in July.
Reports this week and in a week will make the situation clearer for buyers and sellers.
The reports are:
- Housing starts from the U.S. Commerce Department due Tuesday. The consensus estimate is for a seasonally adjusted rate of about 1.4 million homes. These would include apartments, both rentals and condominiums.
- Existing home sales, due Thursday from the National Association of Realtors. The consensus estimate is for a seasonally adjusted sales rate of about 4 million homes. In 2023, some 4.1 million homes were sold, the worst sales rate since 1995.
- New-home sales and prices, due Monday from the Commerce Department. Analysts are expecting a sales rate of 661,000 homes (including condos), up 1.5% from a year ago.
Here is what buyers and sellers need to know about the situation.
Mortgage rates will stay above 5%
That's what most analysts believe. Right now, the rate on a 30-year mortgage is between 6.7% and 7%.
Rates peaked at 8% in October after the Federal Reserve signaled it was done raising interest rates.
The Freddie Mac Primary Mortgage Market Survey of March 14 was at 6.74%.
Freddie Mac buys mortgages from lenders and sells securities to investors. The effect is to replenish lenders' cash levels to make more loans.
A hotter-than-expected Producer Price Index released that day has pushed quotes to 7% or higher, according to data from Mortgage News Daily, which tracks mortgage markets.
TheStreet
On a median-priced home (price: $380,000) and a 20% down payment, that means a principal and interest rate payment of $2,022. The payment does not include taxes and insurance.
Last fall when the 30-year rate hit 8%, the payment would have been $2,230.
In 2021, the average rate was 2.96%, which translated into a payment of $1,275.
Short of a depression, that's a rate that won't happen in most of our lifetimes.
Most economists believe current rates will fall to around 6.3% by the end of the year, maybe lower, depending on how many times the Federal Reserve cuts rates this year.
If 6%, the payment on our median-priced home is $1,823.
But under 5%, absent a nasty recession, fuhgettaboutit.
Supply will be tight, keeping prices up
Two factors are affecting the supply of homes for sale in just about every market.
First: Homeowners who had been able to land a mortgage at 2.96% are very reluctant to sell because they would then have to find a home they could afford with, probably, a higher-cost mortgage.
More economic news:
- Fed members just hat-tipped what's next for interest rates
- Retail sales tumble clouds impact of inflation data
- Jobs report shocker: 353,000 hires crush forecasts, stokes inflation fears
Second, the combination of high prices and high mortgage rates are freezing out thousands of potential buyers, especially those looking for homes in lower price ranges.
Indeed, The Wall Street Journal noted that online brokerage Redfin said only about 20% of homes for sale in February were affordable for the typical household.
And here mortgage rates can play one last nasty trick. If rates fall, that means a buyer can afford to pay more. Sellers and their real-estate agents know this too, and may ask for a higher price.
Covid's last laugh: An inflation surge
Mortgage rates jumped to 8% or higher because since 2022 the Federal Reserve has been fighting to knock inflation down to 2% a year. Raising interest rates was the ammunition to battle rising prices.
In June 2022, the consumer price index was 9.1% higher than a year earlier.
The causes of the worst inflation since the 1970s were:
- Covid-19 pandemic, which caused the global economy to shut down in 2020. When Covid ebbed and people got back to living their lives, getting global supply chains back to normal operation proved difficult.
- Oil prices jumped to record levels because of the recovery from the pandemic recovery and Russia's invasion of Ukraine.
What the changes in commissions means
The long-standing practice of paying real-estate agents will be retired this summer, after the National Association of Realtors settled a long and bitter legal fight.
No longer will the seller necessarily pay 6% of the sale price to split between buyer and seller agents.
Both sellers and buyers will have to negotiate separately the services agents have charged for 100 years or more. These include pre-screening properties, writing sales contracts, and the like. The change will continue a trend of adding costs and complications to the process of buying or selling a home.
Already, interest rates are a complication. In addition, homeowners insurance has become very pricey, especially in communities vulnerable to hurricanes, tornadoes, and forest fires. Florida homeowners have seen premiums jump more than 102% in the last three years. A policy now costs three times more than the national average.
Related: Veteran fund manager picks favorite stocks for 2024
recession depression pandemic covid-19 stocks fed federal reserve home sales mortgage rates real estate mortgages housing market recovery interest rates oil russia ukraine
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You can strike gold and silver investment opportunities at Costco
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