Thread by @wolfejosh

1/ I have no idea if the current zeitgeist lasts
2 days, 2 weeks, 2 months or 2 years.

I can argue the case for lasting longer than anyone thinks it ought––and why it may run shorter.

For why longer:
Record inflows from retail––“across the board”––in US, Europe, Asia...

https://twitter.com/squawkcnbc/status/1315974028612571137

2/ Beyond RobinHood or TradeRepublic or TikTok fast-money option speculators––with 0% rates–––“GROWTH” is what is demanded.

And
-with SPACs able to give proforma ‘forward guidance’ in ways IPOs couldnt
-and a dollar in 2025+ = to a dollar TODAY

Valuations continue to rise...

3/ SPACs themselves may be akin to late 1980s Junk Bonds when Milken took a once backwater asset and legitimized them through combo of academic + portfolio theory––

unleashing vast capital formation + wealth creation––until like all good things––it was taken to excess....

4/ The DIFFERENCE then was that many of those businesses generated high returns on internally generated capital––

whereas many SPAC targets have high topline growth but may not have high ROIC

BUT––SPACs will have a lot of cash, equity value (as currency to consoldiate)...

5/ ...and the relative to historic elevated valuations + cash and first-mover advantage in consolidation (and competitive destruction)

may also force the hand of otherwise conservative M&A decisions...

6/ Boards are right to roll eyes at rising multiples––until they see targets they’d have bought at LOWER prices–––go public or get acq. by public competitors at even HIGHER prices.

This then becomes strategic game theory where error of omission may be more costly than comission—

7/
That is the BULL case for why “this” goes on for longer.

Remember Alan Greenspan noted “Irrational Exuberance”...in 1996. It took nearly 4 years for the market to crash.

The BEAR case is beyond valuations...

8/ There are two main pillars:

-spiking rates
-spiking crap

Rates spike risk is more complicated––but it won’t come from the FED but from the MARKET (some group of players selling > forcing further attempts at yield curve control––and larger futilits bets ala Soros vs dollar)–

9/ The 2nd pillar is ‘spiking crap’

Given Sturgeon’s Law that 90% of all stuff is crap (books, music, athletes, companies, stocks)

90% of the SPACs that go public will be CRAP

Some of that crap will contain fraud
and the fraud when revealed will shake + shame investors...

10/ But the PARADOX of the existence of CRAP from Sturgeon’s Law is that it further exacerbates the likelihood that it creates MORE new funds whose raison d’etre is to pitch public market investors on discriminating/selecting the 10% of good co’s––

11/ And small inferior pools of capital that form will provoke larger more reputable pools of capital which then create further demand for new issues (or increasing demand for existing new issues)...