What You Need To Know This Week — January 9th, 2021
What You Need To Know This Week
A weekly recap to keep you informed on the most important events this week impacting markets, business, tech and the global economy.
SOFTBANK’S BLANK CHECK SVF INVESTMENT CORP COMPLETES $525 MILLION IPO
Japanese tech conglomerate Softbank launched its long-awaited special purpose acquisition company, SVF Investment, in a $525 million initial public offering. SVF went public on a day in which 13 blank check companies went public, raising an aggregate $3.4 billion, a record daily tally for SPAC issuance. The artificial intelligence-focused blank check company was massively oversubscribed and rallied as much as 27.7% on its first day of trading, highlighting the frenzy in brand-name SPAC IPOs. The Accelerate Arbitrage Fund (TSX: ARB) was lucky to get a small allocation to SVF through the IPO.
FINTECH COMPANY SOFI TO GO PUBLIC THROUGH SOCIAL CAPITAL’S SPAC
Private financial services company SoFi struck a deal to go public via Chamath Palihapitiya’s SPAC Social Capital Hedosophia V that values the fintech firm at $8.7 billion. The deal represents Social Capital’s fourth SPAC business combination, after previous transactions with Opendoor, Clover Health and Virgin Galactic. The blank check stock finished the week up 48.8% on news of the deal. Social Capital has two additional SPACs in the market yet to announce a business combination.
TARGET SNUBS BUYER AS ACACIA WALKS FROM CISCO DEAL
Acacia Communications (Disclosure: Long in ARB) announced its friendly acquisition by Cisco Systems in July 2019 for $2.6 billion, representing a 45.0% premium at the time. The merger was expected to close in the summer of 2020, however, Chinese approval has delayed its closing. In the meantime, the shares of Acacia’s semiconductor peers have rallied significantly. As the merger termination date passed without the deal closing this week, Acacia’s board of directors moved to terminate the transaction for a deal that they now viewed as undervaluing the target. Acacia’s stock was up 10% on news of the deal termination and is currently trading at a 13.6% premium to the initial deal consideration.
Notable Insights, Articles, Podcasts, and Tweets
It’s not too late. Even after last year’s rally, Bitcoin is still the “Trade of the Decade”, according to the Winklevoss Twins.
Wealth Professional: Given the current environment for equities and fixed income, most investors would do well to consider a 50–30–20 asset mix within their portfolios, with the lion’s share in equities, 30% in fixed income, and the rest in a bucket of alternatives such as Accelerate’s OneChoice portfolio. Within that bucket, both gold and bitcoin have a 10% allocation, which means they would represent a modest 2% allocation in the overall hypothetical portfolio — small enough that it wouldn’t hurt if they were to underperform, but large enough that the investor could enjoy the upside.
Globe and Mail: Since the Accelerate Arbitrage Fund ETF went live on the Toronto Stock Exchange in early April as a way for retail investors to take part in what is usually an area for sophisticated financial players, it is up 32%. That is largely on the strength of SPACs, also known as “blank-cheque” companies, which are set up to acquire private corporations and get them listed on stock exchanges.
Forbes: AlphaRank’s SPAC Monitor shows that SPACs had a strong end to the year, with the average SPAC rising 15%. The average SPAC is now trading almost 20% above its trust value, a high for 2020. At face value, that’s alarming, why pay almost $1.20 for an apparent dollar of value? Actually, some level of premium may be theoretically justified, but there are also several reasons to be cautious.
Bill Gross’s new Investment Outlook: The 200-basis point decline in real 10 year treasury yields since January 2019, has been instrumental in the 50% price increase in the S&P 500 over the same period. How significant is academically debatable depending on volatility and risk comparisons of the 10 year TIP and the VIX, but let me suggest that “a lot” of the market’s appreciation over the past two years, especially for growth stocks, has been due to lower real interest rates.
GMO’s Jeremy Grantham: It is highly probable that we are in a major bubble event in the U.S. market, of the type we typically have every several decades and last had in the late 1990s.
With the rally in Tesla stock, Elon Musk surpassed Jeff Bezos to become the wealthiest person on the planet. Also, it sounds like Elon fulfilled his prophecy of the “short burn of the century”.
JP Morgan’s Bitcoin price target: $146,000.
It is difficult to get excited about fixed income investing these days. About four-fifths of the world’s investment grade debt yields 1% or less.
Listen to Julian’s upcoming webinar, SPAC Investing: How to Generate Investment Profits with Low Risk, on Thursday, January 14th.
