Some Changes, Some News

It’s been a long time since I’ve last had a chance to post here. In this crazy past year, I’ve been busy starting up my macro CTA, 120 Capital, as well as working with my partner advising clients for Dao Capital Advisors.

Between the two, it’s plenty of work, but I miss some of the back and forth with readers I’ve had on this blog. So I’d like to start posting here again, though not as regularly as before. And rather than write a lot of in depth pieces, I’ll probably write shorter ones, as well as share some interesting things I’ve seen online. As always, I would like to get your thoughts!

Today I want to state for the record that there are a lot of bubbles. This does not mean that it will pop soon, or that value is going to outperform, though obviously the two are related. But I don’t see how this will work out in the long run.

TSLA is obviously a bubble, given the comparisons. If you’re going to debate me on this… well I’m not going to debate you, because it’s like a religion now.

The SPAC boom is clearly a bubble. SPACS had subpar returns even before this year, but now there is an absolute flood of them, all trying to make a deal at the same time. The mental model I use is this – on average, the SPACS will buy companies that will match the economics of the Small & Mid Cap indices. So let’s say a hypothetical SPAC announces the acquisition of a small part of an ETF. What do you think should happen to the SPAC? The answer is an immediate 20%+ drop in the price because of the sponsor dilution as well as the additional dilution from appreciation above the strike of the warrants. For those who claim private deal makers can outperform… private equity has been able to achieve, at best, a single digit outperformance over public markets over the long haul. Are these SPAC managers better than Blackstone? It seems like investors are comfortable buying SPACS because initially there is a floor due to it holding cash, along with the “free” warrants. But that’s quite a different proposition than holding it through the deal.

The price action in IPOs is another. In the IPO, you had informed institutional investors do deep due diligence and come to a consensus about how much a large chunk of the company is worth. Then a few weeks later, the stocks are up several multiples. What’s more likely – that these informed investors were off by 3x? That there was some change in the fundamentals in all of these companies that merited the change? Or that the new buyers are looking at completely different things that are NOT what the IPO investors were focused on?

There are plenty of other examples. It’s a heady time.

Having said that… Broader equity markets as a whole are not in a bubble. From a broad asset class perspective, where are people going to put their cash? It’s a weird place, not unlike the late 90’s I guess. And there is plenty of bifurcation. I.e. it’s hard to argue that Google or Facebook is mispriced given their growth trajectories. All in all, it’s definitely an interesting time, with interesting opportunities.

Finally – Here are a couple of links/charts that caught my attention recently. Let me know what you think!