SPAC insanity largely “rampant hypothesis” just like the dot-com bubble of the 1990s
Billionaire investor Sam Zell told CNBC on Tuesday that some deals with special purpose vehicles or SPACs reminded him of the speculation in internet companies during the dot-com bubble of the 1990s.
In an interview on Squawk Box, Zell said he believes SPACs offer positive benefits for investors who buy into the creation of so-called blank check companies. However, the founder of Equity Group Investments said he was concerned about the fundamental business prospects of some companies going public through a SPAC.
“When done well, it’s a very effective transaction. It’s one of the few times that the Quot-Unquote buyer has tremendous power,” said Zell. “In other words, if you are a buyer of an IPO SPAC, the worst that can happen is that you get your money back in the cost. The best that can happen is that they do a very attractive deal, and then you do.” You have to decide whether you want to play or not. “
In some cases, according to Zell, the SPAC’s target company is not that attractive. He didn’t mention any names. “In this speculative environment, we took a bunch of these money-making SPACs to the moon, and I saw one the other day on electric charging stations,” which the company didn’t forecast positive cash flow for for years, Zell said. “This is again widespread speculation, similar to the dot-com boom.”
Investor enthusiasm for highly speculative Internet stocks helped the tech-intensive Nasdaq gain more than 500% from 1995 until the bubble burst in March 2000.
Zell, who started Equity Group Investments more than 50 years ago, launched his own SPAC called Equity Distribution Acquisition Corp., which it calls “Targeted Ways to Apply Technological Advances in Industry”. EGI’s portfolio has expanded over the years from real estate to industries such as healthcare, logistics, manufacturing, transportation and media. Zell is also the chairman of five NYSE-listed companies, including three real estate mutual funds.
Zell said his concern about trading on the stock market extends to other recent developments, including the Reddit-fueled short squeeze on GameStop stocks.
Retailers piled into the heavily betted stocks, prompting hedge funds and other bearish investors to try to minimize their losses by buying stocks at their current higher prices. Both groups of people who bought GameStop stock contributed to a surge. At the end of January, stocks were up 400% in a week.
The video game retailer’s stock fell in February, ending the session on Monday at $ 60 a share. That’s less than the January 28 intraday high of $ 483 apiece. GameStop was trading below $ 5 in August.
“There is no reality associated with this, and it is just pure speculation,” said Zell. “I think that’s very negative for the stock market. It’s very negative for the fundraising markets. It just creates and perpetuates an incredible sense of disbelief and ‘can you beat that?'”
The headline-making GameStop saga turned parts of the US stock market into a game of musical chairs, Zell said, in which “everyone knows there will be one less chair when the music stops and 18-year-old Mavens are betting they can. ” out before someone else comes out. “