The Secret Broker: Battered sav and spag bowl
The Secret Broker
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After 35 years of stockbroking for some of the biggest houses and investors in Australia and the UK, the Secret Broker is regaling Stockhead readers with his colourful war stories — from the trading floor to the dealer’s desk.
Over in America there is a new kid on the block and he is causing a bit of havoc in the financial world.
People are lining up around the block to join in the head spinning and words of wrap, as financially they are very catchy and when released they can quickly reach number one on the Wall Street top 100 hit list.
The new kid goes by the name of SPAC, and even the most hardened of Wall Street operators are ditching the pinstriped suit and putting on the bling and baseball cap backwards, to attract his Robinhood day trading tech savvy fan base, to join in a chorus with them.
SPAC stands for Special Purpose Acquisition Company and, just like fashion trends, they are not a new concept. But even in Australia, ASIC have banned them from even being allowed to reach the ASX IPO catwalk, that’s how much havoc they can cause.
More of lock up your wallet rather than lock up your daughter reaction, as I would put it.
This is how it works.
You gather a few of your closest and richest friends together, who all chuck in between $10m and $100m into a newly created SPAC and list it on the market, with the sole purpose to find and backdoor an up and coming super star company into them.
I have noticed there are currently about 10 of them floating around and I would class them more as Spag Bowl than SPAC Bowl.
That’s because, from what I have seen, they will both end with you having a really messy shirt and a blood looking splattered tie. But hey, if you add a garnish of parsley and parmesan then they all start out looking very tempting.
Even though he is no longer involved with the financial music scene, Richard Branson has arrived back on the scene with a newly formed band of brokers to see if he can reach number one by goofily launching his own SPAC.
VG Acquisition Corp aims to raise $400m by issuing 40 million shares at $10 each, list itself and then use the Virgin Group knowledge and expertise to acquire travel and leisure businesses that have been smacked around the head by the COVID pandemic and in need of some of Sir Richards TLC.
So, how can they start out looking gourmet but end up leaving such a bad taste, that even ASIC have pulled them from the menu?
Well, we have to look at all these newbie traders, who have arrived late to the party and therefore have no memory or knowledge of what was going down before they arrived.
If you look at Tesla’s share price performance before it performed the splits and how now, this bit of gymnastics has left all these newbies nursing a ‘Battered Sav’ (as Roy and HG kindly pointed out to us all, what actually happens when you perform the splits in their commentary on the 2004 Olympics).
They are down 13 per cent, not up 33 per cent (as the press predicted) and as we all know, the main man under the biggest pressure to do the splits refuses, as in his words, he doesn’t want to attract the wrong kind of investor. (Berkshire Hathaway hold the record for the most expensive listed shares in the world).
So, who does want to attract the wrong kind of investor? Well a SPAC does of course and here is the latest one and it’s a classic.
You know everyone loves their Tesla cars, so lets start up a company and call it Nikola (as in Tesla’s first name) but we won’t do cars, we’ll do electric trucks. No, we won’t just do electric trucks, we’ll do them with electric and hydrogen motors.
In fact, we’ll use the trucks as a loss maker and sell our software to the buyers, so we are more of a SaaS company.
Hang on, I know what, lets make a video of one of our trucks going down a hill. That way our new investors won’t realise that it actually doesn’t have an engine yet, as we haven’t actually built anything yet. But hey, GM own 11 per cent of us and we have a letter of intent from them, so we gave them 11 per cent in return.
And into the SPAC we go and lets get on TV and promote, promote and promote and look at our shares go, up, up and up.
And that’s what happened. They reached a valuation of $27bn (income for year $80,000) before a short seller appeared on the scene and shouted FRAUD.
Trevor Milton, the founder of the company resigns but is allowed to keep his shares which are now worth $3bn and now being investigated by the SEC. Listed on June 4, SEC inquiry announced September 20 – all in 108 days of trading.
If you have the time and you wish to build your knowledge on how to avoid being sucked into one of these situations, then you need to watch this video by Jason Calacanis, who is no fool and well worth following on twitter.
So, you can see why these SPACs (cash boxes) are banned in Australia, and in true form, I thought I would leave you with some images from Roy and HG, where they depict some of these types of financial manoeuvres, while expressing their real meaning.
Now I’m off to do a bit of my own stretching. Ta Ta.
The Secret Broker can be found on Twitter here @SecretBrokerAU or on email at email@example.com.
Feel free to contact him with your best stock tips and ideas.