News & Views

Smackdown on SPACs

I experienced an interesting confluence of events yesterday. First, The Wall Street Journal ran an article on the smackdown SPACs received over the past few months: the 137 mergers closed as of mid-February lost 25% of their value. Then, yesterday evening at a high school football game, I ended up sitting in front of United Wholesale Mortgage CEO Mat Ishbia, who took his company public via a merger with a Special Purpose Acquisition Corporation, or SPAC.

The first thought that struck me sitting there watching the two teams warm up was, “Huh, Ishibia’s a football fan as well as a basketball guy.” The second, and more important thought for my professional purposes, was that the demands of SPAC investing differ little, if at all, from those of investing in any other security: one still needs to do their fundamental work. Grouping UWM, which offers tangible and substantial sales, earnings, and even dividends, in with many of the other pre-revenue SPACs does both groups of companies significant disservices. As investors sort out the SPAC universe, including UWMC, I anticipate they’ll experience long-term winners and losers, similar to the balance of the universe of investable securities.

I predict that investors doing the old-school analysis on potential addressable markets and sizes, prospective sales into those markets, and projected earnings and cash flows from those sales, will enjoy better outcomes than those who do not. However, as I’ve not completed this work on UWMC, I’ve got no thoughts on its investment merits and therefore, offer no opinion on its shares…

Retirement: Taking The Long View

Detroit Free Press personal finance columnist Susan Tompor authored another thoughtful piece in this morning’s paper. Tompor fears, and rightfully so, I think, that folks approaching retirement may be prone to jump the gun this year in response to news of a possible 6%+ hike in Social Security’s cost of living adjustment (COLA). However, unless near-retirees possess substantial resources beyond Social Security on which to draw on through retirement, it likely will behoove them to take the long view and to keep plugging away at work. First, all Social Security beneficiaries, including those already drawing benefits as well as those yet to initiate benefits, will gain from 2022’s likely outsized COLA adjustment. Second, research from Boston University economist Laurence Kotlikoff quoted by Tompor estimates that the inflation-adjusted Social Security benefit at age 70 exceeds the age 62 benefit by 76%. Also, wages likely will continue to climb through the balance of 2021 and into 2022, which should lead to higher paychecks. To the downside, higher 2022 taxes almost certainly will act to deflate the purchasing power of those higher benefits and paychecks.