dpetrescu

Do you still own puts on the SPAC ETFs that are pre-merger? What is your reasoning there? They already got decimated. The median SPAC last week was ~ 1.5% under asset value. So that’s like shorting a pile of cash that’s on the market for 1.5% less than the value of that pile of cash. Maybe you meant post-merger. But the -1.5% median, this includes names that have deals.

Archegos doesn’t have to disclose their holdings in US holdings because most of their stocks are swaps. But it’s concentrated in: TMT and media like Viacom and Discovery Asian tech like Baidu Asian education names like GSX (Carson block accused them of leveraging up just for the short squeeze - muddy waters accused GSX of using bots for their enrollment) I think how it was able to lever 5:1 was because they also owned SPY puts as hedges. There are rumors that some more blocks of Viacom need to be sold this week. But if anything it will be a boost to the market if they still ha e to unload the SPY puts - banks have to buy the index to get rid of the puts. That’s likely why the markets had such a rise in the last two hours of trading Friday. But the next leg is Nomura could be down a bit ~15%. And I think credit Suisse and maybe others to a lesser extent. Hopefully everyone’s still wearing shorts as the tide dips a bit on a few names. Either way, today morning will be interesting to see how the market opens.

HPX is my most interesting one. It’s in Brazil where there aren’t 400 other groups cold calling boards of private companies - at least none with any local connections. And I know it’s a far stretch - but it there is any chance that Berkshire could participate in a PIPE, this would be it - sure it won’t be munger or Warren directly because it would never reach that level of investment value. But I could imagine a scenario where 3G and Berkshire could be involved in a PIPE together. If the company acquisition is interesting and a good value. Not a prediction, I’m making this up. But it’s a strong 3G connection, and Berkshire and 3G have collaborated in the past, with buffet saying he would collaborate with them in the future.

Those are good clarifications that you make. But - I don’t think I communicated clearly what an unusual opportunity it was - this amazing setup was not for SPACs in general, but for one specific setup. Last week pretty bad for the SPAC market, the mean price for all (I mean all without exaggeration) SPACs was $10.00. So below is the setup I was referring to. This might have only been possible last week but who knows. I think a lot of people are dismissing them because they’re early stage companies without revenue and generally very overvalued. But just put that aside and consider the arbitrage: 1. Buy a SPAC with a deal already announced. Now this is a real company that you’re investing in, not in a team with pile of cash. 2. You now have 3-4 months to take advantage of any upside - 5%, 10%, 100% in that time period. That is the average time for DA to merger. There is no opportunity cost because you’re investing in a company that you select (again, not a blank shell company). There’s a fairly good chance that most of these move up quite a lot IF we’re just experiencing a correction and tech stocks in genera rebound. For example Friday I picked up AONE/Markforged for 4% risk ($10.4). So I’m risking 3 months of wait time and maximum 4% loss but if it doubles I get the full profit. Essentially it’s like owning a free put without having to buy the put. Also HZON/Sportsradar for 7% risk with unlimited upside - this is actually a good company with a competitive market dominance. Others are 0% risk. 3. If during that 3-4 months the price is still $10, just sell your shares. If shares are lower than $10 you can redeem them for cash ($10.02, maybe $9.96 but in practical terms just about $10.0). True you have to do it before the deadline which is earlier than the merger date. Here’s the redeem process: https://optionsly.substack.com/p/redeeming-a-spac-for-cash This unusual opportunity might have only been possible last week because Friday, a lot of the good post deal names moved up a lot. But the correction could continue next week or beyond who knows. Answered your questions in bold. But yeah, buying short term spacs below trust is the classic arb in the space.

So now there are SPACs with merger dates set in 1-4 months that are trading at or under $10. Redeeming a SPAC with a merger seems to be easy - call the broker by deadline (usually a few days before merger), request redemption. There’s usually another deadline a couple or so weeks before - you’d have to have purchased the shares by then (but it sounds like that rule isn’t always followed) Then you get your shares on hold, and in a week you get your $10 + interest. Now, in the meanwhile your get free optionality. So during those 1-4 months: -if the SPAC drops to 9, you just redeem it for 10+interest (this exact scenario has happened before) most people aren’t aware of the process and the deadlines -if the SPAC stays at 10, you can always sell it or keep it after merger - if the SPAC goes up 50%, sell it and keep the profit Is there any downside? Maybe the very low risk that everyone redeems because there’s a new virus pandemic - but even during March 2020 the contracts and redemptions were honored. And sure there’s some opportunity cost. But it’s only 1-4 months. And you can time the purchase by the purchase deadline so you only wait a few weeks (but by then you’ll have a smaller duration of optionality. The one distinguishing factor is - i think it’s tougher to redeem if there isn’t a merger and you have to wait longer and you might not get the full 10 back. But I’m not as familiar with that process. That’s why I think the merger announcement arbitrage seems interesting.

Gold has historically been very closely invert correlated with REAL 10 year yields. Take a look at the chart in this video at 6:05. At least for the last couple years.

The Muger DJC Q&A was great, wish he would have rambled more but The questions asked what exactly what I would’ve wanted to ask Munger. SPACs got annihilated last week. Almost everything, even with deal announcements is back to near NAV. I think at this point it is a great value when you add the arbitrage put protection and call incentive. There are quite a lot of value investing legends involved: SPACs - Howard Marks, John Malone, Bernardo from 3G, Howard Marks all have SPACs. Also Bill Ackman Investments - Seth Klarman has investments in a few SPACs. I had to check that twice when I read this but Seth also just did a PIPE in Reid Hoffman’s SPAC that merged with an eVTOL Joby with 4.6B EV valuation. He also owns shares in addition to the PIPE. I always thought Seth Klarman was doing this as arbitrage. But with the PIPE investment They’re locked in for five years. And by summer this year, the $10 floor arbitrage becomes $0. Why is Seth Klarman investing in flying cars?

So shouldn’t the 10year rate heading towards 2% and the curve steepening be a good thing - a sign of a healthy market? Typically, almost all recent recessions happened a little after the 10 minus 2 year went under 0. This has been a surprisingly good indicator for the last 4 maybe 6 recessions. Using the 10 minus 2 resulted in surprisingly almost no noise. It was a leading indicator by months. Maybe the only One false indicator was July 1998. A fast rising steepening of 10 minus 2 happened after each recession. After the dot com recession it quickly rose to a difference of 2% -3%. It did that after every recession since the 70s, in every case rising quickly out of a recession yowards 2-3% difference. And in most cases in the past the Dow was rising (post 92 recession) or consolidating (post dot com) as the yield steepening was happening. So why are markets panicking now if it’s a common symptom coming out of a recession? Is it a case of this time it’s different? How is it different? https://fred.stlouisfed.org/series/T10Y2Y Anyone have a way to generate the inflation adjusted Dow over this?

So tech or other companies with competitive advantage which allows them to raise prices, a lot of cash and no debt so no debt servicing. On the negative would be tech companies with revenues expected far in the future or companies that need a lot of debt to stay afloat or companies with large capital expenses. 1.5 yield is still pretty low. Even if 10 year yields reach 2% this year, real yields would still be zero. If they get out of control, instead of raising short term rates, the fed could just buy the long end. Unemployment is still almost 10%, I think the Fed will do whatever it takes to avoid an uncontrolled rate rise from impacting the economy.

That is a good question, one I’ve been asking myself. My understanding of the consensus is: 1. if the 10year moves up *gradually and stays under 3% - that is likely good for stocks, especially with selling the long and buying the short which steepens the curve. 2. But it it moves fast or too high - above 3%, that will have a negative effect. The fed will have lost (indirect) control over it. So I guess, buy banks? They’re most correlated with rising 10-yr.

Yea about 80% I got below 10.5. I did pay a little more for the Malone and Thiel ones. Strangely I feel a lot more confident about those two.

I feel like I’ve joined Scientology, ive gone all in on SPACs the last couple months. Guess I don’t really think of this as an investment, it’s in a different bucket. I’ve essentially given funds to some smart investors and CEOs including Reed Hoffman, Malone, Peter Thiel, Howard Marks, Bernardo from 3G, Betsy Cohen, and some others. I also get free call options with some warrants (1-3 or 1-2 ratio to the units) and essentially a free put with the redeemable units at 10 (I’ll likely never redeem them no matter what happens, but just because this exists it creates a market floor at $10 - just take a look at how they performed during March 2000) Someone please convince me why I should sell them.

I don’t think the problem is that good quality names are not close to NAV. There are so many quality groups at 10.5 and below. The problem is there are too of them - 20 new ones a day! Private companies can just take the higher offer and investors don’t get a good deal. The quality names help if they stay involved with a board seat. Some low cost name examples....MLAC - 10.15. This is headed by someone who is also on the management team of both of the Peter Thiel ones. I think he’s likely a key person because they’re looking in SE Asia. And the two Thiel rumors have both been SE Asian firms. HPX - mentioned this in the other discussion. Lead person Was CEO of Kraft, CEO of Burger King, was at 3G Capital when they did deals with Berkshire. And is looking in Brazil with less competition. Maybe he can find the next Stone Co. There’s also the one led by the Pfizer CEO, can’t remember the name that was low priced.

Here are some interesting SPACs in the tsunami of the many. HPX - this is headed by Bernardo Hees. When he was at 3G he was involved in the 3G partnership deals with Berkshire. He was CEO of Burger King (Burger King went public via SPAC). He was CEO OF Kraft Heinz. He was also CEO of a large Brazilian logistics company. This could be interesting for two reasons: 1. Looking for something in Brazil not US so no competition from 10,000 otherc SPACs 2. Better incentive - He has great executive experience nd would likely take a long term interest with a board seat in the acquired company LMCA - Liberty Media and Malone No need to mention his track record. Interesting to see what his team will come up with. The Charlie Munger SPAC, in conjunction with DJC. This has not yet IPO’d yet but the S-1 was just filed with the SEC. looks like he’s targeting a fintech startup. The Howard Marks - second SPAC. First one is complete. PS...the Munger one is a joke, it’s not real. The others are real.

I was just reading an old chapter from Greenblatt’s You Can Be A Stock Market Genius - the one about spin-offs. I still haven’t forgiven myself for selling Ferrari (the spinoff not the car:). Anyone have any recommendations for upcoming spin-offs? I haven’t heard much about this recently, especially as the focus is on new public companies coming on the market. I figure it might be a while before YouTube/Google.