SPAClash: the buzz and the bust

Hey, Ryan Reynolds here for Mint Mobile. You know one of the perks about having four kids that you know about is actually getting a direct line to the big man up north. And this year he wants you to know the best gift that you can give someone is the gift of Mint Mobile's unlimited wireless for $15 a month. Now you don't even need to wrap it. Give it a try@mintmobile.com Switch upfront payment.

Of $45 for a three month plan.

Equivalent to $15 per month required new.

Customer offer for first three months only. Speed slow after 35 gigabytes if network's busy. Taxes and fees extra. See mintmobile.com hi, this is Christy from Back to the Bar. You've probably heard about GLP1 weight loss medications and the side effects that can come with jumping in too fast. That's why I love Noom. Makes getting started easy. Their microdose GLP1 program begins with a smaller dose and gradually scales up based on how your body reacts. The Noom GLP1 microdose program starts at $99 and is delivered to your door in seven days. Start your microdose GLP1 journey today at noom.com that's n o o m.com Noom micro changes big results average weight loss 8 pounds in first month meds and personalization based on clinical need and not available to all individuals. Medications are not reviewed by FDA for safety, efficacy or quality. Pricing based on first month only.

Hello and welcome to the Intelligence on Economist Radio. I'm your host Jason Palmer. Every weekday we provide a fresh perspect on the events shaping your world. Brazil's relationship with guns goes back a long way. Tightening ownership laws led to fewer shootings, but President Jair Bolsonaro wants to loosen them again so that all Brazilians can have a gun, especially those that support him. And we pay a visit to the world's largest collection of magazines. A jumbled floor to ceiling warehouse packed with periodicals, each full of cultural tidbits that would otherwise be lost to history. But first, The basketball titan Shaquille o' Neal has one. So does baseball legend A Rod. And the singer Ciara too. For the first part of this year, they've been one of the buzziest bets on Wall Street.

The SPAC craze is continuing unabated.

Spacs are just overwhelming the traditional IPO market.

This year there's a SPAC every day.

If it's a Wednesday, there's a SPAC.

Tuesday, there's a SPAC blank Check Bonanza or spacapalooza.

Spac, spac, spac, spac, spac. I don't think you can get through.

A block without talking about it. But recently the enthusiasm for them has cooled and that actually could be a good thing, not just for investors, but also for young companies hoping to list on stock exchanges and for the themselves.

A SPAC stands for Special Purpose Acquisition Company and they're commonly known as a blank cheque company.

Alice Fullwood is the Economist's Wall street correspondent.

So what happens is that a SPAC's founder will go out and raise capital, it will take this vehicle public and then it's just a pot of cash. And he promises the people that buy into that SPAC that he is going to find or she is going to find a company and merge with it. And in the process the company will get the pot of cash and the SPAC will be the vehicle through which that company can be listed on a stock exchange.

And this is an idea that's been around for a while. Why has it become so popular recently?

The recent craze for SPAC seems to have been kick started by a deal in 2019 struck between Chamath Palihapitiya and Sir Richard Branson for his space exploration company Virgin Galactic. And it went public via SPAC in late 2019. And Chanath is a venture capitalist turned SPAC man. And by taking a flagship company founded by someone like Richard Branson public via a spac, he really concentrated attention upon this vehicle. And he's laid out the case for why he thinks SPACs are a useful tool to Bloomberg in February.

I think that SPACs are very much here to stay. You know, using the language of inequality, it evens the playing field. It democratizes access to high growth companies.

And does he have a point? Are they in fact more democratic?

For the types of companies that have gone public through SPACs, like space exploration companies or electric vehicle companies, these are the riskier, more uncertain ventures that potentially have a very high payoff, akin to the types of companies that you usually see funded by venture capitalists in Silicon Valley. It seems to be an easier path for them to go public because there are fewer onerous disclosures that go with IPOs. These companies tend to not have particularly long revenue histories or, or profit histories. It gives them a chance to raise a large sum of money quite quickly, which was quite critical during 2020, when funding was more uncertain during the pandemic. And they've also caught on with investors because they give investors that chance at those really long shot but potentially massive returns.

And so, given those evident benefits for both companies and investors, lots of people went for it.

Yes. So SPACs have had an absolutely phenomenal run at raising capital over the past 18 months or so. In 2020, they raised around billion in capital, which was orders of magnitude more than they'd raised in the decades previously. And even that record has been easily eclipsed. Already in 2021, they've raised about $100 billion so far this year. An average of five SPACs have been created every day between January and March. They really were on this absolute tear. SPACs seemed unstoppable, but that trend seems to have shifted in recent weeks.

How so?

So you can see the tide turning for SPACs in a few ways. First, a lot of the companies that have gone public via SPAC have seen their share prices fall. So Virgin Galactic, for example, it's down by almost two thirds from its peak earlier in the year. And you're starting to see that trickle down into general valuations of SPACs that haven't struck deals yet. So very large SPAC raised by Bill Ackman, who is a big hedge fund investor, it was trading at a 50% premium to the value of its assets in February. But investors have cooled slightly on that SPAC now, and it's just trading 15% above its assets. So you're starting to see an unwinding of some of the froth.

And why is the tide turning, do you think?

It could be that regulators have started to intervene? So last month, the securities and Exchange Commission, America's regulator, issued a warning not to invest in SPACs just because cool celebrities were doing it. And they have since grumbled that SPACs are essentially just initial public offerings by another name, which is the traditional way that companies tend to list their shares on stock exchanges. Some of the benefits that we talked about that companies get from SPACs, which is that they don't have to do as many onerous disclosures or roadshows, etcetera, Are things that securities regulators like companies to do. And so this idea that they're being bypassed by the SPAC process is not something that regulators necessarily welcome.

So is that just it, though? Regulators worried they might be out of a job?

If you look at one of the recent huge SPAC deals for grab the Southeast Asian food delivery and ride sharing digital payments super app, it was announced that it will go public on the NASDAQ at a valuation of nearly $40 billion, and it will do that through a SPAC. But the amount of capital that the SPAC is actually providing for grab is tiny. It's 1% of its proposed market value. And most of the capital that's being raised in the SPAC process is being raised from outside investors like Fidelity and Temasek, through a roadshow like process called pipe investing that essentially mimics the traditional IPO process anyway. And that deal in particular makes it hard for, I think, some SPAC advocates to argue that it's really a different process than IPOs, because that one seems very, very similar.

You can understand where regulators are coming from, though. It is sort of sidestepping all the onerous paperwork to get to market.

They definitely do have a point. But the idea that the cooldown that we're seeing in the craze for SPACs is being driven by regulatory grumbling I think doesn't really stack up. A lot of the slipping share prices we've seen in some of the biggest names that SPACs have brought to market predate some of the regulatory qualms. And I think what you're really seeing is a little bit more skepticism from investors about the types of companies that SPACs are investing in. And that's not just unique to SPACs. It's also been a slow start to the year for tech stocks, which did extremely well last year, but actually have underperformed boring, cheap companies like banks and energy firms who have done well as the world has started to come out of the pandemic. So in general, you're seeing the frothiness and bubbliness that we experienced in stock markets in 2020 slightly reverse itself. And SPACs are one of the bubbliest, frothiest segments of the market. So it's normal to see this pullback and this sort of slowdown in the trend.

So if indeed things are cooling for SPACs, is that a good thing for markets more broadly? I mean, should these things continue to exist, given all the questions that hang over them?

That the bubble is cooling down now is probably good for the wider market, but also probably good for SPACs themselves. They were this hot new trend, but I think that they're also a useful innovation in order for them to persist as a vehicle. You don't want the bubble to burst chaotically. You want the air to be let out of the balloon a little more gently. And certainly the pullback in some SPAC activity suggests that that's what's happening and suggests that maybe SPACs and the trend towards them is maturing into its next phase. And it might not be as hot, but it might mean that they persist.

Thanks very much for joining us.

Alice thank you Jason.

It's not just SPACs that have been pushing markets higher. Yesterday the tech heavy NASDAQ index closed at a new record high, its 13th of this year. Part of what's helping companies is ultra low interest rates. But what happens when the music stops? This week as America's Federal Reserve meets our sister show, Money Talks looks at when and how the Fed will raise rates. Find Money Talks later today wherever fine podcasts are sold and traded.

Hi, this is Christy from Back to the Bar. You've probably heard about GLP1 weight loss medications and the side effects that can come with jumping in too fast. That's why I love Noom makes getting started easy. Their microdose GLP1 program begins with a smaller dose and gradually scales up based how your body reacts. The Noom GLP1 microdose program starts at 99 and is delivered to your door in seven days. Start your microdose GLP1 journey today at noom.com that's n o o m.com Noom micro changes big results average weight loss 8 pounds in first month meds and personalization based on clinical need and not available to all individuals. Medications are not reviewed by FDA for safety, efficacy or quality. Pricing based on first month only.

Guns are a part of the public image of Brazil's President Jair Bolsonaro. During his election campaign, he frequently posed with firearms. When he couldn't, he made shooting gestures with his hands. As president, he's signed orders to loosen gun ownership restrictions for what he calls the legitimate right of defense. And although the courts have resisted some of those orders, Mr. Bolsonaro seems committed to making Brazil a gun loving country.

Jair Bolsonaro is a former army captain and since he was elected President, he's been advocating for looser gun laws in Brazil.

Mariana Simos writes about Brazil for the Economist.

He wants to adapt the United States gun culture and bring it over here.

And when Mr. Bolsonaro was elected, what was the status of gun laws?

Before Mr. Bolsonaro took office, Brazil had a gun law that was enacted in 2003. As recently as in the 1980s, guns were relatively easy to have access to. There was a rise in shootings and this actually triggered stricter laws. President Lula, a left wing president, he signed a law that actually prevented ordinary citizens from buying guns so only the armed forces, police and prison guards could do so.

And did the new law bring down the number of shootings?

It helped temper the rise in gun deaths. An annual government backed study which follows the progression of homicides in Brazil, it found that the rate of homicides caused by firearms could have been 12% higher had the law not gone into effect. The issue was that over time, there were significant tweaks to the laws, changing certain sections. And Brazil has remained a violent place with many illegal firearms. Unfortunately, it has one of the world's highest rates of gun deaths, with 22 killings per 100,000 people each year.

So if the law on legal firearms has been watered down and the illegal trade continues, why is it that President Bolsonaro wants to loosen the laws that are there?

He has the speech that has been going on since he took office that good families should be able to protect themselves, too. And I think the issue here is how he's defining good people or good families in Brazil. Guns have always been associated with violence and crime, and he's sort of brought into the discussion that good people should be able to defend themselves from these bad guys, from the violence.

And so how much success has he had in trying to loosen the laws?

Bolsonaro has tried to make several changes, but he has actually not been very successful. He tried, for example, to expand the number of professions whose employees are legally permitted to own guns. But earlier this month, the Supreme Court struck that and other proposed changes down. What Bolsonaro has really done is just sort of introduce this idea that people should be able to protect themselves. People should have the right to bear arms. Propagating a gun culture.

What kind of changes, though? In what way? Is there a better, deeper, wider gun culture?

Since Bolsonaro came into the presidency, you've been seeing a rise in the number of gun clubs. For instance, people see photos of him online at shooting ranges with his family, with his sons, who are also politicians. The number of registered firearms in circulation has surged by 2/3 since 2017, to just over a million, or 1 for every 200 Brazilians. This is far short of the standard set by the United States, which has more guns than people. But still, the ownership increase had been particularly pronounced among sporting shooters and collectors. In other words, not people who are using them for their job, but the.

Stated aim here of just allowing, you know, good people to protect themselves. Is that really all that's going on here? Is that really what Mr. Bolsonaro wants for the people of Brazil?

His pro gun stance is very political. It wins him points with his supporters where he might lose support on healthcare or his handling of the pandemic. The pandemic, for example, has really hurt his approval rating, which is now below 30%. Others fear darker motives. The President has been rallying up his supporters to back him in more authoritarian measures. He has spoken, for example, of using the army to prevent state governments from enforcing lockdowns. Most recently, we had a huge scandal where the heads of the army, the Navy and the Air Force resigned as a kind of protest. And this happened after Bolsonaro did a cabinet reshuffle that fired a bunch of people all at once. It was a chaotic moment, and for them to see stand up was a big statement. But at the same time, many political analysts who I've been speaking to fear that Bolsonaro has been trying to rally his supporters into a potentially armed movement to back him should he not win the election next year. And it looks like Bolsonaro is going to be up against Lula, who is his big enemy.

Mariana, thank you very much for your time.

Thank you so much. It was a pleasure to be here with you today.

I guess it's a library. It's not an official place where people would come and immediately consider it as a library. It's almost like a secret library, a library that you know you have to find out about.

Tucked away amongst the warehouses of southeast London in an unremarkable brick building, you'll find himag the world's largest collection of magazines run by James Hyman.

The smell of the materials, but definitely the visual almost paralysis of seeing what's there is definitely realized when you're there in person. You may go, wow. Looking at a photo or hearing me talk about it now, but it's literally seeing it in real life is where you get the impact.

It's something of a secret world that's starting to get more attention when you.

Go through the front doors of high mag. From there before you is the most extraordinary sight magazine upon magazine piled from floor to ceiling on huge high shelves reaching maybe 20ft up into the air.

Michael Hann writes about culture for the Economist. He recently ventured into the archive.

What it looks like actually is something out of a Christopher Nolan film. You can imagine people getting lost in there and disappearing into other dimensions.

And you met James Hyman, the collector we heard from earlier. How did he come to be the owner of this collection?

James Hyman, who's 50 now, was originally a press officer at MTV and that job meant compiling press clippings with all the mentions of mtv. Then he became a scriptwriter and pre Internet. That meant that he had to find interesting things for presenters to say on air. So he'd look through all the music, magazines, cues, sounds, Rolling Stone and so on. But from there, he became slightly obsessed with collecting, trying to find more and more detail.

And I just kept on collecting. And here we are, what, 30? 30 maybe I don't want to say 40. That'd be too much. But certainly decades later, realizing the importance of this rich material.

In August 2012, his collection was recognized by the Guinness Book of World Records for being so big at that point, he had 50,953 editions of 2,312 titles. That was nine years ago. A lot's changed since then. His collection now stands at around 150,000 editions of roughly 5,000 titles.

And did he tell you where he's got hold of all of these magazines?

Obviously, the basis of James Collection is the stuff that he started collecting himself, you know, many, many years ago. But since then, obviously it's grown through other means. And the principal one of those is donations. But that can be both a blessing and a curse, because you simply can't take every collection of magazines, people hear.

About us and say, oh my gosh, I can't let my amazing collection of insert magazine name here go. And they have great stories that come with it. You know, my father was a photographer for, let's say, Life magazine or was a stylist on Playboy, whatever. And they donate these magazines, which is incredible, but it's also a cost to store them. So I've got to be very careful about what I say thank you to and very polite saying, no, thank you, because we either got it or it's just too much and we can't store it.

I mean, this, this level of, of commitment to collecting does sound a bit compulsive.

I suppose you could say that collecting magazines like this is compulsive, but it's actually a public service because it's about the wide range of human knowledge. What's important about himag isn't just the text. It's what also exists within those magazines. It's the layouts, it's the adverts. It's preserving a part of culture that the Internet hasn't actually preserved. The Internet lets that stuff disappear. It just preserves the main element. So you can Google any number of things and you might get the original interview, but what you won't get is the context in which it exists. And that is the truly fascinating thing about looking at old magazines and old newspapers, that you get to see not just the event, but the world in which the event took place.

But this rarefied collection is in just one place, in a warehouse in southeast London. I mean, Are there plans to spread it more widely?

What James wants to do with himag is to digitize his collection. But that, of course, is a vast, vast task. You know, something beyond the realms of one person with their scanner sitting at their desk. And to do that, he will need to raise money. So he's trying to raise between 1.5 million and 2 million pounds, which he's seeking from crowdfunding and from private investors and grants. Now, if he can do that, then High Mag becomes available not just to people who can make the journey to Woolwich, but it'll become available to so many people worldwide. I mean, this would be a vast expansion.

There's so much rich material based in a magazine. I still would say it's one of the most powerful mediums that represent social history.

Michael, thank you very much for joining us.

Thank you very much for having me.

That's all for this episode of the Intelligence. If you like us, leave us a rating and a review and you can subscribe to the economist@examiner.com the Economist Intelligence Offer. The link is in the show Notes. See you back here tomorrow.