Blank-Check Companies: What Could Go Wrong?

The growing popularity of Special Purpose Acquisition Companies (SPACS), aka blank-check companies, is a classic indication of extreme investor euphoria. To commit capital to a company without having a clear understanding of what the funds will be used for requires a level of trust and optimism that is seldom seen.

Soaring investor sentiment has also been supported by the price surges of a host of recent initial public offerings (IPOs). At least buyers of IPOs have the luxury of knowing what they are buying.

Confidence in the ability of the Fed to produce a “V” recovery, along with investor enthusiasm for the incoming Biden administration and the arrival of vaccines has fueled the market’s move higher. The rally will continue as long as investor expectations are met.

Evidence is mounting that a “V” recovery is unlikely and further challenges to investors’ optimism may occur. The exuberant investor sentiment reflected by the popularity of SPACs and IPOs suggests that caution is warranted.

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