☀️☕️ DJT gets SPACked

📊 Also: Nike Dive; Lululemon’s Downward Stock; Japan records; Hang Seng Slump 🎓 SPAC that!

📈 Market Roundup [25-March-24]

US large-cap S&P 500 closed 0.14% DOWN 🔻

Tech-heavy Nasdaq Composite closed 0.16% UP ▲

Pan European STOXX Europe 600 closed 0.03% DOWN 🔻

HK/China's Hang Seng Index closed 2.16% DOWN 🔻🔻

Japan's broad TOPIX closed 0.61% UP ▲

📝 Focus

  • DJT gets SPACked

📊 In the Markets

  • Nike Dive; Lululemon’s Downward Stock; Japan records; Hang Seng Slump

📖 MoneyFitt Explains

  • 🎓 SPAC that!

💸 Personal Finance Corner

📝 Focus

DJT gets SPACked

Shareholders of Digital World Acquisition Corp (DWAC), a blank-cheque firm or “SPAC”🎓 greenlit a deal to take Donald Trump's social media business public, potentially yielding a $3 billion windfall for the presumptive Republican nominee. Trump Media & Technology Group, the parent company of Truth Social, will list on Nasdaq as DJT, with Trump holding between 58% and 69% of the combined company. 

“Friday feeling: No one is above the law.”

New York Attorney General Letitia James, on the civil case ruling

The move is particularly timely for the former US president, who is fighting the most expensive US presidential election campaign ever while facing massive legal liabilities. Thanks to signing a standard major shareholder lock-up agreement, Trump can't sell or borrow against his shares for six months post-IPO. However, Trump Media's newly merged board, which is expected to include his son Donald Jr. and other allies from his administration, can waive this and approve the sale, despite the potential impact such massive selling - or even the expectation of such selling - may have on the DJT share price.

That said, a share price collapse is far from a done deal given the highly politicised nature of DWAC’s investor base, consisting largely of small retail buyers showing their love and support for Trump. Short sellers may be wary of taking on such buyers, given the potential for a memestonk-style squeeze. The shares did drop 13.7% on the announcement last Friday but recovered 4.4% in after-hours trading, and remain over 110% up this year alone.

For whom? - Image credit: Tenor

..... ▷ Most immediately, Trump needs to pay $454 million ($355 million plus interest) in order to appeal the civil fraud case he lost on February 23rd. 

The lawsuit alleged that he lied about his wealth for years as he built his real estate empire. The verdict punishes Trump, his company and executives for scheming to inflate his net worth on financial statements given to banks, insurers, and others.

..... ▷ If he doesn’t pay or come up with a financial guarantee within 30 days, i.e. by today, Monday, March 25th, New York’s attorney general can start the process of collecting on the money owed to the state, potentially including the seizure of Trump's properties, bank accounts and investments. 

An “appeal bond” for the full amount would stop the clock on collection during an appeal and ensure the state would get its money if he were to lose, but so far, all attempts to secure such a bond have failed. Trump claims to have the cash but prefers to use it for his campaign.

..... ▷ Trump is also facing substantial legal costs from an additional 90 cases, including

◦ Criminal: Federal Jan. 6 Case: 4 counts.

◦ Criminal: Election Case in Georgia: 10 counts.

◦ Criminal: Classified Documents Case: 40 counts.

◦ Criminal: Manhattan Hush-Money Case: 34 counts.

◦ Civil: A defamation case (already found liable for sexual misconduct.)

🇸🇬 Singapore: Let’s Get MoneyFitt!

📊 In the Markets

The S&P 500 closed largely flat on Friday but notched its largest weekly gain of 2024 after the Federal Reserve maintained projections for three interest rate cuts by year-end. 

Nasdaq edged higher, buoyed by the Philly semiconductor index, which surged on unabated optimism around artificial intelligence. 

For the week, the S&P 500 rose 2.3%, its biggest weekly rise since mid-December, while the Nasdaq climbed 2.9%, its largest jump since mid-January. 

Nike shares dropped 6.9% after warning of shrinking first-half revenue in fiscal 2025, [MFM: Achtung Adidas!] while Lululemon Athletica fell 15.8% on disappointing annual revenue and profit forecasts. The Canadian athleisure firm's gloomy outlook highlights the challenges ahead as customers slash discretionary spending, especially hard on premium-priced products due to sticky inflation. [MFM: Yogawear IS the experience].

No stretchy pants needed for this pose - Image credit: Tenor

European markets closed marginally off on Friday, a soft end to a week that saw the pan-European benchmark Stoxx 600 index notch another record high, but the UK’s FTSE 100 managed to extend its all-time high from Thursday with a strong close, up 0.6%. 

Japan's Nikkei 225 touched a new all-time high above 41,000 on Friday though the popular press benchmark closed below the milestone as the country's inflation accelerated in February, with headline and core rates both at 2.8%. The Topix also reached a record high, climbing 0.61%. 

Meanwhile, Hong Kong/China's Hang Seng Index dropped by as much as 3%, driven by declines in electric vehicle stocks, before recovering slightly to close down a still miserable 2.2%, while China's CSI 300 fell 1.01%. Shares of Li Auto plunged by over 10% after the Chinese electric vehicle firm cut its deliveries outlook for the first quarter by about a quarter.

📖 MoneyFitt Explains

🎓️ Special Purpose Acquisition Companies (SPACs)

A Special Purpose Acquisition Company, or SPAC, is "a blank check" shell company that raises investor money in its IPO so it can buy an undefined private company and take it public that way. Companies like it for being easier to do than a normal IPO. SPACs have existed for decades but became wildly popular during the Covid-19 lockdown as sponsors took advantage of naïve (or greedy) investors.

Sponsors get about 20% of the SPAC for next to no money along with 5% of the value of the deal. Investors get SPAC shares with warrants, the right to buy more shares later at a fixed price. When a deal comes, shareholders can vote on it, and if they still don't like it can get their money back. If the SPAC doesn't buy anything within two years, sponsors must return the IPO money to investors.

The incentive is very much for the SPAC sponsors to buy just anything at any price because of their low entry price (20% for next to no money, as above) rather than to give the money back to investors, even if the price of the acquisition is too high (they get a share of proceeds, remember), as long as they can spin a tale to their investors that it's worth voting to go ahead with the deal. 

Profitability of the resulting firm and its post-IPO performance is, from the perspective of incentives, entirely incidental. A can of worms to say the least. (See 23andMe, Faraday Future, Babylon, GRAB etc.) 

💸 Personal Finance Corner

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