At least 25 companies that merged with special purpose acquisition companies between 2020 and 2021 have issued going concern warnings.
Audit Analytics
A going concern warning means that auditors doubt the firm will be able to sustain itself over the next year of operations.
The bear market shreds the weakest first. We have noted that in past columns citing ARKK ($180-$45) and Peloton (PTON) ($170-$14.51) since early 2021. Internally our take is that the markets peaked in that time period. By that we mean a majority of stocks hit their highs and then began notable descents to this day. But all stocks are not equal. The over weighting of FANG and others kept the NASD, NDX, SPX up until the November 2021-January 2022 period. Market weakness now spread to major retailer with Walmart (WMT) down $157-$117 April to May and Target (TGT) off $250-$150.
A special purpose acquisition company (SPAC) is nothing new. In fact they first appeared in the Netherlands during the Tulipmania era of 1636. A company is formed the purpose of which shall be announced later was Thomas McKay’s description in his book Popular Delusions.
SPACs have looser filing regulations than Initial Public Offerings (IPOs). Well, no wonder as there is no business purpose there is nothing to describe! Socionomics tells us that maximum mood occurs at the end, not the start, of a mania. And so SPACs and IPO offerings exploded at the beginning of 2020 as shut in buyers moved from investors to gamblers. Many IPOs found their initial projections difficult to attain. And so many merged with SPACs which had funds available.
Here is what I mean by maximum mood. Lilium NV planned to manufacture electric air taxis that would rise like drones. This design has yet to be certified by regulators. It raised $540 million which was $250 million less than hoped. It has issued a going concern warning, in short we are out of cash. LILM peaked just over $15 in February 2021 (note again our internal high) and now trades at $2.79.
Cryptocurrencies are another late in the mania casualty.
The reality is that bitcoin declined 25% this past month and Ethereum lost 38%. How is this one for a social mod riff? Bored Ape Yacht Club is/was a popular nonfungible crypto. It declined from 138 ETH (Ethereums) to 88 the last few days. The collection features profile pictures of cartoon apes that are procedurally generated by an algorithm. I can’t make this stuff up!
Team Biden’s latest effort is to release prohibitions on U.S. companies from dealing with Maduro’s Venezuela. Maduro has yet to show interest. Natural gas prices are $8.73. Michigan has shut down both a coal fired and nuclear plant, black outs ahead.
The DJIA has staged a terrific 2,000 point rally this past week. This is the nature of bear market rallies. It should peak during June before the downtrend resumes.
