Today noticed that nearly every account I follow has a mention of a SPAC, and different ones.

I believe this SPAC bull run differs from prior ones for a number of reasons. In the last bull run there was usually one cult stock at a time, often of very questionable valuation

1n

and then a host of poorer quality targets or pre-loi names that were re-rated on the possibility of mimicking that one high flyer. On the recent pullback there was concern of too many SPACs. If the teams were of the same quality as the teams one year ago,

2n

then there would certainly be a problem.

The teams now - on average - are incredible. And now there are dozens of legit post-target and post-merger compelling businesses.

3n

In sum - yes, liquidity matter. But the other half of the story is the quality of the deals, that inevitably drives excitement, interest, and so forth. Liquidity may not be piling into the markets the same was as in the past, but it is still seeking out summer-level

4n

returns. I think we are at the middle stages of a sizeable rotation into SPACs that can more than compensate for any liquidity issues in the broader market.

What's more, there is a pretty extreme feedback loop occuring now

5n

Teams all understand the urgency of acting (declaring targets, merging) while the market is hot. Current teams are moving much faster than in the past, and this is only accelerates when the SPAC market is hot.

6n

So the loop looks like this:

hot SPAC prices -> much more deals, and much more high interest deals -> hotter SPAC prices -> even more urgency to get deals out the door -> and so on

7n

Another element. Funds are not increasingly being part of the liquidity pipeline for SPACs. ARK made some notable pre-merge purchases of commons. I think that is merely the beginning of the trend. Arb funds are growing and proliferating.

8n

I have been trading SPACs since early in the year, and they have consistently been something like 20% or more of my portfolio. I experienced sizeable drops in my account at each SPAC pull-back. I am pretty wary of the sector and not oblivious to the downside risk.

9n

That said, my mental model of the sector (or a positive feedback loop that can iterate for a bit leading to extreme over-valuation) is what guiding me at this point, and I remain more overweight in SPACs than I have ever been.

10n

Again - in the past there was a pattern of a cliff to nowhere - there would a SPAC event or two - prices would escalate, and then in the absence of another subsequent event / catalyst when the broader market pulled back SPACs would collapse.

11n

Right now, the market is *relatively* (in 2020 terms) static, yet SPACs are heating up because there is such a steady volume of catalysts. A lot of the big name are splitting units, and I expect there will be a series of non-trivial events week after week.

12n

In fact, in the absence of covid dominating market news - SPACs will likely be the source of most headlines and drama.

13n

Another compelling aspect of solving the liquidity issue - is that traders across the board now have a familiarity with SPAC and there is many different ways there can be traded - swing day-trading, arb, calls, etc. As traders match up there preferred style and risk /reward

14n

preferences to the sector - there is a lot more ways entrances for different traders to enter, and to enter at size.

15n

That said, I fully expect the market to be extremely volatile. Markets where there are 400% run-ups are going to be markets where there are massive pull-backs across the board.

16n