Amrith Ramkumar
speaker
860 appearances
16 recordings
1 series
first heard May 2018
last heard Sep 2021
Amrith Ramkumar’s voice in public audio — every appearance, attributed to the second.
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Yeah, it's super interesting stuff, too, because high investor withdrawals before a SPAC deal close means that the stocks float or the amount of shares being traded is really small.
So that creates this scarcity.
So it doesn't take much buying to really drive the stock up.
And again, for short sellers trying to borrow and then sell and then buy back at lower prices, for a lot of these companies, there are so few shares traded, it's hard to borrow.
So it doesn't take much to squeeze a short out of their bet too.
So there are a lot of complex factors here.
There's also options trading, which we've seen drive haywire moves throughout the year when market makers who sell options often have to buy shares of the underlying stock.
That can amplify the gain.
So all of this is coming together to create some crazy moves in some pretty small companies that just went public via SPACs.
And what's really funny is there's this narrative among some day traders or individuals that they're taking on Wall Street by making these bets.
but in reality like bridgewater associates one of the world's largest hedge funds is an investor in iron net one of these companies that's gone haywire blackrock fidelity some huge institutions are long the names that are getting bidded up and if the stock goes up and stays above certain levels for 10 20 days they can issue more shares to company insiders and pros seem to be benefiting just as much if not more in some of the cases so
The people buying in at high prices are definitely taking on a lot of risk and maybe not fully understanding the benefits or who's gaining as a result.
Yeah, there's a lot of concern in general with the SPAC boom that's taken place in the past year.
So we've seen SEC officials, including the new chief, Gary Gensler, they've come out and said they're worried that a lot of individuals don't understand the risks inherent in trading SPACs and companies that merge with SPACs and different points in the life cycle, again, that I outlined before.
So they've taken steps to put out several press bulletins and public information reports
warning investors and making sure they're careful.
And we've even recently seen Democratic senators led by Elizabeth Warren sent a bunch of letters to prominent SPAC creators about incentive structures and how SPAC creators get several times their initial investment through these ultra cheap shares, even when other investors often take losses if the deals don't work out.
So that incentive issue is a bit separate.
But in general, those letters also mentioned the idea that
disclosures and investors need to be aware of what they're doing and with the SPAC stuff it's really tricky because there's this misconception that there's no regulation and there are no disclosures but the reality is there are actually reams and reams of public documents that investors might not be reading or they might not understand the issue like the SPAC has gotten this reputation of being a lighter easier IPO but there are still a lot of regulations out there so I think
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