Warning that 'socially conscious' investing actually hurts

[Editor’s note: This story originally was published by Real Clear Energy.]

By Jason Isaac
Real Clear Energy

Is your retirement plan safe? No, I don’t mean from the uncertainty caused by the coronavirus. I mean from the political whims of self-serving investment managers and environmental activists.

There’s a growing trend in the financial community, driven by boisterous public shaming campaigns, towards environmental, social, and governance (ESG) investing — meaning giving more funds to companies who talk the right talk on issues like climate change, instead of to companies that offer the highest return on investment. The ESG movement wrongly bullies corporations into ignoring their duty to provide profitability for shareholders, in order to appease a vocal minority of progressive activists. And some major firms, like BlackRock, are capitulating.

new Department of Labor proposal aims to shore up safeguards for some workers and retirees from politically motivated investing. But many others would remain unprotected, and the consequences of investing based on the hot topic du jour instead of on financial security could be devastating.

Efforts to divest from fossil fuels would yield no significant environmental benefits but come with an extreme economic cost.

Many of us take it for granted, but energy underpins everything we do. We owe our quality of life, vast economic opportunity, public health, and even environmental quality to the availability of affordable, reliable energy.

Denying financing to American energy producers based on political pressure kills good-paying jobs, increases our cost of living, and reduces the capital available to invest in the energy technologies of the future — while giving a leg up to less responsible energy producers. The less energy the United States is free to produce, the more we and our allies are forced to rely on hostile, unstable nations with lax environmental and labor standards.

And the climate change doomsday narrative, however popular it may be, ignores decades of vast improvements in both human flourishing and environmental quality — and it doesn’t align with climate science, either.

Eliminating all carbon dioxide emissions nationwide by 2030, as called for in the Green New Deal, would result in a less than two-tenths of a degree temperature change by 2100, according to data models used by the United Nations, the EPA, and most global climate-focused organizations. Meanwhile, severe weather patterns remain stable and humanity is becoming more and more resilient, with natural disaster deaths down dramatically. And in the United States, we’ve cut emissions of air pollutants by a remarkable 77% since 1970 — making us a world leader in clean air — while growing our economy, population, and energy use.

With its myopic focus on reducing carbon dioxide emissions at any cost, the ESG movement fails to consider the negative human and environmental impacts, especially the land and wildlife destruction, of “renewable” energy.

Ultimately, the best science suggests that our climate is likely to remain mild and manageable while technology and innovation continue to improve our resiliency, environmental protection, and overall well-being.

None of this means individual investors shouldn’t be free to allocate their money however they choose, or even that investment managers must choose fossil fuels. Private businesses and individuals should be allowed to exercise their best judgment.

The ESG movement wouldn’t just endanger retirees depending on their investments for survival, but it would force all of us into higher energy prices and fewer choices. This would hit distressed and vulnerable communities, who spend the largest share of their income on energy, particularly hard.

ESG is less an investing strategy than a movement towards mob rule. In the words of finance expert Rupert Darwall at the RealClear Foundation, it’s “the biggest threat to American capitalism since the 1930s.” When conformity and cancel culture take the place of logic, reason, and fiduciary responsibility, our entire financial system stands in jeopardy.

The Honorable Jason Isaac is senior manager and distinguished fellow of Life:Powered, a national energy initiative of the Texas Public Policy Foundation. He previously served four terms in the Texas House of Representatives.

[Editor’s note: This story originally was published by Real Clear Energy.]

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The post Warning that ‘socially conscious’ investing actually hurts appeared first on WND.



Source: WND Politics, Warning that ‘socially conscious’ investing actually hurts

'90 Day Fiancé' Fans Call Out Nicole Nafziger for Post About Paul Staehle and Karine Martins – Showbiz Cheat Sheet

  1. ’90 Day Fiancé’ Fans Call Out Nicole Nafziger for Post About Paul Staehle and Karine Martins  Showbiz Cheat Sheet
  2. 90 Day Fiance’s Karine Martins Breaks Her Silence After Husband Paul Staehle Claims She’s Missing Following Fight  Us Weekly
  3. 90 Day Fiance’s Paul Claims Karine And Son Are Missing Following Restraining Order  CinemaBlend
  4. ’90 Day Fiancé’: Fans Call on TLC to Take Responsibility for the Karine Martins and Paul Staehle Situation  Showbiz Cheat Sheet
  5. 90 Day Fiance’s Paul Staehle Claims Wife Karine Martins and Son Are Missing After Fight, Restraining Order  Us Weekly
  6. View Full Coverage on Google News



Source: Google News, ’90 Day Fiancé’ Fans Call Out Nicole Nafziger for Post About Paul Staehle and Karine Martins – Showbiz Cheat Sheet

Microsoft confirms it's exploring purchase of TikTok after CEO's conversation with President Trump – USA TODAY

  1. Microsoft confirms it’s exploring purchase of TikTok after CEO’s conversation with President Trump  USA TODAY
  2. Pompeo warns TikTok users’ personal info could be going ‘directly to the Chinese Communist Party’  Fox News
  3. TikTok Users React To Trump’s Pledge To Ban The App In The U.S. | NBC Nightly News  NBC News
  4. Trump has wasted his chance to rally U.S. allies against China  The Washington Post
  5. Editorial: No to a U.S.-China cold war  Los Angeles Times
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Source: Google News, Microsoft confirms it’s exploring purchase of TikTok after CEO’s conversation with President Trump – USA TODAY

Giannis Antetokounmpo vs James Harden: The Curious Case Of Two MVP’s Ahead of NBA Match-up at Orlando – Essentially Sports

  1. Giannis Antetokounmpo vs James Harden: The Curious Case Of Two MVP’s Ahead of NBA Match-up at Orlando  Essentially Sports
  2. Milwaukee Bucks’ Eric Bledsoe, Pat Connaughton to sit out again  ESPN
  3. Bucks vs Rockets picks and predictions for August 2  Covers
  4. Milwaukee Bucks vs Houston Rockets: DramaFest, in the Bubble  Brew Hoop
  5. Quiet Deer District ahead of Bucks game  WISN 12 News
  6. View Full Coverage on Google News



Source: Google News, Giannis Antetokounmpo vs James Harden: The Curious Case Of Two MVP’s Ahead of NBA Match-up at Orlando – Essentially Sports

Justin Thomas' shoots 5-under 65 | Round 4 | WGC-FedEx St. Jude – PGA TOUR

  1. Justin Thomas’ shoots 5-under 65 | Round 4 | WGC-FedEx St. Jude  PGA TOUR
  2. 2020 WGC-St. Jude Invitational leaderboard, grades: Justin Thomas stays hot, wins third event of season,  CBSSports.com
  3. Late birdies push Justin Thomas past Brooks Koepka to win WGC-FedEx St. Jude Invitational  Yahoo Sports
  4. PGA Memphis Tournament FedEx St. Jude WGC  The Commercial Appeal
  5. Brooks Koepka shoots 2-under 68 | Round 3 | WGC-FedEx St. Jude  PGA TOUR
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Source: Google News, Justin Thomas’ shoots 5-under 65 | Round 4 | WGC-FedEx St. Jude – PGA TOUR

Taylor Swift's 'Folklore' is the best-selling album of 2020 – Entertainment Weekly

  1. Taylor Swift’s ‘Folklore’ is the best-selling album of 2020  Entertainment Weekly
  2. A Black Designer Called Out Taylor Swift For Ripping Off The Logo Of Her “Folklore” Merch, And Her Response Was A Lesson In Allyship  BuzzFeed
  3. Taylor Swift Achieves Seventh No. 1 Album on Billboard 200 Chart & Biggest Week of 2020 With ‘Folklore’  Billboard
  4. ‘The Lakes’: Why Taylor Swift Fans Think the ‘Folklore’ Track Is an Announcement About Joe Alwyn  Showbiz Cheat Sheet
  5. Taylor Swift’s folklore Is 2020’s Biggest No. 1 Debut  Pitchfork
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Source: Google News, Taylor Swift’s ‘Folklore’ is the best-selling album of 2020 – Entertainment Weekly

Another Market Top Indicator: "Blank Check" IPO Issuance Explodes

Another Market Top Indicator: “Blank Check” IPO Issuance Explodes

Tyler Durden

Sun, 08/02/2020 – 19:55

The similarities with the housing bubble boom-bust are growing by the day. Not only are stocks at all time highs, to which we can now add record low yields and an all time high gold price as the 10Y real yield just dropped to an unprecedented minus 1% all time low…

… and risk-on euphoria is rampant among the retail investing community, but over the past year there has also been a veritable explosion of “blank check” companies  which are shell companies that have no operations but plan to go public with the intention of acquiring or merging with a company with the proceeds of the SPAC’s initial public offering. Investment in SPACs usually surges near market peaks, when there is broad consensus among the professional investing community that equities are overvalued as there is now – as a reminder the June Fund Manager Survey from BofA found that a record 78% of Wall Street professionals believe that stocks are overvalued.

The last time we saw such a surge in SPACs? 2007.

And while the SPAC bubble burst in 2008 along with the rest of the housing/credit bubble, it has slowly recovered, and as Goldman’s David Kostin writes in his latest Weekly Kickstart, SPAC capital raising has soared YTD.

Some statistics: since the start of 2020, 51 SPAC offerings have been completed raising $21.5 billion, up 145% from the comparable year-ago period. In 2019, 51 SPAC IPOs were completed totaling $13.2 billion and 2018 witnessed 35 offerings for $9.3 billion. SPACs have accounted for one-third of all US IPO activity since the start of 2019.

As noted above, a SPAC is a “blank-check” company formed with the intention of acquiring or merging with another company. The SPAC needs to complete an acquisition within two years or the capital raised must be returned to investors, as such it mostly represents a vote of confidence in the sponsor or investor behind the SPAC and in their ability to find future deals that would generate a high ROI.

According to Goldman, completed SPAC offerings currently searching for acquisitions exceeds $38 billion. In a typical SPAC structure, the sponsor raises initial capital by issuing units consisting of 1 share and ½ or ⅓ of a warrant. The shares are generally priced at $10 and the warrants are typically struck 15% out of the money ($11.50) with a 5-year term and an $18 forced exercise.

And while by definition a SPAC is a blank-check, it comes with an embedded put option as Kostin explains:

Because the acquisition target is unknown at the time of the IPO, potential value creation is completely dependent on the ability of the sponsor to identify a target (typical private) company and negotiate the purchase. The SPAC purchase represents the de facto IPO for the acquired firm. However, in exchange for not knowing ahead of time the specific company that will be acquired, SPAC investors receive two benefits.

  • First, the right to evaluate the pending purchase and elect to hold or redeem the initial investment at cost (plus accrued interest) two days before the vote.
  • Second, warrants.

The decisions are separate. A SPAC investor may choose to retain both the shares and warrants, or redeem the shares and hold the warrants, or sell both.

The SPAC sponsor is typically compensated with a promote equal to 20% of pro forma equity and warrants. In a US SPAC, the sponsor’s promote is not contingent upon meeting any financial targets. However, the sponsors of some recent SPACs have put their equity promote into an earn-out that is only received if the company achieves certain performance objectives, further aligning the financial incentives of the SPAC sponsor and shareholders.

European SPACs are structured slightly differently. First, since they lack a redemption feature, they are truly “blank check” firms. The European SPAC investor owns the shares regardless of whether the investor likes the acquisition or not. Second, the sponsor does not receive a 20% promote up front. Instead, the sponsor only earns a promote if the company achieves certain return targets.

Once the IPO is complete, and the SPAC sponsor – now with millions in fresh funds in the bank – finds a suitable target, he or she negotiates a non-binding term sheet. Depending on the size of the transaction, the sponsor may wall cross potential new outside investors to raise a PIPE (private investment in public equity). The transaction is then announced to the public and an 8-K is filed.

Curiously, the SPAC investor base is highly fluid and as Goldman writes, many SPACs experience nearly a full rotation in their shareholder base during the time between the announcement of the deal and closing of the acquisition (transition from merger arbitrage traders and hedge funds to longer-term fundamental investors).

The sponsor will then file a proxy with the SEC, conduct a pre-merger roadshow, receive redemption notices (if any), and hold a shareholder vote. Redemption notices are due 2 days prior to the shareholder vote, and shareholders will typically determine whether or not to redeem based on where shares are trading at the time redemption notices are due. If the vote passes, the SPAC merges with the target company and will often undergo a ticker change to reflect the name of the target business.

On the other hand, if the vote fails, the sponsor will resume searching for a suitable target. After 24 months from the capital raise the SPAC will be closed and the capital returned to investors if a merger has not been completed.

So why the interest in SPACs?

As Goldman explains, from a capital raiser’s perspective SPACs offer companies a path to the public markets as an alternative to a traditional IPO. Two features of the SPAC process are notable: Forecasts and proceeds.

  • First, in the traditional IPO process, issuers are prohibited from including any forward-looking guidance in their Form S-1 registration. As a result, prospective investors are required to evaluate the merits of an issue based on backward-looking results and their own expectations. In contrast, the SPAC due diligence process allows a target company to present forecasts and enhances the ability of a SPAC to acquire early-stage companies or those with complicated business models. This can be useful in businesses like sports betting, cannabis, electric vehicles, or other nascent industries that lack meaningful comparisons in the traditional IPO market. Of course, it is a given that the target company will present the most optimistic projections to potential investors, which is why removing the investor diligence aspect of the process is usually a sign of complacent groupthink whereby the investor base is willing to believe anything the target company presents similar to how i) rating agencies assessed all pre-crisis debt as stellar even if it was generally garbage and ii) investors are willing to engage in groupthink when someone else does their “diligence” job for them.
  • Second, in a traditional IPO, the amount of new capital raised is limited, typically to 20%-25% of the value of a company. But in a SPAC transaction, no limit exists on potential proceeds. A SPAC may acquire a majority or minority interest in the target firm and the concurrent PIPE capital raise may be any size.

According to Goldman, whose taks is to spin SPACs as an attractive investment opportunity instead of yet another market top signal, investing in SPACs – from a portfolio manager’s perspective – “offers upside potential with downside protection.” And yes, ultimately, the upside potential is a function of the sponsor’s ability to identify the target, negotiate terms, inject needed external capital, and create long-term value. Which of course is also an admission by the provider of capital that they can’t find any other attractive investment opportunities and the money is bestowed upon someone who supposedly is good at finding the kinds of deals that have become especially scarce in the public markets. Meanwhile, the redemption option limits downside.

Some more statistics: Goldman analyzed 56 SPACs that completed mergers/de-SPAC transactions since January 2018. Tech and Industrials dominated the targets, followed by Energy and Financials.

The typical deal value was $920 million. During the 1-month and 3-month periods following the acquisition announcement, the average SPAC outperformed the S&P 500 by 1 percentage point and 11 %, respectively, and beat the Russell 2000 by 6% and 15%, respectively. That’s the good news.

Now the bad news: the average SPAC underperformed both indexes during the 3, 6, and 12-months after the merger completion.

As shown in the chart above, the performance distribution is extremely wide, with the 75th percentile SPAC outperforming the S&P 500 by 22% while the 25th percentile transaction lagged by 69%. The comparable returns vs. Russell 2000 were from +37% to -63 %.

In other words, just like with regular IPOs, SPAC returns are a coin-toss and since they tend to underperform the broader market several months after the merger and after the initial euphoria fades one may as well just buy the SPY, which unlike a SPAC, is now actively managed by the Fed whose mandate is to never allow another market drop again. It’s also another indicator that a market top has been reached, although while in the past this would be a signal to take profits at this time – when the Fed is actively managing equity risk and making any material declines virtually impossible – this time is not only different, but the recent explosion in SPACs issuance may simply be an indicator to add on even more risk, with the Fed’s blessing of course.



Source: Zero Hedge, Another Market Top Indicator: “Blank Check” IPO Issuance Explodes

Controversial Pentagon nominee placed into position after nomination failed – CNN

  1. Controversial Pentagon nominee placed into position after nomination failed  CNN
  2. Trump skirts Senate to install nominee under fire for Islamaphobic tweets in Pentagon post  POLITICO
  3. Controversial Trump nominee placed in senior role after nomination hearing canceled | TheHill  The Hill
  4. Controversial Trump pick placed in senior Pentagon role  CNN
  5. Retired general appointed to Trump administration in position that won’t require confirmation  The Washington Post
  6. View Full Coverage on Google News



Source: Google News, Controversial Pentagon nominee placed into position after nomination failed – CNN

Controversial Trump pick placed in senior Pentagon role – CNN

  1. Controversial Trump pick placed in senior Pentagon role  CNN
  2. Trump skirts Senate to install nominee under fire for Islamaphobic tweets in Pentagon post  POLITICO
  3. Retired general appointed to Trump administration in position that won’t require confirmation  The Washington Post
  4. Trump directed controversial Pentagon pick into new role with similar duties after nomination failed  CNN
  5. Divisive Trump nominee gets new Pentagon post, despite snub by Congress  Reuters
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Source: Google News, Controversial Trump pick placed in senior Pentagon role – CNN

As free agency looms, Bubba Wallace is offered an ownership stake to stay at Richard Petty Motorsports – Yahoo Sports

  1. As free agency looms, Bubba Wallace is offered an ownership stake to stay at Richard Petty Motorsports  Yahoo Sports
  2. NASCAR suspends crew chiefs for Bubba Wallace, Corey LaJoie  NASCAR on NBC Sports
  3. Team Ownership Stake On Bargaining Table For NASCAR’s Bubba Wallace  Forbes
  4. Richard Petty Motorsports offers Bubba Wallace ownership stake  Yahoo Sports
  5. RPM, Go Fas teams hit with penalties at New Hampshire  RACER
  6. View Full Coverage on Google News



Source: Google News, As free agency looms, Bubba Wallace is offered an ownership stake to stay at Richard Petty Motorsports – Yahoo Sports

White House and Democrats to resume negotiations on coronavirus relief bill – CBS Evening News

  1. White House and Democrats to resume negotiations on coronavirus relief bill  CBS Evening News
  2. Stimulus talks: White House, Dems still agree on $1,200 checks but deadlocked on unemployment assistance  CNBC
  3. Federal Unemployment Deal May Take A While As Two Sides “Still Have A Long Ways To Go”  Deadline
  4. The bonus $600 in unemployment benefits is absolutely a disincentive to work  Washington Examiner
  5. Pelosi, Mnuchin, Meadows point to disagreements as deal on unemployment benefits, coronavirus relief remains elusive  The Washington Post
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Source: Google News, White House and Democrats to resume negotiations on coronavirus relief bill – CBS Evening News