Wednesday Briefs – 17 February 2021

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This week: Trump Now; SPACS Boom Update; Austin Snow; Covid US numbers.

Trump Now

For the second time in a little over a year, President Trump was impeached in the House of Representatives and acquitted in the Senate. The former President issued a statement that included the following:

“Our historic, patriotic and beautiful movement to Make America Great Again has only just begun. In the months ahead I have much to share with you, and I look forward to continuing our incredible journey together to achieve American greatness for all of our people. There has never been anything like it! We have so much work ahead of us, and soon we will emerge with a vision for a bright, radiant, and limitless American future.”

These words were undoubtedly music to the ears of tens of millions of his supporters, but dreadful in equal measure to the tens of millions who voted for candidate Biden.

So can President Trump stage a comeback and will he? The first (can he?) helps to answer the second (will he?) because if he can, he certainly will. The first (can he?) needs to be considered in relation to his advancing age and to the legal battles that he will likely face in coming months and years. Trump will turn 75 in June and will be 78 on the date of the next presidential election. Ostensibly in robust health and full of energy as of now, he would be if he wins living his second term more in his 80s than in his 70s. While this age seems old by historic standards, he would only be five months older at the start of his second term than President Biden was at the start of his current term. Age therefore should not in theory be an impediment to his appeal.

The other part of the answer relates to the legal travails that he is likely to face in coming months. The media relates a number of impending actions from various attorney generals and prosecutors. There are things that we see and other things that we do not see. Among the latter, there seems to be in a large segment of the GOP an unspoken desire to turn the page. But Trump has a history of bouncing back from difficult odds. His return would be supported by a devoted base but would also be resisted by constituencies on both left and right.

SPACs Boom Update

We wrote a few weeks ago about the SPAC (special purpose acquisition company) frenzy of 2020. For the full year 2020, SPACs raised $83 billion, up from $13 billion in 2019 and single digits in all previous years (except for 2017’s $11 billion). Fans will delight in the fact that SPACs have already raised $38 billion so far in 2021 as of February 10th. Annualizing this figure would mark 2021 SPAC fund-raising at nearly $350 billion for the full year.

But there is no sound reason to annualize the $38 billion reached in the first 41 days of the year. It is also possible that the boom will accelerate to perhaps exceed $500 billion for the year or that it will fizzle and taper off to less than $200 billion. On the way to either end point, the SPAC will have gone international with for example LVMH’s billionaire Bernard Arnault recently joining the game.

Calling it a game may be too harsh or it may be just right. The main selling point of a SPAC is the talent of its management team and that talent does not necessarily have to be in finance or investing. Mr. Arnault is a visionary investor with a long track record. But in theory, any celebrity could launch a SPAC, whether or not they are experienced investors. With stimulative conditions as far as the eye can see, the ex-ante land grab and quasi-free money will continue. Investment performance ex-post is next year’s story.

This continued financialization of the economy reminds us of Winston Churchill’s “I would rather see finance less proud and industry more content.” Some of the biggest beneficiaries of the surge in financial assets since March do seem very proud and certain. No names here.

Austin Snow

A rare snowstorm pounded Austin and central Texas in recent days, shutting off power to hundreds of thousands and briefly halting Covid vaccinations. To say that such latitudes are unaccustomed to snow is to state the obvious. The power grid took it hard. Some municipalities had to improvise snowplows to clear the roads. And the vast majority of local drivers have little to no experience with snow. Under the circumstances, it is safest to stay home until warmer temperatures get rid of the stuff a day or two later.

This raises the question of what type of contingency should a city or government agency plan for? Does it make sense for Austin for example to buy snowplows and to stock large amounts of sand and salt for the rare once in a generation snowstorm?

UT Austin Campus on 15 February 2021.
Photo credit u/sshh12 originally posted at reddit r/UTAustin

A similar question arose a few years ago when Heathrow and Gatwick airports were paralyzed by a massive snowstorm on the eve of the 2010 Christmas holiday. Thousands of vacationers were stranded in terminals with no ability to reach their destinations. At the time, some people voiced criticism of airport owners/managers BAA (Heathrow) and GIP (Gatwick) arguing that such a crisis would have been better managed if the airports had remained in government hands instead of being privatized to BAA* in 1987 by the Thatcher government.

This highlights one of the situations in which a profit-maximizing entity would behave differently from a government agency. In order to plan for a snow emergency, it is said that a profit company would acquire for example just enough snowplows to meet the probability of such an emergency. For Austin, that probability is very low. By contrast, a government agency would be expected to keep a higher number of snowplows and to meet a higher probability of emergencies. That at least is the charge leveled against private companies in times of crisis. Whether they fall short consistently or in a meaningful fashion is the subject of debate and research.

* Until 2006, BAA plc was a London publicly listed company. In 2006, it was acquired by the Spanish construction firm Ferrovial. At the time, BAA still owned both Heathrow and Gatwick. In 2009, BAA sold Gatwick to Global Infrastructure Partners (GIP), a fund backed by Credit Suisse and General Electric. Today, Heathrow is still a unit of Ferrovial and is managed by Heathrow Airport Holdings, the new name assumed by BAA in 2012. And Gatwick is managed and 50.01% owned by Vinci Airports and 49.99% owned by GIP.

Covid US Numbers

Covid daily confirmed cases have plunged nationwide from 250,000 five weeks ago to 83,000 yesterday, a 67% drop. Daily deaths are falling with a three-week lag from 3,400 in late January to 2,300 yesterday, a 32% drop. Deaths will continue to drop for at least three weeks to 1,400 and then perhaps lower depending on the evolution in confirmed cases. The main risk to this encouraging scenario would be if new variants create another surge in cases. (All figures in this paragraph are seven-day averages.)

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