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Weekly Wrap: Energy Cost Going Down, Retirees Going Back to Work, and SPACs Going Splat
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Weekly Wrap: Energy Cost Going Down, Retirees Going Back to Work, and SPACs Going Splat 

 

Oil and Gas Taking Energy Out of Inflation

Gas prices have been quietly moving lower over the last four weeks. Consequently, this week closed with prices at the pump averaging $3.35 a gallon, according to the American Automobile Association. That is a seven-week low.

In addition, natural gas futures have dropped almost 50 percent over the last two months. That should make home heating costs much lower this winter.

Impact on Inflation

Oil and gas prices are two of the biggest drivers of inflation.

Friday’s report from the U. S. Bureau of Labor Statistics showed the Consumer Price Index (CPI) at 6.8 percent. The largest part of that inflation measure is energy.

“The energy index rose 3.5 percent in November,” states the report, “as the gasoline index increased 6.1 percent and the other major energy component indexes also rose.”

Why Energy Prices Have Dropped

President Joe Biden, in coordination with other world leaders, issued the largest release of oil from the Strategic Petroleum Reserve in history on November 23.

Gas prices started down even before the president’s action. Speculators saw it coming.

Omicron fears also spooked the market. However, prices of futures have started to come back.

So, the current relief at the pump may not last.

A Change in the Weather

Some forecasters had worried that natural gas would be in short supply this winter. If that had been the case, prices could have put a serious crimp in household budgets.

However, the worry for energy traders now is that there could be an oversupply. The high supply is behind the drop in natural gas prices.

“The US isn’t going to run out of natural gas. There is ample supply,” Rob Thummel, senior portfolio manager at TortoiseEcofin told CNN. “We could weather quite an extreme cold snap and still have adequate supplies.”

Warmer winter temperatures will lead to less natural gas demand. In addition, the United States is the largest producer of natural gas in the world. Those factors should combine to keep prices down.

Old is New Again

When November’s jobs report came out earlier this month, there were all sorts of hand wringing. Only 210,000 new jobs were created that month.

What did not get a lot of attention was the decline from 4.6 to 4.2 percent in unemployment. The numbers show that more people are going back to work. In addition, that trend is being led by older workers who retired during the pandemic.

Pandemic and Early Retirement

Retirements in the first months of the pandemic more than doubled the average set from 2010 to 2020, according to the Federal Reserve Bank of Kansas City.

“If the retirement share had risen at its 2010–20 pace, the number of retirees would have increased by 1.5 million during the pandemic,” noted the Kansas City Fed. “Instead, the number of retirees increased by 3.6 million.”

That 3.6 million figure shows up again in analysis by labor economist Aaron Sojourner.

He found that 3.6 million more Americans left work “permanently” in October 2021 than in October 2019. Of those, 3.3 million (91 percent) were 55 or older.

Return of the Retired

Many of those who retired during the pandemic have begun returning to work.

Nick Bunker, Indeed’s economic research director for North America, has analyzed census data and determined a trend in retirees re-entering the workforce.

Demand, Wages Rise

Higher wages are luring many older people back to work, according to Bunker.

“They are returning to the labor market where demand is strong and wages are growing quickly,” Bunker told Yahoo Money. “There are some enticements there as well. There’s a positive opportunity out there for folks.”

“The U.S. workforce over the age of 55 is at its largest size in nearly a year,” reports S&P Global.

In addition, unemployment among workers 55 and older has dropped to 3.6 percent, according to the U. S. Department of Labor. That is the lowest level since the pandemic began.

Redemptions Tarnish SPACs Sparkle

If a baseball player gets a hit 50 percent of the time, he is batting 500 and heading for the Baseball Hall of Fame or a congressional investigation. If students score 50 percent on a test, they have failed.

SPACs or Special Purpose Acquisition Companies have averaged a 50 percent redemption rate this year and are looking more like an unprepared school kid than a Hall of Famer. In addition, some are attracting regulatory interest.

Redemptions

SPACs are sometimes called “blank check” companies. They raise money through an IPO on the expectation that it will merge with a startup within two years. The SPAC must return all funds if the merger does not happen.

Investors can redeem their shares at the IPO rates prior to the SPAC merger with a startup. SPACs raise less money than anticipated when shares trade below the IPO price. Significantly, that has been happening with greater frequency.

Buzz Kill

A case in point is BuzzFeed’s merger with SPAC 890 5th Avenue Partners Inc. last week. The transaction gained headlines because union employees went on strike over what they see as inequities in the deal. As a result, redemptions were exercised and the company raised only $16 million instead of the anticipated $250 million.

Redemptions Rising

Redemptions are averaging just over 50 percent, according to Dealogic, a financial analytics firm. Conversely, last year redemptions stood at 20 percent.

There have been 591 SPAC IPOs so far in 2021, according to SPACinsider. Last year there were 248.

Will Trump See Redemption

One of the most scrutinized and criticized SPAC mergers concerns former President Donald Trump’s Trump Media & Technology Group.

Stock in Digital World Acquisition Corp. (DWAC) took off after it announced in October that it planned to take the 45th president’s company public. However, closer scrutiny has led to harsh criticism and a Securities and Exchange Commission (SEC) investigation.

Yahoo Finance columnist Rick Neuman calls the deal, “The Revenge of Four Seasons Landscaping”.

DWAC announced Trump would launch a beta version of its social network “Truth Social” in November. However, that did not happen. Bloomberg columnist Matt Levine seemed to question the former president’s motive.

“If Donald Trump announced ‘hey I’m gonna do a social media company, buy some stock,’ people would buy some stock. And then he’d get a lot of money,” wrote Levine. “And then if the social media platform did not end up being profitable — as I cannot imagine it would be! — then he would, uh, still have that money? And if the social media platform did not end up being launched — if Trump and his crack team of technologists just couldn’t actually build a well-functioning online social network — then he would, uh, still have that money? And if there was no crack team of technologists at all, if nobody even tried to build the social media platform — then you see where I am going with this right?”

The raging SPAC market is operating without much oversight and few specifics about governance and fraud protection for investors.

SEC Concerns

SEC Chairman Gary Gensler told the Healthy Markets Association conference Thursday he had serious concerns about the SPAC operating model. As a result, he is calling on SEC staffers to draft measures to regulate them better.

Gensler’s major concerns as reported by Fortune Magazine were:

  • SPACs may have more inherent conflicts of interest than IPOs
  • Institutional investors may be getting early access to info and better share pricing than the general public
  • Retail investors may be paying sponsor fees, or have their shares diluted, without them realizing it.

Jordan Nof, of Tusk Venture Partners, summed the situation up this way in a Morning Brief interview:

“There’s a lot of non-qualified financial sponsors out there, that raised money really quickly, really easily in a market that nobody really understands that well.”

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