WSJ : Iran Sends a Message to Biden

Iran Sends a Message to Biden
The new president shows who really runs the Islamic Republic.

The Islamic Republic of Iran isn’t a real democracy. But the result of Friday’s presidential election still reveals important truths about the government that the U.S. and Europe are trying to appease on nuclear weapons.

Ebrahim Raisi, the country’s chief justice, won the presidency with about 62% of the vote, according to preliminary results published Saturday. Sometimes discussed as a potential successor to Supreme Leader Ali Khamenei —who wields the real power in Iran, particularly over foreign affairs—Mr. Raisi had the race wrapped up before the polls opened.

The Guardian Council, Iran’s election watchdog, has long barred candidates not to the Supreme Leader’s liking. But past races have been competitive and even unpredictable, giving Iranians a small voice in deciding their future. Approved candidates are always loyal to the Islamic Republic and its revolutionary ideology. But some, like lame-duck President Hassan Rouhani, spoke the language of moderation and reform even as they followed the Khamenei line.

Iranians understand they live in a dictatorship but have often voted in high numbers to choose their least bad option. Initial results suggest this year’s race had turnout around 50%—down from more than 70% four years ago and the lowest of any vote since 1979. Millions decided to boycott this year’s election as the country’s already small spectrum of permissible views grew even smaller.

Last month the Guardian Council culled dozens of candidates, including many ostensible centrists or reformers. Of the seven candidates approved to run, three dropped out shortly before the contest—paving the way for Mr. Raisi, who is typically described as a hard-liner or ultraconservative cleric.

In 1988 Mr. Raisi facilitated the extrajudicial execution of thousands of dissidents. He later called the killings “one of the proud achievements of the system.” In 2009, during the Green Revolution after a stolen election, he served as deputy chief justice when peaceful protestors were prosecuted and sometimes given death sentences.

In 2019 the Trump Administration imposed sanctions on Mr. Raisi over the myriad human-rights violations committed during his rise through the Iranian legal system. Will the Biden Administration, which has been negotiating a return to the 2015 nuclear deal with Iran, lift sanctions on the president-elect?

Defenders of the nuclear accord argue that by leaving the deal Donald Trump weakened reformers and empowered men like Mr. Raisi. But conservative clerics have had ultimate power in Iran since the 1979 revolution. Mr. Khamenei supported the accord because it is favorable to the regime. It offers tens of billions of dollars in financial aid and trade revenue while merely delaying the day it can build a bomb.

“We will be committed to the JCPOA as an agreement that was approved by the Supreme Leader,” Mr. Raisi said this month, referring to the nuclear deal’s official name.

The folly of the Obama and now Biden administrations is believing that the leaders in Tehran want Iran to be a normal country. They don’t. They run a government that wants to spread its religious revolution to the rest of the world by whatever means possible. Mr. Raisi’s ascension shouts that reality from the minaret, not that the Biden Administration wants to hear it.

>>> Weekend Papers Summary

Weekend Papers Summary
NEW YORK TIMES
Saturday
Iranians went to the polls on Friday to vote for a new president, but turnout was low amid apathy as during the presidential race many complained that they felt manipulated to support the conservative candidate, Ebrahim Raisi, who is backed by Supreme Leader, Ayatollah Ali Khamenei.
· In an analysis piece, it is suggested that President Biden’s recent European, and first foreign, trip was generally successful at fulfilling the Administration’s three tasks for the mission, including that of persuading allies that ‘America is back,’ even as Europeans still appear uncertain about the endurance of Washington’s commitment to the Atlantic alliance.
· On Friday, American Roman Catholic bishops ignored the Vatican’s warnings on the Eucharist and voted to deny President Biden communion because of his support for abortion rights, exposing divisions within US Catholicism.
· Rather working toward a bipartisan Bill, Democrats have vowed to push their own plan in order to keep their top priorities.
· On Thursday and Friday, the Israeli air force launched strikes against targets in Gaza the second time in three days, retaliating against after Palestinian militants’ release of incendiary balloons, which landed and set fire to areas of farmland in southern Israel. While no casualties were reported, there are fears that the full scale 11-day conflict, which ended a month ago, could resume.
· Hopeful that that Europe has seen the worse of the pandemic, the European Union on Friday encouraged member states to welcome American tourists this summer to offset the economic damage resulting from over a year of closures and restrictions.
· The Maldives had managed to ward off the worse effects of the pandemic and want tourism to resume, but a recent surge of covid cases has exposed a problem of overreliance on foreign medical staff, as the island nation ensures a shortage of nurses.
· North Korean leader, Kim Jong-un, appears ready to talk to the United States again, having asked his government to prepare for “both dialogue and confrontation” with Washington in his first public reaction to the Biden administration’s policy on confronting Pyongyang’s growing nuclear and missile programs.
· In a long feature, the NYT explores the highly competitive nature of E-sports in South Korea and the American company Gen.G’s academy to help develop related talent. Participants are driven to addiction as some e-sports champions can earn millions and many students aspire to achieve related careers: “E-sports is now the fifth-most popular future job among South Korean students, after athletes, doctors, teachers and digital content creators”, according to a survey.
· Covid-19 cases in Brazil have not abated, as the number of deaths in South America’s largest country has approached 500,000. To make matters worse, Brazil is also confronting a drought that could set off intense fires in the Amazon rainforest while impeding efforts to sustain economic growth.

FINANCIAL TIMES
Weekend
· The conservative cleric and head of the judiciary Ebrahim Raisi, has won Iran’s presidential election by a landslide. The victory means that Iran’s most conservative elements have gained control over “all branches of the state for the first time in almost a decade.” But the election was marked by one of the lowest turnouts since the 1979 Islamic revolution.
· In the ‘Big Read’ section, the feature is an analysis of President Biden’s European visit and its success in reassuring EU leaders that ‘America is back,’ and that in Biden’s words, Europe’s security was America’s “sacred obligation”. Nevertheless, despite Washington’s renewed cultivation of ties with Europe, Biden’s real focus appears to be on China and the Indo-Pacific region.
· General Mark Milley, chairman of the Joint Chiefs of Staff, has dismissed rumors that the Chinese military is preparing to invade Taiwan, noting that Beijing lacks the necessary level of preparedness for such a mission.
· Inflationary pressure and Federal Reserve’s hints it would raise interest rates may account for the fact that “stocks on Wall Street had their worst week in nearly four months.” The benchmark S&P 500 fell 1.9% for the week ending June 18.
· Noted short-seller and anti-corporate fraud knight Nathan Anderson, who founded Hindenburg Research is targeting special purpose acquisition companies, or Spacs such as the major sports betting provider DraftKings, causing its shares to fall by more than 11 per cent even as these have recovered.
· In what was an effort to imitate Elon Musk’s social media antics, Volkswagen played an April fool’s joke suggesting that it was rebranding to ‘Voltsvagen’. But, the joke failed, forcing the German automaker to apologize. The FT examines VW’s effort to shine its image as a maker of ecologically sensitive products.
· In an analytical feature in the Personal Finance section, the FT features a behavioral finance focused article examining the relationship between culture and attitude toward money, noting that the financial industry places undue confidence on the rationality and predictability of human behavior.
· On June 18, the EU has failed to secure a legal ruling to oblige AstraZeneca “to speed up delivery of Covid-19 vaccines or risk billions of euros in fines,” after a Brussels court failed to impose a revised delivery schedule even as it chastised the Anglo-Swedish pharmaceutical giant for breaching its contract.
· The FT interviews Vladislav Surkov, one of the intellectuals who have helped shape the ‘Putinism’, and architect of Russia’s “sovereign democracy”.
· Soccer fans can enjoy a feature on Cristiano Ronaldo, who has been leading his Portugal team’s (and reigning champions) strong performance in the EURO 2020 tournament. In a pre-match press conference, Ronaldo made headlines last week for triggering a selloff of Coca-Cola shares after he removed the two Coke bottles set before him, urging fans to drink water instead.

NEW YORK POST
· A 43-year old woman suffered cuts, scrapes and bruises after she was trampled in New York City’s Washington Square Park early Saturday after a when a taser-waving and knife armed man caused panic among the park dwellers who ran away from him.
· The NY Post revisits the 1986 Space Shuttle Challenger tragedy and the possibility that the crew survived the rocket explosion before crashing into the ocean.
· White House press secretary Jen Psaki has denied Politico’s allegations on Friday that the Biden administration had deliberately delayed a $100 million military aid package for Ukraine.

>>> Barron’s Weekend Summary

Barron’s Weekend Summary: Self-driving cars are becoming a reality, and while Tesla made them popular, investors have many stocks to buy, and to avoid.

* Cover Story: While the technology to develop fully automated, or self-driving cars, has advanced considerably, it has been constrained by a series of factors. Therefore, cars must still rely on drivers even if the Ford Motor Co. had predicted that it would be selling a car without the ubiquitous steering wheel in 2021. Despite the boastful and unfulfilled promises, however, a “fully automated car is closer than investors might realize,” and many companies are ready to offer it in forthcoming models.

* Tech Trader: The threat of tech regulation can no longer be ignored as President Biden has sent a strong signal by appointing Columbia Law School Professor Lina Khan as the new chair of the Federal Trade Commission. Khan has been a vocal critic of the tech industry and its tendency toward monopolization, which has many tech investors worried.

* Trader: The markets suffered their worst week since October 2020. But the situation can only worsen, given that the Federal Reserve, unexpectedly, indicated that interest rate hikes and monetary tightening are have begun, catching investors off guard and concerned that the long-feared stock market correction may have already begun.

* Profile: Debbie Jorgensen, an advisor at Merrill Lynch, who started at Merrill Lynch in 1984, at the age of 23, as one of the first two employees to earn a designation as a Certified Financial Planner after graduating from Stanford University with a degree in economics. “Now, of course, Merrill encourages people to get their CFP certification,” she said. Asked about her biggest challenge as an advisor, she said that it is: “Building a client base from scratch.” She also noted that it’s challenging to find serve clients “who have complex financial lives and many moving parts.” And this is why she limits the number of clients to less than 100 in order to work closely with them.

* Features: positive on LEN: says Lennar is well positioned to capitalize on the US housing shortage. Despite elevated lumber prices the company still expanded gross margins by 4.5ppt in its latest quarter.Positive on SIX: 1.3M people showed up at Six Flags amusement parks in Q1, more than double the analyst consensus, which bodes well for the summer season as the US fully reopens.Positive on FDX: articles says Fedex will be able to charge higher fees as demand strengthens, though it may need to report a big beat on earnings this week to move the stock higher in the near term.

FT : GSK faces struggle to convince investors as activist Elliott lurks

GSK faces struggle to convince investors as activist Elliott lurks
Walmsley has questions to answer at roadshow over direction of pharma group’s future

Emma Walmsley, GlaxoSmithKline chief executive, faces a struggle to win over key shareholders after Elliott Management attracted converts for radical change at the pharma group, according to leading investors.

Ahead of GSK’s investor day next week, activist investor Elliott has sown doubt about whether Walmsley should stay to push through the transformation planned for the group after it spun off its consumer health division last year. 

One top-20 shareholder said some investors were attracted by a change of management after discussions with Elliott, which took a multibillion pound stake in GSK earlier this year. “Her background is in consumer rather than healthcare, which may be why,” he said. 

Another large shareholder said it appeared that Elliott did not want Walmsley to lead the pharma business and may also be pushing for a separate initial public offering of GSK’s vaccine unit, breaking the company up even further than planned. Elliott declined to comment.

At the event on Wednesday, shareholders are likely to ask whether GSK should be spending so much playing catch-up in cancer drugs, and if it should be trying instead to bolster its near-term pipeline to compensate for the loss of exclusivity on some HIV drugs later in the decade, or focus on next generation therapies five to 10 years out. 

Even shareholders that have yet to decide whether to back Elliott’s efforts are closely watching the investor day. One large asset manager said they were “very much looking forward to the capital markets day” and hearing what Walmsley has to say.

The GSK chief executive will focus her presentation — which kicks off a days-long investor roadshow — on the promise of “new GSK”, trying to prove she has the clear vision to refresh the drug pipeline, if given the time to do so. 

Luke Miels, president of GSK, who runs the commercial business, compared the company to AstraZeneca, where he used to work, which was also behind in oncology but has now rocketed ahead.

“I think these things take time and then I can remember meeting investors with Astra and being challenged about progress in oncology,” he said. “I think it’s about picking the right assets and moving forward. And we’ve got a number of opportunities coming through.”

Walmsley will offer the first long-term financial forecasts for the company, detail the future of its dividend policy, and present her decision on whether to demerge and do an initial public offering of the consumer healthcare unit, or simply spin it off. 

It will be tough to please all shareholders, who range from investors eager to see an IPO of the consumer business to fund investment in innovative medicines, to those concerned that a listing would simply mean they had to buy the shares again. 

“I want to know what is emerging with the promise from the pipeline and [have] confirmation the consumer business will be demerged, not IPO’d, as I own it already and don’t want to have to buy it to shore up their balance sheet,” said the second shareholder. 

The GSK board and executive team have been meeting with the top-40 shareholders in the run-up to the event. 

 “Shareholders are telling us that they are very supportive of the strategy we have set out, and they want us to get on with delivering it and not get distracted,” the company said.

FT : Private equity group CD&R in takeover bid for UK’s Morrisons

Private equity group CD&R in takeover bid for UK’s Morrisons
Board of supermarket chain meets to discuss merits of the approach

US private equity group Clayton, Dubilier & Rice has bid to acquire supermarket chain Wm Morrison in a deal that would take Britain’s fourth-largest grocer private, according to two people with direct knowledge of the matter. 

One of these people said that the board of Morrisons, which has a market value of £4.3bn and £3.2bn in net debt, was meeting on Saturday to discuss the merits of the approach. The company declined to comment.

CD&R is working with Goldman Sachs on its bid, another person added. A statement clarifying its intentions could be released later on Saturday.

The exact value of an offer could not be immediately learnt but Sky News reported that CD&R was weighing a bid for Morrisons that would value the company at around £5.5bn. CD&R and Morrisons declined to comment.

The approach highlights private equity’s growing appetite for UK assets and in particular, supermarket chains.

Buyout groups have announced bids for at least 12 UK-listed companies since the start of this year, as Brexit and the pandemic weigh on share prices. It is the fastest pace of take-private attempts for more than two decades, figures from Refinitiv show. 

The CD&R approach comes as competition regulators this week cleared a £6.8bn deal by the owners of petrol station retailer EG Group, billionaire brothers Mohsin and Zuber Issa and private equity firm TDR Capital, to buy the UK’s third-largest supermarket chain Asda. 

CD&R counts Sir Terry Leahy, the former chief executive of Tesco, among its advisers. Andrew Higginson, the current Morrisons chair, worked alongside Leahy at Tesco for many years. It is also an investor in EG Group’s petrol station rival, Motor Fuel Group. 

The management team at Morrisons led by chief executive Dave Potts, has attempted to turn around the performance of the business since 2015, including by striking partnerships with Amazon and Deliveroo.

However, the market has not rewarded them. Shares are lower now than they were when Potts took over and have fallen 6.3 per cent over the past year, compared with a rise of 11.5 per cent in the FTSE 100 index of top UK companies in which it was a constituent until earlier this year when it was relegated.

Earlier this month, 70 per cent of shareholders rejected its pay arrangements. 

In the year to the end of January, the company reported an 8 per cent increase in same-store sales although total revenue grew only 0.4 per cent to £17.5bn because of sharply lower fuel sales.

Covid-related costs affected profits, with net income rising 0.5 per cent to £96m. It employs 118,000 staff, according to Capital IQ. 

Analysts have long speculated that the group might fall to a bidder attracted to its cash generation and, like third-placed Asda, a high proportion of freehold stores.

CD&R has been among the more active private equity firms in the UK market this year, agreeing a £2.8bn deal to buy the UK-listed healthcare services group UDG and a £308m deal for Wolseley, the plumbing business. 

NY Post : Thiel-backed psychedelic drugmaker valued at $3.2B in Nasdaq debut

Thiel-backed psychedelic drugmaker valued at $3.2B in Nasdaq debut

Shares of Atai Life Sciences, backed by billionaire investor Peter Thiel, surged 40 percent in their U.S. stock market debut on Friday, giving the German psychedelics startup a market capitalization of $3.19 billion.

The Berlin-based biotech startup, which is exploring the use of psychedelic treatments for mental illnesses, raised $225 million from selling 15 million shares in its upsized initial public offering on Thursday.

The company’s shares opened at $21, higher than the IPO price of $15, but gave up early gains to trade flat by 1600 GMT.

Atai was co-founded in 2018 by German investor Christian Angermayer, an advocate of the benefits of using psychedelics such as psilocybin to treat depression, anxiety and substance use disorders. The German startup has backed several companies developing such therapies.

Psilocybin, the psychedelic active compound in magic mushrooms, was found to be at least as effective as escitalopram, a leading antidepressant drug, in a study by British scientists.

Atai was considering floating its shares in the United States in May, Reuters reported in March, citing a source close to the matter.

Its debut comes at a time when U.S. IPOs have already raised $171 billion in the first six months of the year, scorching past the 2020 record of $168 billion, according to data from Dealogic.

Angermayer has backed about 30 biotech companies, including immunotherapies firm Sensei Biotherapeutics, mental healthcare company Compass Pathways and artificial intelligence-powered drug discovery platform AbCellera Biologics , all of which listed in the United States in recent months.

Germany-based laser communication technologies firm Mynaric and data center operator Northern Data, both partially owned by Angermayer, are also planning to list on the Nasdaq later in 2021 or in 2022, Reuters reported on Thursday.

Credit Suisse, Citigroup, Cowen and Berenberg were the lead underwriters for the offering.

FT : SEC aims to stop insiders dumping stock before the bad news hits

SEC aims to stop insiders dumping stock before the bad news hits
US watchdog plans to close a loophole that has left ‘real cracks’ in the regulatory regime

It seems the great trading edge enjoyed by corporate insiders is knowing when to sell. That makes sense. There are many brokers and business-TV guests with stock buying tips, but few who will urge you to sell now, before the bad news comes out.

But we are probably coming to the end of a great couple of decades for legalised insider trading in America. This boom really started with a 2002 “reform”, the Securities and Exchange Commission’s adoption of Rule 10b5-1. This provided a means for senior executives or board members to sell their shares without making themselves vulnerable to charges of acting on “material non public information”.

New SEC chief Gary Gensler has called for reform of the rule, telling a Wall Street Journal conference that it led to “real cracks in our insider-trading regime”.

The rule was issued, as is customary with major reforms, in the wake of a series of giant corporate scandals — in this case those that came to light after the dotcom crash of 2000-2001. You know, pump earnings, goose the stock, dump your shares. Never again.

To qualify for protection under 10b5-1, covered insiders could no longer sell their companies’ shares at will. They have to enter into a (non-binding) contract, or plan, that instructs a third party to execute trades on their behalf according to a written plan, based on value, timing, number of shares, and so on. The stock sales under these plans would then be disclosed to the SEC and then the general public.

At the time, this seemed like a reasonable way to ensure market transparency while allowing insiders to sell shares to make tax payments, buy houses, or cover school tuition. Plans + disclosure + aligned interests = good.

In practice, Rule 10b5-1 has turned out to be a “get out of jail free” card for opportunistic timing of stock sales using insider information. It is also probably a good object lesson for why $4,000/hour lawyers are a better value than $400/hour lawyers.

To begin with, you, the insider, must follow a plan, detailed in a SEC Form 144, which you adopt at a time when you are not in possession of material non-public information. That would include, for example, certain knowledge that the next earnings announcement will be disappointing for the public shareholders.

Ah, but while you have to establish the plan with, say, your broker or family lawyer, you can modify or cancel the plan at will, in private. And you are not required to inform the SEC or the public that the plan is in place. Even better, there is no minimum number of transactions, so you can use it to make one big sale.

And you can file your plan (when you are ready) on a paper form, rather than in an easily accessed online filing. Until the pandemic, the 10b5-1s were only available for a limited time in the SEC’s Reading Room. It is possible, even likely, that an insider’s pre-filed plan might become general knowledge only after their stock sale has already been executed by his broker.

Mostly the insiders appear to be getting out before bad news is disclosed.

Daniel Taylor, a Wharton School associate professor and director of the Wharton Forensic Analytics Lab, has co-authored a series of studies on data combed from the 10b5-1 filings. He says “the sellers’ outperformance (in timing trades) comes from avoidance of risk”.

According to one of his studies, sales executed in the first 30 days of plan adoption are associated with the stocks underperforming others in their industry by 2.5 percentage points over the following six months.

Sales made 30 to 60 days after a plan adoption foreshadow 1.5 points of underperformance by the insiders’ companies. The sell-off effect was consistent over the 2016-2020 period covered by the study. The insider advantage disappears if sales are made under plans that are at least 60 days old.


As Taylor (and others) see it, the policy lesson is clear: insiders should be required to wait for at least two months after filing their plans publicly before their stock sales can be executed. Oh, and those plans should be filed in easily accessible electronic form, so insiders’ lessened commitment to their companies becomes obvious before the bad news.

The odds favour the SEC’s adoption of such changes.

The next frontier, Taylor says, is to limit insiders’ use of privileged information about competitors, suppliers, customers and the like. That “shadow trading” is probably a bigger rip-off than insider selling.

FT : Could a growth setback be the surprise scenario for US markets?

Could a growth setback be the surprise scenario for US markets?
Some investors are worried about economic recovery as pandemic stimulus fades and the debt burden mounts

When one type of macro financial risk occupies the attention of investors, it does leave them at the mercy of being blindsided by something else.

A stubbornly higher pace of inflation and much higher interest rates are widely seen as a likely legacy of the enormous stimulus by central banks and governments in response to the pandemic.

But what if the outcome turns out to be a less discussed and very undesirable scenario — a less impressive recovery once pandemic stimulus fades that leaves a burden of debt hanging like a deadweight on the economy?

This scenario no doubt strikes some as remote given the scale of the rebound in economic activity unfolding at the moment. The actions of governments and central banks in the past 15 months have spurred expectations of a sustained global economic recovery and a decisive shift upwards from the modest expansion that typified the decade before.

Indeed, this week the US Federal Reserve upped its forecast from 6.5 to 7 per cent for the rate at which the US economy would expand in 2021 and maintained a solid growth rate estimate above 3 per cent for 2022. In the wake of the financial crisis, the US economy failed to match this pace of expansion before the pandemic erupted.

Little wonder that there was a shift in tone by the Fed at its policy meeting on Wednesday. It signalled the “lift off” from near zero overnight interest rates will now begin in 2023, instead of 2024. Details of a reduction, or tapering, in the Fed’s current $120bn of monthly bond purchases that it uses to keep rates low should arrive in the next few months and most likely start early next year.

The recognition that strong expectations for the economy will require less monetary medicine beyond this year has stirred financial markets. In truth, the latest Fed shift is a belated recognition of what many investors believe is the base case for markets and the economy in the next few years.

The latest monthly survey of fund managers by the Bank of America noted investors are “bullishly positioned for permanent growth, transitory inflation and a peaceful Fed taper”. The survey also showed a preference for financial assets that are boosted by a higher and sustained pace of economic growth, including commodities, energy, industrial and financial companies.

Missing from this bullish growth checklist though are steadily rising long-dated US interest rates, an important indicator of a healthy and sustainable recovery. Normally, if there are strong long-term growth expectations and the prospect of a more sustainable inflationary environment, 10-year and 30-year bond yields would be trending upwards.

Instead, these important interest rate barometers peaked for the year in late March. This could be because of expectations of continued bond buying by the Fed. And it might reflect the sheer weight of money looking to be deployed, particularly from pension funds seeking to lock in returns.

But it also suggests that some investors might have not have quite as rosy a view of the longer-term outlook as the BofA survey suggests.

There are reasons for this. Recent employment data has highlighted a bumpy process of hiring. If that turns into evidence of a “jobless recovery” in the coming months, we might face a far longer process of healing after the pandemic.

And working against hopes of a strong recovery is a pullback in fiscal spending next year. Northern Trust has forecast a steady recovery and transitory inflation pressures as its “base-case scenario” for the US economy. However, it does now anticipate a risk to growth.

After fiscal stimulus represented 10.5 per cent and 11.5 per cent of the economy in 2020 and 2021 respectively, this boost is seen easing to just 2.3 per cent in 2022, says Jim McDonald, chief investment strategist and co-portfolio manager of Northern Trust’s global tactical asset allocation fund. 

“While there is sufficient reason to believe the private sector will pick up the baton from government spending next year, it is a big hurdle,” he says.

Companies face the likelihood of rising wages and taxes at a time when they are dealing with a higher debt load built up over the pandemic. This debt burden, along with increased government borrowing, also offers another interpretation of why longer-dated yields are not rising.

Some analysts suggest it means the Fed will only have a limited capacity to lift interest rates. A sharp increase could trigger a major confidence shock via a severe decline in the stock market and a wave of downgrades for companies with indebted balance sheets.

“The profitability of companies is dependent on low rates and this will restrict the rise in bond yields and also limit the ability of the Fed to tighten policy,” said Thomas Costerg, senior US economist at Pictet Wealth Management.

The prospect of a growth scare is very much a contrarian view at this stage of the recovery, but it is one investors should take note of.

FT : Nathan Anderson, the Hindenburg founder taking on Spacs

Nathan Anderson, the Hindenburg founder taking on Spacs
Short seller has dropped his latest bombshell by targeting blank cheque darling

Nathan Anderson has achieved enough notoriety digging into alleged corporate fraud that he knows he may be persona non grata at New York parties.

“I don’t lead with, ‘hello, my name is Nate and I’m a short seller’,” the Hindenburg Research founder says. “That’s a pretty good way to get ejected from any party or social setting.” 

Anderson has made a name for himself taking on some of the most popular businesses to go public in the recent blank-cheque company bonanza, including electric truck start-ups Nikola and Lordstown Motors. 

This week he dropped a bombshell on the already struggling market for special purpose acquisition companies by targeting DraftKings, the sports betting business widely regarded as the catalyst of the boom. Shares initially fell more than 11 per cent but have since largely recovered. 

Spacs are having a record-breaking year with more than $100bn raised so far, according to Refinitiv, but for Anderson the repeated targeting of the sector is unintentional. “We don’t really set out and say, ‘hey we’re going to look at Spacs today’,” he says, adding that his team “kind of just follow” apparent fraud.

The 37-year-old, who has built a small team at Hindenburg with five full-time employees and a handful of contractors, has staked his livelihood on critical research he says serves an important role in today’s markets.

“Not every stock is deserving of going up to the moon”, he says.

Affable and at times self-deprecating, Anderson grew up in a small town in Connecticut and went on to study international business management at the University of Connecticut. Wanting “a more diverse set of life experiences”, he opted for a stint studying abroad in Jerusalem where he also volunteered for a local ambulance service — an experience that still informs his approach to short selling.

“As an ambulance medic, you’re trying your best to heal things that are broken”, he says. At Hindenburg, “we come in and try to illuminate some of these problems that might be lurking under the surface at some of these companies, in some of these industries, and see if we can make things better”.

Back in the US, Anderson took a consulting job with financial software company FactSet managing client accounts for investment managers where he realised “the processes across these firms were virtually the same, and not particularly incisive”.

Roles at broker-dealer firms in Washington and New York followed, including doing due diligence on hedge funds and investment opportunities. He began noticing potential pyramid schemes and, “fuelled by a combination of fascination and horror”, he began researching them on his own time.

His first big break came as he sought to hone his investigative skills. Anderson contacted Harry Markopolos, the investigator known for flagging Bernard Madoff’s Ponzi scheme, and they teamed up on a case against Platinum Partners, the hedge fund eventually charged over a $1bn fraud.

Anderson and Markopolos have not previously been identified as sounding the alarm on the case, in which seven top executives were indicted criminally and several pleaded guilty.

“He’s a world-class digger,” says Markopolos, whom Anderson considers a mentor. “If there are facts he will find them and all too often he’ll discover that there are skeletons in the closet.” 

At times having to “labour to keep the lights on”, Anderson bolstered his shoestring budget by selling portions of his cases to members of a small group of like-minded researchers in return for a share of any payout. He initially went after small companies but has since hit his stride. 

“Nikola was his breakthrough in size and in notoriety,” says Markopolos. “He’s on a roll and companies fear him.” 

Anderson’s emergence comes at a difficult time for short sellers, which have been brutalised by the longest bull market in history. Even heavyweights such as Jim Chanos and David Einhorn have struggled in a market that has headed relentlessly upwards; others, including Bill Ackman, have stopped betting against companies altogether. 

This year has been particularly fraught, with the emergence of the Reddit trading army who band together to boost shorted stocks and for whom short sellers are public enemy number one. Anderson has been the target of countless posts on day trader forums but he takes it all in his stride. “Finance before memes was a lot less interesting”, he says.

A particular favourite of his is a video depicting Chamath Palihapitiya — the prolific Spac sponsor who took Clover Health public — as King Kong and Hindenburg, which published critical research of the firm, as Godzilla. In the clip, “King Kong absolutely beats the living tar out of Godzilla, and we were like, that’s really well done”.

Other finance professionals, even on the buyside, say they welcome his research. Tony Kypreos, an investment advisory firm founder who first met Anderson eight years ago, says there are relatively few people doing comparable work.

Anderson “is doing a very noble service, because if you’re showing that public companies or private funds are putting out data that are incorrect, it’s a big deal”, Kypreos said. 

Companies targeted by Hindenburg do not exactly feel the same way, and have either disputed or played down his allegations, with some claiming his reports are a publicity stunt.

Anderson insists he is not completely sour on blank-cheque vehicles.

“I’m still keeping my mind open to the fact that there could be a good Spac out there,” he says. “I just haven’t seen it yet.”