Jim Cramer Vs. Chamath Palihapitiya: The SPAC War Hits Twitter

CNBC's Jim Cramer has been bashing SPACs on Twitter and his show this week. That drew attention from the so-called SPAC King Chamath Palihapitiya.

What Happened: Cramer recently highlighted Spartan Energy Acquisition SPAQ, a SPAC merging with Fisker. Cramer compared Henrik Fisker and his company to Nikola NKLA and Trevor Milton, the Nikola founder who resigned.

On Wednesday, Cramer told his 1.4 million Twitter followers “I am sick of SPACs!.” A simple response came from Palihapitiya:

Why?

— Chamath Palihapitiya (@chamath) October 1, 2020

Cramer’s Thoughts On SPACs: Cramer tweeted to “Squawk Box” host Andrew Ross Sorkin, “Why do investors think that every SPAC is a winner.” Cramer got the following response from Sorkin:

I don’t understand it. But here is one thought: For many investors in a SPAC, pre-merger, it is simply an arbitrage, financial engineering play: they borrow money to invest and capture the spread when a deal gets announced.

— Andrew Ross Sorkin (@andrewrsorkin) October 1, 2020

Cramer went on to say that SPACs make his job hard “because I have to learn each one and there are so many of them.” He said there is “massive homework” needed on SPACs.

Cramer took the SPAC market further by comparing the risks of SPACs to the 2000 dot-com bubble:

It's really amusing that, like in 2000, i tried so hard for people to see the risks because i wanted them to stay in the market but in more staid conservative ways. Here i am again, recommending some specs but also some solid American companies and there's no place for that here

— Jim Cramer (@jimcramer) October 1, 2020

He later admitted the SPAC market is difficult to learn:

Last word on SPAC's; i am actually honest enough to admit that it is difficult to learn all of these. I hate SPACs like i hate doing homework. I do it but it's hard and it's difficult to know what a person is going to do with the money. But there is no mercy for honesty

— Jim Cramer (@jimcramer) October 1, 2020

Chamath Chimes In: Palihapitiya noticed the question Cramer posed to Sorkin and shared his thoughts:

I’d offer this:

1) It’s not so easy: not all deal announcements go well - several of these right now.

2) Sponsors decide initial spac allocations. I personally decide every allocation.

It’s important to construct initial owners who are skilled, long term investors. Arbs suck.

— Chamath Palihapitiya (@chamath) October 1, 2020

Palihapitiya recently shared his thoughts at the Benzinga Boot Camp offering up the bull and bear case.

“It unlocks access to growth companies to a broad cohort of people that were otherwise shut out,” Palihapitiya said.

He cautioned that the SPAC process is hard and investors need to believe in the management team. He cited his “skin in the game” of personally investing in the deals his company completes. Palihapitiya said investors are betting on the decision making and access that the management team has.

What’s Next: Cramer is teasing that SPAC people will love his “Mad Money” show Thursday night. We will see if that means discussion on SPACs or a special guest to discuss the sector. Maybe Palihapitiya is ready to set the record straight.

Palihapitiya’s Social Capital Hedosophia II IPOB is set to merge with Opendoor. Social Capital Hedosophia III IPOC is actively searching for a target company. Palihapitiya’s next three SPACS IPOD, IPOE and IPOF are getting close to debuting.

Photo courtesy of Tulane University.