The Future of Foreign Exchange Markets, Episode 132 [Tomotaro Tajima]

Tomotaro Tajima's Profile

Economic analyst.代表取締役 of Alfinnz (Alfinants). Born in Tokyo in 1964. After graduating from Keio University, he switched careers following his stint at MUFG Securities (now Mitsubishi UFJ Morgan Stanley). He analyzes and studies a wide range from finance and economics to strategic corporate management, and ultimately personal asset formation and fund management. He serves as a lecturer for lectures, seminars, and training hosted by private companies, financial institutions, newspapers, local governments, and various商工団体, with about 150 speaking engagements per year. He has written and commented extensively in print media, including Weekly SPA! “Rules of Net Trading” and Examina “Money Maestro Training Course.” He also writes columns on many websites about stocks and foreign exchange, earning high regard as a stock and FX strategist. He is also responsible for the Home Economy section of the free publisher “Gendai Yōgo no Kiso Chishiki.” He has regular appearances on TV (TV Asahi “Yes-Plus,” BS Asahi “Sunday Online”) and radio (MBS “Sogyo no Asa-chi Radio”), and currently serves as a regular commentator on Nikkei CNBC “Market Wrap” and Daiwa Securities Information TV “Economy Marche.” His major DVDs include “Super Easy: Tomotaro Tajima’s FX Introduction” and “Super Easy: Tomotaro Tajima’s FX Practical Technical Analysis.” His major books include “Wealth Reconsideration Manual” (Paru Shoten), “FX Chart ‘Profit’ Equation” (Alchemix), “Why FX Can Make You Wealthy?” (Text) and many others. His latest book is “How to Profit by Riding the Rising U.S. Economy” (Jiyu Kokuminsha).

*This article is a reprint and revision of an article from FX攻略.com, April 2021 issue. Please note that the market information written in the main text may differ from the current market.

Is the recent SPAC boom a sign of bubble formation?

As 2021 began, several big surprises occurred early on. One was the Georgia runoff elections on Jan 5, where Democrats won both seats, achieving a “Blue Wave” with the president and both houses of Congress under Democratic control.

Of course, the possibility was not zero, but it seemed more likely that the Senate would be held by Republicans, resulting in a divided Congress. Even assuming that division, since last autumn the U.S. stock market had continued to advance, anticipating that possibility.

In other words, the market’s preconceptions were overturned, yet U.S. stock prices rose further. That is the second surprise.

Now it is commonplace to say that investors “take the good parts,” but there is no doubt that an unprecedented abundance of money is behind this.

Again, the volume of money is crucial. As mentioned in the previous update in this column, the enormous excess liquidity is continually searching for a home and naturally flows into stock and real estate markets. As a result, each market’s prices rise, which further amplifies the excess liquidity.

This is nothing but a bubble. Recently, the surge in new listings of “Special Purpose Acquisition Companies (SPACs)” in the U.S. market is also evidence of this.

A SPAC is a corporation established for the purpose of acquiring an unlisted company; after establishment, it lists on the stock market and uses the funds raised to acquire the unlisted company. Because the SPAC itself does not conduct any business before acquiring a company, it is colloquially called a “blank check company” or “empty box.”

It is alarming that such a precarious vehicle is accepted by the market and that huge amounts of money are poured into it, which is evidence that the economy is becoming bubbly.

In the 2000s, when the U.S. housing bubble rose, mortgage-backed securities (MBS) backed by subprime loans and collateralized debt obligations (CDOs) were created and sold, eventually triggering the bubble’s collapse. The current SPAC boom seems eerily similar to that situation.