If This Deli Isn’t A Sign Of A Bubble, What Is?

Who knew that a single deli in South Jersey could be worth $100 million in the public markets? This is the odd but true situation of Hometown International, Inc. (HWIN). The company’s regulatory filing tells us that Hometown Deli, the New Jersey outpost, is a “delicatessen concept that will focus on providing high-quality food products not available in local supermarkets or takeout restaurants.” Helpfully, the filing also mentions that “delicatessens vary throughout the world, but in the United States a delicatessen (or ‘deli’) is a small retail store that is a blend of a grocery and a fast-food restaurant.” It goes on: “Like many delis, Your Hometown Deli serves some hot foods served on a steam table… [and] sells cold cuts by weight. A wide variety of beverages are also sold together with potato chips and similar products.”

Newfangled software-as-a-service, or groundbreaking tech company, this is not. So how does an NJ deli that serves potato chips along with other items become worth $100 million? Only in the crazy, far-gone world of Special Purpose Acquisition Companies (SPACs). SPACs are essentially blank-check companies: entities that raise money first and establish themselves second. Some SPACs are legitimate, and go on to do great and profitable things. Others founder with poor strategies and worse returns on capital. Whenever speculative froth returns in the form of low interest rates and a heady bull market, SPACs become very popular. During difficult times like the 2008 financial collapse, it can be hard to take any company public—even an established consumer products company with strong cash flows and no debt. But when the good times roll, shell companies and strategies on napkins can find a ticker symbol in a New York minute. And a ticker symbol is all they need. That, and an investment bank to back them.

This is not a post about SPACs but rather a post about what SPACs mean. And what SPACs mean is that money is too easy in the current environment. Hometown International, Inc. is not raising money on its ham and cheese prospects. Rumors have it that the money raised in the offering may be used to purchase another business—a strategy that is common for SPACs. That better be the case. Hometown had just $14,000 of sales in 2020. Blame Covid for some of that, but none of that could explain the $100 million valuation. Hometown denies being a shell company, insisting that its deli is a going concern. Who knows? Hometown could be the next Amazon. Again, the issue is not Hometown but what this means for all of our hometowns.

Warren Buffett always says to “be greedy when others are fearful and fearful when others are greedy.” The current speculative fervor—in everything form SPACs to crypto to tech to NFTs—all points to a bubble in real time. Investors should react by getting a little bit fearful. Said differently, they should upgrade the quality of their portfolio by selling the speculative and buying the opposite. When delis fetch nine-figure valuations, it’s time to prepare for the tide to go out.

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