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Illustration: Sarah Grillo/Axios

It may be too soon to tell whether the SPAC party is over — but the forecast for the parade calls for rain.

Why it matters: The phenomenon that has swept Wall Street is now a pop culture buzzword — attracting your favorite celebrities, former politicos, Reddit traders and long-time investors — and drawing increasing scrutiny.

How it works: So called "blank-check" firms go public with the intention of using the money they raise to buy a private company, which then becomes publicly traded after the merger.

  • By the numbers: A little over two months into 2021, almost as many SPACs (246) have gone public as there were in total last year (248, which was a record itself), according to SPAC Research.

Driving the news: The SEC issued a warning on Wednesday against investing in SPACs solely because celebrities are involved or promoting them, echoing some of its alarm from a couple years ago during the digital token frenzy.

  • And earlier Thursday, an advisory committee to the commission held a hearing about SPACs, where questions to the expert panelists largely focused on investor risks and whether additional protections are needed.
  • NYU Law's Michael Ohlrogge pointed out that not only have post-merger returns for investors historically been poor, but that a lot of the true costs are obscured in the disclosures, noting he and his team have had to spend hours looking for and calculating this for even a single SPAC. Certainly, the average retail investor can't be expected to work this out.

Lawmakers are also feeling new pressure to keep SPACs on their radar, with some advocacy groups recently asking Congress for fixes to "tamp down pre-merger hype," among other things.

The other side: "You've had a lot of folks jump into the SPAC market thinking it's like a gold rush. Whenever you have that in any sort of market, there are a lot of bad actors," Arjun Sethi, co-founder of venture firm Tribe Capital, tells Axios.

  • "But you don't want to have it regulated so hard, with a tight iron grip that you lock people out from being able to participate in the upside," Sethi says. (Yes, he has a SPAC).
  • And as Axios' Dan Primack recently argued, there are already guardrails in place preventing a true disaster.

Between the lines: SPACs got swept up in recent stock market jitters — a sign they aren't immune from broader volatility.

  • An index that tracks their performance is now roughly 15% below where it peaked last month.

The bottom line: More rules — plus investors souring on these deals — could be on the horizon, but for now "the party is definitely not over," says Josef Schuster, who created that index.

Go deeper

Biden threatens new sanctions against Ethiopian officials over Tigray conflict

Photo: Al Drago/Getty Images

President Biden on Friday signed an executive order allowing the Treasury and State Departments to impose sanctions against Ethiopian officials "responsible for, or complicit in, prolonging the conflict" in the Tigray region.

Driving the news: Hundreds of thousands of people are facing famine conditions in Tigray, but less than 10 percent of the needed humanitarian supplies has reached the region over the last month "due to the obstruction of aid access" by the Ethiopian government, according to Biden administration officials.

Top general: Calls to China were "perfectly within the duties" of job

Gen. Mark Milley. Photo: Andrew Harrer/Bloomberg via Getty Images

Joint Chiefs Chairman Mark Milley told the Associated Press on Friday that calls with his Chinese counterpart during the final months of Donald Trump's presidency were "perfectly within the duties and responsibilities" of his job.

Why it matters: In his first public comments on the calls that have prompted critics to question whether the general went too far, Milley maintained that such conversations are "routine," per AP.

The consumer's massive "war chest"

Illustration: Megan Robinson/Axios

Economists expect the pace of economic growth to cool off now that government transfer payments like stimulus checks and emergency unemployment benefits are in the rearview mirror. But evidence suggests that the U.S. consumer is sitting on a lot of financial firepower that could be a key driver of growth in the quarters to come.

Why it matters: U.S. consumer spending is massive, representing about 70% of GDP.