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Trading Strategies

To Earn Money in a Recession, Think Outside the Box

By , Chief Investment Strategist, Money Morning@ShahGilani_TW

Shah Gilani

There's no denying it: No matter how the financial media tries to flip the narrative, we are on the edge of a recession.

The S&P 500 - the metric by which many investors and traders gauge the health of the markets - may be inching back up, but you shouldn't count on it to continue its ascent. Since January, every move the S&P has made higher was immediately followed by lower lows.

The way I see it, it isn't a matter of if a recession is coming but when - and I'm focused on how I can help my readers prepare for it financially.

Here's the thing about recessions: No matter how far the markets fall, there will always be another opportunity for investors to turn a profit. You just have to understand what's working, why it's working, and be a little unconventional with your investing. Sometimes, you have to think bigger than the stock market and bigger than buying or selling options...

Sometimes, you have to think about special purpose acquisition companies.

SPACs, or "blank check" companies, are a way for private companies to go public via a merger and a way for you to earn money while risking only a small stake of $10. The risk associated with SPAC investing can be minuscule, hence its rise in popularity among investors last year. (Go here for a quick overview of SPAC history.)

Sure, the space had a rough start to 2022. There was a period when the words "carnage" and "bloodbath" became almost synonymous with "SPAC market." The SEC's threat to regulate the space triggered waves of selling. Deals were canceled en masse. Even big names in the space like Goldman Sachs (GS) pulled out for fear of being sued.

To which I say, "good riddance."

Goldman and other firms like it are afraid of being liable for the overblown promises of celebrity-driven SPACs that polluted that market. Ridiculous claims, dreams, or outright lies were the reason SPACs boomed - and the reason it was so difficult for retail traders to break into the space and find the truly profitable deals.

I'm not sorry to see them leave. This market is going to function best when the majority of IPOs are done by specialists, not actors. Business leaders that have a long-term commitment to being in the SPAC market will create opportunities for us to reap triple-digit profits as mainstream stocks falter - and only risk staking $10.

That's why I've kept my eye on SPACs and why I'm bringing you a few SPACs to keep an eye on yourself.

Right now, there's a SPAC that's looking to merge with a company that looks fantastic.

The SPAC is Ithaca Capital Partners, a private equity real estate investment management company looking to acquire Mondee, a rapid-growth, technology-first travel marketplace with a portfolio of globally recognized brands in the leisure, retail, and corporate travel sectors.

Mondee works with the world's leading supplier of airlines, hotels, and travel companies, distributing exclusive content across its platform of products and services. Its customers include over 50,000 traditional travel agents and agencies, new gig economy agents, as well as leading enterprise and small- and medium-sized enterprise businesses.

Business is booming lately because of the increase in postpandemic travel. Mondee reported recently that 2021 gross revenue of $949 million was up 116% year over year compared to $439 million in 2020 and 32% above the previous 2021 forecast of $719 million.

Furthermore, the PIPE (private investment in public equity) investors putting in money include some of the brightest minds in the investment business.

Activist investors like Elliott Management and Siris Capital have amounted to over $20 million in PIPE. Combined with the original $50 million PIPE announced earlier - backed by Morgan Stanley Investment Management and Arc Pe, a Miami-based private equity group - it brings the PIPE financing to a total of $70 million.

And even better yet, the warrants on the SPAC are cheap right now - listed by most brokers as ITHAX Aquisition.

In case you don't know, you can invest in a SPAC in a few ways. You can buy the common stock, warrants, or units. It's the latter two that make SPAC investing a little unconventional. A warrant is a contract that gives the holder the right to purchase a certain number of shares of common stock from the issuer. Most warrants, like ITHAX's, will have a strike price of $11.50 and expire five years after the business combination closes.

I like the probability of scoring a massive win with these warrants. At $0.50 a warrant, it's selling at a steal right now. And if the market likes the company, we have plenty of time for this pricing to multiply over the next five years.

Check out ITHAX Acquisition warrants (ITHXW) at $0.60 or less.

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About the Author

Shah Gilani boasts a financial pedigree unlike any other. He ran his first hedge fund in 1982 from his seat on the floor of the Chicago Board of Options Exchange. When options on the Standard & Poor's 100 began trading on March 11, 1983, Shah worked in "the pit" as a market maker.

The work he did laid the foundation for what would later become the VIX - to this day one of the most widely used indicators worldwide. After leaving Chicago to run the futures and options division of the British banking giant Lloyd's TSB, Shah moved up to Roosevelt & Cross Inc., an old-line New York boutique firm. There he originated and ran a packaged fixed-income trading desk, and established that company's "listed" and OTC trading desks.

Shah founded a second hedge fund in 1999, which he ran until 2003.

Shah's vast network of contacts includes the biggest players on Wall Street and in international finance. These contacts give him the real story - when others only get what the investment banks want them to see.

Today, as editor of Hyperdrive Portfolio, Shah presents his legion of subscribers with massive profit opportunities that result from paradigm shifts in the way we work, play, and live.

Shah is a frequent guest on CNBC, Forbes, and MarketWatch, and you can catch him every week on Fox Business's Varney & Co.

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