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In a complicated financial deal, Donald Trump through Truth Social’s parent company, Trump Media & Technology Group (TMTG), has managed to merge with Digital World Acquisition Group (DWAC) which will invest large sums into the now merged entity called Trump Media (TM). The upshot of this is that as of tomorrow Trump Media will trade on NASDAQ as a publicly traded company that will trade under the ticker “DJT,” with Trump at the helm. This merger will raise the value of Truth Social from a consistent money pit to a post-merger valuation of more than $5 billion. The upshot of upshots is that Trump owns 58% of the stock (78.75 million shares). Based on Digital World’s current price of around $39 per share, the former president’s stake would be worth more than $3 billion.

Does Anyone Sense Disaster in the Offing?

The Financial Chemistry – Background. How did Trump pull this off? Had no one with Digital World Acquisition Group (DWAC) or those who approved the merger ever met him? Who would shovel money at a Trump company whose only real asset is a financial disaster, Truth Social? Why do people keep doing this? Well, they did, and since the results of the Iowa caucus, many MAGA investors piled cash into DWAC which, by the way, is itself a publicly traded company that has no business offerings but its willingness to merge with a financial Satan, and infuse a cash horde into his hands and control.

The way this merger occurred was through a special-purpose acquisition company, (SPAC) which have existed for decades but lately are the new big thing among financiers and investors (like, as you’ll see, MAGA cult members). SPACs (like DWAC) are shell companies that list their shares on an exchange with but one reason to justify their existence: buying a private company (like Trump Media & Technology Group) and taking it public.

An Investigation. Most of us learned that private companies go public via initial public offerings (IPOs), but SPACs are nowadays sucking up a portion of the highly regulated IPO business. Many SPAC investor dangers had been reported and in 2021 Massachusetts Senator Elizabeth Warren summarized them in her comments about her investigation:

“This investigation found that Wall Street insiders have used SPACs as their own personal piggy banks while retail investors have suffered. This industry is rife with fraud, self-dealing, and inflated fees, and the SEC and Congress should continue to act to crack down on these abuses.”

And until January 2024 SPACs were not as closely watched by the Securities and Exchange Commission (SEC). Then, however, they adopted new rules that “more closely align the required disclosures and legal liabilities that may be incurred in de-SPAC transactions with those in traditional IPOs.” Despite this, one must think, Donald Trump viewed SPACs, prior to the new SEC rules, as a potential playground.

The Upshot of Upshots. I think it inevitable that the SPAC that created his soon to be publicly traded NASDAQ listed TJT will eventually – perhaps soon – show itself to be yet another typical DJT business, rife with fraud despite it being, as a publicly traded stock, subject to a panoply of financial regulations. As Senator Warren pointed out about SPACs in general, “Wall Street insiders have used SPACs as their own personal piggy banks while retail investors have suffered.” Now at the helm of TJT, valued at approximately $5 billion, Donald Trump with his need for cash has his eyes on a piggy bank and a hammer.

Pity the Poor MAGA

Investors bought and sold shares of the original SPAC like any other stock, speculating on what private company it might bring to market, or how the company it has promised to buy will perform. This deal was unusual because of its political implications. And this, in turn, has unsettling implications for MAGA investors, many of whom have little to invest, but do so as one would donate a few dollars when the church collection plate goes by. Most of them are unpracticed investors, undereducated, and gullible. And now they’re invested, not in a SPAC, but in Trump dominated NASDAQ stock, one with Truth Social as its (presently) only asset, and an asset with no appreciable earnings. They’ve invested in a dream that has a long road ahead of it to reach profitability. It’s price is presently based upon a dream only, and eventually should TJT show no earnings growth/profitability big investors will jump ship.

And right now Trump has control of a lot of their MAGA small investor money, well before TJT has any earnings. The one thing, though, TJT has is cash. Under the “official” terms of these mergers, though, investors may not loan or sell stock for six months (a lockup period), or in this case, until September 2024. However, – there’s always a however – if the board approves, those strictures may be waived. And Trump’s TJT seven person Board of Directors is rife with cronies, most specifically, Donald Trump, Jr.* With no understatement intended, this board is pliable and would likely approve Donald Trump stock sales which might raise immediate conflict of interest concerns by shareholders (although Trump himself has shares that entitle him to a 55% vote over any shareholder measures).

* The most egregious of these rubber stamps are three former members of the Trump administration: the execrable Kash Patel, Linda McMahon, and Robert Lighthizer.

Can you hear Trump’s heavy breathing . . .? I think there’s little doubt that he will raid his new publicly traded company for whatever reason he chooses. And if he does so – or, when – he’ll sell, and perhaps large tranches. That may will cause a significant loss of stock value. What would the results be for those poor MAGA shareholders? His loyal sheep. Well, a financial fleecing. Will that change a few MAGA minds . . . if past is prologue, no, it won’t. Trump has found the perfect flock; during February after winning the Nevada caucuses he said, “I love the poorly educated.” Pity the poor MAGA investor.

August 10, 2011

We found the UP elevator!! And this despite an equivocal Federal Reserve announcement; manufacturing and productivity down; unemployment still up with more folks opting out of the workforce; crazy Tea Partiers still in charge, promising more and worse cuts; etc. BUT, with interest rates near zero and the low rates on long term debt of nearly all kinds, where is one to invest one’s money. Well, in high risk and, thereby, high yield Spanish or Italian debt? In .005% savings accounts? How about expanding your business? Even more telling, how about starting a new business? There are other places to invest, but the spectrum of possibilities is less than dazzling.

Many don’t want to risk a single dollar. They’re hoarding cash, from the average Joe and Josepha to major corporations. Mutual funds and exchange-traded funds are in business solely to be almost always fully invested, and those entities with trillions to invest are likely the main drivers in this market. These investors will not, and cannot, sit on cash (i.e. T-Bills, old-fashioned money, etc.). Small percentage changes in market participants, and thus market psychology and tactics, can cause unpredictable results – have a look at the recent volatility statistics for the stock market. This signals a hot, emotional, quick draw, quick shoot market. How long can that prosper?

In any event . many investors outside this mega-sized group have gone to gold, and have clearly done well, especially in the last 18 months. But aside from this well-known volatile investment, with less opportunities for investments with a payoff, there’s little choice other than the stock market. The market can be driven higher by sentiment alone. So, despite my downbeat expectations for the economy, I wouldn’t be surprised to see periodic bombastic rallies like today’s, driven by the (usually detested) short sellers covering their positions, bargain hunting (or so they think), institutions, ETF’s, and true believers who think all things rise. Moreover, those funds and day traders seeking quick capital gains will be attracted to the one place where they can invest in Apple one day and sell it short the next . . . and often gain by the volatility this causes.

It’s reminiscent – but not analogous – of those days when a few big players – Mellon, Morgan, and other so-called robber barons – bought shares in a particular company to drive its price up, and thereby draw in the optimistic little guys. Then, with the price driven higher, sometimes in a matter of a week or less, they do the capitalist thing – like a shark on a wounded grouper, they attack: selling quickly, feasting on a nifty gain, with the little guys left to drown in their losses in panic selling.

This time, though, I don’t think it’s a “conspiracy” of minds (although there is some of that), but an unconscious “conspiracy” caused by a modern system where trades in huge trading blocs rush the market at the speed of light, and then cause, through programmed price points in other systems, a cascade of selling (or buying, perhaps like today). These amoral systems are taking away the investor’s control, and the logic of these machines’ “personae” is to go, go, go . . . And are they leaving us behind?

Someone said, “All theories go to the end of their logic.” What is the end of the markets’ logic nowadays when it – and gold – are perceived by many as the only opportunities for gain? And then there’s the unemployment rate, the underemployment rate, the loss of union-driven wage stability, the coming biggest tranche of local, state, federal layoffs and furloughs, and the return – not today, not tomorrow, but soon, and for the rest of your life – of the Tea Party Congress. Oh, the humanity!

Tag: investors

08-09-2011 – Stock Market – Confusion Reigns on The High Ground