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The short story behind Donald Trump's Truth Social platform

The short story behind Donald Trump's Truth Social platform

 


Shares of Trump Media & Technology Group, the eponymous social media company of the former and possibly future president, have lost about half their value since going public last month.

It's easy to see why: massive operating losses and, let's face it, besides Trump himself, who actually uses his Truth Social social media product?

User traffic on the platform is only a small fraction of that of its main competitor X (formerly known as Twitter, whose owner Elon Musk continues to tear his hair out trying to figure out how to make his baby profitable almost two years after privatizing it).

And yet, with all this selling, Trump Media shares aren't worth zero, far from it (they closed Friday at $32.59, down from their high of $79.38).

So someone needs to buy the stock that trades under the symbol DJT, which, in case you didn't know, are the initials of the one and only, Donald J. Trump.

The question is, who is crazy enough to invest money in a company that has reported big losses, is warning of potential insolvency, and is offering investors a stock that is likely to fall even further?

This is a question I've asked my friends in the market making industry (people who match buyers and sellers of stocks) and some random traders, and the answers aren't that crazy if you understand how markets work and how they have evolved in recent times. years.

Some purchases are irrational, and others make all the sense in the world if you work on a major trading desk and are willing to roll the dice to make a quick buck.

Let's start with the irrational.

The most natural buyers are the true believers, called meme investors, who have flooded the markets in recent years and now view DJT (despite its suspect business model) as their next get-rich-quick scheme.

Meme investors are indeed a strange bunch.

They seem to think that stock prices never go down and that relying on a social media meme like that of a company backed by a famous ex-president fighting multiple indictments while still leading in the polls is their will make a fortune.

Yes, we've seen this before.

Remember that a few years ago, new investors flocked to shares of GameStop, trading under the ticker GME, and AMC Theaters, thinking they had struck gold in the crumbling stocks of companies in financial difficulty.

At first, they made money by driving up their stock prices, although many were part of the HODL (Hold On for Dear Life) social media investing craze which believed that through a little magic, these companies would suddenly transform into the next Apple or Amazon. .

The harsh cold reality

Of course, they didn't.

GME hit record highs, and traders who shorted the stock (betting it would fall) were crushed at first, but soon enough, reality set in.

Same with AMC.

GME is now down over 50% over the past year and AMC is down over 90%.

And after factoring in its reverse split, its stock is only worth about 27 cents to longtime holders.

Shorts eventually made a fortune.

The same scenario is playing out once again in DJT trading, and it concerns the other buyers of DJT: stock lenders.

DJT is a perfect short film for the reasons outlined above. But the process of short selling involves borrowing shares for a fee, holding them, and hopefully making money by replacing the borrowing when the shares fall.

Yet, to sell something short, you need to find shares to borrow, that is, someone to lend them to you.

After the initial meme rally, many AMC and GME were in circulation.

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DJT stock is quite rare, I'm told, because insiders like Trump can't sell for six months because of the lockups that come after a public offering.

The float is well less than half of DJT's outstanding shares, so it's very expensive to borrow the shares.

Financial data firm S3 Partners says DJT is among the most expensive stocks to borrow on the market.

In other words, there's money to be made by lending stocks, and that represents the other group of DJT buyers in recent weeks, traders tell me.

Of course, this is all a tricky business; any trader who lends stocks owns them, so they must hedge by shorting other stocks.

Even so, if DJT prices drop significantly and the hedges don't work, it could cost him more money than he earns from loan fees.

But stock trading is not for the faint of heart.

There are many reasons why people buy something, and given the intricacies of the market, there are many ways to make a dollar for spending a penny.

Iran and the Fed

The latest inflation figures could prevent the Fed from cutting rates in June, although a bigger concern for those banking on the return of easy money could be what's coming from the Middle East.

Wall Street traders told me late last week that the news they were receiving from government sources was that an Iranian response to the Israeli missile attack on the Iranian embassy in Syria was imminent. And Iranian drone attacks were underway as this article went to press. If things get worse, watch oil prices skyrocket, inflation skyrocket, and forget about rate cuts for the foreseeable future.

And Iranian drone attacks were underway as this article went to press. If things get worse, watch oil prices skyrocket, inflation skyrocket, and forget about rate cuts for the foreseeable future.

Unrest and wars, especially in the Middle East, are never a good thing, but the volatility of this could be immense given the economic stakes linked to rising oil prices.

Not only will the federal government's rate cut plans be dashed, but the economy could tank, upending the 2024 presidential race.

So stay tuned.

Sources

1/ https://Google.com/

2/ https://nypost.com/2024/04/13/business/the-short-story-behind-donald-trumps-truth-social-platform/

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