Shares in Trump Media & Technology Group, the social media company named after the former and possibly future president, have lost about half their value since going public last month.
It’s easy to see why. Huge operating losses — and let’s be honest, aside from Trump himself, who actually uses the company’s Truth Social social media product?
The platform’s user traffic has been dwarfed by its main competitor This is just a small part of the problem (I continue to worry about how to make a profit).
But despite all this selling, Trump Media stock’s value is far from zero (it closed Friday at $32.59, down from a high of $79.38).
Therefore, someone must be buying stocks trading under the symbol “DJT”. In case you didn’t know, these are the initials of the one and only Donald J. Trump.
The question is: Would anyone be crazy enough to put money into a company that is reporting huge losses, warning of possible bankruptcy, and offering investors stocks that could fall even further? I’m saying that.
This is a question I’ve been posing to friends in the market making industry (those who match buyers and sellers of stocks) and some traders, but it’s important to understand how markets work and how they work. The answer isn’t all that strange if you understand what it is. They have evolved in recent years.
Some purchases are irrational, but for someone who works at a major trading desk and doesn’t mind rolling the dice to make a quick buck, it makes all the sense in the world. There are also things.
Let’s start with the absurd.
The most natural buyers are the true believers, the so-called meme investors who have flooded the market in recent years and now see DJT (despite its questionable business model) as the next get-rich-quick scheme.
Meme investors are a strange bunch indeed.
They believe that stock prices will never go down and that if they take advantage of social media “memes” (such as companies backed by celebrity former presidents who are leading in the polls despite fighting off multiple indictments) He seems to think he can make a lot of money.
Yes, we’ve seen this before.
I remember a few years ago how first-time investors flocked to GameStop and AMC Theaters stocks, trading under the symbol GME, thinking they had found gold in the tattered stocks of troubled companies. want.
Initially, they made some profits by inflating stock prices, but many are participating in the HODL (Hold On for Dear Life) social media investment boom, and by some magic these companies suddenly become the next Apple or Amazon. I thought it would transform. .
cold and harsh reality
Of course it wasn’t.
GME hit some highs, and traders who had shorted the stock (betting the stock price to fall) were initially crushed, but reality soon set in.
The same goes for AMC.
Currently, GME is down over 50% over the past year and AMC is down over 90%.
And after accounting for the reverse stock split, the company’s stock is worth just about 27 cents to long-term holders.
Shorts eventually made a fortune.
The meme scenario is once again playing out in the DJT trade, and this one describes DJT’s other buyers: stock lenders.
DJT is a perfect abbreviation for the reasons outlined above. But the process of short selling involves paying a fee to borrow a stock, hold it, and hopefully make a profit by replacing the borrowed money when the stock goes down.
Still, in order to short sell something, you have to find someone to lend you the stock, or stock to borrow.
After the first meme rally, AMC and GME were all over the place.
From what I’ve heard, DJT stock has become quite rare. That’s because insiders like Trump can’t sell for six months due to a lockup that begins after the stock goes public.
The free float represents less than half of DJT’s outstanding shares, so borrowing shares would be expensive.
DJT is one of the most expensive stocks to borrow on the market, according to financial data firm S3 Partners.
In other words, there is some profit to be made by lending the stock, which is what has led to other buyers in DJT in recent weeks, traders told me.
Of course, all this is difficult. The trader lending the stock owns the stock and must hedge it by shorting other stocks.
Still, if DJT’s price falls significantly and the hedge fails, it could end up costing it more than it earns in financing fees.
However, stock trading is not for the faint of heart.
There are many reasons why people buy something, and given the complexity of the market, there are many ways to make a dollar for every dime you spend.
Iran and the Fed
The latest inflation data could mean the Fed will halt interest rate cuts in June, but the bigger worry for banks hoping for a return to easy money could be what comes out of the Middle East.
Wall Street traders told me late last week that information they received from government officials was that an Iranian response to Israel’s missile attack on the Iranian-Syrian embassy was imminent. And at the time this column was published, Iranian drone attacks were underway. If the situation escalates, watch for higher oil prices and a spike in inflation, and forget about interest rate cuts for the time being.
And at the time this column was published, Iranian drone attacks were underway. If the situation escalates, watch for higher oil prices and a spike in inflation, and forget about interest rate cuts for the time being.
Unrest and war, especially in the Middle East, are never a good thing, but given the economic risks posed by soaring oil prices, the changes in this situation could be unfathomable.
Not only would the Fed’s rate-cutting plans be dashed, but the economy would plummet, potentially upending the 2024 presidential election.
stay tuned.
