Shares of Trump Media & Technology Group — the previous and possibly future president’s eponymous social-media company — have lost around half their value since going public last month.
It’s easy to see why: Massive operating losses — and let’s face it, apart from Trump himself, just who really uses its Truth Social social-media product?
User traffic on the platform is only a small fraction of its major competitor X (formerly often known as Twitter, whose owner Elon Musk continues to tug out his hair attempting to work out the best way to make his baby profitable nearly two years after taking it private).
And yet with all of the selling, Trump Media shares aren’t price zero — removed from it in actual fact (it closed Friday at $32.59, down from its high of $79.38).
So someone have to be buying the stock that trades under the symbol “DJT,” which in case you don’t know, are the initials for the one-and-only, Donald J. Trump.
The query is, who’s crazy enough to throw money at a business that reported big losses, is warning of potential insolvency, and offers investors a stock prone to fall loads further?
It’s an issue I’ve been posing to my friends within the market-making business (individuals who match buyers and sellers of stock), and a few random traders, and the answers aren’t that crazy for those who understand how markets work, and the way they’ve evolved in recent times.
Among the buying is irrational, and a few of it makes all of the sense on this planet for those who work at a significant trading desk and are willing to roll the dice to make a fast buck.
Let’s start with the irrational.
Essentially the most natural buyers are the true believers — so-called meme investors who flooded the markets in recent times — and now see DJT (despite its suspect business model) as their next get-rich-quick scheme.
Meme investors are indeed an odd bunch.
They appear to think stock prices never go down and that tapping right into a social-media “meme” — like an organization backed by a celeb ex-president who’s fighting off multiple indictments yet stays ahead within the polls — will make them a fortune.
Yes, we’ve seen this before.
Recall how a few years ago first-time investors flocked to shares of GameStop, trading under the symbol GME, and AMC Theatres, considering they found gold in beaten-down shares of financially troubled firms.
Initially they made some money as they bid up share prices, though many were a part of the HODL (Hold On for Dear Life) social-media investing craze who thought that via some magic, these firms would suddenly transform themselves into the subsequent Apple or Amazon.
Cold hard reality
They didn’t after all.
GME hit some highs, and traders who shorted the stock (betting it could fall) initially got crushed, but soon enough, reality set in.
Same with AMC.
GME now could be down greater than 50% over the past yr and AMC greater than 90%.
And after factoring in its reverse split, its stock is price nearly 27 cents to long-time holders.
Shorts eventually made a fortune.
The meme scenario is playing out once more within the trading of DJT, and that accounts for the opposite buyers of DJT: stock lenders.
DJT is an ideal short for reasons outlined above. However the means of short selling involves borrowing shares for a fee, holding them, and hopefully making a living by replacing the borrow when shares decline.
Yet to short something, you should find shares to borrow, aka someone to lend them to you.
After the initial meme rally, there was loads of AMC and GME in circulation.
Sustain with today’s most vital news
Not sleep on the very latest with Evening Update.
Thanks for signing up!
DJT shares are pretty scarce, I’m told, because insiders like Trump can’t sell for six months because of lockups that kick in after a public offering.
The float is way lower than half of DJT’s outstanding shares, so it costs quite a lot of money to borrow the stock.
The financial-data firm S3 Partners says DJT is amongst the costliest stocks to borrow available in the market.
In other words, there’s some money to be made in lending the stock, and that accounts for the opposite set of DJT’s buyers in recent weeks, traders tell me.
In fact, that is all tricky business; any trader who’s lending stock owns it, so he must hedge by shorting other shares.
Even so, if prices of DJT decline significantly and the hedges don’t work out, that may cost him extra money than what he’s earning from lending fees.
But stock trading isn’t for the faint of heart.
There are a number of the explanation why people buy something and, given the intricacies of the market, there are a number of ways they will earn a dollar from spending a dime.
Iran and the Fed
The newest inflation numbers might stop the Fed from cutting rates in June, though an even bigger concern for those banking on the return of easy money may be what’s coming out of the Middle East.
Wall Street traders told me late last week the word they were getting from government sources was that an Iranian response to Israel’s missile strike on Iran’s Syrian embassy was imminent. And Iranian drone attacks were underway as this column went to press. If the situation escalates, watch oil prices soar, inflation spike — and ignore rate cuts for the foreseeable future.
And Iranian drone attacks were underway as this column went to press. If the situation escalates, watch oil prices soar, inflation spike — and ignore rate cuts for the foreseeable future.
Unrest and war, particularly within the Middle East, is rarely a superb thing, however the volatility of this one may very well be immense given the economic stakes of upper oil prices.
Not only will the Fed’s rate-cut plans be shattered, the economy could take a nosedive, upending the 2024 presidential race.
So stay tuned.