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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
This year is starting to have something of a 2021-ish vibe to it. Bitcoin is booming, an old American man looks likely to hand leadership of the free world to another old American man, Elon Musk is saying things like “Dogecoin to the moon”, and so-called “meme stocks” are back.
One such stock has been attracting particular attention, and it just happens to be majority-owned by one of the aforementioned old American men: Trump Media & Technology Group. Trading under the ticker “DJT”, its share price surged in value on its market debut in late March, after merging with another 2021 throwback: a special purpose “blank cheque company” known as a Spac.
Trump, who has been scrambling to come up with the cash to pay hundreds of millions of dollars in legal fines, saw his net worth balloon by several billion dollars in a single day as the stock soared by more than 50 per cent at one point. Many gloated a few days later when it fell again by more than $1bn, as the share price dropped on the back of dismal earnings for the company. A six-month lock-up period prevents Trump from cashing out his shares just yet but his roughly 60 per cent stake is still worth — on paper, at least — almost $4bn.
Whether or not all this can be put down to Trump’s canniness is up for debate, but what is surely beyond it is his jamminess. And those who believe — perhaps rather quaintly, at this point — that share prices go up and down solely on the basis of fundamental factors, such as whether or not a company makes any actual money, are incensed about it. “Why are you even talking about this?” media tycoon Barry Diller fumed on CNBC, calling the people who had been buying the stock “dopes”. “It’s a scam, just like everything [Trump] has ever been involved in is some kind of con.”
The facts are clear: the company is not only not making any money, it is losing a lot of it too. It managed to notch up losses of $58mn last year, on revenues of just $4.1mn. If it were to trade around the same multiple as, say, Meta (whose current valuation, at around 10 times revenues, is still huge) it would be worth about $41mn. And yet, at the time of writing, the company has a market valuation of around $5.7bn, meaning it is trading — even after having fallen since going public — at a somewhat preposterous 1,400 times its revenues.
But it’s not the facts or the fundamentals that matter here, it’s the feelings. And where Trump is concerned, the feelings — whether positive or negative — are always impassioned.
There has been much talk of the stock price being “untethered from reality”, but that is only true if we are to imagine that the “reality” of free-market capitalism is that it is some kind of efficient and dispassionate wealth creation mechanism. One only has to look to the crypto markets — in which many traditional investors now have skin in the game — to see this is simply no longer the case. None of these thousands of crypto coins have any revenues or cash flows; they trade solely on the basis of “sentiment”, a euphemistic word that is just a synonym for collective human feelings.
I have also seen many say that the reason people are buying “DJT” is as a way of backing their man, providing him with financial, and reputational, support. I’m sure this is true for some, but I doubt it’s the case for most — indeed, of more than a dozen Reuters interviews with people who’d bought the stock, most said they were simply trying to make a quick profit from it. Are these people really such “dopes”? I’m not sure they are — particularly those that cashed out after the initial surge. They wagered that a Trump-branded stock would surge when it hit the market because other people would buy it, and they were right.
In fact, the more an asset price is disconnected from its “fundamentals”, the more potential it has to go “to the moon”. Could a company trading at 10 times its revenues suddenly start trading at 20 times its revenues? Unlikely. But could a company trading at a revenue multiple of 1,400 suddenly trade at a multiple of, say, 3,000? Sure! Why not? It is already disconnected from any traditional way of assessing its value, so from here, one price doesn’t make any more sense than another. Likewise, it is precisely because crypto has no intrinsic value that its price can climb — and drop — so precipitously (which is why I make a point of never forecasting crypto price movements).
The funny thing is, the same is true of Trump himself. It is because he has said so much that is “untethered from reality” that it no longer matters when he says more of it. What those who are perplexed by Trump’s continued popularity often fail to understand is that the four-times-indicted former president, like his money-losing company, is being assessed on a different set of criteria entirely. For the followers of DJT — both the stock and the man — feelings trump facts.
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