1. Diamond Hands
You saw that Devin Nunes is leaving Congress to take the top job at Trump Social, yes? You know what that means: 🚀🚀🚀🚀🚀
This is not financial advice, but in general, the best bets you can make are bets against your own interest. Let me explain.
Suppose you are a die-hard fan of Sports Team X.
Team X has never won a sportsball championship. But now, after an unlikely season, they are in the championship game. You have a great deal of personal happiness and satisfaction riding on the outcome. If Team X wins, you will be elated. If Team X loses, you will be shattered.1
What do you?
Go bet $100 against Team X.
Why? Because now you have hedged your happiness. If your team wins, yay! You will be thrilled and filled with the joy.
If your team loses, you just made $100 and you can go out and buy something to fill the hole in your soul.
This is the point where I disclose to you that I am the proud owner of two shares of DWAC, which is the SPAC set to acquire the parent company of Trump Social, aka Truth Social.
Which means that if the Trump Social network falls apart, then I will get joy watching it implode. And if the Trump Social network succeeds, then I will get filthy rich while hodling with my 💎🙌.2
I should point out here that I do not expect to get filthy rich. Because while Trump social has a beautiful, historic, $1+ billion valuation that many people are saying is the biggest thing to ever happen in stocks or internet, there are some . . . irregularities.
2. When Do You Sell Trump Social?
Matt Levine went poking through the Trump PIPE investment round yesterday and found something interesting.
Here are the relevant background facts:
There is a publicly-traded company called Digital World Acquisition Corp (DWAC). This is the company of which I own two shares.
DWAC is a special-purpose acquisition company (a SPAC).
The express purpose of a SPAC is that it is a vehicle to take a privately-held company public, without going through all of the SEC rigamarole and disclosures.
Most SPAC’s trade for about $10 a share, pre-acquisition. That is what DWAC was trading at before the announcement that it would purchase 23 percent of the Trump Media and Technology Group (TMTG)—which is the holding company for Truth Social.
Following the announcement, shares of DWAC shot up. They currently trade for about $45 a share.
Okay. So now you’re caught up.
Now, as Levine points out, this $45 per share price actually makes Trump look like a sucker. Because he sold 23 percent of his company to DWAC for $10 a share. And now the market is saying it’s really worth $45 a share. And who’s getting that money? Not Trump! It’s all the retail investor who piled into the stock making money.
And if history has shown us anything, it’s that Donald Trump does not like it when other people make money off of him.
So Trump and TMTG went looking for more ways to cash in. The problem is, since TMTG isn’t a public company, he can’t just issue stock for $45 a share and let people give him money for it. So instead, he has set up what is known as a PIPE: private investment in public equity.
In a PIPE fundraising round, the company goes to institutional investors and says . . . well, I’m just going to let Matt Levine take over here:
There are two basic ways to think about raising a PIPE here:
Go out to institutional investors, explain the business model, introduce them to the experienced management and technical teams, give them financial projections and let them pressure-test them, and generally get investors comfortable with a high-10-digit fundamental valuation for this company.
Go out to institutional investors and say “look if you buy stock at $30 you can sell it to some retail rubes at $40.”
On Saturday, TMTG and DWAC announced a billion-dollar PIPE, and if you read the announcement very carefully I think you can tell which approach they took.
And here’s where we get at the . . . irregularity with Truth Social:
In a sense, the PIPE investors are buying TMTG stock at a price of $33.60 per share. That is a nice number! It is higher than $10, but lower than $44.97; Trump is getting a good deal (selling stock at a higher price than in the SPAC deal) and the PIPE investors are getting a good deal (buying stock at a lower price than the current public price).
But that number is just a cap on the valuation that they’re paying; the important thing there is the closing adjustment. . . .
If after all of that information is disclosed and the merger closes the stock price is up, then, great, the PIPE investors will buy stock at $33.60 per share, an even bigger discount to the higher price.
If the stock price is down, then the PIPE investors will buy stock at a 40% discount to whatever the stock price is after the merger closes. If the stock averages $20 per share after the merger closes, the PIPE investors will pay $12. . . .
What will these PIPE investors do, when they buy stock at a 40% discount to the trading price after the SPAC merger? I don’t know, but I think … they will … sell it? For more than they paid for it? . . .
Ordinarily in SPAC mergers, the PIPE investors can’t sell their stock the day after the merger closes, because the company has not yet registered their resales of stock with the Securities and Exchange Commission. . . . Usually they can sell within, say, a couple of months.
Not in the Trump deal!
So even the institutional investors are walking into Truth Social viewing it as a pump-and-dump where they are guaranteed a 40 percent profit just so Trump and TMTG can realize some of the upside of their stock price?
That is perhaps not the way to structure financing for a company that eventually wants to compete with Facebook, Twitter, Google, Amazon, and Stripe for control of the interwebs? It sounds more like a . . . cash grab? A wealth transfer that takes dollars from the idiot MAGA retailer investors and splits them between the PIPE investors and Donald Trump?
Who could say!
But with a visionary tech genius like Devin Nunes at the controls, I’m sure that everything will work out just fine for Trump Social. After all, this company’s moat is the physical well-being of an obese 75-year-old man.
What could possibly go wrong.
This Hazlit piece on a Rothko forgery is fantastic:
I saw the fake one first, years ago, printed out in a report tacked on to a court filing out of New York City. There were two pictures on the first page, two sides of a painting, back and front. On the left, two rectangles, black over crimson on a background of lighter red. On the right, a wooden stretcher bisected by a crossbar. The edges of a canvas, folded over and stapled, were visible along the edge. There was a name on the back, too, and a date, written in fuzzy, impasto caps: “MARK ROTHKO/1956.” . . .
Looking at that report, I didn’t know that it would be a story, though I thought it might be. I certainly didn’t think I’d be puzzling over it for the next eight years. It was written by a kind of fine art scientist named James Martin. It described his analysis of a 50-inch by 40-inch oil painting, Untitled, 1956. “Hereinafter” the report said, “the “Painting”.”
It was ten pages long. It broke down primers and pigments and binders. It looked at crossbar marks and the history of paint. It came to a stark conclusion. The painting, which the oldest art gallery in New York had sold to a Gucci magnate for $8.3 million, was a fraud. It wasn’t a Rothko. He didn’t paint it. Not “in 1956 or any other date.”
Feel free to substitute “the Philadelphia Eagles” and “the 2018 Super Bowl” throughout this exercise.
At some point I may run a contest where the prize is an NFT of a JVL-owned share of Trump Social. There would be so many layers to the joke.