A five billion dollar folly comes to the Big Man’s rescue

The other day, I posted something about me being stupid. It was, I admit, somewhat tongue in cheek. But today I wonder if I really am stupid, because something has just happened in the United States that I utterly fail to understand.

It concerns my favourite Antichrist, Donald Trump, who today appears to be at least $3 billion richer through a deal that on the face of it seems as solid as the bridge in Baltimore that collapsed late last night.

The basics appear to be this. A Florida wheeler-dealer puts together a shell company and persuades a number of investors to put money into it. A shell company does nothing. The idea is that it waits to merge with another company that actually does something and then floats on the stock market. Clearly the investors, who chucked $300 million into the shell company, had plenty of faith in the wheeler-dealer, much in the same way as film studios commit huge sums of money into movies on the back of the “bankable” stars and director they’ve persuaded to sign up.

Then along come a couple of other wannabe wheeler dealers who once appeared on Trump’s Apprentice TV show. They have this brilliant idea of getting Trump, who has been banned by Twitter because of his various naughtinesses, to lend his endorsement to Truth Social, a new social media platform, Trump agrees to this in return for 60% of the shares in Trump Media, the company formed to own Truth Social.

The intention is that Trump Media will merge with the shell company, Digital World, thus getting its hands on Digital World’s $300 million. The new entity will then float on the stock market.

Today, two years later, after a few technical glitches (involving, you guessed it, lawsuits from aggrieved partners) have been resolved, the merged company hit the stock market. Its only asset apart from Trump’s reputation (hollow laugh follows) is Truth Social, which according to the New York Times “… is losing tens of millions of dollars and generated just $3.3 million in advertising revenue over the first nine months of last year.”

My reaction on hearing this news was astonishment. After all, who would bet on Donald Trump right now, mired as he is in multiple arraignments and law suits? And how on earth do you end up with a company worth $5 billion when it owns …. less than nothing? I suppose you could ask the same question about Tesla; how can a company selling 1.8 million cars in the last year be ten times more valuable ($500 billion versus $50 billion), than General Motors that produced 6.2 million vehicles in the same period? Blind, irrational, over-exuberant optimism? Or the terminal explosion of a global financial system gone bonkers?

The other reality is that what appears solid and everlasting can go pfft in a minute. How would you value Trump’s company if he ends up going to jail? Or if he avoids jail but loses the presidential election? Or if he keels over through an excess of cheeseburgers? Any of those outcomes appear a distinct possibility. And what would happen to a company ran by Trump’s successors? Depends who the successors might be, I guess. My bet would be that it would be acquired someone like Elon Musk or Jeff Bezos, both of whom have a few spare billions up their sleeves. But only once the value of the company has slumped to rock bottom.

The worst thing is that unless Trump and his partners are ineffably stupid, the whole transaction will have been perfectly legal.

So here we are. From 2008, when bankers risked fortunes (and lost them) on financial instruments they didn’t understand, to today, when it’s possible as if by magic to create something allegedly worth $5 billion out of virtually nothing. And equally possible that what has been brought into existence by the sorcerer’s apprentice will be blown away again once the sorcerer returns from his lunch break.

Would I have much sympathy for Trump Media/Digital World’s 400,000 investors who would likely lose their shirts? Not really. There’s a sucker born every minute. And as for Trump, he who lives by the sword dies by the sword. Metaphorically speaking, of course.

I watch the progress of Trump Media with interest.

PS: according to NASDAQ, as of 19.30 UK time, Trump Media now valued at $13 billion. Bananas!!!