WRFH/Radio Free Hillsdale 101.7 FM - Wall Street Weekly: The Whole Truth

Episode Date: March 29, 2024

Join Patrick and George as they take a deep dive into Trump Media—the company that has all of Washington and New York talking. What is Trump Media & Technology Group? Why isn't it a typical public company? For the answers to these questions and more, be sure to listen in.

Welcome to Wall Street Weekly, a show where your host, George and Patrick, cut through the financial jargon to keep you educated and informed about the markets that affect our lives. Enjoy the show. You're listening to the highly informing, overperforming radio show on Radio Free Hillsdale 101.7 FM. We've got actually a really interesting show for you today as it kind of has the intersection of politics and finance. And Patrick's going to be bringing us that story about truth social today. And with that, we would like to remind our audience that this show is for entertainment purposes only. Anything we say on here is not financial advice, so make sure to consult that financial representation before making any decisions. Before we get to the heavy hitting story, we're going to start off with three big news stories from this week.

And I say big because it's not every day that you get a 1.5 mile long bridge getting run into by a ship. I was actually looking into this, and Patrick and I were discussing what implications this might have for publicly traded equities. this is what we normally talked about on the show. And I was actually surprised to find there wasn't a lot of implications. The most interesting would have to be the insurance companies that are expected to foot $2 to $4 billion of that bill, which I didn't realize bridges were that expensive, admittedly. And then another interesting thing is trying to determine what percent of the bill the government will actually pick up, because you might not think about it.

but they're replacing effectively a decades-old bridge with a brand-new bridge. And so it's not really fair, even though the ship barged into it. Like, it's not really fair to the ship that it has to pay for a brand-new bridge rather than one in the current condition. But I think 2021 made a lot of companies resilient to supply chain issues where a lot of ports were backed up. Every company I have looked at said they are resilient and they have great backup plans to the port of Baltimore not being open for the near future.

Speaking of disasters in a glow to Sam Bankman-Fried today, he was arrested for 25 years officially. And his lawyers actually argued that six years was going to be the fair punishment. And 25 years is actually the second biggest punishment that we've ever seen in a fraud case. Do you know who number one would be? I don't know. Probably some Ponzi scheme. Yeah, Bernie Madoff, the famous Ponzi scheme fame who actually died a couple years ago in jail. after receiving an 150-year sentence wasn't quite able to make it to the end of that. But Bingman Freed, on the bright side, he'll be getting out when he's about 57 years old,

if that's any hope. On the right side for whom? Because I'm pretty sure the victims of, his victims were up in arms about it, right? Weren't they? Exactly. So his mother argued to the victims, this isn't a personal tragedy. The ease with which we can sign young lives with so much promise to the trash heap is a societal tragedy as well. And it is disappointing, obviously. I'm sure if I was a parent of a kid who I thought they had the best intentions in mind, but ended up going to jail for it, that would be pretty disappointing. On the other hand, he lost clients nearly $10 billion through the fraud. I mean, you can go online and read a bunch of personal stories about people who are entrusting their retirements or their kids' college savings. So effectively, he probably ruined more than 25 years worth of lives, if you want to look at it in that aggregate. To put that in perspective,

Bernie Madoff was sentenced to 150 years for losing $13 billion. So in some ways, Sam Bankman-Freed kind of got off the hook. It seemed like the judge lent a little credence to the fact that it wasn't as outright as Bernie Madoff, where he was purposely funneling money into a pyramid scheme. At the same time, Sam Bankman-Fried was also guilty of perjury when he lied about not knowing about transfers between his two accounts. We talk more about that in actually one of my favorite episodes that we were recorded last March with Ian Schlegel, Flowers, Friedman, and FTX, I believe was the name of that one,

which you can find on Twitter or X at Wall Street Pod. You know, I remember seeing their Super Bowl ad two years ago. Now it's crazy to think that, wow, that Super Bowl ad was actually for a fraud company. We talk about in that episode, it seemed like a really cool, modern hip, something that's not going away, but obviously that just wasn't the case. Yeah, here's the conservative values. If you're into conservative values insofar as not politically, but be prudent with your money and stuff like that, then those type of people are probably not interested in Reddit's IPO, where the primary investor at this point seems to be more of a day trader or fast-paced investor versus, you know, your typical long-term horizon investor. So we talked about it going from $34 pre-IP to $48 after day one.

That was last week's episode. two business days later, it was up to $75 a share before settling today, Thursday, March 28, 2024, around $52. And we predicted it, though, many people predicted it in that episode that this would be something that maybe would be fun to watch just because there is so much weird momentum based on anonymous users on an online platform, trying to push this up in value or short it. But it's just validating to know that we said something right. Yeah, I mean, IPOs are in general pretty volatile. I feel like most stocks, you're probably going to get the most movement on the charts when it first opens on the market. But then add to that the fact that Reddit is such an interesting company in that it's kind of a meme stock, but more than that, it's the generator of the meme stocks. It's the mother of them.

You know, we talked in that meme stocks episode two seasons ago last spring about GameStop and AMC and how Reddit really fueled that whole. scenario incident. And so, yeah, just the volatility of the initial IPO added, add that to the effect of, you know, the nature of Reddit and you get a really interesting stock. Yeah. And even for IPO investors and people who have followed it, the fact that in the course of a week, really, we've seen two of the craziest IPOs, I think, probably over the last decade, honestly, as Truth Social when public through digital media acquisition group. So it's not Actually, Truth Social. It's the owner of Truth Social, which is Trump Media and Technology Group. And yes, they acquired a digital world acquisition company. But yeah, more on that later.

Or you could just talk about it. Or you could just go into it now. I think we dive into the story now as we continue with our episode on Radio Free Hillsdale 101.7 FM on Wall Street Weekly. Here's MSNVC with their perspective of the IPO. The analogy that I have been using today to describe this. Trump's followers who are theoretically going to buy up the stock, hold it up for their trusted leader because they love this guy, is akin to his most devoted supporters storming the Capitol, going to jail while Trump watched, didn't pardon any of them,

didn't cover their legal bills, and what did he do? He goes on throwing parties at Mar-a-Lago, running for president, and living his life. Well, it's an interesting take, that's for sure. I don't know if the analogy, the comparison is right on. six and a new stock. But hey, interesting day. Also, George, I think you said that it was an IPO. I don't think it was actually an IPO. Correct me on that if I'm wrong. But it looks like it was just a merger. If you go to the Trump stock on Yahoo Finance or anywhere else, then you can see it's been around

since 2021. So the way that this actually works is via SPAC or SPAC. And these are companies, they're shell companies. So doing the filing for going public is really expensive. You have a lot of paperwork to file and that sort of thing. A lot of companies, though, go bankrupt too, where they should be delisted. And what some of these do is they turn into special purpose acquisition corporations where they have no value, but they have all the regulatory paperwork essentially. And then they merge with a company that wants to go public so that they don't have to really worry about that as much. And that's what Trump, social or whatever, you want to call it did.

Yeah, Trump Media. Okay, that makes sense. So the acquisitions company, digital world, it was really just there so that it could merge with Trump in the first place. Yeah. Okay, that makes sense. So anyways, it went public on the NASDAQ

as Trump Media and Technology Group with the ticker symbol, DJT. I have no clue as to what that could mean, George. Any guesses? We'll have to reach out to our Washington correspondent to see if we have any leads on that. Anyways, a little bit about the CEO, his name is Devin Nunez. He was actually a House representative from California, a Republican.

He resigned from Congress in 2022 to become the CEO. And he is all Trump's with Trump and everything. Trump actually gave him the Presidential Medal of Freedom back in 2021 for apparently exposing Obama's illegal wiretapping on Trump in his campaign. I don't know what the process is to award someone the Presidential Medal of Freedom. I'm not sure if there's a limit to how many. can give out. I won't criticize Trump for who he gives his medals too, but it sounds kind of like a PR stunt to me. Anyways, Trump Media owns True Social, which is the social media company and TMTG Plus. So Truth Social, it's basically Trump's alternative Twitter, right? And this makes a lot of sense

when we consider that it took a big hit when Elon Musk bought Twitter. Why would that be, George? I would guess that I mean Elon Musk started unbanying accounts that Truth Social was kind of supposed to fill the void of Yeah among them Trump right Or at least that's what he said he would

I don't know if he's back on or not is he He posted once after the mugshot photo came out On Twitter but since then no Okay so yeah I mean Twitter slash X it already had the Popular base on there so people are like well if it's gonna get better again I guess we don't need to move to true social So it kind of fizzed out a little bit

It's still alive, but it's definitely, it's got low numbers. And then there's TMTG Plus, which is Trump's alternative Disney Plus, if you will. It's a, quote, non-woke streaming service. So you can get news, documentaries, and podcasts from there. Although I don't think it's actually rolled out yet. They're working on its production. I wanted to take a look at some of their financial data as well. The first thing to note is that Trump has a 58% share in the company.

and is it true that when you have over a 50% share, that's when it discloses that you have that, you know, how much share in the company that you have? I think it's over 10%. Oh, really? Yeah, but when you get over 50%, he effectively controls the company because everything goes to a popular vote for companies,

but if you have over 50%, you basically own that. You can fill the shots. Yeah. Okay. Anyways, the stock is very volatile. There is a financial, measure called beta, which is a measure of volatility. And we learned in our finance class that a beta of 1.1.1 is considered average. And above one is above average. Below is below is below average.

And this Trump media stock, its beta is over six. And that just shows how wild it's been over the past few days. And yeah, just to clear beta is multiples of the S&P 500 volatility. So an imperfect way you can think about this is if the S&P 500, the most standard index goes up 1% during the day, truth social is going to go up 6%. And that's obviously like very false. It's not going to ever match perfectly. That doesn't even guarantee that any stock is going to go up or down or directionality, but it does give us an idea of what kind of ride we're going to be on a relative to the most common index. Anyways, when the stock opened as Trump Media, it was initially valued at $9 billion, despite earning $3 million in revenue.

That's million, not billion. $3 million in revenue last year and losing $50 million. For contrast, Reddit last year, they made $804 million last year, and they were valued at $6.5 billion, which is less than Trump's $9 billion. And when you say they made $804 million, that was the revenue. That's revenue, right? A few other numbers that I wanted to take a look at that I thought were interesting. There's one called the price-to-sales ratio.

That's the price of the stock divided by revenue per share. from sales. For Apple, it's seven. So that's, you know, consider pretty good. You want a lower number. For price to sales ratio of DJT, it is 1.44,000. It is 1.44,000. I've never seen a price to sales ratio that high. Absolutely wild. I mean, you just think like $3 million in revenue, just like what you take in. We're recording in the Hillsdale area where there's a lot of small businesses. And I've got to imagine that a small business with maybe like a low profit margin is probably getting $3 million in revenue. Yeah, they're not making much. I wonder what it's from. Probably ads. They said it was ad revenue on truth social. Okay. And one last number that is even more crazy if that's fathomable. This one is

called the enterprise multiple. It is enterprise value divided by EBITDA, which is earnings before interest, taxes, depreciation, and amortization. And basically this enterprise multiple is used to assess the value of a stock relative to its history or its competitors. Did I get that right? Yeah, and a lot of times, depending on the industry, isn't that multiple, usually like 10 to 20. So basically if it is low, the number is low relative to its history

or its company's competitors, then it's either undervalued or it's just a bad stock. The enterprise multiple of meta, which is Facebook, they own Instagram as well, a bunch of other companies, WhatsApp. It is 20. The enterprise multiple of DJT is, negative 5.04,000. Once again, DJT coming out with a crazy number. And how is it negative? Because they just lost

more, way more than what they made last year. And it's important to note that I think in investing, the thing to remember is that truth resists simplicity. Kind of funny that we're tying it into truth social. If you were going to invest in a company that had a negative enterprise value to EBITA, you would generally see that in like a really risky company that has a huge potential payoff. One that I would think about is if you have a company that's trying to develop a cancer drug, and they keep losing money year in and year out because they're trying to do research. But you're willing to pay a lot for that stock because just in the off chance that they do, figure out something that's going to be a really valuable company.

Some of the analysis that I've read on Truth Social hasn't really been positive in how do you scale something like this. Ad revenue is $3 million. I don't think truth social is really going to grow that enormously. I mean, even if it grew three times its user base or four times, you're still not getting anything there. Whereas I think a lot of the draw to Reddit was that there's a lot of users that haven't been monetized that could be. Yeah. And so that leaves us with a question, right? What is Trump media? Is it a meme stock? Or is it maybe a fundraiser for Trump and his presidential campaign. Let's think about that. Is it a meme stock? CNBC's financial commentator, Herb Greenberg, said, in any other world with any other name or person associated with it, this would be a penny stock.

This company doesn't deserve this valuation. And so that's a fair question. Is all of its value in the Trump name, in the Trump character? I wonder how many of these investors are, you know, Maga supporters, Trump supporters that want to see the stock doing well because it seems to be a visual representation of Trump is doing in general and how his campaign is doing. Because if his stock is going to go down, it looks like, oh, Trump, he must have had a bad day or something. But if his stock is doing really well, it's just going to be, you know, feed the flames of like, oh, man, this is really gaining ground. He's probably going to win the election.

Just, it's kind of a PR move. I think a big shift happened in the early 2010s you had the Occupy Wall Street movement. Another great movement emerged. And by great, I mean large. out of the GameStop short squeeze that we've talked about, where people want to feel like they're participating in the market somehow and have buy into a company they like. And so I think being able to say that you are part of Trump's success,

or it's not a great way to look at investing, I don't think, but some people will say we're helping Trump out. And that could definitely be the case if you're pumping up this valuation and he's able to sell some of his shares, or take out debt because he can use his shares at that. collateral. There is a way that he can use his 58% stake to perhaps fund his presidential campaign. It's most likely that he's going to try to stay over 50%. But if he now has new assets of $4 billion that he didn't have before, even if he's borrowing just a little collateral,

yeah, you can take out debt on those shares. Yeah, it'll be really interesting to see how this plays out long term because honestly it's not holding on a very solid foundation, as we've seen from the financial data. We'll just have to see how far, you know, his supporters can take this. As you buy more of a stock demand increases, the stock price increases, this could be just running totally on MAGA fumes. I cannot remember a time where you've seen a $3 million revenue company trading close to a billion dollars, much less a multi, multi-billion dollar valuation. It's just absurd. And like you said, I feel like this is more fueled off of his supporters, but almost in a meme stock sort of way where I could see if people started shorting it, started betting against

the stock, which a lot of people are doing right now, the Trump populist movement, I think, would enjoy having the opportunity to mess up short sellers like they did in this short squeeze. So all investing contains inherent risk, but it would be very dangerous and foolish to try to bet either way on this stock, because there is a lot of factors that I think are probably better suited for political science majors rather than finance majors. Yeah, I just can't wait until Biden drops his Biden's stock, and then they just have a little proxy financial war and basically a financial election to see who's the most popular. You're listening to Wall Street Weekly on a Radio Free Hillsdale 101.7 FM, as we just finished up talking about DJT Trump Media and Technology Group stock

and the implications that could have. Not only did Donald J. Trump have a pretty good finish to the first quarter of the year that ends for most companies in March. The S&P 500 did clinch its best start to the year since 2019. A lot of people, including myself in some respects, were bearish on the start of the year. But there's a lot of factors that play into equity prices going up and down. And I think it's worth talking a few minutes about those. The first, as we've talked a little bit about politics, is the political business cycle. I don't know if you in any of your finance classes have talked about this. Uh, no, not really. That would make sense. It's more of an economic phenomenon. So I've seen that more in my classes. But it's the idea that

during election years, the incumbent president will do whatever it takes to keep the economy afloat until November. This has been going on for a long time, and I think it is a theory. I don't think it's necessarily like, oh, this happens every single time. But as far as investing goes, maybe stocks are overvalued right now. Maybe the market will crash sometime. But counterpoint to that is Joe Biden and his administration, if they're going to run a good campaign, they'll have every intention of keeping things well in the economy, and though they can't necessarily prop up the stock market, they can do everything in their power to try to keep consumer sediment high, whether that be injecting physical stimulus into the economy, maybe lowering some form of taxes or capital gains or something like that.

But it's just important to remember that investing in the long run, a lot of it has to do with valuations. We've talked about in one of our previous episodes, investing in good companies that make good products at a fair valuation. And in the long run, that has proved to be a pretty decent investing strategy, as well as diversifying, obviously, as we've seen from the likes of Warren Buffett doing that with well-known companies. But in the short term, when you try to predict three-month or year-long stretches, it's just impossible to know what's going to happen. I can't imagine how much power Biden has over the S&P. But it was funny. We actually did talk about this in my econ class this morning about how an election cycles, election years, they'll give out lots of money to people.

We talked about this with student loan forgiveness program that he's set up. And it might be a very intentional thing that he's really focusing on that this year. And so he's probably trying to get the young vote. Yeah. And, you know, the economy, which is often represented by the stock market is often what determines elections. Something definitely for investors to consider that in the long run, things are rational, but in the short run, sometimes the most of the market. Sometimes the market can seem like a chicken running around with its head chopped off. In the words of Warren Buffett, the stock market is a device for transferring money from the impatient to the patient, and that's something we can always remember to not get caught up in short-term trends. Thank you for listening to Wall Street

Weekly on Radio Free Hillsdale 101.7 FM.