The IPO of Pets.com, a business with a plan so flimsy it fell apart on its first contact with reality... The moment in the late 1980s when the price of Japanese assets soared to such extravagant levels that the land beneath the Imperial Palace was worth more than the whole of California... Every bull market has a moment that crystallises just how over-hyped, and over-exuberant, prices have become. We may have just seen this bull market’s final moment of madness: last week’s deal to take Donald Trump’s new social-media network public.
A way to hear more from Trump
You might have thought you’d heard the last from the 45th president of the United States. Already 75 years old, after a bruising four years in power, and with a, er, how shall we put this, colourful career behind him, it might have seemed a good time to play some golf, chat to a ghost writer about his memoirs, and perhaps try some charity work. Not a bit of it. The Donald is as busy as ever, working on what looks like a run to retake the presidency in 2024, even though he would be 78 on taking office. He is also launching a new social network to be called, with the complete lack of irony that has always been his trademark, “Truth Social”.
Last week, the network went public through a special purpose acquisition vehicle (Spac) called Digital World Acquisition Corp. Investors, especially the new breed of web-savvy day traders, were falling over each other to get a piece of the action. The share price almost tripled on its first day of trading and was up another 100% the following day. Over the course of a week, the stock was up tenfold, making a fortune for the hedge funds that had backed it and anyone who got in early enough. It is now valued at more than $3bn. Its purpose, special or otherwise? Apparently “to create a rival to the liberal media consortium and fight back against the ‘Big Tech’ companies of Silicon Valley, which have used their unilateral power to silence opposing voices”.
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True, you will be able to get the former president’s take on just about anything in the news, now he is no longer on Twitter, if that happens to be vital for your daily life. And yet for a $3bn valuation, you might have been hoping for a little more in the way of substance. Some financial projections, for example, or forecasts of advertising, some detail on how it would persuade increasingly woke corporations, fearful of backlashes from liberal, millennial customers, to commit money to the new network. Perhaps some cashflow projections, or notice of staffing levels, software requirements or a launch date? But so far there has been very little sign of any of that. Investors are just being asked to pile in on the basis of the Trump brand.
An investment for the deranged
To any objective observer, it seems a genuinely terrible idea. For all the bluster and hype, Trump is a terrible businessman. One or two property deals might have worked out, but over five decades he has created a sprawling mess of debt-laden companies, none of which have ever lived up to expectation. It is hard to see anyone but a few extremists signing up to a Trump-branded social network. And social media is a crowded space. Anyone trying to muscle into it will have to contend not just with Facebook, a firm that will spend billions to protect its market, but competition from the likes of Google, Amazon and Apple, all of which would like a bigger slice. It is very hard to see space for a new player.
In truth, only a market that had turned completely irrational would back Trump’s latest venture in the way it just has. The Spac boom of the last year already looked worrying. Investors were throwing billions of dollars at companies with only the vaguest of prospects, all of which will end up competing for the handful of decent businesses that are looking for a way to list their shares. But the Trump Spac is completely deranged. Investors are buying into a wave of hype, with no substance to it, and almost no realistic prospect of ever making any money. If that is not a signal we are approaching the top of the bull market it is hard to know what is.
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