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The Durability of the Trump Stock Bubble: An Inquiry into its Sustainability

The Trump Stock Bubble: How Long Will It Last?

Donald Trump’s career has often been characterized by strokes of luck, a factor frequently overlooked. Born into wealth, he received substantial support from his father, Fred Trump, a real-estate developer in the outer boroughs.

When faced with financial troubles in the early nineties due to heavy debts from his casino and real-estate ventures, Trump found himself bailed out by banks willing to restructure his loans and impose strict financial limits. A decade later, his fortunes shifted again when NBC’s entertainment division chose him to host “The Apprentice,” granting him nationwide exposure.

Currently, facing legal hurdles that could cost him over half a billion dollars in fines and interest, Trump seems to have encountered yet another stroke of fortune. His struggling endeavor, Trump Media & Technology Group, joined forces with Digital World Acquisition, a financial entity, and made its debut on the Nasdaq under the symbol DJT.

Trump Stock Bubble

Trump Stock Bubble (Credits: The New Yorker)

Remarkably, the company’s stock surged to an approximate $8 billion valuation on its inaugural trading day, despite its flagship platform, Truth Social, struggling to make notable headway in the fiercely competitive world of social media.

Financial analysis suggests that Trump Media & Technology Group’s market value far exceeds its actual business performance, resembling a classic bubble stock. With revenues of just $3.4 million and substantial net losses reported, its current market valuation appears highly inflated compared to industry norms. However, the timing of its public listing amidst a bullish market has contributed to the stock’s initial success.

Much of the stock’s support seems to come from small investors, including Trump supporters, who perhaps envision its potential growth, especially if Trump maintains a prominent role on Truth Social. Yet, parallels can be drawn to the phenomenon of meme stocks, which experienced rapid but unsustainable valuation increases during the COVID-19 pandemic, only to face significant declines later.

Trump now faces the task of leveraging his recent financial windfall while maneuvering through potential market volatility. However, his ability to cash out is constrained by lock-up provisions, delaying insider share sales. While there are options to monetize his holdings, each comes with its own set of challenges and risks, requiring careful consideration of strategy.

Trump’s next moves remain uncertain, balancing the allure of newfound wealth with the need to mitigate potential losses. As with any stock bubble, the situation is inherently precarious, reminiscent of the unpredictable dynamics of an avalanche, as famously noted by economist Paul Samuelson.

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