Turbulence on the stock market
These short sellers are attacking Trump stock
By Birgit Haas
April 22, 2024, 8:03 p.m
Listen to article
This audio version was artificially generated. More info | Send feedback
The US election campaign will also take place on the stock market this year. The stock of Trump’s media company is on a rollercoaster ride. The company is now stopping particularly aggressive investors who speculate on a price decline.
“Because it’s about Trump, the stock is going crazy.” This sentence comes from US investor Matthew Tuttle and he explains what is currently keeping not only Wall Street, but also the campaign team of US presidential candidate Donald Trump in suspense: the price Trump Media, which went public about a month ago, is swaying so much that it’s almost normal for Trump to lose billions one day, only to win them again the next day.
Many fans with large and small budgets are investing. Opponents of the controversial ex-president are apparently betting on the share price falling. And according to Trump Media, not just with louder methods. Trump Media CEO and former Republican congressman Devin Nunes filed a complaint with the Securities and Exchange Commission late last week. The accusation is market manipulation with so-called uncovered short sales.
As a reminder, investors typically bet on a company’s price decline by borrowing shares from a stockholder, such as a fund, for a fee. They sell the borrowed shares in a so-called short sale, in which the borrowed shares serve as cover. They buy back the shares before the redemption date. If the price has fallen by then, you make a profit. When they short sell without first borrowing shares, it is called naked short selling. They are banned in the USA.
According to Nunes’ letter to the SEC, the borrowing fee on Trump Media shares was higher than any other U.S. stock in early April. That’s because there are only a few of them. Trump has put 40 million shares on the market, 136 million are still held by him and other shareholders. High fees reduce the expected profit. And the interest in shorting the stock is enormous. The rate is just under 15 percent. For comparison: Apple shares are at 0.75 percent.
Gigantic review
On the one hand, this has to do with the election campaign – Trump opponents are also doing everything on social media to weaken the stock. While they celebrate every price drop on Twitter under the hashtag $DJT, supporters are ringing the bell to buy. With success, in some cases the interest was so strong that there were no shares to buy. DJT is the stock’s ticker symbol.
On the other hand, the stock is a purely fundamental candidate that almost invites you to short it. Trump Media posted a loss of $58 million last year on revenue of just $4.1 million. Nevertheless, the company was valued at $11 billion on its first day of trading. Anyone who only looks at the numbers and ignores the election campaign will see that this stock is valued far too high from an economic perspective.
Nunes has only clues, not proof, of the naked short selling. But the Trump man is not afraid to name names. “The data provided to us shows that only four market participants were responsible for more than 60 percent of the extraordinary trading volume in DJT shares: Citadel Securities, VIRTU Americas, G1 Execution Services and Jane Street Capital,” he wrote to the SEC.
Citadel, a Miami-based hedge fund, has strongly rejected the allegations. “Nunes is a proverbial loser who is trying to blame his falling stock price on naked short bets,” a spokesman told CNBC. In fact, Citadel boss Ken Griffin, well-known in the US – ranked 42nd on the list of the world’s richest people according to Forbes and one of the largest campaign donors – is also a Republican and was considered a moderate supporter of Trump. However, that may have changed in 2020. At that time, Trump publicly accused Griffin of hiding some of his money from the US authorities.
Trump stock is recovering
Citadel makes its money from long and short investments. With assets under management of $54 billion, the hedge fund is one of the largest of its kind. In the difficult stock market year of 2022, the company made a record profit. This is also why Griffin is considered a stock market legend. The three other companies mentioned are so-called market makers, which put large tranches of shares on the market or process other difficult transactions on behalf of their customers. Nunes apparently doesn’t know who commissioned her either.
The letter Nunes sent to the SEC on April 18 did not fail to have an impact. Since then, Trump shares have gained almost 41 percent. By then, its value had halved since it went public.
It is by no means certain that the recovery will last. Among experts, Trump Media shares are already considered a meme stock like Gamestop. The video game rental company’s price was driven up by users of the US platform Reddit at the end of 2020 – only to crash dramatically.