Trump plans to water DJT stock by issuing millions of new shares. It’s part of a new Trump scheme to make money for himself and his bankers from a failing company that rang up just $4.1 million in revenue last year and lost more than $58 million.
At its peak, the market valued the company at $8 billion, which, in market terms, is a delusional fantasy. It’s true value is zero, especially if Trump is incarcerated.
The stock watering plan also reminds us that savvy investors and investment bankers make money when stocks fall and rise. Profiting off a loser company is a lucrative but risky and sophisticated game, not one to try at home. Unless you want to be wiped out financially right down to losing your house, since the potential losses to you are unlimited.
Here is how it works: By Issuing millions more shares of DJT, the Trump company ticker symbol, the company will collect cash to keep it going since it isn’t earning a profit or taking in much from customers. The new shares dilute the stock the way a bar watering the gin makes it less potent.
Shorts borrow shares from investors and sell them, paying a fee to the investor. If the stock price falls, the shorts buy back the same number of shares at the lower price, return them to the person they were borrowed from, and keep the difference in price between the sale and re-purchase.
People who hold shares are called longs. They have a long, or ownership position.
Watering helps those who short stocks, called shorts, in two ways.
Shorts borrow shares of stock, paying the investor a fee for the loan of their shares. The shorts then sell the borrowed shares.
Note: If you own a stock brokerage account that allows you to buy on the margin, the investment house can loan out your shares without you knowing it. The brokerage assumes the risk of making you whole if things go awry.
The first way that shorts benefit from stock watering is that millions of new shares become available to sell short. Right now, there are hardly any shares left to borrow and sell short.
For example, if a short sold at $26, roughly the DJT price Monday, and bought it back for $1 later, the profit would be $25 per share less than the fee paid to borrow the shares. In this scenario, the short seller makes a bank vault of cash while the loyal Trump supporter who held onto their shares gets wiped out.
While that’s a nifty and lucrative result, what happens if the stock price rises? Should the stock price rise, say to $51 from $26, the person with the short position would lose $25 per borrowed share. Ouch.
Second, issuing more shares lowers the value of each existing share, putting more downward pressure on DJT.
DJT trading began three weeks ago. DJT shares peaked March 26 at $79.38 and started falling. On April 15, the day Trump’s first criminal trial began in Manhattan, DJT shares traded at about $26. That means the stock has already lost more than two-thirds — down 71%, closing today at $22.84 — from its peak value. Ouch for real.
Trump owns 58 percent of the pre-dilution shares. But he can’t sell his shares for five months under a so-called “lock up” intended to reassure investors that the company isn’t a pump-and-dump scam to run up the share price so the insiders can cash out, leaving the buyers with losses when the stock collapses.
But Donald can still cash in and walk away with a fortune, perhaps several billion dollars, since at its peak, the company was valued at about $8 billion for reasons that have nothing to do with market fundamentals like profits and expectations of future profits.
How would that work?
Donald can pledge his DJT shares to an investment bank. The bank then loans Donald cash secured by those shares.
CEOs have done this for decades, pocketing cash without selling their shares — or having to tell investors! In those deals, the CEO or founder could borrow as much as 90 percent of the share value. If the stock rose, the investment house got the first 35 percent or so of the increase. If the stock fell, as we see with DJT shares, the investment house also makes money because it shorts the stock.
After the price collapses, the investment bank closes its short position by buying back cheap shares, and Trump’s loan is paid off.
The bankers keep the fat fees charged for arranging the deal plus any surplus on the short.
In this case, the investment bank might loan Trump only half of the value of his shares. In that scenario, it would double its money because when the bank closes its short position, its gross profit would be twice as much money as it loaned Trump. And then there are the fees the bank collects for arranging the deal.
It’s a win-win for Trump and the bank — and nothing but losses for people who went long, buying and holding DJT shares as they fell from almost $80 to zero.
At the upcoming April 22 hearing before Justice Arthur Engoron on Trump’s putative bond in the persistent fraud case, New York Attorney General Letitia James should ask if Trump hypothecated his DJT shares and collected cash through a loan against them.
If he did — and I think that is highly likely — this could seriously complicate collecting the nearly half a billion dollars Donald owes in disgorgement and interest. Trump can delay payment while he appeals, but he has no chance of reversing the finding of fraud, only of persuading a court to shave back the size of the award. That, too, seems unlikely for anything but a modest amount of what he owes.
Whether it’s cheating at golf, cheating novice roulette players at the Trump Castle casino, cheating illegal immigrants out of their wages in building Trump Tower, cheating on his wives, cheating insurance companies, cheating on damages from 9/11 — he suffered none but collected big time — cheating on his income taxes, cheating on his property taxes, or trying to cheat by stealing an election and overthrowing the government, remember that Trump is always and everywhere looking to make money for himself with no regard for who gets hurt.
Reprinted with permission from DC Report.
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How The Right Is Turning ‘Political Correctness’ Into Another Tool Of The 1 Percent
You may have noticed that when the right isn’t busy being outraged at the left for being outraged by comments by Republican reality stars, radio hosts and elected officials, they’re busy being outraged at the left for “offensive” comments about Republicans.
The current target is MSNBC’s Melissa Harris-Perry, who featured a brief segment on her show last weekend with panelists joking about Mitt Romney’s black grandchild. This was an issue so urgent, apparently, that Republican National Committee chairman Reince Priebus felt the need to demand an apology from the host just hours after the story broke.
While Republicans spent most of the last few decades being revolted by the idea of “political correctness,” there is now a conscious effort on the right to set the terms of discourse and play the role of the offended victim, whenever doing so is convenient. Then, just as quickly, conservatives will switch back to defending outrageous comments from the right and attacking “PC” thought by framing themselves as the defenders of free speech.
“Political correctness” is a term that — if you believe Wikipedia — originated in the Stalin-era USSR to describe acceptable thought to the regime. In the ’90s it became an epithet the right used to describe the intolerance of left-wing academic thought as progressives tried to reshape society to protect and encourage those who have been historically discriminated against. The great educator Herbert Kohl pointed out that the smear was meant “to insinuate that egalitarian democratic ideas are actually authoritarian, orthodox and Communist-influenced, when they oppose the right of people to be racist, sexist, and homophobic.”
The idea that rich, powerful people need to be protected from both bullying and the consequences of bullying comments often targeting minorities requires an agility and intellectual dishonesty that has been perfected by the right-wing media and spread to the movement’s more outlandish politicians, who thrive on the perpetual outrage of the Tea Party movement.
The perfect example of this is, of course, Sarah Palin. In 2009, she encouraged conservatives to “screw the political correctness.” A few months later she was demanding that President Obama’s chief of staff Rahm Emanuel be fired for allegedly using the word “retarded” in a meeting.
The right is investing in the outrage industry. Fox News is the Standard Oil of outrage, but a new breed of organization, born and thriving in social media, is designed to gin up and sustain outrage by using features unique to online marketing.
Ben Shapiro, who some call the right’s next Andrew Breitbart, is the face of a new venture called TruthRevolt, which is funded by The David Horowitz Freedom Center.
“The media must be destroyed where they stand,” its mission statement reads. “That is our mission at TruthRevolt. The goal of TruthRevolt is simple: unmask leftists in the media for who they are, destroy their credibility with the American public, and devastate their funding bases.”
The group’s blog is updated several times a day with stories that reinforce the right-wing worldview and fume at those who say things they disagree with. Additionally petitions help the site build its mailing list with campaigns against villains who refuse to honor “religious liberty” by expecting reality stars not to say things like homosexuality leads to bestiality.
TruthRevolt is a new project and characteristic of Shapiro’s desire to “fight fire with fire” and by using a tactic the right used to decry.
Twitchy — which was started by the Pope of Outrage Michelle Malkin and was recently purchased by the owners of Town Hall — is apparently trying to fight fire with a mob wielding digital torches.
After Melissa Harris-Perry gave in to the demands to apologize for the segment on her show, Twitchy decided the apology didn’t count because it was tweeted with a hashtag. What would the Founders think?
Being mentioned on Twitchy doesn’t just make you the target of vague scorn. It’s a batsignal to the right wing that you need to be attacked directly. Active Twitter users who have been vilified by the site are likely to see abusive mentions for days.
Perry, who is the product of an interracial relationship, is primarily a target because she’s on (slightly) left-leaning MSNBC. The right is in the process of racking up scalps from the news network.
Now-former MSNBC host Martin Bashir responded to Sarah Palin’s comparison of debt to slavery by describing a practice in which slaveowner Thomas Thistlewood forced one slave to defecate in another’s mouth as punishment. He concluded his point by saying, “She confirms if anyone’s truly qualified for a dose of discipline from Thomas Thistlewood, she would be the outstanding candidate.”
The right wing went into outrage overdrive to condemn the host, who apologized twice before leaving his job, likely involuntarily. Bashir suffered from a lack of a political base—and the fact that his indefensible comments involved human waste and a woman’s mouth.
“My role is to accept his apology and be humble enough to accept it and move on,” the ever-humble Palin said on Fox News. “But I just hope that unprovoked attacks like that don’t result in people being hesitant to jump in the arena anyway.”
A few weeks later, Palin was defending the “free speech” of a guy who suggested homosexuality could lead to sex with animals.
The former Republican nominee for vice president is worried about those who might be hesitant to speak out in favor of policies that benefit the rich and enforce historic discrimination. But she’s not as concerned about a gay teen who may be hesitant to go on living because his desires make him someone society is encouraged to despise.
Photo: Gage Skidmore via Flickr