Doesn’t experience show that the opposite is true – that a bubble cannot continue indefinitely?
The great stock market bubble burst in 1929.
The dot-com bubble burst around 2000.
The fraudulently fueled housing bubble burst in 2008.
It’s true that intrinsic value isn’t everything. There’s no intrinsic value in a Rembrandt or a Monet – or at least, not anywhere remotely in the astronomical amounts that it would fetch at Sotheby’s. But its value comes from the fact that there’s always someone willing to pay those astronomical amounts to own one. I don’t see bubbles in stock prices being like that at all. Eventually a few people realize that it’s a scam with no foundation, and it rapidly collapses. But as I keep saying here, I’m no expert on the stock market, I’m just a believer in the theory that when your only game is fleecing the rubes, it can’t continue forever – nor indeed even for very long.
I don’t understand how you differentiate this from a bubble. Unless you define “bubble” as something that eventually pops, in which case your question is a tautology.
Note that a share of stock is fungible. A Rembrandt or Monet is not. You also do not ogle a share of stock. (You probably haven’t even seen a stock certificate in some time.) These things are quite different economically.
Note, though, that there have been art bubbles. There was a big one spurred by Japanese buyers in the late 80s. We are almost certainly in another, bigger, one now.
The differentiation is ultimately in the fact that things like art are tangible and my cited examples have deep historical associations and arguably aesthetic value. On a less cerebral level, so do antique cars and many other such collectibles.
Financial instruments have none of those attributes, and IMHO it only takes a growing suspicion that all or most of their value is built on a foundation of deception and wishful thinking for them to collapse faster than a house of cards. As I said, I’m no expert and I may be wrong, but such collapses have certainly happened many times in the past. Honestly, were it not for the importance of getting the timing right, I’d be willing to put real money on the short side of DJT.
Stamps, coins, and baseball cards of a fixed condition are close to fungible. A Rembrandt is not. All of the preceding are collectibles. Similar to Gamestop.
Agreed, sort of. Except indefinitely does not mean, “forever”; indefinitely means “for a period of time with no fixed end”. So a bubble can continue indefinitely which by no means violates Stein’s Law: “That which cannot go on forever will stop.”
I want to emphasize though that while standard finance textbooks say:
Stock price = discounted future cash flows (in equilibrium),
the textbooks should say,
Stock price >= discounted future cash flows (in equilibrium),
if you believe Bloomberg’s Matt Levine. Which I do.
That 500% charge for shorted shares is a real barrier. As are the costs for buying puts (if I have the nominclature correct). There should be a way of making money off of this (and Gamestop) but I’d be uncomfortable simply applying Black Sholes and hoping for the best. I think we’ll have a better grasp of the evolution of (P minus future discounted cash flows) in a decade or so but for now I’m seeing speculative money, not easy money. (Or not: I’d want to translate put prices into a breakeven horizon: if it’s 2 years out or more, that might be a reasonable basis for speculation, though you would be making assumptions about option prices further out than are now available.)
ETA: Whoa. Valuation expert Aswath Damodaran has a slideshow on Gamestop. I look forward to reading it: https://pages.stern.nyu.edu/~adamodar/pdfiles/country/GameStopLessons.pdf
Damodaran is a very methodical and very readable thinker and a true expert on asset valuation. Highly recommended.
Wall Street professionals shorted those stocks while the amateurs were buying, I believe the result was a short squeeze. I don’t think there is much shorting in DJT.
In practice, there are two types of investors, generally referred to as “institutional” and “retail” investors. The value is most strongly pulled one way or the other by retail investors since they’re the ones who are most active in trading. Institutional investors generally buy in when the fundamentals look good and they only trade out when it seems financially prudent to do so (based on their need for cash, their view of the company, how silly the going stock price is, etc.)
If we imagine that the general public has wrongly decided that a stock is a scam, and they start bailing out of it and treating it like radioactive waste, then at some point the stock goes under $5 and becomes a penny stock.
At that point, the SEC and the stock exchange (e.g. the New York Stock Exchange) might step in and investigate the accusations that are floating in the public. Institutional investors might do likewise. The company, knowing that the accusations are untrue, would show their books, allow an outside auditor to come in, respond to all inquiries, etc. Institutional investors would come away knowing that the company was a good buy since it stands to gain a lot once the retail investors get the news.
To be sure, it wouldn’t be comfortable for the company and, if they were relying on their continued ability to sell off stocks to maintain current spending, they might need to cut back a bit while they’re being investigated. There’s a non-zero chance that it could end up killing to company entirely if that’s not feasible. But, in most cases, it would just be a temporary setback for most companies and they’d be able to get back to business within a few months or a year.
A bubble can continue a long time. Far longer than a fully rational observer of the price might predict. Not forever, but longer enough that betting it’ll pop soon becomes a losing bet.
As another famous aphorism has it: “The market can remain irrational longer than you can remain solvent.”
Successful market timing, to the degree such a thing even exists, consists not of taking a bull position while the stock and sentiment is moving bearish or vice versa. It consists of waiting until the market sentiment and price momentum is clearly bullish or bearish and then jumping in going the same direction, be that short or long. You won’t capture 100% of the peak-vs-valley delta, but you will at least be on the right side of the trade most of the time. Mind the head-fakes though.
Sometimes there’s wisdom in listening to the “expert” pundits opine about a particular stock, and then doing the exact opposite – at least in the short to medium term. I remember years ago when I was playing the market deciding for some reason that it would be a good idea to buy some nickel-mining stock, though the company I picked also mined copper and other base metals. A little while later I read a commodities report that predicted the collapse of base-metal prices and consequently the associated stock prices. I didn’t care, and held on. About a year later it had turned out to be one of my best-performing investments! (I suspect that what may have happened is that “smart money” insiders, anticipating base metal price collapse, were dumping their shares and tanking stock prices at around the time I was buying.)
I’m confident that in the long term DJT will be worthless, but it’s really hard to monetize that because timing is indeed so critical. When playing with puts and calls, you pay a very heavy premium for a longer time to expiry.
You guys are operating under the assumption that DJT’s price should naturally gravitate towards the value of future cash flows to the investor. That kind of thinking is so 2019. Investors in DJT aren’t applying valuation analysis. They’re buying on the theory that daddy Trump will take care of them. Either Trump will become President and use the levers of power to something something or he won’t but he will sell to someone someone and everyone will make out well. Profit!
It’s a fad. Like yo-yos or Pokemon cards. Sure you can call it a bubble, but past bubbles had a lot more underlying support. Evidence of the worst aspects of tulip mania was somewhat anecdotal, the dot-com bubble was grounded on a new, promising, and difficult to grasp technology, and the 2008 financial crisis was based on housing, a good with at least some underlying value even if some of the derivatives were worthless. DJT is froth all the way down.
When will the stamp bubble burst? I say within the next 60 years or so.
One thing that many people don’t understand about Trump’s standard “business model” is “If he is such an obvious con man how can he stay in business for decades?”
Trump’s method is to tell people “Invest with me and we’ll con those other people out of their money.” A few years pass and you realize you weren’t in on the con, you were conned.
DJT Media is designed in part to work on this concept. People know he’s conning people, they just thing that there are other people (e.g., those “crooks” on Wall Street) that are going to lose money.
Note that his methodology works extraordinarily well in elections as well.
Not that I’d ever buy them, they seem clearly massively overvalued.
However, since their IPO they’ve diluted the stock massively once, held back financial information, had their auditor pretty much arrested, and now plan to issue another huge amount of stock soon (ish).
Its value is based on the Trump brand running for president, but he’s locked into not selling until six months later (September? October?), but then he could just cash out for much more money than he’s ever had (given his wealth is often brand value and debt). He probably won’t, I think, but I wouldn’t be completely shocked if he left the company and republicans high and dry with whatever he can get from the shares (and what that might be when selling en masse might not be as much as he could get).
So, I’m guessing completely legal, but there to exploit the sap investor, and possibly be involved in a bit of insider trading for him and his friends (which will probably be ruled to be completely fine for presidents and ex-presidents soon with the supreme court).
Here are over 500 posts over the last 3 months on TS / DJT stock in general and your topic in particular. You might find some useful commentary among them.
Kinda of a dilemma for Trump–does he sell off while DJT has some worth and grab the money before the election, screwing over his MAGA supporters whose votes he needs, or hold on until the election and take the risk that it becomes worthless if he loses?
I imagine Trump would sell some stock as soon as he can, claiming he needs to pay his legal bills caused by the “Witch Hunts” or come up with some other excuses to keep the MAGAs in the game.
I am curious how the non-MAGA investors (corporations, billionaire-types, Saudis, Russians, etc) looking for future considerations would react to Trump dumping the stock.
Realistically, the more people talk about it and keep it in the news, the more that it will be a political rather than financial matter and stay at a certain level.
This is, likewise, true of Trump himself and his ability to remain relevant.
Bubbles burst. That said, bubbles (and bear markets) can last much longer than most people think is reasonable.
One thing a lot of people in this thread are missing is that need to look at the daily turnover value (number of shares x share price). Saying DJT traded 15m shares vs Googles 30m shares in a day is comparing apples and elephants. (15m * 36 = USD540m vs 19m * 185 = USD3.5 billion)
For simplicity, I’m only going off of volume
average daily volume is something like 7m shares per day, but can be double that like today
Trump has about 115 million shares. 115/7 = 16 trading days to sell off at the average volume
The share price has about a 99.99% chance of tanking to near zero if there is any real indication that Trump is liquidating some or all his position
Nasdaq and market makers will not keep the share price up. It’s been decades since I’ve been involved with market makers so not familiar with current rules. That said, As soon as market makers see abnormal volumes, then the bid ask spread widens to the maximum. As soon as one share trades at the bid price, then the market makers will make a new market off of that new low price. Rinse lather repeat.
DJT should be a Tier 2 NMS stock, so a circuit breaker typically kicks in if the stock is -7% and trading halts for 15 minutes. At -13%, another 15 minute halt. At -20% the stock stops trading for the day (but can decline without limit in after market trading).
So, a market maker sees a 10M stock sell order at the market price. That market maker will purchase the minimum at the lowest price the spread allows. The next market marker will take the spread based on that last traded price, and purchase the minimum at the new lowest price the spread allows. Pretty soon it’s down 7%, and trading halts for 15 minutes. At least in the old days, the market makers would huddle and try to figure out what’s going on? Is it a panic sell or has the bubble burst and rats fleeing the ship. Soon as the 15 minutes are up, same thing will bid the minimum at the new lowest price of the spread. Rinse lather repeat. Exchange shuts trading, then in the after market the stock will likely get crushed if there is a panic (DJT is selling all his stock to pay the court fines). Pretty dang soon, it will be a penny stock, and there are folks out there that live to gamble on penny stocks.
price won’t increase unless DJT somehow becomes President, and somehow forces the US government to run all communications via Truth Social. And so it goes
Does anyone have details of the planned vs already done share issues?
N was issued in March.
N was issued again a couple of months later
N is planned ot be issued in September.
It appears that TFG seems to keep hold of his share percentage on the ones (at least so far), to be about 65%, but my google-fu isn’t good enough to get past all the new talking the stock up or down.
