Former President Donald Trump's government influence has waned in 2021, but he's been quite relevant in the public markets lately. His name has been linked to companies planning to merge with and go public through special purpose acquisition companies (SPACs), and he's even been involved in the ongoing battle between shareholders and the government over the government-sponsored entities.
Let's take a look at three stock situations where Trump could prove to be a big catalyst.
Image source: Official White House photo by Shealah Craighead.
1. Digital World Acquisition Corp.
It has been a bland second half of the year for SPACs since the Securities and Exchange Commission (SEC) started cracking down on the blank-check companies, and it became harder for SPACs to find attractive targets. But the stock price of Digital World Acquisition Corp. (DWAC +0.00%) popped more than 900% at one point in mid-October when it announced that it plans to take Trump Media and Technology Group public. Trump Media's mission, according to the company, is to build a number of digital properties to work against "liberal bias" and the "dangerous exercise of tech monopoly censorship." One of those properties will be Truth Social, a social media platform intended to "encourage an open, free, and honest global conversation without discriminating against global ideology."
Truth Social still hasn't launched its beta app yet, and recently, the company disclosed that federal regulators are investigating the SPAC over how it communicated with Trump Media before announcing the deal. It seems a little early to see such a big stock price gain. But Digital World has already seen its stock retreat from earlier gains and currently trades around $51 per share, which is still a massive gain from the $10 opening SPAC price. I'd certainly expect more volatility going forward.
Trump Media says it wants to serve as an alternative to big tech but also acknowledges it will be "catalyzed by the existing Trump universe." This still presents a big opportunity, as Trump had a combined 146 million followers and subscribers when he was active on social media sites like Twitter and Meta Platform properties Facebook and Instagram. Trump Media is projecting it will bring in 16 million users and $1 million in revenue in 2022 and then scale up to 81 million users and nearly $3.7 billion of revenue in 2026. I think the performance of this stock will certainly continue to be tied to the relevancy of Trump for now, but given that Trump's brand of conservatism certainly has a big following among people and politicians alike, it certainly could be here to stay. If Trump were to run for president in 2024, I imagine that would likely be very good for the company.
2. CF Acquisition Corp VI
Another SPAC that Trump has helped boost is called CF Acquisition Corp VI (CFVI +0.00%), which last week announced its intention to merge with and take public a streaming platform called Rumble. The platform claims to have fewer restrictions on content than platforms like Alphabet's YouTube and has attracted a more conservative and pro-Trump crowd, who feel they are being censored on traditional media outlets. Trump himself is on the platform.
What seemed to send the stock into higher gear, however, was the announcement that Rumble had a distribution partnership with Truth Social. On Dec. 6, CF Acquisition's stock price jumped 30% at one point before giving up most of those gains on the news over the regulatory investigation of Digital World Acquisition Corp. Still, Rumble seems to be further along than Truth Social, with the site already having 36 million average active monthly users.
The site does seem to have caught fire among a similar crowd as Trump Media, but also seems interested in branching out, as it has struck a content deal with former Democratic Congresswoman Tulsi Gabbard. Although Rumble might not be as dependent on Trump, considering the stock price movement on Dec. 6, I am sure further collaboration with Trump Media would get more investors involved. It will be interesting to see what happens if Rumble further diversifies political ideologies on the site.
3. Fannie Mae and Freddie Mac
Trump has also been recently involved with the government-sponsored entities (GSEs). After the government placed Fannie Mae (FNMA +2.36%) and Freddie Mac (FMCC +4.51%) under conservatorship during the Great Recession, shareholders have been trying for years to get the two giant mortgage financing companies released from government control. They sued the government for requiring the two agencies to give all of their profits in the net worth sweep and also for making it overly difficult for the President to remove the director of the Federal Housing Finance Agency (FHFA), the regulator of Fannie and Freddie.
The Supreme Court earlier this year dismissed the first claim over the net worth sweep, but did not completely dismiss the challenge over the President and the FHFA director. In its opinion, the Supreme Court stated: "Or suppose that the President had made a public statement expressing displeasure with actions taken by a Director and had asserted that he would remove the Director if the statute did not stand in the way. In those situations, the statutory provision would clearly cause harm."
In November, Trump sent a letter to Sen. Rand Paul (R-Kentucky) that essentially said he would have removed former FHFA Director Mel Watt, who held the position when Trump first got elected, if he had the power to do so at the time. Trump then stated in the letter that he would have ordered Fannie and Freddie to be released from government conservatorship. The letter sent Fannie and Freddie's stock price soaring more than 25% on Nov. 30. I do wonder if this letter is too little too late. Trump was able to appoint FHFA Director Mark Calabria in 2019, who was working toward releasing Fannie and Freddie from conservatorship before he was removed. Also, the letter came after the Supreme Court case ruling. Still, the case is currently in the Fifth Circuit Court of Appeals, and it's clear that investors think the Trump letter gives them a chance.
