DWAC - Trump SPAC: Strong Sell For Digital World

• A suspect category.
• Some questions surrounding the company.
• An aggressive SEC.

Almost all of my investment ideas are probabilistic – positive expected values based on a probability-weighted upside and downside – without any clarity on what, specifically, will happen. I seek safety by underpaying, not by being certain as to what the future holds. I disclose my positions, but when someone asks “what do you recommend?” my answer is just that I recommend doing your own work and thinking for yourself. If anything I say is interesting, then I’m satisfied. But one can only guide someone else to the start line on any idea. Getting to the finish line must be done on one’s own.

But I said “almost” all… over the past few years I have had a small handful of certainties, all bearish and almost all SPAC-related.

Sell your Nikola (NKLA).

- Chris DeMuth Jr, June 22, 2020

Sell your QuantumScape (QS) . There's no reason to own this equity. None.

- Chris DeMuth Jr, December 10, 2020

Sell the SPAK SPAC ETF… If you own NKLA, QS, or SPAK, sell them. Take the money and run. Buy virtually anything else with the money instead.

- Chris DeMuth Jr, January 19, 2021

And,

Trump SPAC

Sell your DWAC.

- Chris DeMuth Jr, October 22, 2021

I reiterate my strong sell rating on the Trump SPAC, Digital World Acquisition ( DWAC ). I'm skeptical of the SPAC, its Truth Social target, its stock, Trump, and deSPACed equities generally. It amounts to searching for red flags in a red flag factory. I also reemphasize how rare it's for me to have this much certainty. It's worth its $10.20 cash in trust and no more. It should trade down over 50% from here and that's after the approximately 74% decline since I wrote about it earlier. The SEC should not and will not allow this deal to close. But what if I’m wrong? What if the SEC waves it through? Then its likely downside price will go from $10.20 to $0.00. Instead of losing just over half your money you invest in this, you will have the chance to lose all of it.

Amazing numbers are happening, and quickly.

- Donald Trump regarding Truth Social , the DWAC deal target.

That pump was good for a bit of excitement in the share price, but it didn’t last too long.

The claim stands up poorly to much scrutiny – Truth Social has about 2 million monthly active users compared with Twitter’s 300 million. The company’s plan is a bold one, to disrupt what it sees as a monopoly (er oligopoly?) of Twitter ( TWTR ), Facebook (META), Amazon ( AMZN ), Apple ( AAPL ), Netflix ( NFLX ), and Google ( GOOG ) ( GOOGL ).

But before it disrupts that monopoly, their regulators appear ready to disrupt Trump’s SPAC deal. They will have to contend with SEC and FINRA investigations and a federal grand jury subpoena. Before approving a definitive proxy to allow this deal to go forward, the SEC will probably have to get comfortable that the SPAC adequately disclosed any deal talks that happened before the SPAC went public, that trading in the SPAC warrants ( DWACW ) wasn’t due to insider trading, and that the company’s bold revenue projections are realistic.

Based on questions from the SEC as well as their publicly stated scrutiny of SPACs in general, this appears to currently be 0-3 in terms of issues that need to be addressed before the SEC signs off on deal documents. Meanwhile, according to Statistica , the app had some initial success and a big pop when mentioned by Elon Musk around the time of his Twitter bid, but then crickets:

Meanwhile, Trump’s odds at regaining the White House have been falling behind DeSantis’ in prediction markets:

But one way or another, Trump will stay in the headlines. He also gets about the same one in four odds of an indictment by September:

Conclusion

The SEC delaying and ultimately stopping this deal would be the best thing that could happen to DWAC holders long term. Losing half of their money would be the best case . If the regulators allow this one to go through, it will probably be a replay of Trump Entertainment Resorts Inc (formerly TRMP then inevitably TRMPQ):

If the deal goes through and holders lose their $10.20 per share of cash in trust, it will never see a double-digit stock price again. PIPE investors are allowed to immediately sell their shares – and they will. They were allowed to short shares – and they did. And they can get their price adjusted down to as little as $10 per share – and that will probably happen too. So this will be a huge redistribution scheme from outside passive minority bag holders who fail to redeem shares to PIPE investors. Heads: The SEC stops this and DWAC holders lose half their money. Tails: The SEC clears this and DWAC holders lose the other half, too.

TL; DR

Sell your DWAC.

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