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Is Trump’s Digital World SPAC Going To Be Killed By Political Interference?

Tim Worstall
Tim Worstall trader
Updated 28 Jun 2022

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Key points:

  • Investigations are mounting into Digital World
  • This is the SPAC to take Trump's social network public
  • How much of this is politically driven?

Digital World (NASDAQ: DWAC) stock is the special acquisition corporation, SPAC, which intends to merge with Donald Trump's social media adventure, Truth Social and so on. The entire game is surrounded by politics which is what makes it such a difficult stock to value. This unfortunately works both ways there are both bull and bear political arguments here.

The basic underlying is that yes, Twitter, Facebook and so on are perhaps more woke than the median American, certainly more restrictive in what may be said than many tens of millions want their social media to be. So, there's a market in producing a social media outlet or two that cater to that rightward drifting crowd. In exactly the same way that Fox News hasn't created some rightward drift, rather the market was noted and the station set up to cater to it. Very successfully in that instance too.

Any social media outlet requires that it be able to achieve scale early on. With Trump as the figurehead that's not all that difficult we might think. There would certainly be many who would try it out, which is that first and necessary stage. So, we might think there's a winner here.

Digital World Share Price
Digital World Share Price From IG

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On the other hand, there're the basic technical issues of the new network not being well programmed or managed. This is something that can be overcome with good technical management and maybe Truth does have that, maybe it doesn't.

So there's the politics of why it might work. A large user base – one that at least try it – baked in, a significant advantage.

But there's also politics the other way. For of course this is all connected with Donald Trump and there are those out there who, well, umm, don't like the man. See him as still being a political threat even. Now whether this is fair or not is another matter and in two different meanings. For there are at least two possibly politically motivated investigations into the Digital World SPAC and whether the investigations are fair – was something wrong done? – and also whether the concentration upon this one SPAC is fair.

A Federal grand jury in New York (given that the listing is New York this is the correct venue) has issued subpoenas to the directors of Digital World. They need to explain certain details of what went on while setting up the deal. Digital World stock fell near 10% on the announcement. This follows SEC investigations into certain details of the set up of the deal as well. And that follows Elizabeth Warren demanding more oversight of how the deal was conducted.

Now, all of this could be entirely righteous. It's also possible to think that there's a certain amount of picking out of this one SPAC for political reasons. What might worry is that if there is that political reason they're gunning for Digital World well, full and intense pursuit by the legal system is something that no company is likely to survive unscathed – there are simply too many laws out there for everyone to obey all of them all the time.

Which leaves us with the question. The value of Digital World is political – that social media network for those politically unserved by the current ones. But that same political process might make the deal either more difficult than it should be, possibly even impossible. The balance of those two political influences is perhaps what determines the Digital World stock value.

Tim Worstall
Tim Worstall is a freelance writer specialising in economics and the financial markets.