SEC expands investigation into Donald Trump's Truth Social; Update on dogecoin; Is it time to buy ethereum and bitcoin?; Update on Berkshire Hathaway; Buffett video
1) I've warned my readers numerous times about the SPAC that is hoping to merge with Twitter (TWTR) knockoff Truth Social, Digital World Acquisition (DWAC)...
I've called it "My No. 1 stock to avoid in 2022" (on February 22, the morning it spiked to $99, I wrote that it "smells like a blow-off top to me"), "one of the worst stocks I've ever seen... It is certain to blow sky high in the near future," a "laughing stock," a "debacle... an embarrassment... worthless," "my least favorite stock," a "total bust," and "almost impossibly bad." You get the idea...
After falling to the $40 range, DWAC shares had been surprisingly resilient... until yesterday, when they crashed 28% to $27.30 after the company revealed this: SEC expands investigation into Donald Trump's Truth Social. Excerpt:
The government has expanded its inquiry into the proposed merger of Donald Trump's Truth Social and the SPAC planning to bring it public.
Digital World Acquisition, in a filing with the Securities and Exchange Commission ("SEC"), said securities regulators are seeking additional documents and information about the proposed merger. Specifically, authorities are interested in "communications regarding and due diligence of potential targets other than ."
The investigation into the merger was previously announced, but this is the latest sign that authorities are stepping up their examination. The focus of the review seems to be on whether the two sides negotiated before DWAC went public, which would be illegal.
I think regulators are going to find that DWAC did, in fact, have the merger with Truth Social lined up before its IPO, which is why it announced the deal only three weeks after going public.
This is why, as I've long predicted, the SEC is likely to block the merger... in which case Digital World Acquisition will immediately plunge to its cash value around $10 per share.
Yesterday's disclosure means that the odds of this happening have risen materially, which is why the stock crashed...
2) As I predicted, cryptos continue to implode. There's no bottom for garbage like dogecoin (DOGE), about which I first warned my readers on May 7 last year, writing:
Among the most absurd cryptos is dogecoin – a cryptocurrency that was created as a joke (I think it's pronounced "doezhe-coin" but I insist on pronouncing it "doggy-coin").
As you can see in this chart, as of yesterday's close, it has skyrocketed more than 12,000% this year and now has a market cap approaching $90 billion (a year ago, it was $315 million):
Bloomberg's Matt Levine had a wonderful take in his column yesterday: Dogecoin Is Up Because It's Funny...
I will make my usual prediction related to absurd bubbles that my "Spidey sense" tells me are at a top: from $0.5853 (the price of dogecoin when I wrote this), it will be down 30% within a month, 50% within three months, and 80% within a year.
Dogecoin is currently trading for a little over $0.05, down 91% from when I first warned about it... so it turns out my prediction was too conservative!
Dogecoin is going under a penny, as another crypto I warned about last month, Terra, has already done.
3) But the two largest cryptocurrencies – ethereum (ETH) and bitcoin (BTC) – aren't going to zero, which raises the question: When is a good time to buy them?
The easy – and, for the vast majority of investors, correct – answer is: NEVER!
All cryptocurrencies, even the two biggest ones, are inherently speculative because they generate no cash flows and therefore their intrinsic value is zero.
At least for now, they have virtually no utility other than extortion, the purchase of illegal goods, evading taxes, and other nefarious things. They are purely instruments of speculation, which means if you buy them, your only hope for a profit is that some other speculator comes along and pays you a higher price later.
I almost always avoid all such silly activity, but occasionally I invest a small amount in a speculation when the conditions are right – for example, as I outlined in my May 12 e-mail, when we recommended ethereum in Empire Stock Investor in April 2021. It quickly doubled, and in a special update a month later, we recommended selling 55% of the position, banking a quick 84% gain.
But what was once a good speculation turned into a bad one for reasons I laid out in my May 12 e-mail, so we sent our subscribers another special update that day telling them to sell the rest of their ethereum at roughly the price we'd first recommended it, earning them a blended 45% gain. Good thing we did, as it's down 43% since then!
With bitcoin and ethereum having crashed 69% and 77%, respectively, from the all-time highs they hit only last November, is it time to get back into them? Perhaps they've now become good speculations again?
I think not.
While front-page stories like these in the New York Times ('The Music Has Stopped': Crypto Firms Quake as Prices Fall) and the Wall Street Journal (Coinbase to Lay Off 18% of Staff Amid Crypto Meltdown) are often good signs of a bottom, I think there are still many more shoes to drop that will drive prices lower.
I can't even begin to imagine the leverage that's built up in the system – crypto "investors" layered further risk on top of rank speculation – which will take a while to unwind. Remember how credit default swaps and other forms of leverage – both known and, more dangerously, unknown – made the global financial crisis much worse? And this time, governments aren't going to step in to save the speculators...
I also think regulators are likely to crack down on the sector (which is long overdue).
Finally, as I've warned about many times, I think there's now a 50/50 chance that the leading "stablecoin" (what an oxymoron!), Tether, collapses, which could lead to the price of every cryptocurrency getting cut in half.
4) So instead of speculating in cryptos, look at Berkshire Hathaway (BRK-B)...
On March 28, when the A-shares hit an all-time high – closing at $539,180 – I cautioned:
Berkshire Hathaway... hit an all-time high on Friday, up 19.6% this year versus negative 4.7% for the S&P 500 Index and 54.7% since the beginning of 2021 versus 21.1% for the S&P...
My take: The stock has done exactly what I wanted and expected it to do – massively outperforming during times of turmoil, when growth stocks are getting whacked.
That said, it's now trading at almost exactly my estimate of its intrinsic value, which I calculated in two ways in my March 2 e-mail.
So while I think it's a solid long-term hold, I wouldn't be adding to it here.
Sure enough, the stock has pulled back by 23% since then (roughly tracking the S&P 500's 18% decline), which has it trading today at a 20% discount to its intrinsic value, which I peg at $519,000 right now according to my spreadsheet that updates Berkshire's stock portfolio – and intrinsic value – on a real-time basis.
That's a very attractive entry point for what I call "America's No. 1 Retirement Stock" for its combination of safety, growth, and cheapness.
5) During times of turmoil, I always return to the immortal wisdom of Warren Buffett...
Here's a 30-second video where he describes visiting Las Vegas as a 21-year-old and seeing others who had "come to do stupid things" (i.e., gambling), making the connection to similar behavior in the stock market, and thinking to himself, "Boy am I going to get rich" by "every now and then and saying, 'Wait, that doesn't make any sense in terms of where it's selling...'"
Best regards,
Whitney
P.S. I welcome your feedback at WTDfeedback@empirefinancialresearch.com.