Trump's Selective State Capitalism Is a Dangerous Precedent and Slippery Slope
If there's anyone this policy should apply to, it is the tech guys.
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* The Trump Administration should not be choosing winners and losers.
* Thus far our markets have shrugged off political interference in setting corporate policy — but don't expect this to be a permanent condition.
* President Trump's emerging policy directives (cessation of defense company stock buybacks and eliminating institutional purchases of homes) represent a risk to business confidence and the markets.
Following the capture of Nicolás Maduro over the weekend, President Trump issued his intentions of eliminating institutional buying of residential real estate and to recommend that defense companies no longer be permitted to buy back their shares.
The later recommendation was particularly interesting — that defense companies were using too much cash on buybacks and dividends at the expense of investing in capital and labor. The president went on to say that defense company executive compensation was far too high:
https://truthsocial.com/@realDonaldTrump/posts/115855387946005468
Agree or disagree, rules/laws should apply to all industries equally. Selective capitalism is a dangerous precedent and slippery slope. And I don't believe the markets will be receptive.
Why Stop at Defense Companies? AI and Big Tech Are Far More Engaged in Stock Options and Buybacks
Regardless, we are being told by David Sacks and the current Administration that the AI sector is now part of our national defense and we are at war with China in this regard. They are all doing tons of business with the U.S. government too, directly and indirectly. They are much bigger businesses with more earnings, more employees, and more capacity to invest than the defense contractors, so more important to focus on. Palantir (PLTR) is basically a defense contractor anyway too, look at their book of business.
You want to talk about stock options, buybacks, and executive compensation, look at the tech industry which dwarfs the defense industry by more than several orders of magnitude (thousands of times) in this regard. Look at the list of the wealthiest people in the country, and what that wealth is based on (stock, a lot of it which has come from options).
If there is anyone this policy should apply to, it is the tech guys.
I frankly do not think the president is exactly nuts in this regard, outside of directing this solely at one industry (defense).
I have been out on an island on this one for a while. My view has been NO buybacks for public companies. No stock options for executives. Keep public companies out the market for their own stock, it creates all sorts of perverse incentives, and it is nuts that companies effectively buy the stock their execs are selling, this is as absurd as politicians being able to legally insider trade. Straight equity only (with straightforward accounting).
Dividends are fine. Give dividends the equivalent tax treatment as buybacks if you want. Do all these things, then let’s see if companies start plowing more cashback into their business (capital and labor) as opposed to playing financial engineering games.
Bottom Line
I have long made the case that the lack of predictability of Washington policy is an underappreciated market risk.
Wednesday's announcements on defense company buybacks and institutional purchase of homes confirm my concerns.
Those policy intentions are not market friendly.
At the time of publication, Kass was short PLTR (VS).
