You pick up the Washington Post this morning and you read, "Pentagon hid study revealing $125 billion in waste." And you are furious. How can this happen? Under whose watch? How do we change it?
But we all know what a joke it is to try to rein in the defense budget, right?
Today, President-elect Trump tweeted: "Boeing is building a brand new 747 Air Force One for future presidents but costs are out of control, more than $4 billion. Cancel order."
Now we could argue, please, that's just one of those tempestuous tweets from the president-elect, just like a tweet that trashes Saturday Night Live. It's no different from, "Just tried watching Saturday Night Live --unwatchable! Totally biased; not funny and the Baldwin impersonation just can't get any worse. Sad."
But I think it's a bogus equivalence. The real issue here is suasion, just like what the president-elect did when he called Greg Hayes, CEO of United Technologies (UTX) , and said it would be good for the country if he didn't move all of those jobs down to Mexico.
Greg made it clear there was no quid pro quo, but he was totally cognizant of the $6 billion in defense contracting that could be at risk, so he made a deal he couldn't refuse.
Now it is Boeing's (BA) turn. Because of the unorthodox way Trump handles his ripostes -- no press challenges to the Air Force One numbers or where they came from -- nobody can say for certain that Boeing's got a gigantic overrun. This isn't some ordinary 747 that they are fitting. It is a flying fortress, and not the vulnerable B-17 that was a mainstay in World War II. This thing is a work of genius. So it is costly.
But until today I, like many of you, figured that overruns were the cost of doing business.
No longer. We have a president who will be the builder-in-chief and I can imagine Trump's thinking, hey, I own an airplane, I wouldn't let the maker of that plane get away with it, be darned if I am going to let Boeing get away with it.
Once again, there is no quid pro quo. We didn't get a tweet that said, "Do you know how much business Boeing does with the Defense Department? How about $18 billion, 20% of their business?"
You think they didn't get the message? I think they got it just like Greg Hayes did.
Now, does that mean they roll back the price of the plane, a moral win? Or does it mean Trump's not going to tolerate the Pentagon hiding a study revealing $125 billion in waste and he isn't going to tolerate the waste at all?
Remember, Trump was elected to "drain the swamp" in Washington. You think these kinds of overruns aren't part of the swamp? In President Eisenhower's 1961 farewell address, he warned about how the country must "guard against the acquisition of unwarranted influence, whether sought or unsought by the military-industrial complex." He was specifically referring to the chumminess between the government and the lobbyists and the defense companies themselves and how they could be too powerful. "We must never let the weight of this combination endanger our liberties or our democratic process. We should take nothing for granted."
The article in the Post would have made Eisenhower livid. Air Force One is made by one of the most important members of the military-industrial complex. So Trump's riposte resonates. Maybe he's heeding Eisenhower's cautionary words. Or maybe he's just fed up. As he said in an interview later, he wants Boeing to make a lot of money, but not this amount of money.
So what's the impact here?
I think there are several.
Number one, if you do business with the government, like United Technologies, like Boeing, be prepared to pay a price. There are a ton of wide-body planes out there, a big excess. I am sure Trump, who owns a big plane, actually knows this. I don't expect Trump to take the order away and give it to the only other company that can build a wide-body jet like Air Force One, Airbus, which has way too many A-380s but, in the end, is a European company. That would be heresy.
But Trump's sending a message. If you are part of the overruns, if you are feeding on the public trough, you are going to have to pay a price, and that price is a better deal on a plane or a tank or a jet engine.
To me, that says maybe we shouldn't be paying as much for defense contractors. Their stocks have been red hot. I know they represent great value. But enough tweets like this one and we will regret buying Lockheed Martin's (LMT) stock up 22% or General Dynamics' (GD) up 29% or Northrop Grumman's (NOC) up 30%. (Lockheed Martin is part of TheStreet's Dividend Stock Advisor portfolio.)
There's more risk than we thought.
Second, an interventionist president isn't a new thing. We just aren't used to seeing one intervene directly with manufacturing. Back in 2009, President Obama famously -- or infamously if you worked on Wall Street - assailed "fat cats" who don't get it. He later acknowledged he "hurt their feelings." I fail to see how this is any different. If anything, that was a heck of a lot more scathing. And the legislation that followed was a lot more eviscerating than anyone thought possible at the time. Those that do business with the government could be considered the new fat cats.
Third, those that are regulated heavily by the government of old are going to get more of a free pass under this administration if they provide jobs to the American people. The banks provide jobs with their own businesses but also, more important, with their lending. Trump knows a thing or two about borrowing. He is sympathetic to the web of laws that are impossible to really obey and he knows regulation has crimped homebuilding and construction. They will do better.
When it comes to the oil and gas industry Obama has sided with the "leave it in the grounders." Trump is siding with the energy companies, from the drillers to the oil companies themselves to the pipeline builders. He's on the total opposite side of the Dakota pipeline protesters and I think he would personally rebuke the Army Corps of Engineers people who blocked it. Nah, he'd just fire them, put in his own people and reverse it. Sure, there would be a court case. But next time the federal government is involved in a controversial approval, you know which way that's going.
Finally, I think this whole issue of the president-elect and his tweeting calls into question the lack of a premium being given right now to classic growth stocks that don't need or want government involvement. Sure, many of the heads of these companies weren't in favor of Trump's election. But we may want to pay a premium for pure growth as long as it doesn't need government contracts. In other words, so it doesn't need defense money or, more important, doesn't need Medicare money, which could be the next place we see some blistering tweets. Even Brent Saunders from Allergan (AGN) warned us last week that the next Epi-pen controversy could bring tweets from Trump that are far more damaging than anything Hillary Clinton threw at the industry including her legendary 2015 tweet about drug companies' price gouging. (Allergan is part of TheStreet's Action Alerts PLUS portfolio.)
Oh, and one more thought about Trump's tweets about SNL. When President Truman's daughter gave a singing concert back in 1950, and Paul Hume, the Washington Post's critic, wrote, "She can't sing very well," and "has not improved over the years," Truman wrote him a letter saying, "Someday I hope to meet you. When that happens you'll need a new nose, a lot of beefsteak for black eyes and perhaps a supporter below."
Hmm, maybe there's precedent for that tweeting storm, too.
Still, it's a brave new world. We have to be careful not to pay too much for those manufacturers that rely on the federal teat. But perhaps we should pay more for those that don't.