It's all upside down. It's insane. Record highs. Some terrific earnings forecasts. Tremendous international prospects. But, at the same time, rules that could hurt profitability. Actions that could crimp growth. Regulations that could be a nightmare for companies that despoil the environment.
I know, I know, it could be expected. The government has continually found ways to frustrate unbridled capitalism if it scars the Earth. That's been going on ever since that paragon of ethics, President Richard Nixon, jammed through the Clean Air and Clean Water acts. Those laws made it so easy for the well-financed protest to stop what had been known as unbound progress -- until it was redefined as progress that took into account the Earth.
Companies have long tried to get away with as much as they can, legally, to be as profitable as possible to please their bosses, the shareholders. Forget how it was done, better than expected is the watchword, the clarion call, to the ultimate goal, higher prices a strategy that had long been accepted, adopted, if not cheered for, in Cramerica.
But in a monumental twist, something that is a shocking paradigm shift, in one 24-hour period we woke up to discover that the government had become the champion, if not the prodding partner, of private enterprise, while it is the world's second largest company, Microsoft (MSFT) , that is now playing the role the government has abdicated, demanding that its own people as well as its suppliers and even its products' users reduce carbon emissions.
Let's go a step further. Our government has China agreeing to a host of changes in the way it does business, changes that could make our companies doing business there much more profitable and it has China ceding its own ability to buy globally so that a huge list of our companies benefit. It's pretty amorphous until the Chinese recognize there's no taking back the hundreds of billions in tariffs without compliance, compliance that would, indeed, force them to change their pernicious ways.
What Microsoft, however, is doing is anything but amorphous, something you will find out about when we sit down with company CEO Satya Nadella and CFO Amy Hood in their headquarters in Redmond on Thursday evening. It's attacking carbon, root and branch. It's goal for the firm sounds like a mandate to be carbon negative by 2030. That's right, it is not enough to have no footprint, Microsoft wants to go back in time, to its founding in 1975, and erase its footprints.
To this grizzled veteran of the parsimonious Goldman Sachs (GS) and then of the ultimate profit maximization of a hedge fund, I marvel in wonderment. The government is embracing raising earnings per share at the expense of giant trading partner (although calling China a partner is like saying that Aaron Burr and Alexander Hamilton were partners in a terrific duel). President Donald Trump is mandating better-than-expected profits in a host of industries, everything from chemicals and agriculture, to pumps, air conditioners and even baby formula and credit cards.
But Microsoft? It's embracing what in Cramerica we call Impact Per Share, IPS, how much it can stop impacting the Earth in a negative way even if, and this is clear, it hurts earnings per share. Microsoft has measured its carbon footprint with the exactitude of a personalized Nike (NKE) . It's gauging its suppliers with the equivalent of the enforcement power of the old Environmental Protection Agency, the one that used to police these things with a heavy hand. I can't imagine a power company wanting Microsoft's business that can maintain its addiction to coal or even natural gas, the majority of the fuel sources in the United States. You want our business, build some windmills and put up solar panels, if not, we can build our data centers somewhere else. You want our fleet business, make electric powered vehicles or at least autos that get more miles per gallon than they currently burn.
It's the ultimate irony of ironies: President Trump is doing his darnedest to promote coal and to stop the regulators from pushing the auto companies to reduce emissions. Satya Nadella, meanwhile, is doing his best to please what seems to be among his, if not his most important, stakeholder, the Earth, even if it means being less profitable, not just for its own shareholders -- the ones who might care about a profit crimp -- but those who want to do business with one of the biggest accounts in the world.
There will be specific yardsticks to be sure that there's no greenwashing. Lo be the company that says it's a steward of the environment and, instead the Microsoft Protection Agency finds out otherwise.
I know a lot of people in the media and even some analysts didn't bother to look at the fine print for what the U.S. is demanding of China. They can't possibly get to where the agreement could add to the country's Gross Domestic Product. I think that's just silly. All you have do is measure who President Trump thanked for the help in getting the deal passed. I see numbers going higher for Blackstone (BX) , the private equity firm; for both Visa (V) and Mastercard (MA) ; for the beleaguered Boeing (BA) company; Dow Chemical (DOW) ; AIG (AIG) ; all the banks, especially JPMorgan Chase (JPM) -- whom Trump noted put up some "incredible" earnings without even so much of a "Thank you, Mr. President," although I think he was being facetious; Cheniere Energy (LNG) ; Sempra (SRE) , Dominion (D) and Tellurian (TELL) in the liquefied natural gas world; and a bunch of others, arguably, when you read the deal's fine print. I heard endless carping about how these commitments won't kick in until a host of tariff issues need to be sorted out. Give me a break, just take numbers up for 2021 for heaven's sake. Oh, and remember next week is Davos and I bet the President goes hard against Europe and that's going to bring EPS up even more!
On the impact per share side, it's the opposite. The push to be carbon negative, which Microsoft is "grounding in science and math," starts now, not in the out-years. There are no contingencies, there is an urgency of the old Department of War, funded by one billion climate innovation fund, which will be used to accelerate the global development of carbon reduction and removal technologies.
At its heart there's a titanic struggle going on here. Corporations are re-thinking their entire purpose, including the hard science of stopping what Nadella called the "devastation" of the environment by cutting the carbon cord. If the government won't do it then Microsoft will do it and lead by example. The president doesn't seem to regard the climate as something that's important for the nation's welfare or he otherwise wouldn't champion the burning of coal.
You know what this 24-hour period tells me? We've got a Don Quixote White House tilting at coal plants, while we have a cerebral, determined leader putting real money where his company's bottom line is to change the world to ensure that by 2050, the air's clean enough that we will care about Windows, the computer and server kind, and that the ocean will, as well as your cloud data center, remain Azure.
Can it be done? I'll tell you this. Only one of these leaders is up for election and even a win only gives you four more years of better earnings per share for the shareholders, but no matter what you can bet, he will be succeeded by someone who shares his worldview as well as the need for every company to have a sense of purpose and mission, creating value and profit by solving the world's challenges.