Invite ye felawes and frendes desirous in gold to enter the gates of Shrewd'm, for they will thanke ye later.
- Manlobbi
Stocks A to Z / Stocks B / Berkshire Hathaway (BRK.A)
No. of Recommendations: 0
Given that dividends and stock buy-backs have been recurring subjects of discussion on this board, I wonder if people have thoughts about President Trump's recent declaration that defense contractors should be banned from either practice. My interest is in the business and investment logic of what is being proposed.
My non-expert view is that the elimination of dividends might make defense contractors less attractive to investors; an effect that might be offset by the dramatic expansion of defense spending that has been proposed--or not. I actually have no idea. Whereas limiting or banning buybacks reflects a reasonable expectation that if a defense contractor cannot use its capital to innovate, it should be replaced by one that can.
Setting aside the politics of the thing (please), would it make sense for a country like the United States to declare that its defense should be founded on industrial enterprises run, basically, like BRK: no dividends, limited buybacks, and a pay cap for the capital allocator?
Baltassar
No. of Recommendations: 3
We've done some limited business with the Federal government over the years. It is not easy for a small company to do business with the Federal government. As has been written, the defense equipment industry has compressed into only a few companies. Despite copious regulations written to encourage small, minority and women owned businesses to do business with the Department of Defense (War?), it is near impossible to actually make that happen. This results in small companies having to partner with the big companies. Note: The big defense contractor companies do not care about the factors of importance to the small companies. The procurement system massively favors the big companies despite the small company, women owned, minority owned language. Yes, the language is there, but the purchasing mechanism has hoops and catches that ultimately drives procurement to big companies. You could say the government and its staff simply prefer to work with big companies and this has been borne out by the DoD pushing to reduce the number of major suppliers over the past thirty years.
There is another business in our town manufacturing wonderful passive heating/cooling materials. I put 220,000 Btus of their material in my attic 15 years ago together with other home improvements and have enjoyed comfort and low utility bills. This company proved via evaluations at an Army base in Iraq how their material could enable one diesel generator to cool two (2) Army tent structures in place of what was then one diesel generator per one (1) tent structure in Iraq/Afghanistan. A major contributor of deaths involved fuel supply transport groups being annihilated by IEDs in their path. Had the tents been equipped with their passive material, the tent cooling fuel usage would have been halved in Iraq. The upshot was this business was a sub-supplier to an intermediate business who was in turn a supplier to one of the major defense contractors and despite the evaluation being a success, the major defense contractor wanted to keep the larger project perpetually "going" resulting in the local company's product being put aside for using project dollars to do something else that kept larger overall project on-going. Their material was never implemented for Army tents in hot desert locations. It makes me angry every time I think of this situation.
At any rate, we (the USA) appear to be boxed into a tough situation with these large defense contractors wanting to keep the status quo while innovation around the globe is sprinting ahead making low cost offensive weapons that can be built in the thousands. Low cost threats built in the thousands do not appear to fit the corporate aims of the big defense contractors. It may be terrifying to see where this all leads in the future.
Uwharrie
No. of Recommendations: 1
“My interest is in the business and investment logic of what is being proposed.”
Regardless of which party is in office or control, I much prefer free market capitalism and carry the Capitalist card I bought in Omaha for $1 a few years ago at the meeting with Warren & Charlie’s face on it!
No. of Recommendations: 19
Defense contractors have notoriously been allowed to have a "revolving door" policy with government procurement officers for generations. There is a definite conflict of interest which encourages waste of all sorts. There could certainly be better controlled by Congress. That said, we have the best Congress money can buy (regardless of party) as they are willing to "compromise" in order to continue to receive re-election assistance (in the form of monetary support) from lobbyists of various ilk.
On the other hand, as a stockholder of a company, whether it represents the angels or the devils, the rational is to make money (whether by dividends or capital gain is simply a nuance of this goal). For the CEO (or Capo, if you prefer) of the US to arbitrarily decide to change the profitability of an industry, as far as the stockholder is concerned, has little non-emergency precedent except in fascist and communist regimes which have a reputation for not following the accepted rules of law. The willingness to "take matters into his own hands" is an alarm bell which has to be carefully evaluated when deciding on how and where to deploy investable funds.
It would also be very interesting to research both purchases and sales of various investable assets which may have taken place among those closest to the decision-maker shortly before an announcement was made.
The current danger seems to be the current fixation on "acquiring" Greenland (Canada hasn't been mentioned in a while) which would both spell the end of the alliance of the US with Europe at the same time as validation the actions of Russia, China and others in their own spheres of influence. While this is not a board which concentrates on geopolitics, if a butterfly flapping its wings in Beijing affects the weather in NYC, the meddling of the US government in the investment profitability of individual stocks should send a chill down the stiffest of backbones.
Jeff
