23 December 2016

No, Donald, Boeing isn't going to run right out and "price-out" a Super-Hornet that's "comparable" to the F-35.

It wasn't the first time, and - disturbingly - it probably won't be the last, but Donald Trump used his Twitter account to cause sharp and unexpected after-market stock price moves for two different companies yesterday. (Did those swings benefit Donald or his family? Probably not, but we know so little about his finances that it's impossible to be sure.) Yesterday, it stock prices for uranium mines rose after Trump sent a tweet about the need to expand our nuclear arsenal. This time, Lockheed Martin's market cap took a $1.2 billion dollar beating, while Boeing shares went up, after The Donald sent this:

I just have a couple of thoughts on this:

First, it appears that investors need to start taking "Twitter risk" into account when picking stocks. If you want a stable investment, you'll need to look for companies that are unlikely to attract Trump's interest, in industries and sectors that are unlikely to attract Trump's interest. Otherwise, you need to be prepared for the possibility that the value of your investment might abruptly fluctuate by a few percent depending on what a POTUS with no known capacity for self-restraint decides to Tweet. 

Second, while I'm sure Boeing's CEO was very polite during the meeting with the President-elect, and made all the appropriate noises at all the appropriate times, I'm fairly sure that both CEOs present were mentally making a gesture that involves rapidly moving a lightly-closed fist in an up-and-down motion. And after the meeting, an excited and invigorated Boeing CEO didn't immediately turn to his assistant and start snapping orders cancel people's Christmas holidays so they can drop everything to "price-out" a new super hornet variant. Instead, a mildly exasperated CEO turned to his assistant and said something to the effect of, "get someone to dust off that thing we did last year when we were trying to get the Navy to pick up a few more hornets and send it to the schmuck's people," before turning to the Lockheed CEO and saying, "I don't know about you, Marillyn, but I need a drink."

Here's the thing. This whole thing around the F-35 and price overruns is very transparently Trump trying to establish that he's a big-league businessman, a super negotiator, and is going to negotiate great deals for the USA. But the thing is, compared with Lockheed and Boeing's CEOs, Trump is not big-league. Estimates of the value of the Trump Organization's holdings are all over the place, but most of the estimates are in the $3.5 billion range. The market cap for Lockheed's stock is over 20 times that; Boeing's is even higher. If Lockheed is the New York Yankees of business, Donald Trump is the Staten Island Yankees. He's not playing in their league, has never played in their league, and was not in any danger of getting an invitation to play in their league. 

I'm sure that Trump's grand plan is to use the threat of going to Boeing to try to negotiate Lockheed down on the F-35. The thing is, his "I asked Boeing to price out an alternative" thing isn't going to give him a lot of leverage in that regard. 

First, a new fighter plane project, even one done on the cheap by basing from an existing airframe like the Hornet, is likely to run into the tens of billions, minimum. "Pricing out" a project like that is a multimillion dollar enterprise - an investment that Boeing is highly unlikely to undertake when they have no real hope of repayment. 

Second, Trump doesn't sign the checks on the F-35, Congress does. Congress has had no problems signing off on military purchases the President and DoD didn't want in the past, ant that's not particularly likely to change now.  That's particularly true given that Lockheed was careful to spread the F-35 project and its components across about 40 states. It's literally harder to find a Senator who doesn't have an interest in keeping the F-35 going than one who does. 

Bottom line: Trump undoubtedly thinks he was acquiring leverage to use against Lockheed with that Tweet. He didn't. He screwed with their stock price a little, but that's all.