The Tweets Heard Around the WorldDecember 19, 2016
“Impact of a Trump tweet: Lockheed Martin lost $4 billion in market value.”
That was the title for the CNBC article written by Berkeley Lovelace Jr. dated December 12, 2016. The tone of the article seems to place at least partial blame for shares of the aerospace company dropping more than four percent in early onset trading on December 12 on President-elect Donald Trump, who sent out his feelings on the enormous cost of the F-35 program via Twitter earlier that day. The tweet stated, “The F-35 program and cost is out of control. Billions of dollars can and will be saved on military (and other) purchases after January 20th.” Lockheed Martin spokesman Bill Phelps said the company has invested large sums of money to reduce the cost of the F-35 stealth fighter program by 60 percent. Last week, Trump threatened to cancel the Air Force One program, which Boeing recently won the contract for, claiming the total cost of a new 747 would be more than $4 billion. After that tweet, Boeing took an immediate hit, losing $1.4 billion in market value, but later recovered to end the day flat.
Many Americans find it difficult to sympathize with or feel badly for these companies. A 2015 article in Forbes magazine cited that “Lockheed Martin paid the Justice Department $4.7 million to settle charges it fraudulently paid a lobbyist with illegally-used taxpayer funds. It paid the lobbyist, a revolving door former U.S. Representative, to help it get it a giant, no-bid, $2.4 billion-a-year contract to run giant national labs for many years to come.” Also stating, “This is a $2.4 billion contract for Sandia to run major parts of the government’s nuclear weapons complex in Albuquerque and Livermore.” After an investigation by the Department of Energy Inspector General, it was uncovered that this was cost-plus, so Lockheed billed the Treasury for the pay-offs to the lobbyists. As part of this settlement with the Justice Department, Lockheed could say it had not admitted guilt. A Reuters article dated April 27, 2016, cited that the U.S. Air Force earlier that week awarded billionaire Elon Musk’s SpaceX an $83 million contract to launch a GPS satellite, breaking the monopoly that Lockheed Martin and Boeing have held on military space launches for more than a decade.
Many people may not agree with more than a few of Mr. Trump’s stances or viewpoints. That aside, acknowledging that his actions are a bit unorthodox, it has not hindered the fact that his message is being heard loud and clear. The message could be interpreted as the competition will finally be given the opportunity to participate, and that American tax payers are no longer providing anyone a proverbial blank check. Mr. Trump continues to operate in an unprecedented fashion, and there is little doubt that future tweets from the President-elect could lead to even greater uncertainty or volatility in the market.
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This blog post was written by Justin Pinto, Investment Analyst for FDx Advisors.