The Senate Armed Services Committee voted to ban defense contractors from repurchasing their own stock without Pentagon approval. They did this because apparently someone in Washington finally noticed that Lockheed Martin and Raytheon have been spending shareholder money to juice their earnings per share instead of building better missiles. Took them long enough.
The logic goes like this: taxpayers fund defense contracts, defense contractors take that money and buy back stock to inflate share prices, executives cash out their options, and the Pentagon gets the same outdated weapons systems but now with less corporate cash on hand for R&D. Everyone wins except the people paying for it.
Defense stocks immediately became less attractive to the exact investors who thought buying RTX was a smart hedge against geopolitical instability. You know the type. They read one Seeking Alpha article about the military-industrial complex and decided they were the next Warren Buffett. Now they're stuck holding shares in companies that might actually have to spend money on boring shit like manufacturing capacity instead of financial engineering.
The bill still needs to pass the full Senate and House. It probably won't. But the threat alone is enough to make CFOs at defense contractors break out in hives. They've structured their entire compensation packages around hitting EPS targets that only exist because they've been retiring shares for a decade. Take away the buybacks and suddenly they have to explain why revenue growth has been flatter than a 50-day moving average on a penny stock.
Retail traders who bought defense stocks because they thought war was a growth industry are about to learn that Congress can f*ck up a trade faster than they can.
Photo by Rogelio Gonzalez on Unsplash
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