Donald Trump calls it a win for American industry. Trump’s economic advisor (or what ever it is he is doing) Kevin Hassett calls it the first step towards a sovereign wealth fund. I call it Red Hat Socialism.
The United States government has just taken a near ten per cent stake in Intel. Officially it is about safeguarding domestic chip production. In reality it is subsidies converted into equity in a company that continues to lose ground to TSMC and Nvidia. The deal gives Washington no real control but leaves American taxpayers exposed when the share price falls.
And it does not stop there. Only a month ago the Pentagon bought into MP Materials, the United States’ only rare earths miner. The state is now the largest shareholder and has promised a minimum price for output at nearly double the Chinese market rate. In Washington this is described as national security. From abroad it looks like state-sponsored market distortion.
The US stock market is, by most measures, massively overvalued. At the same time, the US federal government is running a massive deficit. These two things cannot coexist for long: buying overvalued US companies financed by government debt issuance.
A sovereign wealth fund works when you invest fiscal surpluses into undervalued assets. Norway is the textbook example. What the United States is building is the polar opposite. Overvalued assets financed by record deficits.
The arithmetic is brutal. When the market reprices lower and it will be taxpayers who will take the hit. At the same time bond investors will wake up to the reality of ever-expanding debt and rising issuance.
I suggest you sell your US Treasury bonds before the double-whammy hits – a massive sell-off in the US stock market combined with skyrocketing US bond yields.
