View From a Height

One stock that I followed at the brokerage, and which I own a couple of hundred shares of, is called Tetra Tech (TTEK).  When I get a chance, I like to listen to conference calls of companies I've done research on.  Even if I'm not actively modeling the companies right now, I'll learn something about their business, and usually about how they see the economy.

Now, TTEK is heavily dependent on government contracts, getting just under 50% of their net revenue from federal contracts, and another 15% or so from state and local governments.  Their main line of business is water projects, and they're also heavily involved in wind power, nuclear, and other alternative energy projects.  In fact, they make a good case that their work corresponds with the government's current priorities:

And one thing that is very clear to us here is, the clear priority of this administration and the majority party here in the United States are to support programs for clean water and water infrastructure, cleaning the environment and energy efficient buildings and energy independence while reducing CO2 emissions. And these are the markets that Tetra Tech is primarily focused on. So when their funding goes up, we are exactly in the right spot.

While they haven't built stimulus money into their projections, they consider themselves to have a natural advantage when that immedately-necessary, time-critical, urgently-needed cash starts to hit the market sometime in the next century:

...And from our perspective, the firms that will be the most successful are the ones that have contracts in place today.

I have said this before in our previous call but with two and half months gone by, since the signing of the Recover Act, it is increasingly important to get this into the economy fast. And the only way we see to do that is to go first to those as whole contracts.

Fair enough.  Except for two things.  First, one would thing that with two and a half months gone by, and the money still sitting in Beijing and Shanghai, they would have figured out that maybe getting the money to market isn't the most important thing on the government's mind.

Second, if the Chrysler and GM debacles have shown us anything, it's that where this money gets spent, and who gets to see it, is going to be determined by narrow political motives.  Period.

What's at work here is that too many in the business community don't understand that the game has changed.  Used to making deals enforceable by steady rules, they are ill-equipped for an environment where there are no rules and the deals only last as long as the President likes them to.

The TARP-entangled banks are learning this to their detriment, as are the GM and Chrysler bond-holders.  Soon, Ford will be find it out, when it finds itself forced to compete with union-owned car competitors for lending at government-held banks.

Those who say that the commercial credit markets will dry up aren't counting on the federal government forcing the banks to lend, quality of the borrower-be-damned.  And I'm afraid that the management of Tetra Tech is using entirely the wrong yardstick to measure how the government dole is going to work in the future.