The Pentagon Just Became a Hedge Fund

Editor's note: Government investment can transform a company's prospects overnight. It can even attract billions of dollars from Wall Street. But according to our friend Nick Hodge, not every company caught in the wave of excitement deserves your attention. In fact, knowing how to separate a real opportunity from a "subsidized story" could help you avoid disasters...

For my entire career, the U.S. government has treated resource stocks like something stuck to the bottom of its shoe.

Mining was considered dirty and slow, a permitting headache... something to regulate, tax, and slow down.

A lot of us in the business felt like we were doing something almost shameful by investing in the companies that dig up the stuff that modern life runs on. I spent years pushing against that headwind.

Then, almost overnight, everything flipped. The government didn't just decide to play nice with mining companies – it started investing in them.

Simply put, it's "state capitalism." And whether you love it or hate it, the U.S. government has started buying publicly traded stocks as if it were a fund manager.

But as I'll explain in today's essay, while this trend might make you feel greedy as an investor, it's actually a reason to become a lot pickier...

The Government Is a Motivated, Careless Buyer

In July 2025, the Pentagon bought shares of MP Materials (MP) – the owner of the largest rare earth mine in America. And it wasn't a small position, either...

The Pentagon became the single largest shareholder. It invested around $400 million, a stake worth about 15% of the company.

The stock jumped 50% in a single day. It ended up more than tripling over the next few months.

And that was just the start...

The government took a stake in lithium company Lithium Americas (LAC)... copper miner Trilogy Metals (TMQ)... and even bought a $9 billion chunk of chipmaker Intel (INTC).

But this kind of trend isn't the simple investment opportunity that it might seem.

Buy the Business, Not the Headline

When the government decides to buy, it doesn't buy like you or I do.

It's not hunting for a bargain or being careful. It has a checkbook the size of the moon. And when it buys, the money that follows it buys, too.

Last October, the government helped finance a $5 billion mining fund... Then, JPMorgan Chase (JPM) announced a $1.5 trillion push into critical industries. That kind of money stampedes into the market.

And the support comes in more than one form...

Sometimes the government just buys shares of a company and takes an ownership stake. Other times, it gives a company a "fast pass" through the permitting process, using a law called FAST-41 that lets a favored project bypass years of red tape.

Either way, the effect is the same: These chosen companies become cheaper to fund and harder to kill.

Once the government blesses a stock, Wall Street piles on top. A little push from Washington turns into a tidal wave of private money from the big banks and funds who want in, too.

The problem is, this flood lifts everything – the good and the garbage.

One company that operates a graphite deposit in Alabama jumped 75% in a single week, just because it got swept up in the excitement.

That's what happens when a giant, careless buyer floods a small market. It rewards proximity to the money more than quality.

You might think a government buying spree would be a reason to grab anything with a ticker and a mineral. But that's exactly backward.

When easy money floods a sector, the junk gets lifted right alongside the gems. For a while, everything works.

Then, investors get lazy because they think they can't lose. That's the dangerous part... because they can.

A real asset has good rock in the ground and smart people running it. It would be worth owning even if the government never showed up.

But a subsidized story is a weak company that only floats because it caught a headline. When the money moves along, it sinks.

Government enthusiasm doesn't erase that difference. It hides it... for a while.

All of this is more reason to get pickier than ever.

So when you see the government or Wall Street pouring money into a sector, don't rush in behind it. Ask yourself, "Would I own this company if the government never showed up?"

If the answer is yes, you might have something real.

If the answer is no, you're just gambling on a headline... And that's not a sound long-term investment strategy.

Regards,

Nick Hodge

Editor's note: The AI trade has become too crowded for some of the world's most powerful investors. Instead, they've turned their attention to a different part of the market – one tied to America's need for critical resources. With China looming over the supply chain, a major buying spree is underway in Washington... which could put a little-known corner of the market in the spotlight.