Buffs and Nerfs: Financial Markets in the World of Statecraft

In video games, buffs and nerfs are how developers rebalance the system via “patches.” A character that has become too powerful gets weakened; an underused ability is strengthened. The goal isn’t fairness for its own sake—it’s to keep the game playable, competitive, and aligned with the developer’s vision.

Increasingly, governments are doing something very similar to their economies.

For decades, investors operated under a core assumption: advanced economies—especially the United States—were fundamentally free‑market systems. Governments set the rules, central banks handled macro stability, and firms competed largely on economic merit. That assumption is eroding. In its place is something closer to economic statecraft: a system where governments actively tilt outcomes in the name of national security, supply chain resilience, and strategic dominance.

As a result, some companies will be buffed. Others will be nerfed. And the “developer” is no longer invisible.

When my kids talk about the online games they play, I’ve noticed that their description of a game element (a character in the game, for example) often comes with something to the effect of “will probably get nerfed” or “could get buffed.” In other words, achieving success in the game means not just understanding the game, but how the developer is likely to make future adjustments. Anticipating buffs and nerfs becomes part of the game.

And so it is with capital markets: success in the game means not just understanding how the economy might change, but how government is likely to make future adjustments.  Anticipating statecraft becomes part of the game: who will get buffed; and who will get nerfed.

From Market Policy to Statecraft

Michael Every of Rabobank has been particularly clear on this shift. In a recent Grant Williams podcast¹, he described a transition from economic policy to economic statecraft, where the central question becomes not what maximizes efficiency, but what serves national power. As Every put it, the implicit answer to “what is GDP for?” is no longer consumer welfare alone, but strategic primacy.

This framing helps explain why actions that once seemed unthinkable are now happening in plain sight. Governments are no longer just referees; they are active players adjusting the balance of power across sectors.

Recent U.S. Examples: Buffs by Design

The U.S. provides some of the clearest recent examples of intentional buffing.

Intel. The U.S. government has agreed to take an approximate 10% equity stake as part of its effort to rebuild domestic semiconductor manufacturing. This is not passive industrial policy; it is direct balance‑sheet intervention. Intel is being buffed not because it is the most efficient producer globally, but because advanced logic manufacturing is deemed strategically indispensable.

MP Materials. The U.S. government has taken an equity stake in MP Materials, the rare earth producer, to reduce reliance on China‑dominated supply chains. Again, the objective is resilience and control, not marginal cost leadership.

U.S. Steel / Nippon Steel. As part of the Nippon Steel acquisition of U.S. Steel, the U.S. government will retain a golden share, granting veto rights over certain strategic decisions. Ownership is no longer binary. Control matters more than price.

Each of these actions would have been controversial—or outright dismissed as industrial planning—twenty years ago. Today, they are treated as pragmatic responses to geopolitical reality.

Nerfs Are the Other Side of the Patch

Buffs are only half the story. Statecraft also implies nerfs.

Companies that depend on globalized, frictionless supply chains; that rely on adversarial jurisdictions; or that operate in sectors deemed non‑essential may find capital more expensive, regulation heavier, or access constrained. Export controls, inbound investment reviews, sanctions, and targeted regulation all function as nerfs—reducing the effective power of certain business models.

This is not subtle. It is not temporary. And it is unlikely to be reversed simply because inflation falls or growth slows.

Markets Still Matter—but Differently

None of this means markets disappear. Prices still exist. Innovation still matters. Execution still counts. But the rules of the game are changing.

In a pure free‑market framework, investors ask whether a company is efficient, profitable, and scalable. In a statecraft framework, the first question increasingly becomes whether a company is aligned with national priorities. Those two questions overlap—but they are not the same.

Every goes so far as to say the Trump Administration is implementing “capitalism with a national security face” as a way to implement core military industrial power

“…we are seeing a fusion of national security and economic security strategy…a Treasury-centric system with the Fed subservient to the Treasury… tariffs, non-tariff barriers, export controls…capital controls on outflows and capital controls on inflows, telling people where you have to put your money in America, not into treasuries, not the way that you’re used to, not into assets, into productive investment…price controls in some areas…wages are going to go up…”¹

This Could Get Uncomfortable

Investors love clarity and consistency. And for decades, liberal market economies told a consistent story: government intervention was distortionary, temporary, and best minimized. Today, governments are telling a different story—and backing it with capital, regulation, and ownership.

To us, investors are too sanguine about these developments and not uncomfortable enough. The average CAPE ratio (Cyclically Adjusted Price/Earnings ratio²), a measure of stock market valuation, for the 30-year period 1996 - 2025 was 28.4. But the average CAPE ratio for the prior 30 years (1966 – 1995) was 14.8, a period that encompassed the Vietnam War, several oil shocks, the US – USSR cold war, and bouts of high inflation and interest rates.

What was the CAPE ratio³ at 12/31/25? Just under 40.

Yes, the era of statecraft will yield some winners in addition to losers; but it’s difficult to see how discount rates applied to future cash flows for all stocks would not go up with the specter of government intervention and changing national priorities hanging over the private sector. That means P/E ratios would decline.

Understanding balance sheets and cash flows is necessary, but no longer sufficient. Policy alignment, jurisdictional exposure, and strategic relevance now sit alongside traditional metrics. The invisible hand may still be there, but it is increasingly being guided in a very “heavy handed” way.

Does Michael Every’s quote above fill you with confidence about a world where corporations can freely continue to “maximize shareholder value” 

Shouldn’t we prepare for the possibility that earnings multiples go down as investors realize the game has fundamentally changed?

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1. https://www.grant-williams.com/podcast/the-grant-williams-podcast-michael-every/

2. Per Investopedia, the CAPE ratio, or Shiller P/E ratio, uses real earnings per share (EPS) averaged over 10 years to adjust for economic cycles, helping investors assess market valuation

3. All CAPE ratio figures cited are from data provided by Dr Robert Shiller at http://www.econ.yale.edu/~shiller/data.htm

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