Fiscal Suicide Pact: Now With Extra Pork
Global Tactical Asset Allocation Strategy
Strap in, taxpayers — the fiscal demolition derby just hit a new gear. Washington’s latest economic brainchild is a $4 trillion punch to the gut disguised as "policy," backed by the same geniuses who think debt ceilings are just polite suggestions. The bond market is twitching, the dollar’s on life support, and the only thing rising faster than interest rates is the collective national delusion. But don’t worry, your elected wizards say everything’s fine — right before they set the Treasury on fire and use your 401(k) to toast marshmallows. Read on, if you still believe math matters.
Recap
Over the past month, we exited our VGIT position (intermediate-term U.S. government bonds) to avoid further losses. The decision was prompted by the President’s “let’s punch ourselves in the dick” negotiation style and proposed spending bill that rattled the bond market and sparked a selloff.
However, as traders began to realize TACO, the general stock market rebounded.
Overall the Global Tactical Asset Allocation (GTAA) portfolio was up 1.17% in May and is up 0.75% for the year, while the S&P 500 is up 0.51% year-to-date.
Current
Nothing new to report ... unless you count the slow-motion car crash of American fiscal policy as “new,” which, tragically, it isn’t.
The current occupant of the Oval Office has unveiled his latest legislative gem: the Big Bad Bloated Bankrupt Bill. A fiscal atrocity so dense it could bend light, a multi-trillion-dollar piñata of pork, gimmicks, and economic illiteracy that the ghost of Milton Friedman wouldn’t touch with a ten-foot gold bar.
If you're in the mood to be lectured by coastal liberal banshees howling about equity from inside their rent-controlled apartments, check out Rolling Stone. Aren't they supposed to be a music magazine? Anyhow, they make some valid points about rule of law, erosion of institutions, then include the usual handwringing. And they’re not wrong. But the real horror isn’t just constitutional. It’s mathematical.
The real sin here — the absolute fiscal faceplant — is the bill’s $3–4 trillion price tag.
According to the Tax Foundation — a sober, suit-wearing, center-right bunch with calculators for souls — this beauty will add $3 to $4 trillion to the national debt. That’s not chump change, that’s economic vandalism.
What's the current U.S. debt? $36 trillion and counting, baby. So this bill would tack on another 10% just for fun. And with a debt-to-GDP ratio of 123%, we’re now officially doing worse than a socialist clown car of countries: France, Canada, Spain, Belgium, even the UK’s NHS-riddled financial zombie. We’re losing to Portugal. PORTUGAL, for God’s sake. And Egypt. Egypt! A country whose greatest economic achievement is pyramids built by unpaid interns 4,000 years ago.
We now owe more than we produce. We are running the world’s largest Ponzi scheme and calling it “freedom."
Meanwhile, bond traders are getting jittery. The smart money is starting to mutter about “cracks in the bond market,” which is Wall Street code for: the U.S. might soon have to beg to borrow money. That means higher interest rates. A weaker dollar. Rising prices. The slow death of purchasing power.
And what’s the Federal Reserve doing about it? Nothing. Standing there like a deer in the headlights while fiscal policy throws gasoline on the economy and lights a cigar with a trillion-dollar bill. Because when the executive branch turns on the firehose of spending, there’s not much a monetarist outfit can do except watch and hope the levees hold.
Are you tired of winning yet?
Trades
This month the Global Tactical Asset Allocation model indicates we should add US Large Cap Momentum Stocks (MTUM).
After these addition, the portfolio should consist of:
1/6 BWX: Foreign 10 Year Bonds
1/6 GLD: Gold
1/6 MTUM: US Large Cap Momentum
1/6 VGK: Foreign Developed Markets
1/3 Cash
“The problem with socialism is that you eventually run out of other people's money.”
— Margaret Thatcher
What I Do Personally
I typically employ a 50-50 mix of TNA and TQQQ put sales in a portion of my account and implement the Global Tactical Asset Allocation (GTAA) strategy in the remaining portion, as these two strategies hedge each other. Choose the combination of put-selling, GTAA, and other portfolio strategies that works best for you.
Further Information
Though our asset allocation method faced challenges last year due to Fed-induced market fluctuations, our option-selling strategy performed very well: up 35.81%, as well as beating the S&P 500 (with dividends reinvested) 15 out of the last 18 years. This success showcases its potential as a hedge to the Global Tactical Asset Allocation portfolio and is a why I employ a mix of both strategies with my personal investments.
For deeper insights into these methodologies and more about Gamma One, take a look at our Global Tactical Asset Allocation, option selling strategy, and 'what to expect' pages. As always, review the disclaimer before taking any steps with your personal investments, as any investment holds risks and the statements above are based on historical returns that aren’t necessarily indicative of future results.
Next Steps
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