What Will We Get Out of DOGE?
A hope and a hedge
I recently wrote about what I thought this election meant about America while sidestepping specifics about the inbound administration. Herein I want to think about what comes next for governing. My favorite Trump stocks are Fannie and Freddie. They popped a bit on the day after the election but the initial market reaction in both their common and preferred shares understated the election’s significance to these securities. I haven’t sold a share since the election and continue to expect privatization.
The unambiguous election outcome with an aligned popular vote and electoral college is great for the country’s stability. This is good for equities generally and also a broader set of equities represented by small caps (IWM). House Republican control means that the administration doesn’t get bogged down in endless congressional investigations. Senate Republican control means that most nominees can be approved.
More market-oriented appointments for administrative agencies could lead to an M&A boom, especially in heavily regulated sectors such as banking. Potentially controversial deals such as the Capital One acquisition of Discover (DFS) could get a better shot, benefitting DFS. A lighter regulatory touch could also benefit bitcoin and some bitcoin-linked equities such as Core Scientific (CORZ).
I am thematically optimistic about America’s future, but wary that this inbound administration has a big job demanding careful execution. The country voted for normalcy when it elected Biden but didn’t get it. It got chaos. There was a chaotic economy in the form of hyperinflation, a chaotic border with unrestrained migrant convoys, and chaotic foreign entanglements in which we dabbled in wars without a plan to victoriously end them. We stayed in enough to keep fighting going but not enough to win. The mandate is to end this chaos. It isn’t to get distracted by tangents. It isn’t to replace a left wing nanny state with a right wing nanny state.
I’m rooting that they succeed. But Ronald Reagan advised that we “trust but verify”. I’d add that we “hope but hedge”. I am most hopeful about any turn towards limited government. Individual liberty is the inverse of unconstrained government. Limiting it by its constitutional parameters, statutory constraints, and fiscal prudence would increase human flourishing and happiness. The more the state is constrained, the less we are. We can afford more but also can plan more when operating under a low and clearly defined tax and regulatory burden. And that brings us to DOGE.
In the goofiest investment idea I’ve ever had I commented last year that,
“I’m momentarily bored and have money. Know who else is (even more) bored and has (much much more) money? Elon Musk! And he recently added the Dogecoin dog symbol to Twitter. It was at $0.08, jumped to $0.10, and now costs around $0.09. The next time Elon wants to cause mischief, he could talk this one up.”
More sober ideas have done far worse than this one which more than tripled upon Elon 1) causing mischief and 2) talking this one up. He is spearheading DOGE, the Department of Government Efficiency, along with Vivek Ramaswamy. I have only glancing histories with both men — in a rather public legal battle with Elon over Twitter and in buying a stake in Vivek’s Roivant (ROIV) when he ran for president and divested the stake. I admire both men (especially after getting paid in full for my Twitter). But they have a nearly impossible task ahead.
There is a bipartisan populist consensus defending our massive and unaffordable middle class transfer payment programs. We can afford welfare for poor people. What we can’t afford is welfare for everyone else. And the big programs — social security, Medicare, and Obamacare — are popular. Politicians are feckless because the electorate is feckless. There is no consensus for addressing fiscal profligacy before we have to. Unfortunately, “have to” comes right before “too late”.
Next up behind the big transfer programs: the Pentagon. Here too there is no appetite for deep cuts. If anything, the Republicans might add. So if they don’t touch entitlements and don’t touch defense, what next? They can’t cut interest payments. Then we start to get into trivialities. Sure it is fun to mock programs to provide therapy to llamas and so forth but these don’t add up. Biden was innumerate when it came to spending (he literally used the words “thousands,” “millions,” and “billions” interchangeably to vaguely mean “lots” which was unnerving for taxpayers). But Republicans can be just as innumerate when it comes to spending cuts. They can get sidetracked by trivialities because they are funny and fun and lack the organized defenders that all big expenditures have in force.
In response to the new administration, it isn’t clear that the Democrats have earned either half of the name loyal opposition. There are a few exceptions such as representatives Ritchie Torres and Marie Gluesenkamp Perez, but for the most part the initial reaction to losing the House, Senate, and both popular and electoral college vote for the White House has been to angrily retreat to TikTok. And as a purely aesthetic matter: please pick one at most between snotty crying videos and septum piercing. The combo isn’t going to entice America back to you.
Today the loyal opposition is the long bond. Only yields crushing the federal budget will force the administration to make serious choices on the big ticket items. And sooner or later they will. So my hedge is to short the long bond. One easily accessible way is to short the Direxion Daily 20+ Year Treasury Bull 3X Shares ETF (TMF).
It could continue to deflate if yields soar on a failure to staunch our fiscal profligacy and deflate further due to the decay caused by the ETF’s leverage. When Ronald Reagan was getting driven through an unfriendly student demonstration one of the demonstrators screamed at him “we are the future!” Reagan grabbed a paper and held up to the window a note “I’ll sell my bonds”. It was a good idea and is a good idea again today. We remain on a trajectory that’s all in for unsustainable overspending. Sell — or even short — the long bond.
Disclaimer / Disclosure I/we have a beneficial long position in BTC-USD, DOGE-USD, and shares of ROIV, DFS, CORZ, FNMAS, FNMAT, FMCKJ, FMCCH, either through stock ownership, options, or other derivatives.
