"I think it can safely be assumed that the overwhelming majority of shopkeepers never think about the slogans they put in their windows, nor do they use them to express their real opinions. That poster was delivered to our greengrocer from the enterprise headquarters along with the onions and carrots. He put them all into the window simply because it has been done that way for years, because everyone does it, and because that is the way it has to be. If he were to refuse, there could be trouble."- Vaclav Havel
We are in the middle of an acrimonious election in the United States. It can seem troubling, and political operatives on both sides are trying to make you focus on everything that's wrong with our great country. It can be hard to see what's right. A political system partially defines acceptable communication. We are often blind to how it affects how we express ourselves, but when we look at another nation with a different system, the effects of acceptable and encouraged speech on general behavior and the discourse becomes all too clear.
Vaclav Havel spoke about the cognitive dissonance that occurred when people in the old Soviet Union would hang out there Workers of the world unite, all you have to lose is your chains sign. No one truly believed this slogan, yet everyone displayed it. Merely out of convenience. I think a lot of people's opinions on inflation are similar to this. A sort of contrived and hollow response that is not thoroughly considered. In other words, much of people's opinions on inflation has nothing to do with inflation. You're not going to hear many people say they like the prices today better than prices five years ago. Ever.
You can see the same kind of Soviet cognitive dissonance that Havel referred to in responses to economic surveys. While everyone wants to join the band wagon for anthropological reasons and signal to their primate peers they too are feeling the pain of higher prices, when they actually examine their own economic situation the lion's share of Americans consider their finances OK or comfortable. Yet, the vast majority of Americans also say the US economy is not good or excellent. Only it is. For most of the respondents, and at an aggregate level.
It is my hypothesis that a lot of the economic negativity going on is actually politically motivated. A kind of hollow and empty speech like those old Soviet signs. The truth of the matter is, the American economy is incredibly strong and has recovered faster than our developed peers. Inflation's back has been broken, consumer confidence is high, energy production is at record levels, and interest rates appear headed in one direction: down. All these things bode very well for long-term US debt.
While political speech in this country is constantly revolving around the blame game and what is wrong instead of what is right, if you take an objective look at the United States from an investment perspective, the country is doing very well. Financially speaking, our system of government and the stability it provides has led to by far the deepest and most sophisticated capital markets in the world. There simply is no substitute for the US stock market.
The US stock market and the US innovation engine puts the rest of the world to shame. There is also a cult of doom in the United States. We always have a phantom enemy whose about to supplant our hegemony, yet it never happens. First it was the USSR whose power always paled in comparison to ours. Next, in the 1970s and 1980s people worried the Japanese would economically surpass us. Then, it was China. But China is languishing in its own authoritarian economic nightmare and undermining its own growth. This, of course, leaves investors seeking stability and growth with one true option: good old Uncle Sam.
One side effect of our relative political stability and our sophisticated capital markets is that our stock market is by far the most desirable on our planet. There is nothing that will change this reality in the short-term. But this fundamental and sustainable strength also has deep implications for long-term US debt.
And though we typically focus on higher risk assets, today we will be focusing on the lowest risk asset of them all. One of the biggest plagues for long-term debt's returns can be inflation, and Jay Powell just declared victory against it. I think it's safe to say the inflation is in the discourse more because its a politically potent issue rather than any remaining minimal threat to US assets that is lingering from it.
One of these things I'd like to introduce to you in this column is the idea of political alpha. Our political system has made acrimony and blame ingrained to our communication style. Even our thought process. But sometimes when you sit back and look at America's economic situation without these lenses, you can see that there really is no alternative to the United States. It is the best place in the world to put your money, and nothing is going to change that anytime soon.
Since COVID, our growth has remained above average. Now that inflation has been vanquished, US long-term debt should be particularly appealing over the next one to three years. The United States is outperforming its developed peers in growth, and this bodes very favorably the long-term debt of the United States. Our military and economic strength remain unchallenged globally, and inflation which is the bane of long-term assets, has moved to the rearview mirror from being a poignant risk.
A lot of people have strong political opinions that are informed by emotional experiences. This means that their political beliefs are often informed by lower parts of he brain that can shut off the more sophisticated parts of the brain. In other words, when you're thinking with your political brain you are very predisposed to fall for tricks and believe false things. However, when we take an objective look at US debt compared to our developed peers, and given the increasing chances of Harris victory in November, things are looking very bright for $TLT.
The Long Term Case for US Debt
There are a lot of short-term catalysts favoring US debt. The largest one, of course, is the recent pivot of FOMC Chairman Jay Powell to a very Dovish stance. There is currently a 100% chance of cuts to the Federal Funds Rate, as implied by interest rate futures. There is also another short-term catalyst that will dramatically effect the long-term prospects for US debt, and that is who will win the Presidential election.
Republicans are often considered better on the debt, but an objective evaluation of the candidate's budget plans found the opposite this year. That is a chance for alpha, when you know something to be true that diverges from popular sentiment. The respective budget plans of the candidates were evaluated by Penn Wharton's budget model. Donald Trump's plan was found to add about five times as much to the Federal deficit as Kamala Harris's plan. This means the increasing chances for a Harris victory in November should bode well for the performance of $TLT.
However, one thing I want to focus on is some long-term strengths of the US as a financial entity that are often missed by the first-order thinkers in the 'all debt is bad' crowd. There is a key difference between us and many of our developed peers, in terms of credit rating. We have similar credit ratings to many European countries, yet we have a much more flexible governmental fiscal framework.
In other words, our country has proven itself capable of wholesale fiscal transformations. The lion's share of revenue comes from Federal taxes, but this was not always the case. The political system of the United States has a proven ability to completely shift where revenue is coming from between local, state, and federal governments. This is a massively important feature of the US as a financial entity that is vastly overlooked and provides an opportunity for alpha.
But another thing is this. There is a lot of talk about US decline, but the US is simply not in decline. Ask the tens of thousands of dead Russian soldiers turned into human jelly by our second hand military equipment. The very fact that Ukrainian soldiers are operating in sovereign Russian territory with our military equipment speaks to the level and practicality of US power, which is often ill-perceived by its own citizens.
Certainly, if you were to measure national strength, by say, military spending, then the true levels of US relative power come into focus. Remember that whatever the United States is to you and however that makes you feel politically, the United States is without a doubt the largest and most powerful financial entity on Earth. The outlooks for its finances are overwhelmingly positive. Of course, as the risk-free asset, US debt also provides a natural hedge against adverse market events, as well. Short-term and long-term catalysts are aligning for its financial success and sustainability.
The Trade: Take a L.E.A.P. on $TLT
I am making this trade for a few reasons. I have just laid out the justification, but I also want you to have a long-term core position that helps insulate you from the highly risky derivatives trades we will be making regularly at www.punkrocktraders.com. This position serves that purpose. I also think it happens to be cheap given the favorable setup.
Buy January 16th, 2026 $TLT call options at $100 dollars. They are currently trading at $6.50. Do not even think about selling them until at least the middle of 2025.
This position will be part of a lower-risk section of a barbell approach that we will advocate our members hold to insulate them from potentially steep losses from our recurring high risk trades
