Compared to election week, this one’s been rather quiet as markets digest the announcements of the new administration’s cabinet and policy objectives. Even though this market’s cycle is maturing, remember that, as a rule, any consolidation near the highs of a move tends to be bullish.By now, I’m sure you’re familiar with my tendency to cut out market gossip and focus on what matters the most when it comes to trading: price and time. But I must admit that there’s one particular development in this incoming administration that has my attention.It’s the Department of Government Efficiency, otherwise known as DOGE. It’s being headed up by none other than Elon Musk and Vivek Ramaswamy. Both have strong backgrounds in the private sector.Everyone knows that Washington has a spending problem. Dare I start to dream that reform is near? Before that happens, I can’t help but wonder how this new agency might impact Treasury markets. Here’s what I think…
Less Is More for Bond Markets
The spending problems in Washington didn’t start yesterday. They’ve been decades in the making. But after the 2008-2009 global financial crisis, the government was able to get away with borrowing and spending more and more mainly due to the Fed keeping rates so low.The inflationary surge from 2020 to 2022 actually hurt the government as much as it did consumers, because it sent borrowing costs soaring.Interest expenditures have surged within the federal budget, to the point where it’s becoming completely unsustainable. This is why the timing of DOGE could not be better.Over the past few weeks, I’ve been clear that I think long-term bonds are in the process of forming a low, and that long-term rates are in the process of forming a high.To be clear, it’s highly unusual to see long-term bonds sell off the way they have following the Fed’s first rate cut on September 18. I think it was partially due to election jitters.But if DOGE can stanch government waste, I wouldn’t be surprised if Global Capital™ finds renewed interest in Treasuries. In other words, the government’s lenders would probably be willing to offer lower rates of interest on loans if there are meaningful spending reforms.I especially like how DOGE has an expiration date – you don’t get a lot of those with government agencies. This project is slated to be complete by July 4, 2025, right in time for America’s 250th anniversary. There are more reasons why I think rates will be coming down going into 2025, but this latest development is just one of the newer reasons.More By This Author:How The Trump Bump Could End In A SlumpWhat PNUT Tells Us About This MarketStocks Are Catching Their Breath… But Mania Looms Out There
