One Big Beautiful Bond Blowout

How to Reposition Your Portfolio Before the Fiscal Train Derails

May 22, 2025

The passage of the “One Big Beautiful Bill” has sent shockwaves through U.S. financial markets, igniting a bond market selloff and raising existential questions about America’s fiscal future. As investors scramble to reassess risk, additional legislative proposals like the GENIUS Act and the Strategic Bitcoin Reserve Act (the Lummis Bill) promise partial relief, but only real fiscal discipline will restore confidence in U.S. Treasuries.

Here’s how these forces interact, why they matter, how partisanship drives policy, and how savvy investors can reposition their portfolio off the train and profit from when it derails.

The Fiscal Fuse: How the “One Big Beautiful Bill” Lit the Bond Market on Fire

The bill, a sweeping package of tax cuts and spending increases, is projected to add trillions to the U.S. debt over the next decade, pushing the total to historic highs. Bond investors have responded with alarm and exited the auction empty-handed.

Recent Treasury auctions have seen weak demand and sharply higher yields, as buyers demand more compensation for taking on U.S. fiscal risk. The “Bond Vigilantes” are back, and their message is clear. Without credible spending restraint, the U.S. will pay more to borrow.

“Today marks a major milestone in delivering lasting tax relief to the American people. The One, Big, Beautiful Bill locks in the successful 2017 Trump tax cuts and builds on that foundation with bold, pro-growth reforms that will strengthen families, workers, farmers, and small businesses... Families stand to gain over $13,000 in take-home pay, and workers could see wage increases of more than $11,000. More than 7 million jobs will be secured in the next four years through enhanced small business relief and made-in-America incentives that reward hiring and investment here at home.”
~Ways and Means Chairman Jason Smith (MO-08)

Why This Time Is Different

For decades, Treasuries have been the world’s safe haven. But the combination of ballooning deficits, rising interest costs, and persistent inflation has changed the calculus. The latest bill amplifies these risks, making it harder for the government to control yields and fueling fears of a “Sell America” trade, where foreign and domestic investors reduce exposure to U.S. bonds, stocks, and even the dollar. (See my post earlier this week on Japan’s Bond Market Contagion)

The Domino Effect: What Rising Yields Mean

When yields rise:

Government interest costs surge, crowding out other spending and raising the risk of future austerity.
Consumer borrowing becomes more expensive, slowing housing, autos, and credit markets.
Stock markets wobble, as higher rates pressure profits and valuations.
The dollar weakens, as global investors seek alternatives.

Can New Legislation Like the GENIUS Act and Strategic Bitcoin Reserve Act Help?

Legislation such as the GENIUS Act, which mandates stablecoin issuers to hold reserves in cash or Treasuries, could create a new, steady source of demand for U.S. debt. As stablecoins grow, this could help offset some selling pressure from foreign holders like Japan and China, providing a partial stabilizing force in the Treasury market.

Similarly, the Strategic Bitcoin Reserve Act (Lummis Bill) would allow the U.S. to diversify its reserves into Bitcoin, signaling innovation and potentially attracting capital from digital asset markets. This could boost confidence in U.S. financial leadership and offer some diversification benefits.

Mitigating Factors: GENIUS Act, Bitcoin Reserve, and the Limits of Innovation

Legislation like the GENIUS Act and the Strategic Bitcoin Reserve Act provides partial buffers:

Stablecoin demand for Treasuries (via the GENIUS Act) could help absorb some of the selling pressure and stabilize yields.
Bitcoin reserves signal U.S. innovation and diversify financial backstops, potentially attracting new capital and confidence.

But these are not substitutes for fiscal discipline. Ultimately, only credible action to curb spending, reform entitlements, and root out waste and fraud will restore lasting confidence in the U.S. fiscal position.

The Only True Fix: Fiscal Discipline and DOGE 2.0 (Deficit, Oversight, Government Efficiency)

Ultimately, the only way to restore lasting confidence in Treasuries is to show a credible path to sustainable spending cuts, entitlement reform, and continued aggressive action against fraud and abuse (DOGE) and some real arrests that hold those corrupt actors (who have robbed us all) accountable. Without this, the fiscal train risks running off the rails, as investors will continue to demand higher yields and the government’s borrowing costs spiral.

How to Reposition: Asset Classes Poised to Outperform

With the risk of fiscal slippage rising and Congress or the Fed slow to act, certain asset classes are likely to benefit disproportionately:

What About Treasuries and the Dollar?

Until Congress enacts real fiscal reforms (spending restraint, entitlement reform, and fraud reduction), confidence in Treasuries will remain fragile. The bill’s passage has made yield control harder, not easier, and until policymakers act, the market will continue to demand a premium for U.S. debt.

Lessons from History

Why Would Trump and the GOP Want This?

If having the One Big Beautiful Bill pass seems to have such contradictory short-term negative impacts, then why would the current administration want it so badly?

The game of politics is a bloodsport of force, timing, trade-offs, power, short memories, effective finger-pointing. and legacy shaping.

The Glass-Steagall Repeal: A Bipartisan Gambit

A modern-era example is Clinton’s removing Glass-Steagall and Bush being blamed for the GFC in 2008. The repeal of Glass-Steagall under President Clinton and the 2008 financial crisis under President Bush illustrate the complex interplay of political strategy, power dynamics, and legacy-building in U.S. governance.

These events reveal how policy decisions, timing, and crisis management shape historical narratives, often divorced from direct causation, to serve partisan agendas.

The 1999 repeal of Glass-Steagall, signed by Clinton but driven by a Republican Congress under Newt Gingrich, was framed as modernizing finance to foster innovation. Both parties supported deregulation, reflecting the era’s pro-Wall Street consensus. Clinton’s legacy initially celebrated economic growth but later faced criticism as the 2008 crisis unfolded. Despite studies showing the repeal played a minor role in the crisis, it became a symbolic scapegoat for deregulatory excess. This highlights how political legacies are shaped retroactively, with leaders held accountable for the policies’ downstream effects, even when unintended.

Bush and the 2008 Crisis: The Perils of Timing

Bush inherited a financial system primed for collapse due to decades of deregulation, shadow banking growth, and subprime lending. While the roots of the crisis predated his administration, his team’s response—bank bailouts (TARP) and reluctance to regulate derivatives—cemented his association with the crisis.

This underscores a political truth: the leader in power during a crisis absorbs disproportionate blame, regardless of their role in its origins. Bush’s legacy became tethered to the recession, overshadowing earlier fiscal policies like tax cuts.

Power Dynamics: Shifting Blame and Narrative Control

Clinton’s strategic distancing: Post-crisis, Clinton defended the repeal, arguing it "had nothing to do with the financial crash." This reflects efforts to retroactively insulate one’s legacy from policy consequences.
Bush’s crisis management: Bush’s administration, forced to intervene with unpopular bailouts, faced backlash from both populist anger and partisan critics. The GOP’s free-market ideology clashed with pragmatic crisis response, exposing intra-party tensions.
Partisan weaponization: Democrats later framed the repeal as a Republican-driven deregulatory failure, despite Clinton’s signature. Conversely, Republicans blamed Clinton-era housing policies (e.g., HUD mandates) for the subprime crisis, deflecting from their deregulatory pushes.

Lessons in Political Chess for Practical Investors

Short-term wins vs. long-term risks: Deregulation under Clinton appealed to Wall Street and bipartisan moderates but sowed seeds for later crises. Leaders often prioritize immediate economic gains (e.g., booming ’90s markets) over systemic risks.
Crisis ownership: Sitting presidents bear the brunt of public fury during downturns, regardless of culpability. Bush’s team managed the crisis but failed to control the narrative, leaving a legacy of economic turmoil.
Legacy arbitrage: Clinton’s post-presidency recalibrated his image (e.g., philanthropy), while Bush’s remained tied to 2008. This shows how narrative agility shapes historical perception.

The Modern Parallel

Today’s debates over fiscal spending (e.g., "One Big Beautiful Bill") and financial regulation echo these dynamics. Policymakers face the same tradeoffs: short-term economic boosts risk long-term instability, while crisis responses (e.g., stimulus, bailouts) invite backlash. The interplay of legislation, crisis, and legacy remains a high-stakes game where timing and narrative often outweigh policy substance.

In sum, the Clinton-Bush era underscores that in political chess, legacy is less about truth than timing, narrative, and the ability to deflect blame. Leaders navigate these forces to secure their place in history, often at the cost of systemic stability.

However, Trump’s approach with the “One Big Beautiful Bill” can be seen as a reverse example of political legacy management—a calculated move to absorb short-term criticism and market pain to shape a longer-term narrative and legacy, much like Reagan did in the early 1980s. Whether you have TDS or not, President Trump is a well-versed student of history and the ultimate narrative-shaper.

His strategy is rooted in the political chess of timing, narrative, and the bet that voters and historians remember the end results, not the tumultuous beginnings or turbulent middle.

Controlled Demolition for a Narrative Reset

Trump inherited a fiscal trajectory marked by rising deficits, entitlement spending, and structural imbalances that were largely set in motion before his term. By pushing through sweeping tax cuts, regulatory rollbacks, and spending priorities—even at the cost of higher yields and market volatility—he is, in effect, front-loading the pain. This “controlled demolition” allows him to:

Force a reckoning with fiscal realities that might otherwise fester and explode later, potentially on someone else’s watch.
Shape the narrative so that any economic turbulence is seen as a necessary reset, not a failure of his leadership.
Position himself for a Reagan-style legacy, where the initial pain of recession and deficits is eventually overshadowed by a period of robust growth, job creation, and renewed American competitiveness.

Historical Parallels: Reagan and the Power of the Narrative Arc

Reagan’s early years were marked by a deep recession and soaring deficits. But his administration stuck to its policy playbook—tax cuts, deregulation, and a strong defense build-up.

The result: A difficult start, but ultimately an economic boom that defined his legacy as one of renewal and strength, not the pain of the early 1980s. Similarly, Trump appears to be betting that the market and public will judge him by the recovery and growth that follow, not the short-term fiscal turbulence. If you question this, look at the origins of “Make America Great Again”. It was the 1980 Reagan campaign slogan before it became a meme on steroids and made red baseball hats a political identity accessory.

Why Take the Heat Now? The Tradeoff Calculus

Trump and the GOP accepted the short-term flak for several reasons:

Locking in policy wins: The bill makes permanent the 2017 tax cuts, delivers new tax relief for working Americans, boosts defense and border security, and rolls back regulatory and green energy initiatives—core planks of Trump’s “America First” agenda.
Delivering tangible benefits: Popular provisions like MAGA Savings Accounts, child tax credits, and no taxes on tips are designed to provide immediate, visible wins for key voter groups.
Betting on growth: The administration argues that these policies will spur enough economic dynamism to eventually offset some of the fiscal pain, echoing the supply-side logic of Reaganomics.
Narrative control: By acting now, Trump can blame inherited problems for any early pain, then claim credit for the recovery if and when it arrives.

The Bet on Legacy Over Short-Term Pain

Trump’s strategy with the “One Big Beautiful Bill” is a high-stakes gamble: endure short-term criticism and market volatility to lock in ideological wins and set the stage for a narrative of renewal and growth. Like Reagan, he is betting that history will remember the recovery, not the pain it took to get there. The real test will be whether the long-term gains materialize—and whether the American public and markets will ultimately reward the risk.

Despite the bill’s immediate risks to fiscal stability and bond market confidence, Trump and the GOP see it as essential for delivering on their core economic and political promises. The “One Big Beautiful Bill” makes the 2017 Trump tax cuts permanent, introduces new tax breaks for working Americans (such as no tax on tips and overtime), boosts defense and border security, and rolls back Biden-era green energy incentives. These are all central to Trump’s “America First” agenda and address key campaign pledges.

The bill’s architects believe that:

Permanent tax relief will spur economic growth, job creation, and wage gains, with projections of up to $13,300 more in take-home pay for families and millions of new or protected jobs.
Expanded business incentives will drive investment, manufacturing, and Main Street job growth.
Social program reforms and work requirements signal a tougher stance on government dependency and waste.
Popular new provisions like MAGA Savings Accounts and expanded child tax credits deliver tangible benefits to voters.

The tradeoff is clear: Trump and the GOP are betting that the long-term economic growth, job creation, and political capital generated by these reforms will outweigh the short-term market turbulence and fiscal concerns. They argue that these policies will make America more competitive, secure, and prosperous—even if it means higher borrowing costs in the near term.

The Bottom Line

The “One Big Beautiful Bond Blowout” is more than a headline—it’s a warning that the old playbook no longer works when fiscal credibility is in question.

While new legislation like the GENIUS Act and Strategic Bitcoin Reserve Act can help cushion the impact, only real fiscal discipline—spending restraint, oversight, and government efficiency—can restore lasting confidence in U.S. Treasuries.

Until then, the best move is to reposition your portfolio into assets that benefit from inflation, fiscal uncertainty, and global diversification. The market has spoken. Will you listen and act accordingly before everyone else does?

~Chris J Snook

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