Three short weeks and a game of chicken later, the US and the world will have watched with awe, fascination and fear as Congress and the White House come to some resolution of the deficit ceiling shootout.
With the GOP (say Tea Party) staunchly opposed to Obama’s $600 Billion proposed tax increases, and the White House’s refusal to work a deal without tax increases, Congress and the President could indeed crater the country and the world if an agreement is not reached.
In fact, we may not have until August 2nd as some parties close to the talks say an agreement has to be reached by July 22nd at the latest to have enough time to enact legislation before the drop dead date.
We all know what a US default would likely look like: extreme declines in the dollar and a Standard and Poor’s rating of “D” for the US Treasury. A US and global depression could likely follow soon after, and we would all witness investors scrambling to save whatever portions of their nest eggs that hadn’t been already turned to ash.
With the cards soon to be played and the stakes extremely high, where do investors like us go to survive this potentially wicked outcome, and perhaps even make a profit should the worst occur?
The short answer: duck for cover…
Perhaps “cover” can be found in the following pairs of ETFs should this economic meteor strike:
If the US bounces checks, (NYSE:GLD) SPDR Gold Trust and (NYSE:IAU) iShares Gold ETF, will likely soar as investors flee to the perceived safety of precious metals and avoid falling off the rim of the newly cratered world economy.
Regardless of what happens between now and August 2nd, (NYSE:GLD) and (NYSE:IAU) could be big winners If the world craters, the dollar will be potentially useless, and Gold will be seen as the last bastion of any hope. If the US does not default, there will still be a mountain (not a crater) of debt which will most likely decrease the dollar’s value and still render gold the least ugly of the ugly.
The next two ETFs to watch in August revolve around what will likely happen to the commodities market. If the financial meteor strikes US soil, one can expect wiped out corn fields via crashing ETFs such as (NYSE:DBA) PowerShares DB Agriculture Fund and (NYSE:DBC) DB Commodities Tracking Index. If indeed Obama and Congress trigger a worldwide depression, world economic activity would undoubtedly slow and demand for simple staples such as oil, cotton, wheat, sugar, copper, and aluminum will likely fall into the crater, as well. Therefore, a move out of these two ETFs and the commodities’ complex could perhaps save investors from the looming meteor shadow and permanent winter.
The class of ETFs to observe carefully would be (NYSE:UDN), PowerShares DB US Dollar Bearish Index Fund and other “safe haven” currencies. As mentioned earlier, if the US Treasury begins bouncing checks, confidence in the dollar will likely plummet, thus providing great opportunities to short the free falling dollar and seek profits in (UDN.) Another “anti-dollar” ETF to consider is (NYSE:FXF) Currency Shares Swiss Franc Trust, which would likely also be in demand as a safe haven from a meteor shower of falling dollars.
Dow Jones Industrial Average:
In short, Congress and President Obama need to think carefully about this debate and its potential to crater the world and trigger a permanent economic winter.
Instead of stalemate, they need to find a way to destroy the enormous meteor, a.k.a the debt ceiling debate, before its scheduled strike on August 2nd. If indeed Congress and the White House do spark the world’s next catastrophe, Gold ETFs (NYSE:GLD) (NYSE:IAU), and currency ETFs (NYSE:UDN) and (NYSE:FXF) could be “safe havens” for investors’ money, while Commodity ETFs, (NYSE:DBA) and (NYSE:DBC) could be dangerous trades. The countdown is on. Let’s hope that the President and Congress get this right and don’t plunge the world into the nuclear winter of a global depression.
Disclosure: No positions in ETFs or stocks discussed in this article.
John Nyaradi is the author of Super Sectors: How To Outsmart the Markets Using Sector Rotation and ETFs
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