Investor Moves to Make Before Debt Ceiling Debacles Disfigures Your PortfolioPortfolio / US Debt Jul 27, 2011 - 07:36 AM GMT
Keith Fitz-Gerald writes: One night at dinner a few years back, my Dad, Greg Fitz-Gerald, explained exactly why the "tax-takers" in Washington think that recoveries, bailouts, negotiations and stimulus packages are a good idea - while the taxpayers believe just the opposite.
"When you rob Peter to pay Paul, Paul generally thinks this is a good idea," he said.
When we look at the debt-ceiling debacle that's unfolding in Washington, you can see exactly what my Dad was saying. That's why I'm not going to mince words here: The debt debate is a complete sham and an utter disgrace. A costly reckoning is headed our way.
The country can't avoid the fallout.
But you can.
In fact, I'm going to show you three moves that will help you dodge the worst of the damage - and perhaps even profit.
Appalled and Disgusted
That our tax-taking leaders would play political chicken with our national wealth and our future is appalling and disgusting.
The sad thing is "they" could fix this in a New York minute if they really wanted to. It wouldn't be pretty nor would it be the "best solution," but it would be a start - especially when it comes to the bond markets, which are blithely going about their business.
Evidently somebody has forgotten to tell the traders who run this $3 trillion party that their world is about to change. The very notion that we should have stability flies in the face of everything we know about the political incompetence that now threatens it.
Moreover, Lipper Inc. notes that bond market inflows are about $4.46 billion a week - and that's just the taxable stuff. There's another $99 billion worth of two-year notes on the block this week, and they're all likely to be purchased by investors seeking "safe-haven" investments.
.In an era of trillion-dollar liabilities, I find it incredibly ironic that anyone would seek safety in the U.S. dollar, let alone in U.S. government paper. Yet, that's exactly what's happening.
I usually refer to situations like these as processes of limited choice. But in reality it's more like one choice: taking our medicine now, or taking it later. Kicking the can down the road will not help.
The way I see things, there are no longer any really good choices. In fact, the only logical choice is for all of us - and especially the U.S. government - to stop living beyond our means.
When we (the taxpaying citizens) spend money, we buy goods and services. When the government spends the money that it's collected from us, it buys votes.
In the weeks and months to come, we're going to find out for sure exactly whose spending is better for the economy. But I'll make a prediction: It isn't the government's.
Unfortunately, fixing this requires change. And change isn't something that any of us - our leaders included - have been particularly good at ... at least not short of a crisis that forces change.
But that's very much the world we live in. We want for our political fixes to be quick and easy.
If the nice man or woman on Capitol Hill wants to vote in such a way that we feel no pain, we're all over it. Never mind that we'll actually have to pay for this someday.
The problem is one that I have addressed time and again, and this is what's at the core of the debt debate right now: Political fixes cannot by their very nature be quick and easy.
That's especially true when they are long-cycle, which means they've taken years to form and will take years to work their way out of the system either by chance, design, growth, or some combination of all three.
We don't need our own version of a Greek vacation: Is anybody in Washington listening?
Three Steps Toward Debt-Ceiling Security
Given this rather dour outlook, the best thing you can do is to protect yourself, and those in your household. To do that, I'm suggesting three moves that are worth making in advance of the Aug. 2 debt-ceiling deadline.
You need to:
•Hedge Your Bets: If Washington blows it, U.S. Treasuries will suffer, with the long end of the curve getting whacked hardest. The Rydex Inverse Government Long Bond Strategy Fund (NYSE: RYJUX) will profit as that happens, and can be used in conjunction with existing portfolios as a hedge.
•Go For The Gold: Metals - especially gold - will take on new significance if fiat currencies fail, and the SPDR Gold Trust ETF (NYSE: GLD) is a good way to capitalize on the surge that we'll see. But be leery of overstaying your welcome. If failure at the negotiating table or a default appears imminent, this could shoot for the moon; but if an agreement is reached, gold could fall faster than Representative Weiner.
•Get Some Kicks From the VIX: The iPath S&P 500 VIX Mid-Term Futures ETN (NYSE: VZZB) is truly a day trader's choice that may be best immediately preceding the deadline - but certainly not much longer than that. Prices reset daily, making tracking a problem.
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