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July 29, 2011 at 05:01 AM
Municipal investments are at risk of default, money markets have broken the buck and now the U.S. Government is at threat of a downgrade—where in the world can investors find safety?
As debt disaster looms (or not, depending on whom you believe) The Atlantic offers up a few investments that can protect—and in some cases profit—from the coming fiscal Armageddon.
1. Dividends and Cash Balances—As The Atlantic (sans Monthly) wisely notes, “AT&T, with a yield of 5.7%, will not default on its dividend obligations. Neither will General Electric, which pays a yield of 3.1%. McDonald’s not only pays a high dividend, it has bought back billions of dollars of its own shares in the last five years, which has had the effect of lifting the stock price.” What do all of these companies (and at least a dozen other public companies) have in common? Significant cash on hand, strong earnings and no chance of default or a suspension of their dividend payouts, the piece says. Isn’t that what we all said about the federal government?
2. Gold—Despite Ben Bernanke’s recent tweaking of Ron Paul over whether or not gold is money, we all agree gold has value (more so than ever before). But as The Atlantic notes, “The trouble with gold as an investment is that the limited supply means prices will rise as more people and institutions buy it as a ‘safe haven.’ That means the price will probably go higher than its current all-time record, maybe even double, as some analysts believe.” But it’s a double-edged sword, and the piece notes “its worth will fall precipitously if there is a solution to the debt disaster, the crisis in the EU and the slow global economy.”
3. T-bills—One area on which the government will most certainly not default is in Treasury bills. “The yield on T-bills is near zero, but some have maturities of as little as four weeks. The financial world knows how little risk is involved in holding T-bills and will almost certainly not trade them lower,” The Atlantic states.
4. Swiss Francs—Chocolate, Heidi and money (or the ability to hide it); three things we love about the “land of neutrality.” As the piece notes, “the balance sheet of Switzerland is among the best in the world. Billions of dollars have already poured into the franc this year. This has sent its value up from $0.95 to $1.24 in a year.” Sure, but once again, the franc’s value could fall if the debt crisis is solved. Anyone else beginning to feel creepy about rooting for default?
5. Triple-A Corporate Bonds—Besides buying stock, The Atlantic notes another way for investors to seek the safety of American companies with the strongest balance sheets. “That alternative is to invest in the corporate debt of the last four U.S. firms that still have Aaa ratings of their own: Exxon Mobil, Johnson & Johnson, Microsoft Corp., and Automatic Data Processing Inc. Economic Data recently made the point that Microsoft’s balance sheet is so solid that its borrowing costs are as good as those of the U.S. government, which means its payout to investors is tiny.”
9. Canadian Funds—Our neighbors to the north take a good ribbing over beer and hockey, but their Canadian funds are no joke. The Atlantic notes the CurrencyShares Canadian Dollar Trust is “the easiest investment for most U.S. citizens to make into a North American nation. Canada has an economy that is based upon hard assets, many of which will rise in value with commodities. Mining, minerals, oil and agriculture dominate the economy. Canada is still the top trading partner of the U.S.”