Investment Strategies for a Government Stalemate That Will End 1 of 3 Ways

The first possibility is that Congress strikes a deal that allows the line of credit known as the debt ceiling to be increased for six weeks with no agreements to lower our current policy of spending way more than we make.  What might that do to your investments?  Stocks will likely rock because this market has ignored many of the fundamental flaws in our non-recovery since 2009.  This will be no different.  Expect stocks to attempt new highs if this is all over in the near term.

Since no noticeable damage has been done to the economy yet, bonds should remain status quo for the moment.  Given the likelihood of Janet Yellen replacing Ben Bernanke next year, the currency printing presses shouldn’t skip a beat meaning rates will stay low.  The current government shutdown gives the Fed the perfect excuse not to pull the needle out anytime soon, which is also good for bonds.

Given that gold has had everything possible happen to make it go up, it’s much more difficult to predict what will happen.  It has become a volatile trade since the hedge funds decided to exit back in April and drop it from $1,500 to $1,150.  On one hand, you could see gold rally because future inflation is kind of guaranteed given a deal to keep spending over a trillion dollars more than we make per year.  On the other hand, that’s old news and gold is where it is.  If feel like you own too much of it, now might be the time to consider lightening up.

What if the government credit card limit gets extended for another couple of years with barely any strings attached like they did in 2011 where lawmakers agreed to cut $39 billion of their $1.3 trillion annual overspend?  You might see stocks fall a bit on that news for the short term, which will probably be a buying opportunity.  Bonds might fall on that news if the reality of higher rates gets stronger.  Gold might rise a bit in this scenario because the long term fear of inflation might be front and center again.

Finally, if you believe we are going to default on our debt, everything will fall like in 2008.  Interest rates will skyrocket, which would crush stocks and bonds and everything else in our very fragile economy.  Gold would likely go ballistic if this happens.

There you have it.  Pick your poison and drink it, my friends, but don’t do nothing.

* * * * *

Information presented in this blog post is believed to be factual and up-to-date, but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. Discussions and answers to questions do not involve the rendering of personalized investment advice, but are limited to the dissemination of general information and may not be suitable for all readers. A professional adviser should be consulted before implementing any of the strategies presented.

photo credit: john.paul.robinson via photopin cc