Your portfolio could be about to take a hammer blow…
It has nothing to do with interest rate hikes… inflation… or the banking crisis.
And it’s not the recession economists have been calling for all year.
But it has the power to cut the stock market in half… blow up the $23 trillion Treasury market… and plunge America into chaos.
If you lived through 2008, like I did… Imagine that, but 10 times worse.
If you’re too young to recall those dark days, think Thanos snapping his fingers in the Avengers movie.
I’m talking about the debt ceiling standoff…
It’s the most under-appreciated risk to your wealth right now.
I’m not saying we’re going to see the worst outcome here. I’m saying most people are too complacent about that possibility.
You know the deal…
If Congress doesn’t raise the debt ceiling, the government won’t be able to pay the interest it owes on Treasury bonds. They’ll go from safe havens to toxic assets. Prices will plunge as investors rush for the exits at once.
That not only torpedoes Treasury bondholders, but it also jacks up government borrowing costs. (Bond yields move opposite prices.)
And the government won’t be able to pay Social Security or cover other spending commitments. This will further tank the economy.
Most folks think House Speaker Kevin McCarthy and President Biden will work it out… and they’ll all sing Kumbaya. I’m not so sure.
And I’d rather you took precautions now and nothing happens… than you do nothing and disaster strikes.
So, today, I’ll do a deeper dive into why I’m concerned. And I’ll show how can protect your wealth as “X-Day” approaches. That’s the day the feds run out of cash.
There’s likely some wiggle room. But Treasury Secretary Janet Yellen says that’s going to happen two weeks from now on June 1.
You may think I’m fretting over nothing…
And you may be right. But I have a personal experience of two debt defaults. And they weren’t pretty.
The first was in 2001 when I was living in Buenos Aires. That December, the Argentine government defaulted on its $100 billion of debt.
The next year, the Argentine peso, plunged as much as 75% against the dollar. This caused a steep rise in the cost of imported goods… an inflationary spiral… and a dramatic drop in living standards.
A year later, more than half of population was living below the poverty line. This led to widespread protests and social unrest.
Then Ireland defaulted a decade later…
I grew up in Dublin. And in 2010, the Irish government was forced into default because of a real estate bust.
After an unprecedented boom in the 2000s, the Irish jobless rate jumped from about 5% in 2007 to more than 14%. And hundreds of thousands of Irish people – most of them young people – left the country looking for work.
Between 2009 and 2015, more than 200,000 Irish people emigrated. In the peak year of 2012, nearly 50,000 went overseas.
Of course, America isn’t Argentina or Ireland. It’s the world’s No. 1 economy. And the U.S. dollar is also top dog.
But I’ve yet to see a debt default that doesn’t bring destruction in its wake.
America may escape this fate…
This isn’t the first clash over the debt ceiling. And politicians have resolved every past clash without sending the U.S. over a fiscal cliff.
So, a lot of folks’ natural reaction to today’s standoff is that this one will go off without a hitch, too.
And this week’s “optics” were more positive.
Yesterday, Biden and McCarthy had an hour-long meeting in the Oval Office.
Later, the president sounded upbeat about the progress they made. He described the meeting as “good, productive” when he met with reporters.
And McCarthy said he believed a deal was possible by the end of this week.
But if you think these two see eye to eye, you’re sorely mistaken…
The truth is each side despises the other.
Biden never misses an opportunity to call Congressional Republicans extremists. And they don’t recognize Biden as the legitimate president.
I don’t care how optimistic you are, that’s not a good starting point for negotiations.
Then there’s the screwy incentives. And in politics, as in everything else, incentives matter.
If Biden allows Republicans to force his hand, they’ll keep using the debt ceiling to box him in. He’ll look weak. So, he feels he can’t afford to give in.
House Republicans know many of their voters want them to play hardball with the White House.
And last week, Donald Trump backed a default. As he told folks who attended his CNN town hall…
I say to the Republicans out there – congressmen, senators – if they don’t give you massive cuts, you’re going to have to do a default.
And Trump is not only the leader of the Republican Party. He’s the frontrunner for their nomination to run for president against Biden next year.
So this ups the ante considerably.
But here’s what has me really worried…
Even if McCarthy and Biden strike a deal, this doesn’t raise the debt ceiling.
Only a vote in Congress can do that.
And it’s unclear whether McCarthy has enough control over his party to make that happen.
Cast your mind back to January. He only won the speakership after 15 grueling votes. That’s the longest battle in more than 150 years.
And he needs the Freedom Caucus to back him to push through a vote. It’s the most conservative block in Congress. And many of its members don’t trust McCarthy, who they see as a centrist.
So, even if McCarthy wants to raise the debt ceiling, he may not have enough Republican votes to do so.
And if he tries to get around holdout Republicans by relying on votes from Democrats, he’s toast.
During his speakership bid, McCarthy agreed to a rule change. It allows just one House member to call for a vote to remove the sitting speaker.
So he can pass a debt ceiling vote using Democratic votes and lose his job. Or he can fail to pass it and deal with the fallout.
And if it comes to that, I’ve no clue which way he’ll go.
That doesn’t mean you should run out and sell all your stocks and bonds. But now is good time to add some extra portfolio protection.
Your best protection right now is gold…
Unlike a Treasury bond, its value doesn’t depend on someone else’s promise to pay.
So, it’s a great alternative to parking your cash in Treasurys or money market funds.
Investors consider money market funds to be one of the safest and most stable investment places to park their savings. But under the hood they’re packed with short-term Treasury bills. So, if there’s a default, they’re directly in the line of fire.
Bitcoin is another interesting alternative. It’s been a highly speculative. But it’s also completely outside of the traditional financial system. So, if the worst-case scenario transpires, and the Treasury market blows up, it’s another potential refuge.
Now is also a great time to consider a trading strategy…
As longtime Daily Cut readers will know, traders thrive on volatility. And they can profit from stocks falling, as well as from stocks rising.
A great example of that is Larry Benedict’s One Ticker Trader advisory. Last year, Larry issued 11 trade recommendations to his readers. And all 11 of them were winners.
This gave his readers the chance to make a cumulative gain of 240% during the worst bear market in more than a decade.
Another good example is Larry’s S&P Trader advisory. Assuming a trading account balance of $25,000, his readers have had the chance to make a total profit so far this year of $11,413. That’s a 45% gain.
And that’s why there’s such a buzz at Legacy about next Tuesday’s big event…
That’s when veteran market timer Mason Sexton lifts the lid on his new trading advisory.
You’re probably not familiar with that name. But he shot to fame for calling the top in stocks ahead of the 1987 crash… to the day.
Timer Digest named him a “Top 10 Timer” in 1987, 1988, 1989, 1990, 1992, 1993, and 1994.
And for the last 30 years, he’s reserved his forecasts for his wealthy clients – including a Forbes top 40 billionaire. They pay up to $10,000 a month to get his insights.
Now, there’s too much at stake for him to keep quiet. On May 23, at 10 a.m. ET, he’ll go public for the first time in 30 years… and release details of his most important market timing forecast ever.
I’m not giving too much away by saying Mason is bearish. But that doesn’t mean you can’t make money by following his trades.
If you’d gone long or short according to our signals – in other words, bet that stocks would rise or fall – you’d have grown your portfolio by 38% in 2022.
And 79% of his trade recommendations were winners. The remaining 21% were small losses.
So, he’s exactly the kind of guy who want on your side in a rough market.
So make sure you’re signed up to attend his event next Tuesday, May 23.
It kicks off at 10 a.m. ET. So you’ll want to clear time in your schedule for that. Just go here to automatically reserve your spot.
Regards,
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Chris Lowe
Editor, The Daily Cut