6 Ways to Prepare for a U.S. Default

It seems almost unthinkable that Congress won't manage to get its collective head on straight, raise the debt ceiling, and swerve past a potential U.S. sovereign debt default. Almost.

Are the Republicans really serious that if they don't get exactly what they want, they're willing to allow that bomb to go off? And, if so, are Democrats really going to stand by, unwilling to cave, and give their archrivals the satisfaction of victory in order to save our financial future?

The longer these knuckleheads sit around playing high-stakes chicken, the more I worry. As a result, I decided to scribble out a few thoughts on how we can prepare ourselves ... just in case (please note, these are only half serious).

1. Hedges. While I think Eric Cantor's gaffe was more a PR-oopsie than a bet against America, he has shown us one way to hedge ourselves against a U.S. default -- the ProShares UltraShort 20+ Year Treasury (NYSE: TBT  ) ETF, which returns twice the inverse of what Treasuries do. Since it "seeks daily investment results" though, this is a better short-term bet than long-term holding. Another option would be buying puts on the S&P 500.

2. Milk and eggs. I don't really know what a debt default will look like, so I'm thinking a little along the lines of a blizzard. So as we get closer to August 2, you'll find me at the grocery store, loading up on perishables and canned goods alike. Duct tape always comes in handy, too.

3. Stability and consistency. If you want to be prepared but don't want your whole portfolio in cash, look toward high-quality companies like Procter & Gamble (NYSE: PG  ) , Coca-Cola (NYSE: KO  ) , and McDonalds (NYSE: MCD  ) . Sure, they'll also take a hit, but each has good global diversification, pay dividends, and businesses that have weathered many economic ups and downs.

4. Gold. Man, I hate to say this because I'm really not into the whole gold craze. But there are no two ways about it: If the U.S. defaults, gold will surge. Where else are frantic investors going to put their money -- Europe?

5. Refinance your house and buy a car. The possibility of a default is still very low, so it probably doesn't justify any really major financial commitments. However, if it does happen, I can promise you that the low rates that are currently available for loans will be long gone. If you're truly concerned about a default, and you're thinking about taking out (or refinancing) a loan anyway, consider doing it before August 2, and don't take an adjustable rate. Of course, at least as far as cars go, the best way to buy is still to save up and just pay cash.

6. Shotguns. If the U.S. defaults, then I'll assume many other unthinkable things could happen, such as a zombie invasion. Based on what I learned from Zombieland, shotguns seem to be very effective against zombies.

The Motley Fool owns shares of Coca-Cola. Motley Fool newsletter services have recommended buying shares of Procter & Gamble, Coca-Cola, and McDonald's. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Fool contributor Matt Koppenheffer owns shares of McDonalds and ProShares UltraShort 20+ Year Treasury, but does not have a financial interest in any of the other companies mentioned. You can check out what Matt is keeping an eye on by visiting his CAPS portfolio, or you can follow Matt on Twitter @KoppTheFool or Facebook. The Fool’s disclosure policy prefers dividends over a sharp stick in the eye.


Read/Post Comments (8) | Recommend This Article (15)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 14, 2011, at 6:03 PM, darkstar13 wrote:

    Shotguns need lead, gunpowder, and (usually) plastic wads. Perhaps money in commodity miners and the chemical companies would be a good place to make money work.

    I've already hedged for the zombie possibility.

  • Report this Comment On July 14, 2011, at 6:30 PM, rmondave2 wrote:

    Nice column; so you are only 1/2 like one of the squirrels that will not jump out of the pot of water set to a slow boil. Good luck.

  • Report this Comment On July 14, 2011, at 6:32 PM, ShrikeTheFoolish wrote:

    Thank you Motley Fool for acknowledging that we all need to be prepared for the impending zombie apocalypse. Matt, before, I only really followed Morgan Housel, but you my friend have a new subscriber.

  • Report this Comment On July 14, 2011, at 7:28 PM, TMFKopp wrote:

    @ShrikeTheFoolish

    Thanks!

    Morgan may be the go-to when it comes to the insightful picking apart of major economic issues, but he's got nothing on me when it comes to advising investors on the coming zombie apocalypse. :)

    Matt

  • Report this Comment On July 15, 2011, at 7:00 AM, JCashForever wrote:

    All joking aside, I see the impending debt-ceiling crisis as a major buying opportunity. I would make a wish list of 10 stocks, calculate a buy price under normal conditions for each of them, and then cut 30% off that price.

    If the market goes crazy after 8/2 and if any of your 10 best stocks hit your discounted sale price, then buy them and don't look back. A year from now (and probably sooner), you'll be sitting pretty.

  • Report this Comment On July 15, 2011, at 9:34 AM, CluckChicken wrote:

    "2. Milk and eggs. I don't really know what a debt default will look like, so I'm thinking a little along the lines of a blizzard."

    Why is it people will buy 6 gallons of milk, several dozen eggs and 4 loafs of bread when a blizzard is coming? Is there some magical power in french toast that I am missing? But if this is the case I am going to stock up on syrup and resell when the demand skyrockets.

  • Report this Comment On July 15, 2011, at 11:43 AM, TMFKopp wrote:

    @JCashForever

    I like that a lot, that should have been on my list!

    @CluckChicken

    There's nothing that a delicious, crispy, sweet batch of French toast can't do. Well, except kill zombies maybe, but that's what we've got the shotguns for...

    Matt

  • Report this Comment On July 16, 2011, at 11:32 PM, Sketch98 wrote:

    What about when government scientists who keep the robots locked away are laid off? How do we survive a robot apocalypse? Is there a possibility the US won't pay there share to the aliens to not invade?

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