Will Aug. 2, 2011, turn out like Dec. 7, 1941? Or will it be like Y2K? Would failure to raise the debt ceiling on the day of reckoning turn into an epic financial disaster, or will it be another overhyped, anticlimactic, media-driven fizzle?
At least one significant financial player believes that a default would have major consequences. Bill Gross, founder and co-chief investment officer of investment firm PIMCO, stated in a Washington Post op-ed piece that defaulting would introduce "fear and unnecessary volatility into the economy and global trade." He continued: "The market situation might resemble what happened after Lehman Brothers collapsed in 2008."
Gross goes on to say that even the threat of default could push the cost of debt high enough to add tens of billions of dollars each year in interest expenses, which would further exacerbate future budget deficit problems. Even now we are seeing the markets acting all fidgety -- one step forward, two steps back -- as investors try to get a read on what to do with their investments.
… is a great German word that means feeling joy in the misfortune of others. If the market drops significantly as Aug. 2 comes and goes without progress on the debt ceiling, that could spell trouble for many. But, trying not to be too ghoulish about it, where there is fear there is opportunity. Remember how the recent financial crisis caused huge drops in the market? Choose almost any stock that's been around at least five years or so. Look at its stock-price chart, and check out that sharp dip bottoming out in early 2009. I'll bet you this thought went through many heads: "Why didn't I buy (fill in the blank) back then?"
So what will you do if that opportunity comes by again? Will you be ready? Will you have your Doomsday List at hand so you can pounce on those coveted but too pricey stocks? It's time, then, we all take a look at our Watchlists and handpick some of those tasty morsels we would like to scoop up … if the price becomes right.
Enter the Fool
I'm a mostly risk-averse investor, so one of my first choices would be Johnson & Johnson
I don't currently own any McDonald's
I'll need something to wash down that Big Mac -- how about PepsiCo
And then there's Costco
I bought my first shares of Berkshire Hathaway
That's my list, and I'm sticking to it … at least for now. Even though it's useful to think of these "what-if" scenarios, I am hoping I won't have to use them. But, if the unthinkable does happen, I'll be ready. Will you? Get your own Doomsday Watchlist ready.
To hedge against Congress' ability to come to its senses and work out a solution, there's a list of stocks available that The Motley Fool's top analysts think you should own. That list is free to everyone.
Fool contributor Dan Radovsky owns shares in Berkshire Hathaway and Johnson & Johnson.
The Motley Fool owns shares of Berkshire Hathaway, Johnson & Johnson, Costco, and PepsiCo. Motley Fool newsletter services have recommended buying shares of Johnson & Johnson, McDonald's, Costco, Berkshire Hathaway, and PepsiCo, as well as creating diagonal call positions on Johnson & Johnson and PepsiCo. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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