Commodities & Metals

The Ten Best Investments If The US Defaults

Douglas A. McIntyre

1. Dividends & Cash Balances

AT&T (NYSE: T), with a yield of 5.7%, will not default on its dividend obligations. Neither will General Electric (NYSE: GE), which pays a yield of 3.1%. McDonald’s (NYSE: MCD) 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. Each of these companies has significant cash on hand. Each has strong earnings. There are at least a dozen public companies that meet these criteria. None of these have any chance of default or a suspension of their dividend payouts.

2. Gold

The ability of the U.S. to raise money was once based on its massive gold holdings. That is not true any longer, but it does speak volume about the value of the precious metal. 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. Gold has risen from $1,168 to $1,600 over the last year. The risk of gold is that its worth will fall precipitously if there is a solution to the debt disaster, the crisis in the EU and the slow global economy. The U.S. may solve its debt problems, but the other two economic problems that help pressure gold’s price up won’t improve any time soon.

3. T-bills

Treasury bills, as they are officially called, are a form of U.S. government debt, but one that the U.S. will almost certainly never default on. 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. An advantage of T-bills is that they can be bought at almost any bank branch.

4. Swiss Francs

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 USD to 1.24 USD in a year, and from 1.18 USD just a month ago. Investors have to worry that the value of the franc could fall if the logjam over the American budget is solved. Once again, the solution to the U.S. debt problem is not a solution to the world’s financial difficulties and the deficit problems in small EU nations. The Swiss franc will remain attractive.

5. Triple-A Corporate Bonds

Besides buying stock, there is 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 (NYSE: XOM), Johnson & Johnson (NYSE: JNJ), Microsoft Corp. (NASDAQ:MSFT) and Automatic Data Processing Inc. (NYSE: ADP). 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 US government, which means its payout to investors is tiny. The analyst who made the observation wrote, “The company’s $1 billion of 0.875 percent notes due in 2013 and $1.75 billion of 1.625 percent debt maturing in 2015 have the lowest interest rates of more than 3,500 securities in the Barclays Capital U.S. Corporate Index of investment-grade company debt.” MSFT bonds have low yield, but are remarkably safe.