How to prepare your investments for another government standoff ahead
Hooray for the folks in Washington! The playground battles among politicians have settled for now, but trust me, it’s going to get nasty again as we move towards the extended deadlines in the New Year.
But for now, the government is open for business again and the Treasury can continue to make its interest payments on the enormous national debt. Yet the resolution agreed upon last Wednesday is only a bandage solution. The country has only delayed the inevitable—that it must control spending and its national debt.
The nearly $17.0 trillion in national debt and annual deficits continue to grow, adding to the mounting financial crisis America could witness not long down the road if the spending doesn’t stop. I don’t think I would be buying Treasury bonds anytime soon, as there are superior yields in other debt-laden markets, like Italy or Spain.
America has become somewhat of a jester on the international stage. China is talking about making the renminbi the de-facto global currency. I think this is more wishful thinking than anything; more likely, it’s just some propaganda to remind the United States it needs to work out its national debt situation. China does hold about $1.7 trillion in U.S. national debt, so the country should be concerned. I kind of wonder how much interest the Chinese will have towards the future U.S. bond auctions.
When China said the national debt needed to be resolved, some genius in Congress said China should mind its own business.
Can you imagine a company telling its largest debt holder to take a hike and mind its own business? This would never happen, and in my view, China has every right to state its opinion.
The problem is that the politicians often react and carry on with business as if they were the only important ones. How about the 800,000 workers told to go home for two weeks?
In my view, it’s time for America to make the tough decisions that will benefit the future generations of Americans. Out-of-control deficits and the national debt must be dealt with.
As I have written in this column more often than I’d like, the country must spend only what it has. The national debt must be controlled and not allowed to continue to move higher. If it does, the interest payments this country will have to pay as interest rates rise will be massive, and will only take away from other areas that need funding. Plus, it could make the country less popular for investors, both domestic and foreign.
In this case, it would be prudent to reduce your exposure to U.S. markets and consider investing in exchange-traded funds (ETFs) for good foreign opportunities that play off of more stable countries, like Canada, England, and Germany, where world-class companies operate. Some ETFs to consider might be iShares MSCI Canada Index Fund (NYSEArca/EWC), iShares MSCI United Kingdom Index Fund (NYSEArca/EWU), or iShares MSCI Germany (NYSEArca/EWG), among others.
This article How to Prepare Your Investments for Another Government Standoff Ahead was originally published at Investment Contrariansby George Leong, B.Comm.