Protecting yourself during a U.S. default might not work in the chaos that ensues. In fact, the moves might backfire.
Stuart Speer, a financial advisor in Shawnee Mission, Kan., learned that the hard way two years ago. In August 2011, the U.S. came close to defaulting and S&P downgraded Treasurys. Speer dumped Treasurys from his holdings, fearing many investors would do the same and prices would tumble. But others ended up buying Treasurys and prices rose sharply.
“That’s not in the textbook,” he said.
This time, Speer has placed “stop-losses” on his stock holdings, a computer order to sell if prices fall below a certain level. But aside from that, he’s not doing much, saying little would help.
“There is no fail-safe,” he said.
Except maybe cash. Spooked by the financial crisis, big U.S. companies in the S&P 500 stock index have piled up a record $1.1 trillion of cash. They’ve drawn criticism for not using it to expand or hire.
But the move may end up being wise. Many now have enough to pay their bills for several months in a pinch, letting them avoid the panicked lenders that refused them money in the financial crisis. The cash cushion may help explain why U.S. stocks haven’t sold off more as default approaches.
“Investors know that for better or worse, most companies have become their own banks,” said Colas, the ConvergEx’s strategist. “In a way, we’ve been preparing for this (default) since the financial crisis.”
Associated Press writers Steve Rothwell in New York, Sarah DiLorenzo in Paris, David McHugh in Frankfurt, Kelvin Chan in Hong Kong, Youkyung Lee in Seoul, Joe McDonald in Beijing, Yuri Kageyama in Tokyo and Jim Gomez in Bandar Seri Begawan, Brunei, contributed to this report.