JP Morgan Chase has just issued a warning to their clients that the stock market could get punished hard if the debt ceiling crisis in Washington DC isn’t resolved soon.
What’s going on with the debt ceiling crisis?
The debt ceiling crisis happens when a government hits its borrowing limit and can’t borrow any more money to cover its expenses. It’s like reaching your credit card limit and not being able to make any more purchases.
When this happens, the government faces serious financial and economic problems. They may struggle to pay their bills on time, and there’s a risk of defaulting on their debts, which would have really bad consequences. It could damage the government’s credit rating, increase borrowing costs, and cause chaos in financial markets.
To avoid default, the government tries to find temporary solutions. They might move money around or use accounting tricks to keep things going, but these are just quick fixes. If they don’t raise the debt ceiling, things can get even worse.
Debt ceiling crises usually turn into big political debates and negotiations between different branches of the government. The politicians argue about how the government spends money and whether they should borrow more.
This can lead to delays in raising the debt ceiling and make the situation more complicated.
So essentially, if you believe that this won’t be resolved soon, we could be facing serious chaos in the financial markets.
What investments would do well if that happens?
Typical bear market investments like precious metals and high income stocks are likely to do well.
Here are two investments that we find compelling:
Van Eck Gold Miner ETF: GDX
This is a basket of stocks that gives you exposure to multiple precious metals miners.
Unlike just buying gold, this also gives you the potential for income from mining revenues. Though the value of gold is strongly correlated with the performance.
Direxion Inverse QQQ: QQQE
This is an inverse fund, meaning that it will go up in value as the underlying shares fall. QQQ is a collection of the biggest technology stocks, so if they lose value, which is very possible in a debt crisis, the value of this fund will go up. Because of how the fund is constructed, it’s meant to just hold short term, but it’s a powerful way to make profits as the market falls.