5 Safe Havens in Case of a U.S. Credit Downgrade

Brittney Barrett  |

The likelihood that the U.S. will default on its debt on or following the August 2 deadline is climbing by the day. There are a number of credit analysts that would even argue that at this stage, insolvency as the most probable option. Should a default occur, credit raters like Moody’s and the S&P have warned they will slash the currently pristine U.S. credit rating from triple A. There is also a possibility they will take aim at the rating regardless of whether or not the U.S. defaults on its debt. If the gridlock is broken and a deal to raise the debt ceiling for just a short time is reached a downgrade may still occur as raters wonder when, if ever a long term solution to the debt will be made.

If there is in fact a downgrade, the added costs on borrowing could cripple financial institutions while areas like bonds would no tlonger be able to offer low interest rates and be seen as a safe haven.  Gold, another safe haven has already been run through the roof and is likely to crash should there be another outcome to the debt that a ratings cut. That said, there are some safe havens and they are are largely, strong international companies with healthy balance sheets.

General Electric (GE): With strong earnings and a diversified international business, including factories and services in China, GE could easily withstand the credit downgrade. Additionally the company pays a yield of 3.1 percent and with its long history of strength in myriad markets GE does not have a history that would indicate it could default on its debt.

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McDonald’s (MCD): With successful locations across the globe and a tendency to thrive in a weak market, McDonald's will no doubt be a strong investment in the instance of a default.  Its latest earnings report indicates continued growth bolstered by high margin beverages and strong sales in Europe. The fast food chain reported  $1.35 per share, or $1.41 billion, on revenue of $6.91 billion surpassing the $1.13 per share or $1.23 billion, on revenue of $5.95 billion this time last year. The company pointed to the weak dollar as a driver of the improvement, pushing earnings per share higher by 10 cents.  Beyond its recent performance, the company has repurchased billions of dollars in shares over the last five years and consistently issued strong yields.

Exxon Mobil (XOM): Investing in Exxon would likely be profitable on its own right but consider putting money in the companies corporate debt. Exxon's balance sheet is extremely strong and while the U.S. credit rating could get slashed from triple A, Exxon's is not under attack.

 Johnson & Johnson (JNJ): Like Exxon, medical device company Johnson & Johnson has a long history of perfect credit. Smart acquisitions and diversified products mean that Triple A rating is likely to stay in tact for the long run. Regardless of whether the U.S. will be able to repay its debts, Johnson &Johnson will.

iShares MSCI Singapore Index Fund (EWS): While the American markets are floundering, Singapore is doing anything but. Known for their commitment to order, the Singapore market is also a model of stability. With one of the strongest credit ratings in the world, American investors looking for exposure to international markets without U.S. debt entanglements need to look no further. While its advanced economy exposes Singapore to global struggles, it has a history of fast recovery and internal strength.


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