Don’t Worry: 3 Ways to Trade the Debt Dilemma

Debt Ceiling Chaos 2023: We’ve Been Here Before

With June 1 just around the corner, we’re still nowhere near a resolution.

And while it’ll more than likely come down to the 11th hour, the chaos and panic it could produce could drive volatility through the roof.  

“Rich and poor nations alike fear a possible U.S. default, which would torpedo the financial markets and deal a massive blow to the dollar. Analysts say the impasse jeopardizes America’s standing abroad. And foreign economists and policymakers are bewildered over why the United States has imposed a specific limit on its debt and then turned it into a political football,” says The Washington Post.

Unfortunately, we’ve been here before.

In 2011, we came close to defaulting under President Obama, which was averted in the final days. Unfortunately, as we waited for that to happen, the Dow lost 2,000 points. Then, in 2013, during another chaotic disagreement over the debt ceiling, Obama said:

“A decision to actually go through with it, to actually permit default – according to many CEOs and economists – would be, and I’m quoting here, ‘Insane, catastrophic, chaos.’ These are some of the more-polite words,” he said. “Warren Buffet likened default to a nuclear bomb, a weapon too horrible to use.”

These days, Treasury Secretary Janet Yellen says a potential default would be destructive. In fact, she says, “A default would threaten the gains that we’ve worked so hard to make over the past few years in our pandemic recovery. And it would spark a global downturn that would set us back much further. It would also risk undermining US global economic leadership and raise questions about our ability to defend our national security interests,” as quoted by CNN.

Do we believe the U.S. will default on its debt by June?

No, not really.  We can’t afford to allow it to happen.  And if politicians allow it to happen, they may want to start looking for work elsewhere.

Still, the fear of default will drive markets batty until the 11th hour.

As we’ve noted a few times, even the fear of default can lead to explosive volatility. And along with that, we could see related ETFs and ETNs rocket higher, including:

The ProShares Ultra VIX Short-Term Futures ETF (UVXY) — The ETF was designed to match two times (2x) the daily performance of the S&P 500 VIX Short-Term Futures Index.  

iPath S&P 500 VIX Short-Term Futures (VXX) — The VXX ETN provides exposure to the S&P 500 VIX Short-Term Futures Index. 

ProShares VIX Short-Term Futures ETF (VIXY) — ProShares VIX Short-Term Futures ETF provides long exposure to the S&P 500 VIX Short-Term Futures Index, which measures the returns of a portfolio of monthly VIX futures contracts with a weighted average of one month to expiration. 

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