A Sovereign-Debt-Default Survival Kit: The Four Countries That Will Keep Their AAA Ratings
- Germany is the single-most solid economy in the European Union (EU), and boasts a large export surplus. On its own, Germany is a slam-dunk AAA economy. Even as a euro member, it seems unlikely the EU can do anything too ruinous without Germany signing on, because it would have to pay most of the cost. In my bottom-line view, that means Germany’s top-tier credit rating is likely to remain solid.
- Guernsey is an offshore British island and popular tax haven. Its population only totals 66,000, but it has a good offshore-banking business. And being further south, Guernsey also features better weather than its Isle of Man counterpart.
- Hong Kong currently faces a situation in which its government spending is rising faster than gross domestic product (GDP). As it is now part of China, I would also have to say that it now faces a fairly substantial political risk.
- Liechtenstein and Luxembourg have vastly different outlooks. Of the two, Liechtenstein’s the one you want, due to its hereditary Hapsburg monarchy, flourishing tax-haven banking industry and truly lovely Alpine scenery. Unfortunately, its population at 35,000 is even smaller than that of Guernsey. Luxembourg is an EU banking center that has the misfortune to be technically the EU’s richest country. Suckers!
- The Netherlands offers investors pretty much the same mix of advantages and disadvantages as Denmark and Finland except that it isn’t Scandinavian. Expect, therefore, a substantial EU/Eurozone discount.
- Norway isn’t an EU member, so nobody can make it bail out Greece. Now you’re talking! Plus, it’s a major oil exporter, with a huge ($570 billion), well-managed sovereign wealth fund. If you can find any Kingdom of Norwaydebt, buy it!
- Singapore is the country I would regard as the most solid economy of the S&P AAA-credit-rating club, chieflybecause it has a more diverse economy than Norway. Singapore is beautifully run, and one of the least-corrupt countries in the world. In short: It’s rock solid.
- Sweden, unlike its Norway counterpart, doesn’t have much oil and has no trust. It also has a heavy social welfare system and an expensive government. On the plus side, it had the sense to stay out of the euro.
- Switzerland is basically a Norway – but with banks instead of oil. It, too, is rock solid.
- The United Kingdom is no longer an empire, and has no money these days. There’s not much industry left, which leaves it very heavily dependent on a bunch of dodgy hedge funds in the City of London. Unlike the United States, the United Kingdom has made at least some attempt to get its public spending under control. And while I would say it’s pretty likely to follow its U.S. counterpart into a credit-rating downgrade, if I were S&P, I’d downgrade France before either of these two.
So there you have it. As I warned, there’s not all that much to choose from – although the choice selections (Canada, Norway, Switzerland and Singapore) all look pretty solid.
As you assemble your safe-haven investments, keep in mind a couple of Asian countries that aren’t AAA-rated, but also aren’t overly indebted. And they’re run by grownups. I’m talking about Taiwan (AA-minus) and South Korea (A).
At a juncture in which sovereign-debt defaults are a very real possibility, it’s clear bond safety isn’t what it used to be.
[Bio Note: If you’re an income investor, the financial markets can be a downright frightening place right now.
Stocks are too volatile, dependable high dividend yields are as rare as hen’s teeth, and U.S. Treasury yields are anemic (not to mention the associated growing risk of a cut in the U.S. credit rating).
Most investors are watching as the threat of sovereign debt defaults around the world gut their portfolios. Others have retreated to the sidelines.
But Money Morning‘s Martin Hutchinson has developed a strategy that combines safety and profits – and that will enable you turn these “negatives” to your advantage. Click here to learn how you, too, can use these techniques to build a lifetime of wealth, safety and security.]
News and Related Story Links:
- The Permanent Wealth Investor:Official Website.
- Reuters:S&P warns of downgrade if no debt deal reached.
- The Guardian:Wall Street shares slump as S&P downgrades US debt outlook.
- Money Morning: Canada: Investing in the World’s Safest Economy Can Put Profits in Your Pocket.
- Wikipedia:The Isle of Man.
- The BBC:The Isle of Man – an Island Oasis.
- Money Morning:The New Global Gambling Hotspot That’s Set to Overtake Las Vegas.
- International Business Times:You Are Not Mistaken: The Pittsburgh Pirates are in First Place.
- Money Morning:Investing in Germany: The Closed-End Fund to Buy Now.
- Investopedia:Gross Domestic Product (GDP).
- The Financial Times:Norway’s Sovereign Wealth Fund Optimistic on Europe.
- Record Low Interest Rates Create Stampede to Issue Corporate Bonds
- Safe Haven Investments: Only One Remains
- Options: The Profit Strategy Behind This Oft-Overlooked Investment Tool
- U.S. Economy: Why The Republicans Want The Economy To Tank
Source. This Article was from Money Morning. The Author is MARTIN HUTCHINSON.
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