3 Stocks to Protect Your Portfolio From a Looming Fiscal Crisis

Wall Street just breathed a huge sigh of relief.

With a deal averting the fiscal cliff in hand, the bulls have been out in force, sending the S&P 500 to its biggest two-day rally since 1973. Although resolution of the fiscal cliff has given the market a very nice boost, the reality is that it's merely a warm up for the main event. A much bigger and more important battle looms just on the horizon.

I'm talk about the debt ceiling.

The United States hit its statutory debt limit on Dec. 31, requiring the federal government to take special measures announced last week in order to avoid a technical default, according to U.S.
Treasury Secretary Tim Geithner. Those "extraordinary measures" will provide about $200 billion in short-term liquidity to keep funding government spending, while putting Congress back on the clock to find another round of solutions to the country's growing financial problems.

Uncertainty over the debt ceiling makes the fiscal cliff look like child's play. When Congress last battled issues with the debt ceiling in August 2011, it sent shockwaves through the market, with the S&P 500 falling 19%, just short of bear-market territory. Take a look below.

The debt ceiling is incredibly important because of its impact on the credit of the United States. In spite of the country's growing financial problems, the United States is still considered the safest borrower in the world. A credit downgrade for the safest borrower forces all other assets to be repriced as the "risk-free" rate is compromised. And that can have a devastating effect on stocks, as we saw in August 2011.  (more)


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