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Preparing for US Default

It's scary to think about it. Putting it on paper is even more scary. But as far as I see, probability of debt limit talks failure, and subsequent government default, is much higher that zero. It's way out of my comfort zone, somewhere between 10% and 20%.

I am preparing for default. Default means several things:

1. Sharp drop of US Treasuries of all maturities.
2. Drop of banking stocks and anything related to banks.
3. Total market drop.

These are short term consequences. It's impossible to predict what would happen long term. US default is a financial analogy of 6 miles wide asteroid stiking the earth. You can buy insurance, but who are you going to collect it from? You would think that your money in bank accounts and CDs is safe (insured by FDIC). But banks keep reserves in Treasuries (surprise!), and if reserves are not good, bank will start dropping like flies. In the whole world, because US Treasuries act like world money. If we have hundreds of banks failing, FDIC will run out of money fast. If government doesn't have money, it can't bail out FDIC. Expect bank runs and total financial chaos.

I am hoping it won't happen. But you can't eat hope. That's why I'm getting out of riskiest (at this point) assets and buying some insurance.

Sold today: BNA, BWF. BNA holds significant assets in Treasuries, BWF is a Wells Fargo preferred. I'm also going to sell PGF, which is bank preferreds ETF.
Bought: out of the money August calls on TBT.

This is short term insurance. If default is protracted and affects value of Treasuries and US dollar, it's gonna be financial armageddon. Cash would be king. And I mean real cash, paper money. Nothing else would matter.