6 Ways to Profit From the U.S. Debt Crisis

Aug. 4, 2011— -- The same crisis that gave grey hair to Congressmen is creating new profit opportunities for investors, say financial strategists.

Thanks to continuing U.S. debt woes, now may be the best time to get a fixed-rate, 30-year mortgage; or the best time to invest in the stocks of U.S. companies that export. It's a good time to bet against U.S. treasuries and to put money into currencies that are likely to outperform the dollar.

On Wednesday, the dollar fell on worries that credit rating agencies may yet downgrade U.S. debt, despite the debt-reduction bill passed by Congress and agreed to by the White House earlier this week. Two reports issued Wednesday—one on U.S. factory orders, the other on the U.S. service sector—gave more bad news, suggesting that already-anemic U.S. economic growth is slowing. The dollar closed the day down against the yen, the British pound, the euro and other currencies.

Yet this bleak economic news is creating investment opportunities in several categories:

Home Mortgages. The fact that the yield on 10-year U.S. treasury notes has plunged is good news for anyone looking for an affordable a home loan, since mortgage rates and 10-year treasuries typically move in tandem. Jeff Lazerson, a mortgage broker in Laguna Niguel, California, told the L.A. Times on Tuesday that it was the first time in his 24 years' experience as a broker that he has seen fixed-rate 30-year loans priced under 4 percent. Admittedly, only the very best-qualified borrowers can get that rate, but for them it's a golden opportunity to buy or to re-finance.

U.S. Treasuries. Worried that treasuries will decline further? You can invest in a mutual fund that goes up when treasuries go down. These allow investors, in effect, to bet against U.S. debt. Examples include the ProShares Trust Ultrashort 20+ Year Treasury ETF and the Rydex Inverse Government Long Bond Fund. Tom Lydon, editor and publisher of ETF Trends, tells ABC News, "Investors are shocked with the recent free-fall in treasury yields." Investors who buy into investments like those above are betting that "the Fed's loose monetary policy will eventually lead to high inflation and a weaker U.S. dollar."

Foreign Currencies. If the U.S. dollar continues to decline, Lydon suggests investors consider a fund pessimistic about U.S. currency. Example: The PowerShares DB US Dollar Bearish Fund, which rewards investors when the dollar weakens in relation to the Japanese yen, the British pound, the Canadian dollar, Swiss franc and Swedish krona. Alternatively, investors can simply buy those currencies directly.

Axel Merk, manager of the Merk Funds, which include the Merk Hard Currency Fund, thinks it makes more sense for an investor to buy a basket of currencies rather than the currency of any one country (Singapore, for example, whose strong economy and positive trade balance have made its dollar a star performer).

"Having a basket," he says, "mitigates the risk. We like the countries whose central banks are printing less money than the U.S. and whose governments are spending less." Merk's basket includes some of the currencies named above, plus the New Zealand dollar and the Australian dollar, as well as gold.