By now, quite a few celebrities — including Elon Musk and Suze Orman — have predicted that a recession would hit the US economy.
Peter Schiff, CEO and chief global strategist at Euro Pacific Capital, is the latest expert to sound the alarm.
“[T]The US economy has been in recession all year,” he wrote in a tweet on Thursday.
“With yesterday’s rate hike, more layoffs and inflation continuing to erode purchasing power, the recession will deepen in the third quarter. In fact, Q2 GDP is likely to be revised even lower.”
US GDP declined at an annual rate of 0.9% in the second quarter, according to the Bureau of Economic Analysis’s preliminary estimate.
Schiff also knows a thing or two about preparing for a downturn. In fact, we can clearly see that theme in Euro Pacific Asset Management’s latest 13F filing with the Securities Exchange Commission.
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Schiff has long been a fan of the yellow metal.
“The problem with the dollar is that it has no intrinsic value,” he once said. “Gold will store its value and you can always buy more food with your gold.”
As always, he puts his money where his mouth is.
As of March 31, Euro Pacific Asset Management owned 1,645 million shares of Barrick Gold (GOLD), 335,740 shares of Newmont (NEM) and 409,155 shares of Agnico Eagle Mines (AEM).
In fact, the three gold mining giants were the company’s three largest holdings, representing 8.0%, 5.4% and 5.0% of the portfolio, respectively.
Gold cannot be printed out of thin air like fiat money, and its safe-haven status means that demand tends to increase in times of uncertainty.
If the gold price rises, miners like Newmont, Barrick and Agnico are likely to make bigger profits.
Recession Proof Income Stocks
Dividend stocks offer investors a great way to earn a passive income stream, but some can also be used as a recession hedge.
Example: The fourth largest holding in Euro Pacific is cigarette giant British American Tobacco (BTI), accounting for 4.6% of the portfolio.
The maker of Kent and Dunhill cigarettes offers an attractive annual yield of 7%.
Schiff’s fund also owns more than 160,000 shares of Philip Morris International (PM), another tobacco king, with a 5.2% dividend yield. Cigarette producer Marlboro is the ninth largest holding in Euro Pacific with a portfolio weight of 3.1%.
Demand for cigarettes is highly inelastic, meaning that large price changes cause only small changes in demand – and that demand is largely impervious to economic shocks.
If you’re comfortable investing in so-called sin stocks, British American and Philip Morris may be worth investigating further.
When it comes to playing defense, there is one recession-proof sector that should not be overlooked: agriculture.
It’s easy. No matter what happens, people still have to eat.
Schiff is not so much talking about agriculture as about precious metals, but Euro Pacific does own 142,052 shares of fertilizer producer Nutrien (NTR).
As one of the world’s largest suppliers of crop inputs and services, Nutrien is firmly positioned even if the economy is going through a major downturn. In the first quarter, the company generated a record net profit of $1.4 billion.
Nutrien stocks are up about 10% in 2022, in stark contrast to the S&P 500’s double-digit decline so far.
Given the uncertainties facing the US economy, investments in agriculture can reassure risk-averse investors.
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This article provides information only and should not be construed as advice. It comes without any kind of warranty.