A ticking time bomb in the US economy is dangerously close to detonation.
Long considered a harbinger of bad luck, Friday, January 13, came with a warning to Congress that the country could default as early as June.
With the US hitting the $31.4 trillion debt limit on January 19, Treasury Secretary Janet Yellen urged lawmakers to raise or suspend the debt ceiling.
Her plea was taken by celebrity investor and market commentator Peter Schiff as an “official acknowledgment that the US is running the largest Ponzi scheme in the world.”
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A political stalemate over the debt ceiling has been raging since Republicans regained control of the House of Representatives in the 2022 midterm elections.
President Joe Biden pleaded with Congress not to hold the item hostage, suggesting a default could be “disastrous.”
His warnings have fallen on deaf ears in the case of opponents of the Republicans, who are using their extension votes as leverage to pursue spending cuts.
The Treasury can use “extraordinary measures” in the coming months to cover its many financial obligations, including Social Security and Medicare payouts, but these emergency funds are limited.
In the end, the US just needs to borrow more money, as it has done so many times before.
Congress has set the limit on federal borrowing since 1917 and has increased it over time as government spending and borrowing needs have increased.
“The American Treas. sec. has admitted that the only way to avoid a default on the national debt is to raise the #DebtCeiling so that the government. can borrow from new lenders to repay existing lenders,” tweeted Schiff, CEO and chief strategist at Euro Pacific Capital on Jan. 16.
In his podcast, Schiff claimed that the US government is in a doomsday spiral where it cannot repay its current lenders, so it borrows from new lenders again and again.
“Why do people like to participate? It’s because they don’t realize it’s a Ponzi scheme,” says Schiff. “They think they are going to be paid back. When they realize that they will be paid back in monopoly money, they will not want to borrow.
“In fact, they will not want to hold on to these government bonds and the only buyer will be the Federal Reserve. And that’s when the printing press goes into overdrive and the dollar will fall through the floor.
As Congress battles to extend the debt ceiling, the U.S. credit rating and financial markets are at risk — but here are three assets Schiff likes to see as a hedge against economic volatility.
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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 will always be able to buy more food with your gold.”
As always, he puts his money where his mouth is.
Euro Pacific Asset Management’s latest 13F filing shows that as of Sept. 30, Schiff’s company owned 1.655 million shares of Barrick Gold (GOLD), 431,952 shares of Agnico Eagle Mines (AEM), and 317,495 shares of Newmont (NEM).
In fact, Barrick was the company’s largest holding, making up 6.8% of the portfolio. Agnico and Newmont were the third and sixth largest holdings, respectively.
Gold cannot be pushed out of thin air like fiat money, and its safe haven status means that demand tends to increase in times of uncertainty.
Recession Proof Income Stocks
Dividend stocks offer investors a great way to earn a passive income stream, but some can also be used as protection against recessions.
Example: The second largest position in Euro Pacific is cigarette giant British American Tobacco (BTI), accounting for 5.3% of the portfolio.
The maker of Kent and Dunhill cigarettes pays quarterly dividends of 73 cents per share, giving the stock an attractive annual return of 7.01%.
Schiff’s fund also owns more than 157,766 shares of Philip Morris International (PM), another tobacco king with a dividend yield of 5.1%. The Marlboro cigarette maker is Euro Pacific’s seventh largest holding with a portfolio weight of 3.5%.
The demand for cigarettes is highly inelastic, meaning that large price changes produce only small changes in demand – and that demand is largely immune to economic shocks.
If you’re comfortable with investing in so-called sin stocks, British American and Philip Morris might be worth exploring further.
Those who want to take control of their investments should definitely explore online trading platforms. The best sites offer resources and tools to help investors make informed decisions as they build and manage their investment portfolios.
When it comes to defending, there’s one recession-resistant sector that shouldn’t be overlooked: agriculture.
It’s easy. No matter what, people still need to eat.
Schiff doesn’t talk so much about agriculture as about precious metals, but Euro Pacific does own 124,818 shares of fertilizer producer Nutrien (NTR).
As one of the world’s largest suppliers of agricultural commodities and services, Nutrien is firmly positioned even as the economy experiences a major downturn. In the first nine months of 2022, the company generated a record net profit of $6.6 billion.
Nutrient stocks rose about 4.78% in 2022, in stark contrast to the S&P 500’s return of -19.44%.
Given the uncertainties facing the economy, investing in agriculture can give risk-averse investors peace of mind.
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This article provides information only and should not be taken as advice. It comes without any kind of warranty.