Until now, several celebrities – including Elon Musk and Suze Orman – have predicted that a recession would hit the US economy.
Peter Schiff, Managing Director and Head of Global Strategy at Euro Pacific Capital, is the latest expert to sound the alarm.
“[T]the US economy has been in recession all year,” he tweeted 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, second quarter GDP will likely be revised even lower.”
According to the Bureau of Economic Analysis’s advance estimate, US GDP contracted at an annual rate of 0.9% in the second quarter.
Schiff also knows a thing or two about preparing for a recession. In fact, we can clearly see this issue in Euro Pacific Asset Management’s latest 13F filing with the Securities and Exchange Commission.
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.
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 top three holdings, accounting for 8.0%, 5.4% and 5.0% of its portfolio, respectively.
Gold cannot be printed out of thin air like fiat money, and its safe-haven status means that demand usually increases in times of uncertainty.
If gold prices rise, miners like Newmont, Barrick and Agnico will likely enjoy 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 hedge against recessions.
Example: The fourth largest holding in Euro Pacific is cigarette giant British American Tobacco (BTI), which represents 4.6% of the portfolio.
The maker of Kent and Dunhill cigarettes offers an attractive annual return of 7%.
The Schiff fund also owns more than 160,000 shares of Philip Morris International ( PM ), another tobacco king with a 5.2% dividend yield. The Marlboro cigarette maker is Euro Pacific’s ninth largest holding with a portfolio weighting of 3.1%.
The demand for cigarettes is highly inelastic, meaning that large price changes cause only small changes in demand—and that demand is largely immune to economic shocks.
If you’re comfortable investing in so-called sin stocks, British American and Philip Morris might be worth investigating further.
On defense, there is one recession-proof sector that should not be overlooked: agriculture.
It is simple. No matter what happens, people still have to eat.
Schiff doesn’t talk agriculture as much as precious metals, but Euro Pacific owns 142,052 shares of fertilizer maker Nutrien ( NTR ).
As one of the world’s largest providers of crop inputs and services, Nutrien is well positioned even if the economy enters a deep recession. In the first quarter, the company posted a record net profit of $1.4 billion.
Shares of Nutrien are up about 10% in 2022, in stark contrast to the S&P 500’s double-digit year-over-year decline.
Given the uncertainties facing the US economy, investing in agriculture could offer risk-averse investors some peace of mind.
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This article provides information only and should not be construed as advice. Provided without warranty of any kind.