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A time bomb in the US economy is running perilously close to detonation.
Long considered a harbinger of bad luck, Friday January 13 came with a warning to Congress that the country could default on its debt as early as June.
With the United States reaching its $31.4 trillion debt limit on Jan. 19, Treasury Secretary Janet Yellen has urged lawmakers to raise or suspend the debt ceiling.
His request was taken by Peter Schiff, a famous investor and market commentator, as “an official admission that the United States is running the largest Ponzi scheme in the world”.
Not to be missed
Since Republicans regained control of the House of Representatives in the 2022 midterm elections, a political deadlock has raged over the debt ceiling.
President Joe Biden has pleaded with Congress not to hold the item hostage, suggesting a default could be “magnet.”
His warnings are turning a deaf ear to opposing Republicans, who are using their votes on an extension as leverage to seek spending cuts.
The Treasury may use “extraordinary measures” in the coming months to cover its many financial obligations, including Social Security and Medicare payments, but these emergency funds are limited.
At the end of the day, the US simply needs to borrow more money, as it has done many times in the past.
Congress has set the limit for federal borrowing since 1917, increasing it over time as government spending and borrowing needs increase.
“The Treasury of the United States. Section admitted the only way to avoid a national debt default is to raise the #DebtCeiling so the Gov. can borrow from new lenders to repay existing lenders,” tweeted Schiff, CEO and chief global strategist at Euro Pacific Capital, on Jan. 16. “This amounts to an official admission that the US is running the largest scheme Ponzi of the world”.
In his podcast, Schiff said that the US government is in a doom spiral where it can’t repay its current lenders, so it borrows from new lenders again and again.
“Why do people willingly participate? It’s because they don’t realize it’s a Ponzi scheme,” says Schiff. “They think they are being paid off. When they realize they will be paid back in monopoly money, they won’t want to lend.
“In fact, they won’t want to keep these Treasuries and the only buyer will be the Federal Reserve. And that’s when the printing press will go into overdrive and the dollar will fall to the floor.
As Congress fights for a debt ceiling extension, the US credit rating and financial markets are at risk, but here are three assets Schiff likes as a hedge against economic volatility.
to know more: Rich young Americans have lost faith in the stock market and are betting on these assets instead. Enter now for strong long term tailwinds
Gold
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’s putting his money where his mouth is.
Euro Pacific Asset Management’s latest 13F filing shows that as of Sept. 30, Schiff’s company held 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 firm’s largest holding, accounting for 6.8% of its portfolio. Agnico and Newmont were the third and sixth entries, respectively.
Gold cannot be printed out of thin air like fiat money, and its safe-haven status means that demand typically increases during times of uncertainty.
Recession-proof income stock
Dividend stocks offer investors a great way to earn a passive income stream, but some can also be used as a hedge against recessions.
Case in point: Euro Pacific’s second-largest holding is cigarette giant British American Tobacco (BTI), which accounts for 5.3% of the portfolio.
Cigarette maker Kent and Dunhill pays quarterly dividends of 73 cents a share, giving the stock an attractive 7.7% annual yield.
Schiff’s fund also owns more than 157,766 shares of Philip Morris International (PM), another tobacco kingpin with a 4.8% dividend yield. Cigarette maker Marlboro is Euro Pacific’s seventh holding with a portfolio weight of 3.5%.
Demand for cigarettes is highly inelastic, meaning that large changes in price induce only small changes in demand, and that demand is largely immune to economic shocks.
If you feel comfortable investing in so-called sin stocks, British American and Philip Morris may be worth further research.
Those looking to take control of their investments should certainly 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.
agriculture
When it comes to playing defense, there’s one recession-proof sector that shouldn’t be overlooked: agriculture.
Is simple. Whatever happens, people still need to eat.
Schiff doesn’t talk so much about agriculture as he does about precious metals, but Euro Pacific owns 124,818 shares in fertilizer maker Nutrien (NTR).
As one of the world’s largest suppliers of crop inputs and services, Nutrien is firmly positioned even as the economy enters a severe recession. In the first nine months of 2022, the company generated record net income of $6.6 billion.
Nutrien shares are up about 4.78% in 2022, in stark contrast to the S&P 500’s return of -19.44%.
Given the uncertainties in the economy, investing in agriculture could give risk-averse investors peace of mind.
– with Jing Pan files
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This article provides information only and should not be construed as advice. Comes without warranty of any kind.
