By now, quite a few celebrities – including Elon Musk and Suze Orman – have predicted that a recession would hit the U.S. economy.
Peter Schiff, CEO and chief global strategist at Euro Pacific Capital, is the latest expert to sound the alarm.
“[T]he U.S. 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 Q3. In fact, Q2 GDP will likely be revised even lower.”
According to the Bureau of Economic Analysis’ advance estimate, U.S. GDP fell at an annual rate of 0.9% in Q2.
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 it has no intrinsic value,” he once said. “Gold will store its value, and you'll always be able to buy more food with your gold."
As always, he’s putting his money where his mouth is.
As of Mar. 31, Euro Pacific Asset Management held 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 firm’s top three holdings, representing 8.0%, 5.4%, and 5.0% of its portfolio, respectively.
Gold can’t be printed out of thin air like fiat money, and its safe-haven status means demand typically increases during times of uncertainty.
If gold prices go up, 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.
Case in point: The fourth-largest holding at 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 over 160,000 shares of Philip Morris International (PM), another tobacco king with a dividend yield of 5.2%. The Marlboro cigarette producer is Euro Pacific’s ninth-largest holding with a portfolio weighting of 3.1%.
The demand for cigarettes is highly inelastic, meaning large price changes only induce 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 researching further.
When it comes to playing defense, there’s one recession-proof sector that shouldn’t be overlooked: agriculture.
It’s simple. Whatever happens, people still need to eat.
Schiff doesn’t talk about agriculture as much as precious metals, but Euro Pacific does own 142,052 shares of fertilizer producer Nutrien (NTR).
As one of the world’s largest providers of crop inputs and services, Nutrien is positioned solidly even if the economy enters a major downturn. In Q1, the company generated record net earnings of $1.4 billion.
Nutrien shares are up about 10% in 2022, in stark contrast to the S&P 500’s double-digit decline year-to-date.
Given the uncertainties facing the U.S. economy, investing in agriculture could give risk-averse investors a peace of mind.