A ticking time bomb in the US economy is perilously close to exploding.
Long considered a harbinger of bad luck, Friday, January 13th, came with a warning to Congress that the country could default on its debt as soon as June.
As the United States reached its $31.4 trillion debt limit on January 19, Treasury Secretary Janet Yellen urged lawmakers to increase or suspend the debt ceiling.
Peter Schiff, the well-known investor and market commentator, viewed her appeal as “an official acknowledgment that the United States is running the largest Ponzi scheme in the world.”
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The political showdown over the debt ceiling has been heating up since Republicans regained control of the House of Representatives in the 2022 midterm elections.
President Joe Biden has implored Congress not to hold the article hostage, suggesting that a default could be “catastrophic.”
His warnings fell on deaf ears in the case of Republican opponents, who are using their vote on the extension as leverage to seek spending cuts.
The Treasury could use “extraordinary measures” in the coming months to cover its many financial obligations, including Social Security and Medicare payments, but those emergency funds are limited.
Ultimately, the United States simply has to borrow more money, as it has done so many times before.
Congress has set the federal borrowing cap since 1917, and it has increased over time as government spending and borrowing needs have increased.
“US Treasury. sec. has admitted that the only way to avoid default on the national debt is to raise #DebtCeiling so the government. It can borrow from new lenders to pay off existing lenders,” wrote Schiff, CEO and chief global strategist at Euro Pacific Capital. On January 16, “This amounts to an official acknowledgment that the United States is running the world’s largest Ponzi scheme.”
In his podcast, Schiff claimed that the US government is in a spiral of doom as it cannot pay off existing 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,” Schiff says. “They think they’re going to get their money back. When they realize they’re going to get their money back from Monopoly money, they won’t want to lend.
“In fact, they won’t want to hold on to those treasuries and the only buyer will be the Federal Reserve. That’s when the printing press increases and the dollar falls to the floor.”
As Congress fights over extending the debt ceiling, America’s credit rating and financial markets are at risk – but there are three assets Schiff likes as a hedge against economic volatility.
Schiff has always been a fan of yellow metal.
He once said, “The problem with the dollar is that it has no intrinsic value.” “Gold will store its value, and you will always be able to buy more food with your gold.”
As usual, he puts his money where his mouth is.
The most recent 13F filing by Euro Pacific Asset Management shows that, as of September 30, Schiff 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, accounting for 6.8% of its portfolio. Agnico and Newmont were the third and sixth largest holdings, 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.
Recessionary income stock
Dividend stocks offer investors a great way to earn a passive income stream, but some of them can also be used as a hedge against downturns.
Case in point: Euro Pacific’s second largest holding is cigarette giant British American (BTI), accounting for 5.3% of the portfolio.
The maker of Kent and Dunhill cigarettes pays a quarterly dividend of 73 cents per share, giving the stock an attractive annualized yield of 7.01%.
Schiff’s fund also owns more than 157,766 shares in Philip Morris International (PM), another tobacco king with a dividend yield of 5.1%. The Marlboro cigarette producer is the seventh largest holding in the Euro Pacific region with a portfolio weight of 3.5%.
Cigarette demand is highly inelastic, which means that large price changes lead to 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 looking a little further.
Those looking to control 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 playing defense, there is one slump-proof sector that shouldn’t be overlooked: farming.
it is easy. Whatever happens, people still need to eat.
Schiff doesn’t talk about agriculture as much as precious metals, but Euro Pacific owns 124,818 shares of the fertilizer company Nutrien (NTR).
As one of the world’s largest providers of crop inputs and services, Nutrien holds a strong position even if the economy enters a major downturn. In the first nine months of 2022, the company posted a record net profit 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 facing the economy, investing in agriculture can give peace of mind to risk-averse investors.
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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.