Raging inflation could do more than just erode the purchasing power of the dollar.
According to Peter Schiff, CEO of equity fund Euro Pacific Capital, who’s famous for publicly predicting the 2008 housing crisis, spiking price levels will help “push the economy into recession.”
“A strong economy doesn’t produce inflation,” Fox Business reported earlier this month. “It actually produces the reverse, because a strong economy means that your economy is productive, you’re producing more goods and services, and you’re growing the supply.”
The good news? Schiff also knows a thing or two about hedging against inflation. In fact, we can clearly see that theme in Euro Pacific’s latest 13F filing with the Securities Exchange Commission.
So here’s a look at three ways Schiff’s investment firm is preparing for a downturn — one of them might be worth purchasing with some of your extra nickels and dimes.
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 Sept. 30, Euro Pacific held 519,095 shares of Newmont and 1.528 million shares of Barrick Gold.
In fact, the two gold mining giants were the firm’s top two holdings, representing 7.4% and 7.3% of its portfolio, respectively.
In Q3, Newmont produced 1.45 million ounces of gold at all-in sustaining costs of $1,120 per ounce — the current price of gold sits above $1,800. Meanwhile, Barrick Gold produced 1.09 million ounces of gold at all-in sustaining costs of $1,034 per ounce.
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 and Barrick will likely enjoy bigger profits.
These days, you can build your own recession-proof portfolio just by using your own digital nickels and dimes.
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 inflation — and even recessions.
Case in point: The third-largest holding at Euro Pacific is cigarette giant British American Tobacco, accounting for 4.5% of the portfolio.
The maker of Kent and Dunhill cigarettes pays quarterly dividends of 75 cents per share, giving the stock an attractive annual yield of 8.6%.
Schiff’s fund also owns over 160,000 shares of Philip Morris International, another tobacco king with a dividend yield of 5.4%. The Marlboro cigarette producer is Euro Pacific’s fourth-largest holding with a portfolio weighting of 4%.
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 defence, 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 the fifth-largest holding of Euro Pacific is fertilizer producer Nutrien.
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. Its shares are already up about 39% in 2021.
Another way to play the agricultural boom is to invest in U.S. farmland.
Farmland could be an effective hedge because it’s intrinsically valuable and has little correlation with the ups and downs of the stock market.
The NCREIF Farmland Total Return Index has increased more than five times over the past 15 years, 10 times over the past 20 years, and 20 times over the past 30 years.
The best part? You don’t need to get your hands dirty to get a piece of the action.
New platforms allow you to invest in U.S. farmland by taking a stake in the farm of your choice.
You’ll earn cash income from the leasing fees and crop sales. And of course, you’ll benefit from any long-term appreciation on top of that.
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