After the Federal Reserve decided to increase interest rates for the first time in nine years last week, there has been a lot of discussion as to what investors should do with their money. What should they buy, sell, trade or exchange?
Many contrarian investors have alluded to gold and other precious metals as logical trades. One prominent contrarian investor is adding one more to that list: United States Treasurys.
Speaking in an interview with ETF.com, Marc Faber, the editor and publisher of The Gloom, Boom & Doom Report, suggested to investors that they buy gold and U.S. Treasurys before the next recession happens. Faber noted that the global economy is likely in a recession, and it will be more felt in the U.S. early next year.
“At that time, the Fed will say, ‘Well, we didn’t want to increase interest rates, but there was pressure on us to do so. So we increased them, and now we have a recession, and now we have to cut them again and flood the market with QE4,'” he said.
He added: “If you said, ‘Marc, here is $1 million, but you have to put everything in either gold or in the Dow Jones,’ then I would say I’d take gold,” he said.
Faber explained that the entire market is distorted and the fundamentals of the world – quantity of money, debt to GDP, minuscule economic growth and central bankers’ inflated ego – are in shambles. Gold, says Faber, is the only way to navigate this economic storm.
When it comes to bonds, Faber urged investors to look at the yields of European bonds versus that of U.S. bonds. For instance, says Faber, he sees France yielding 0.97 percent on the 10-year and Germany is yielding 0.63 percent. The U.S. 10-year, he noted, is yielding 2.26 percent.
“Right now, the global economy is slowing down meaningfully, so they (the Fed) should not have increased interest rates. But they did so to maintain some credibility,” he said. “They’ll use whatever happens as an excuse to cut rates again and engage, as [ECB President] Draghi is currently doing, in unlimited purchases of assets.”
Overall, precious metals are pretty cheap right now, and Faber believes they’ll remain inexpensive for a little while longer.
At the time of this writing, the yellow metal is trading at just under $1,075, and silver is priced at $14.30.
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