DOWNSIDE SCENARIO: Buy gold, pick stocks selectively
Associated Press
Haefele doesn’t offer as clear a picture of what his pessimistic scenario would look like, instead hinting at fresh credit-health shocks and sharp volatility tearing into markets.
In the case of a prolonged recession, one safer bet for investors would be to follow historically successful hedge funds. Active stock picking could help “navigate periods of elevated volatility” better than passive stock-and-bond positioning, the CIO said.
A cocktail of surging US debt, tightened financial conditions, growing geopolitical risks, and dollar devaluation would do wonders for the price of gold, UBS added. The precious metal has already enjoyed a rally to eight-year highs, and even in the bank’s base case, it expects gold to gain another 4% to $1,800 per ounce by the end of the year. A more severe downturn would only further boost the popular safe haven.
Lastly, Haefele suggests investors turn to Treasury Inflation-Protected Securities, or TIPS, to offset the chances of soaring inflation. The trillions of dollars spent on economic aid led the market to price in record-low inflation for the near future, so any shift could benefit those holding the protected bonds. TIPS will also gain value if central banks adopt higher inflation targets moving forward, the CIO said.
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