Former Reagan advisor Steve Hankey, a former senior economist on President Reagan’s Council of Economic Advisers, recently shared his thoughts on the current state of the U.S. economy and the investments he recommends in light of the potential challenges ahead. Hankey believes that the Federal Reserve’s actions have played a significant role in the recent inflation surge. He and his colleague, John Greenwood, accurately predicted that inflation would reach 9%, which it did in June 2022.
Hankey also expressed concern about the growing role of the government in decision-making, particularly regarding industrial policy. He warns that if the U.S. continues on this path, the economy may slowly unravel. Looking ahead, Hankey predicts that the U.S. economy may face a recession later this year due to the contraction of the money supply. Given the potential economic challenges, Hankey recommends three investments for consideration: gold as a long-term investment, Iowa farmland as a stable long-term investment, and 10-year Treasury bonds as a potential trade opportunity.
Hankey notes that gold has always been part of the international monetary system and is attractive because it is not a liability of any sovereign nation. The price of gold has been surging recently, up 13.1% YTD despite a pullback after hitting a new all-time high last week. This is primarily attributed to central banks, led by China, buying gold at unprecedented levels since 2022.
As a farm boy from Iowa, Hankey points out that farmland is a limited resource that has shown a consistent upward trend in value over time. According to data from AcreTrader, Iowa farmland has appreciated at an annual rate of 8.8% over the past five years.
With yields near 5%, Hankey believes that if inflation continues to decline towards the Federal Reserve’s 2% target, the price of 10-year Treasury bonds will increase, providing investors with both a steady coupon and potential capital gains.
While Hankey acknowledges that no investment is entirely risk-free, he believes these three options offer potential benefits in the current economic environment. As investors try to make sense of the current economic climate, Steve Hankey’s insights and recommendations provide valuable food for thought and his perspective as a former Reagan advisor and experienced economist offers a unique lens through which to view the challenges and opportunities that lie ahead.
