What should investors own when the world wants a currency alternative?

“One of the all-time greats of growth investing, McNay is now pounding the table for, of all things, gold. Attention must be paid.

Barron’s: Are we in a recession or are we perhaps talking ourselves into one?

McNay: We certainly are in an economic slowdown, and my personal opinion is that we are in the early phases of a recession.

Whether we are in a recession or not is irrelevant because we are slowing down, and results are becoming more negative. The Federal Reserve has been very much aware of this and has been acting consistently in that regard. They’ve been increasing the money supply at a much faster rate than people realize, near a 15% annual rate of increase in M3 [a broad measure of the money supply].

What would be more typical growth in M3?

Five percent, maybe. Increasing the money supply kept the situation from getting worse faster than it would have otherwise. From one point of view, that’s good. But there is a point of view from which it is not good, and that is it decreases the value of our currency on a consistent basis and sometimes at an accelerated rate. In the past four or five years, the euro has gone from 82 cents to the dollar to $1.48. That is all lost purchasing power in our currency. We are in a lose-lose situation. The decline in the value of our currency is directly inflationary: Lost purchasing power is inflation. The bigger risk is that, at some point, the large holders of U.S. dollars may decide they want a lot less of them, if any. This is a very challenging set of conditions for us.

What does this mean for the market?

We are going to have an even more narrowed and focused market than we had last year. Something the world is going to want now is a currency alternative. An investment I have felt positive about but now feel dramatically more positive about is gold. Gold is probably the single most important investment that most of us can have a representation in.”