DOUBLE WHAMMY: Fed Policy and the U.S.-China Trade War

Markets were decisively in “risk-off” mode this week. Following weak manufacturing news on Thursday, the yield on the 10-year Treasury sunk to its lowest level since October 2017. The spread between the 10-year yield and three-month yield, in fact, inverted once again, with the shorter-term bond yield higher by 6 basis points. As such, the “boring” yet mostly reliable utilities sector has rotated to the top.

I’m not going to use the R-word here. All I’m going to say is that it might be time for investors to brace for a significant correction—especially with debt at record levels and the Federal Reserve left with very little firepower to combat a full-blown crisis.

Let’s take a look at what the smart money is doing.

Many successful, ultra high-net-wealth individuals (UHNWIs) favor municipal bonds, not only because they’re tax-free at the federal and often state and local levels, but also because they’ve managed to perform well even during equity bear markets. According to the first-quarter asset allocation report for Tiger 21, a peer-to-peer network for UHNWIs, members had an average weighting of 9 percent in fixed income, which includes muni bonds.

As many of you know, U.S. Global Investors has been known for gold and natural resource investing, but we also have longstanding experience in muni bond investing.

Speaking of gold, Ray Dalio said back in 2015 that “if you don’t own gold… there is no sensible reason other than you don’t know history or you don’t know the economics of it.” Time hasn’t changed Dalio’s mind. The billionaire hedge fund manager, the most profitable in U.S. history, just added to his gold holdings in the first quarter, according to SEC filings.

If you’re not doing the same, why not? The U.S. economy looks rock-solid with a strong jobs market, but there are some worrisome signs lurking under the surface.