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Please note: The Frank Talk articles listed below contain historical material. The data provided was current at the time of publication. For current information regarding any of the funds mentioned in these presentations, please visit the appropriate fund performance page.

With Rollback, Dodd-Frank Is Now Officially a Dud
March 19, 2018

With Rollback, Dodd-Frank Is Now Officially a Dud

I often remind investors to look past the negative and find the positive. Last week provided no shortage of big splashy headline stories, from yet another high-profile personnel shakeup at the White House to a nail-biter special election in Pennsylvania’s 18th Congressional District, from Russia’s alleged nerve agent attack on a former double-agent spy to a tragic bridge collapse in Miami.

If this is all you were focused on, you might have missed what I believe was the most significant development of the past few days. Last Wednesday, the Senate, in a bipartisan vote, quietly approved plans to roll back key banking rules in 2010’s Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank).

If the House also approves the bill, President Donald Trump is expected to sign it into law, thereby providing much-needed relief to smaller lenders and community banks that millions of rural Americans and small businesses depend on. Aside from tax reform, I think the relaxation of Dodd-Frank will be seen as Trump’s crowning fiscal achievement so far, as it has the potential to contribute greatly toward his goal of at least 3 percent economic growth.

Investors piled into an ETF that holds small to midsize banks following the news last week. The SPDR S&P Regional Banking ETF attracted $606 million in daily inflows, a record for the fund, according to Bloomberg.

Dodd-Frank rollback optimism fueled regional banking ETF record daily inflows
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The most sweeping and complex financial reform package since the Great Depression, Dodd-Frank was drafted in response to the financial crisis—yet few believe it would do much in the way of preventing another such crisis. Last year, the Treasury Department declared that the law, despite its ambitious scale and scope, has “failed to address many drivers of the financial crisis, while adding new regulatory burdens.” As such, the agency recommended a number of changes, including improving efficiency and decreasing unnecessary complexity.

Among the likely changes to Dodd-Frank: raising the threshold for tougher oversight from the current $50 billion in assets to $250 billion; exempting small banks from the so-called Volcker rule, which currently bars them from speculative trading; reducing the amount of financial reporting, particularly racial and income data on mortgage holders; lowering the frequency of regulatory exams; and easing the conditions of stress tests.

Community Banks Are Vital to the U.S. Economy

The cumulative effect of the rollback will be to lower compliance costs and allow banks to better service clients and shareholders alike. I can’t stress enough how important this is. Small community banks—those with under $10 billion in assets—are tremendously vital to the U.S. economy. According to the American Enterprise Institute (AEI), they provide a substantial percentage of lending to U.S. farms—about 44 percent. Nearly half of all small business loans in the U.S., and more than 15 percent of all residential mortgages, are issued by small banks.

16 year of small u.s. bank failures
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Last year, I included Dodd-Frank in a list of the five costliest financial regulations of the past 20 years. Since 2010, the legislation has undeniably had a negative effect on the banking industry, driving dozens of institutions to ruin and giving borrowers far fewer options. Between the year of its signing and 2014, the U.S. lost more than 14 percent of its small community banks, while the number of large banks rose 6.3 percent, according to the Mercatus Center at George Mason University.

Dodd-Frank Falling out of Favor

Support for Dodd-Frank is waning more and more. Both former Federal Reserve chair Alan Greenspan and billionaire investor Warren Buffett have come out strongly against it, with Greenspan saying he’d love to see the 2010 law “disappear.” For his part, Buffett believes that, as a result of the law, the U.S. is less well equipped to handle another financial crisis, as Dodd-Frank stripped the Fed of its ability to act.

Case in point: When now-defunct investment bank Bear Stearns was headed for failure 10 years ago this week, the Fed arranged an emergency loan of nearly $13 billion routed through JPMorgan. It also agreed to purchase $30 billion in Bear assets. But now, because of Dodd-Frank, such assistance is illegal since the law stipulates Fed lending must be broad-based and not directed toward a single institution.

Pres. Trump “cutting the red tape” in the Roosevelt Room, December 2017

Possibly the most telling sign that the 2010 law is losing favor among proponents is that Barney Frank himself, the former chairman of the House Financial Services Committee and one of Dodd-Frank’s chief architects, recently acknowledged he “sees areas where the law could be eased,” according to the Financial Times.

Speaking at this month’s annual Futures Industry Association meeting in Boca Raton, Florida, Frank said he “supports regulating banks differently based on their size” and sees the need to make it “easier for smaller banks to make loans such as mortgages.”

If you recall, lending procedures became so restrictive following Dodd-Frank that Ben Bernanke himself, Fed chair from 2006 to 2014, had trouble refinancing his home.

“I think it's entirely possible [lenders] may have gone a little bit too far on mortgage credit conditions,“ Bernanke remarked during a 2014 conference on housing.

More recently, President Trump claimed he had friends with “nice businesses” who couldn’t borrow money because of Dodd-Frank.

The easing of banking restrictions is just the latest in Trump’s ongoing effort to cut red tape that has stymied economic growth and disrupted the creation of capital. For many voters, his pledge to push for deregulation tops the list of reasons why he was elected, and I’m happy to see that he’s making good on this promise.

10 Years Since the Demise of Bear Stearns

The Senate’s approval to weaken Dodd-Frank came, appropriately enough, on the 10-year anniversary of Bear Stearns’ stunning collapse. The once-powerful institution—in 2007 it was the fifth largest U.S. bank, with $400 billion in assets—was among the earliest warning signs of a broad economic meltdown that would ultimately result in the stock market losing nearly half its value. Below is just a sampling of headlines from 10 years ago last week:

headlines from 10 years ago this week

As you’re no doubt aware, Bear Stearns’ demise was fueled primarily by excessive leveraging and overweight exposure to junk mortgage-backed securities. In an attempt to prevent the pathogen from spreading further, the Fed, as I mentioned earlier, brokered a deal for financial giant JPMorgan to buy Bear for as little as $2 a share.

We now know that the bailout provided only temporary relief. Six months later, Lehman Brothers, then valued at $691 billion, also fell victim to the subprime mortgage crisis. Today Lehman’s remains the largest bankruptcy filing in U.S. history.

So what lessons can we take away from Bear? Countless articles and thought pieces have been written on this topic over the years, including an excellent one by Justin Baer and Ryan Tracy that appeared last week in the Wall Street Journal.

Two lessons in particular stand out to me.

One, Bear showed us the painful consequences of failing to diversify. The bank had historically been known for its aggressive and risky investment strategies, but it was finally done in by its heavily concentrated position in bad mortgages. According to an analysis by former Lehman CFO Erin Callan, mortgage-backed securities accounted for a whopping 71 percent of Bear’s Level 3 assets—defined as those that are hard to value.

“Our liquidity position in the last 24 hours had significantly deteriorated,” announced Bear Stearns CEO Alan Schwartz, explaining to shareholders why he had no other choice than to accept an emergency bailout.

This is one of the many reasons why I recommend a 10 percent weighting in gold, one of the most liquid assets in the world. With 5 percent in gold bullion and 5 percent in gold mining stocks, along with an annual rebalancing, investors could potentially offset their losses in other holdings.

The second takeaway I’d like to point out is to focus on well-managed companies with healthy balance sheets. Near the end of its life, Bear Stearns was leveraged about 36-to-1, according to some estimates. For most firms, this is unsustainable.

Gold and the Global Ticking Debt Bomb

Unfortunately, corporate debt relative to U.S. GDP has now returned to prerecession levels, a risk made even riskier by rising interest rates. U.S. household debt, meanwhile, hit a new high of $13.15 trillion in the final quarter of 2017.

It’s for this reason that, when evaluating gold mining firms, we prefer those that do not rely primarily on debt to finance their operations. This recipe doesn’t always guarantee success, but should another financial meltdown occur, such companies will be in a much better position, financially, to weather the storm. 

To learn more about what we look for in mining firms, click here!



All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor. By clicking the link(s) above, you will be directed to a third-party website(s). U.S. Global Investors does not endorse all information supplied by this/these website(s) and is not responsible for its/their content.

Diversification does not protect an investor from market risks and does not assure a profit.

Holdings may change daily. Holdings are reported as of the most recent quarter-end. None of the securities mentioned in the article were held by any accounts managed by U.S. Global Investors as of 12/31/2017.

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The Many Uses of Gold
March 14, 2018

The many uses of gold

As our loyal readers know, at U.S. Global Investors we carefully monitor the price of gold. We pay close attention to the macro drivers moving the yellow metal, like government policy and cultural affinity spurring demand globally. We also monitor the micro drivers, like company management and quant factors that make one gold stock superior to the next.

Gold’s qualities make it one of the most coveted metals in the world and a popular gift in the form of jewelry – this is what I call the Love Trade. From the beginning of the Indian wedding season in September until Chinese New Year in February, the price of gold tends to rise due to higher demand from the two biggest consumers of gold, China and India.

The Love trade China and India gift gold for weddings and other celebrations

On the other hand is the Fear Trade, driven by negative real interest rates and the fear of poor government or central bank policies that could result in currency devaluation or inflation. This fear triggers people to buy gold as a hedge against possible negative returns in other asset classes, which in turn, pushes the gold price higher. 

For more on gold’s seasonal trading patterns, download the free whitepaper Gold’s Love Trade.

Gold in a Portfolio

We believe gold is an essential part of a portfolio due to its history as a protector against inflation. I’ve always recommended a 10 percent weighting in the metal, 5 percent in gold bullion or jewelry, and 5 percent in gold stocks, mutual funds and ETFs.

In fact, current economic conditions make an even greater case for gold. The stock market is still on a historic bull run, and the tax reform bill is helping ratchet up share prices. It’s important to remember that the precious metal has historically shared a low-to-negative correlation with equities. For the past 30 years, the average correlation between the LBMA gold price and the S&P 500 Index has been negative 0.06.

Gold has also performed competitively against many asset classes over the past few decades, as seen in the chart below. This makes the metal, we believe, an appealing diversifier in the event of a correction in the capital markets or an end to the bull market.

Gold has performed very competitively against a number of asset classes over the years
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Our investment team brings knowledge and experience in a variety of fields, with one of the most notable being gold. As such, we have written numerous pieces about the precious metal. One of our most popular is the Many Uses of Gold slideshow that outlines eight different uses of gold, other than in your portfolio. From dentistry to electronics and space travel to currency, gold remains widely used in everyday life.

We believe it’s important to truly understand the asset class you are investing in, and we hope this slideshow does just that. Explore gold’s many uses here!

Explore the many uses of gold slideshow


All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor.

The Standard & Poor's 500, often abbreviated as the S&P 500, or just the S&P, is an American stock market index based on the market capitalizations of 500 large companies having common stock listed on the NYSE or NASDAQ. The S&P 500 index components and their weightings are determined by S&P Dow Jones Indices.

The LBMA Gold Price is the global benchmark prices for unallocated gold delivered in London. The auctions are run at 10:30 am and 3:00 pm London time. The final auction prices are published to the market as the LBMA Gold Price AM and LBMA Gold Price PM.

Correlation, in the finance and investment industries, is a statistic that measures the degree to which two securities move in relation to each other. Correlations are used in advanced portfolio management. Correlation is computed into what is known as the correlation coefficient, which has value that must fall between -1 and 1.

The Bloomberg Barclays Short Treasury Bill Index tracks the market for Treasury bills issued by the U.S. government.

The Bloomberg Barclays US Aggregate Bond Index, which until August 24, 2016 was called the Barclays Capital Aggregate Bond Index, and which until November 3, 2008 was called the "Lehman Aggregate Bond Index," is a broad base index, maintained by Bloomberg L.P. since August 24, 2016, and prior to then by Barclays which took over the index business of the now defunct Lehman Brothers, and is often used to represent investment grade bonds being traded in United States. 

The MSCI USA Net Total Return Index is a market capitalization weighted index designed to measure the performance of equity securities in the top 85% by market capitalization of equity securities listed on stock exchanges in the United States.

The MSCI EAFE Net Total Return Index is a stock market index that is designed to measure the equity market performance of developed markets outside of the U.S. & Canada. It is maintained by MSCI Inc., a provider of investment decision support tools; the EAFE acronym stands for Europe, Australasia and Far East.

The Bloomberg Commodity Index (BCOM) is a broadly diversified commodity price index distributed by Bloomberg Indexes. The index was originally launched in 1998 as the Dow Jones-AIG Commodity Index (DJ-AIGCI) and renamed to Dow Jones-UBS Commodity Index (DJ-UBSCI) in 2009, when UBS acquired the index from AIG. The S&P GSCI (formerly the Goldman Sachs Commodity Index) serves as a benchmark for investment in the commodity markets and as a measure of commodity performance over time. It is a tradable index that is readily available to market participants of the Chicago Mercantile Exchange.

Diversification does not protect an investor from market risks and does not assure a profit.

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The Historic Bull Market Faces Off Against Steel Tariffs
March 12, 2018

the historic bull market faces off against steel tariffs

Friday marked the ninth anniversary of the stock bull market, the second longest since World War II following the spectacular run in the 1990s that finally met its match when the tech bubble burst in March 2000. The current expansion, which some consider the “most hated bull market in history,” has largely been fueled by extraordinarily accommodative monetary policy in the form of massive money printing and near-zero interest rates. It’s withstood a number of significant headwinds, including a relatively slow economic recovery, the collapse in the price of oil and other commodities, ongoing conflict in the Middle East and an especially nasty presidential campaign cycle. If it can avoid dropping more than 20 percent in the next six months, it will become the longest-lasting ever.

can this bull market become the largest in history
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No doubt you’ve heard before that bull markets don’t die of old age. I can’t say for sure what will end this particular business cycle—no one can—but we’re seeing huge shifts in monetary and fiscal policy right now that investors can’t afford to ignore. As I often say, government policy is a precursor to change.

Unintended Consequences of Steel Tariffs

For one, the decade-long era of easy money is coming to an end. The Federal Reserve is unwinding its enormous balance sheet, its enormous balance sheet, which carries some risk.

us steel demand by industry

Meanwhile, the Trump administration is ratcheting up its protectionist trade policies. After surprising markets in recent days with plans to impose tariffs on steel and aluminum imports, President Trump signed the authorization Thursday afternoon, applying taxes broadly to all countries except Canada and Mexico. It was greatly feared that Canada, the number one supplier of steel and aluminum to the U.S., would be included, but it appears someone managed to change the president’s mind. When former President George W. Bush imposed a steep 30 percent tariff on steel imports in 2002, Canada was likewise spared.

The 2002 tariff, by the way, had some serious unintended consequences that critics of Trump’s policy hope are not repeated. A report put out by the Consuming Industries Trade Action Coalition (CITAC) found that about 200,000 Americans, in every U.S. state, lost their jobs in 2002 as a result of higher steel prices, representing some $4 billion in lost wages. More people, in fact, lost their jobs than the total number of people working in the domestic steel industry itself. Not surprisingly, a quarter of lost jobs occurred in steel-consuming industries such as machinery and equipment, automotive and parts manufacturers.

To be clear, U.S. steel companies did benefit from the tariffs, with profits in the first three quarters of 2002 rising $2.1 billion. This growth was offset, though, by a $15 billion decline in profits for steel-consuming companies.

Today, representatives of those same industries warn that the current tariffs could do more harm than good.

Roy Hardy, president of the Precision Metalforming Association, claims that they “will damage downstream U.S. steel and aluminum consuming companies.” Hardy estimates the tariffs could cost the U.S. economy 146,000 jobs this year alone, a figure that—as was the case in 2002—outnumbers the 140,000 Americans currently employed by the domestic steel industry.

As many as 107 House Republicans expressed deep concerns last week, writing in an open letter to the president that the “new taxes in the form of broad tariffs would undermine” the “remarkable progress” made by the tax overhaul. Meanwhile, outgoing Republican Senator Jeff Flake of Arizona said he would introduce a bill that would block Trump’s tariffs.

The tariffs come at a time when domestic steel producers’ balance sheets are steadily improving. According to Bloomberg data, the industry posted net profits totaling $2.5 billion in 2017, up from $60 million in 2016. The group lost a whopping $2.5 billion in 2015, with Pittsburgh-based U.S. Steel contributing the heaviest losses at $1.6 billion. 

domestic steel industry has seen three straight years of rising profits
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In the coming days and weeks, the tariffs should serve to boost domestic steel production and employment. The Wall Street Journal reports that U.S. Steel has plans to reopen a blast furnace in Granite City, Illinois, and call back 500 workers. This follows an announcement by Century Aluminum that it will double its workforce to 600 at a Kentucky smelter.

I’m pleased to hear this news but remain skeptical on the long-term impact. The U.S. now faces retaliation from its trading partners, from China to the European Union.

A Recession in the Near Term Doesn’t Look Likely

Despite some of the negativity, I see no cause for alarm with regard to the U.S. economy. The country added a whopping 313,000 jobs in February, the most since July 2016 and the 89th straight month of gains—a new record. Economists had anticipated only 200,000. Earlier, Moody’s chief economist Mark Zandi called the job market “red hot,” adding that with “government spending increases and tax cuts, growth is set to accelerate” even more.

One of the most historically reliable economic indicators currently looks very healthy. The Conference Board Leading Economic Index (LEI) opened 2018 on sure footing, posting a 108.1 in January, up a full percent from the previous month. The reading reflects “an economy with widespread strengths coming from financial conditions, manufacturing, residential construction, and labor markets,” the Conference Board writes.  

According to FactSet, a record number of S&P 500 companies have issued positive earnings per share (EPS) guidance for 2018. The financial data firm classifies positive guidance as an EPS estimate that’s higher than the mean estimate before the guidance was issued. As many as 127 companies shared positive EPS guidance for the year, more than double the 10-year average of 49 companies for the same period. FactSet attributes this optimism to tax reform, an improving global economy and weaker U.S. dollar.

record number of s and p 500 companies issued positive guidance for 2018
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And it’s not just large S&P 500 companies that are feeling confident. January’s Small Business Optimism Index found that a record percentage of small business owners are eager to expand. Thirty-two percent of owners said that “now is a good time to expand,” the highest such reading in the survey’s 45-year history.

Could Fertility Be a Leading Economic Indicator?

On a final note, a new study lends additional credibility to the theory of “wisdom of crowds,” which states that large groups of people are smarter and better at analyzing data than an elite few. In one recent example, I showed you how investors accurately predicted the election of Donald Trump as far back as July 2016.

But could declining fertility rates predict the next recession? A team of researchers from the University of Notre Dame thinks so, and they have some compelling evidence to support their idea.

Granted, there's nothing unique about the idea that birth rates drop during and after economic downturns. Married couples have tended to put off expanding their families when they see friends and neighbors being laid off and a greater number of foreclosed homes in their neighborhoods.

What makes this study worth discussing is that it suggests conceptions, those that result in live births, noticeably begin to drop months before a recession strikes. This pattern, according to the study’s authors, can be observed in recessions beginning in 1990 and 2001, as well as the Great Recession.

united states conception rates began to fall months before a recession
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Above, you can see the percent change in conception rates tumbled sharply sometime before GDP growth began to stall or even reverse course. Conception, then, could be used to anticipate recessions just as well as any other economic indicator.

In fact, conception rates could end up being even more accurate “in situations where employment significantly lags the overall economy, and where conceptions lead the economy,” the authors write.

So how are families able to anticipate and act on economic trends more reliably than professional economists? Again, the wisdom of crowds prevails. Everyday people no doubt sense the tremors before the earthquake by hearing things in their firms and comparing observations with friends and acquaintances. There’s no way to quantify this, of course, but live birth records in the U.S. are readily available.

You might be wondering what the data tells us about the economy’s health in the near term. Sadly, the study makes no mention of this. But in January, the Pew Research Center reported that U.S. fertility rates fell to 62 births per 1,000 women of childbearing age in 2017—a new all-time low.

Before you begin to panic, though, it’s important to know that there are different ways to measure fertility, which could skew the data. Also, the drop in fertility could just be further evidence that young adults are choosing to delay starting a family.

Regardless of the rate, people will continue to have babies, increasing the need for even more raw materials and resources.

Craving even more expert insight on global markets, gold, cryptocurrencies and behavioral finance? Join thousands of other curious investors like you and sign up to receive my award-winning CEO blog, Frank Talk! It's FREE!



All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor. By clicking the link(s) above, you will be directed to a third-party website(s). U.S. Global Investors does not endorse all information supplied by this/these website(s) and is not responsible for its/their content.

The S&P 500 Index is a stock market index that tracks the 500 most widely held stocks on the New York Stock Exchange or NASDAQ.

The Small Business Optimism Index is compiled from a survey that is conducted each month by the National Federation of Independent Business (NFIB) of its members.

The Conference Board Leading Economic Index is an American economic leading indicator intended to forecast future economic activity. It is calculated by The Conference Board, a non-governmental organization, which determines the value of the index from the values of ten key variables.

Holdings may change daily. Holdings are reported as of the most recent quarter-end. None of the securities mentioned in the article were held by any accounts managed by U.S. Global Investors as of 12/31/2017.

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4 Big Reasons Why Short-Term Muni Bonds Should Excite You
March 6, 2018

4 Reasons why short term muni bonds should excite you

Municipal bonds might not be the first thing that comes to mind when you think of a sexy investment. They don’t typically command news headlines like the stock market or bitcoin.

That doesn’t mean investors should disregard short-term munis. In fact, munis play a very important role in any serious portfolio. Below are four big reasons why you should get excited about muni bonds.

1. Tax-free income!

As you might already know, muni bonds are debt instruments used primarily to finance state and local infrastructure projects. When policymakers introduced them in 1913, they wanted to make sure investors were amply incentivized to participate. To that end, the decision was made to reward muni investors with tax-free income at the federal level and, in many cases, at the state and local levels.

For residents of high-tax states such as California, New York, Oregon and others, this feature should be especially appealing.

How high are income tax rates in your state
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Even if you don’t live in one of those states, munis can help you preserve—and therefore compound—more of what you earn. Who doesn’t like getting something for nothing?

2. New tax law has actually boosted demand for munis.

But wait! Doesn’t the recently signed tax overhaul tarnish munis’ allure? Not so fast.

The new law, which went into effect January 1, caps the state and local deductions taxpayers can take at $10,000. That makes municipal bonds even more valuable as a portfolio diversifier, particularly for households with hefty tax bills.

Healthy inflows so far this year suggest demand for munis remains strong. For the week ended February 21, muni bond funds, including mutual funds and ETFs, took in $347 million of net new money, raising overall net inflows for 2018 to $6.8 billion.

Municipal bond funds continue to appeal to investors
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It’s still early in the year, but this puts the muni market on track for the fifth straight year of positive flows since 2013. That year, outflows totaled a record $64.2 billion on rising Treasury yields and the looming bankruptcy proceedings of Detroit and Puerto Rico.

3. Calm in times of rising interest rates.

You might think longer is always better, but in the case of munis, it pays to be short. That’s because short-term munis—those with a duration of around one or two years—are less sensitive to interest rate stimulation than longer-term instruments. (Bond prices fall when rates go up, and vice versa.)

That’s especially relevant now, as we’re in a new rate hike cycle, with at least three increases projected for 2018. Although new Federal Reserve Chair Jerome Powell is not expected to differ much from his predecessor Janet Yellen with regard to monetary policy, no one knows for sure what steps he’ll take if inflation rises too quickly or the U.S. economy begins to overheat.

Below, you can see what might happen to Treasury yields with each successive rate hike. Note that the longer the maturity, the more wildly it changes. Munis could be similarly affected.

Municipal bond funds continue to appeal to investors
click to enlarge

4. Calm in times of market turmoil.

Municipal bonds have been steady growers not just in times of rising interest rates but also during market downturns. In the past 20 years, the stock market has undergone two massive declines, and in both cases, short-term, investment-grade munis—those carrying an A rating or higher—helped investors stanch the losses.

Case in point: In 2008, the S&P 500 Index fell nearly 40 percent, its worst annual performance since 1931. That same year, the Barclays Capital 3-Year Municipal Bond Index gained 5.5 percent.

More recently, munis outperformed the market in 2015 and were the best performing fixed-income asset, beating Treasuries and corporate bonds.

Still not convinced?

Imagine that in 1999 you had invested $100,000 in an S&P 500 fund and the same amount in a short-term muni fund. Because of the tech bubble rout, it would have taken your equity position 14 years to finally catch up with your debt position.

Short term munis vs domestic equities
click to enlarge

The S&P 500 is now further along than munis, based on that initial investment back in 1999, but if another significant correction were to happen, investors might be reassured to know that part of their portfolio was in short-term, high-quality municipal debt.

So again, although municipal bonds might not get the same amount of attention as stocks, cryptocurrencies and other hot assets, they nevertheless can play an indispensable role in a well-structured portfolio. When allocated appropriately, they can help you keep more of what you earn in your pocket, and really there’s nothing sexier than that.

Click here to explore investment opportunities in municipal bonds!


All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor.

The S&P 500 Stock Index is a widely recognized capitalization-weighted index of 500 common stock prices in U.S. companies.

The Barclays Capital 3-Year Municipal Bond Index is a total return benchmark designed for short-term municipal assets. The index includes bonds with a minimum credit rating BAA3, are issued as part of a deal of at least $50 million, have an amount outstanding of at least $5 million and have a maturity of 2 to 4 years.

Diversification does not protect an investor from market risks and does not assure a profit.

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Are Trump's Steel and Aluminum Tariffs Good for America?
March 5, 2018

Gold and the ticking time bomb of debt

President Donald Trump’s proposed tariff on imported steel and aluminum, at 25 percent and 10 percent, is much more than a shot across the bow. Indeed, this could be the official kickoff of the trade war we all anticipated. The protectionist trade policy, announced last week as the president met with metals executives, raised fresh inflation worries and had an immediate impact on capital markets.

As expected, the winners were domestic steelmakers. AK Steel, the only manufacturer in North America that produces carbon, stainless and electrical steels, rose as much as 9.5 percent Thursday.

US steelmakers surged on Trump tariff news
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AK Steel CEO Roger Newport praised Trump’s decision, saying he fully supports “the actions he plans to take to stem the tide of unfairly traded steel imports that threaten the national security of our country.”

Newport wasn’t alone. Drew Wilcox, vice president of steel giant Nucor, called the tariffs “a clear message to foreign competitors that dumping steel products into our market will no longer be tolerated.”

Among the biggest losers from the news were automakers, which account for a little more than a quarter of steel demand in the U.S., according to the American Iron and Steel Institute (AISI). That makes the industry the second-largest consumer following construction. Ford, General Motors and Fiat Chrysler all fell more than 2 percent Thursday, and losses extended into Friday.

Get Ready for Higher Consumer Prices

Foreign trading partners could target American made goods such as bourbon after Trump imposes tariffs on steel and aluminum

To be clear, this is a huge deal, with serious inflationary implications. The U.S. is the world's largest steel importer, so it's very possible we could see retaliation from multiple trading partners on exports ranging from Florida orange juice to Kentucky bourbon to Wisconsin cheese. It's hard to imagine a scenario where this is not passed on to consumers.

Trump was reportedly advised to exempt select allies, but it appears he's chosen a no-exemptions option. Canada, the top supplier of steel and aluminum to the U.S., was spared in 2002 when former President George W. Bush imposed tariffs as high as 30 percent on steel.

When a country (USA) is losing many billions of dollars on trade with virtually every country it does business with, trade wars are good, and easy to win, President Trump tweeted Friday morning.

The country with which the U.S. has the biggest trade deficit is China. In 2017, the deficit stood at $375 billion, which accounts for about 65 percent of the total U.S. trade deficit. The tariff on steel and aluminum should have a negligible impact, however, as the U.S. imports a relatively small percent of those metals from China.

Gold Has Done Well in Times of High Inflation

As I’ve explained numerous times before, one of the most prudent ways investors have positioned their portfolios in times of rising inflation is by adding to their gold exposure.

The chart below, courtesy of the World Gold Council (WGC), shows that annual gold returns were around 15 percent on average in years when inflation was 3 percent or higher year-over-year, between 1970 and 2017. In real, or inflation-adjusted, terms, returns were closer to 8 percent. This is still higher, though, than average returns in years when inflation was lower.

Gold has historically rallied in periods of high inflation
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According to the WGC, "gold returns have outpaced the U.S. consumer price index (CPI) over the long run, due to its many sources of demand. Gold has not just preserved capital, it has helped it grow."

The most recent report from the Bureau of Labor Statistics (BLS) shows that consumer prices rose 2.1 percent year-over-year in January, but as I said earlier, real inflation could be grossly understated. 

To learn more about how gold could be the solution to high inflation, click here!

My Journey Through the Blockchain and Cryptocurrencies

Gold and metals were definitely top of mind last week at BMO Capital Markets Global Metals & Mining Conference, held in sunny Hollywood, Florida. I had the pleasure to be on a panel at the four-day event, which was attended by more than 1,500 curious investors and advisors, representing approximately 500 different organizations from 35 countries.

The panel I was on focused on blockchain technology and cryptocurrencies, which are reshaping how transactions are made and how companies raise funds across the globe. Startups raised more than $1.5 billion in February, the third straight month for initial coin offerings (ICOs) to generate over $1 billion.

ICOs have raised more than 1 billion for past three months
click to enlarge

Last year, $6.5 billion was raised through ICOs, according to Token Report, and it looks as if that amount will be exceeded in just the first few months of 2018. As I wrote back in October, more and more companies are opting to raise funds through ICOs instead of going public to bypass many of the restrictive rules and costs associated with getting listed on an exchange. And unlike with private equity, smaller retail investors can participate, though I must stress that this is a very speculative trade.

The head of the Securities and Exchange Commission (SEC), Jay Clayton, strongly agrees with that last point. In December, he issued a statement explaining why he believes certain ICOs should fall under the jurisdiction of federal securities law and, as such, be filed beforehand.

Up until this point, the agency has taken few actions, but it appears it’s ready to start getting more aggressive against fraud. The Wall Street Journal reported last week that the SEC has issued “dozens” of subpoenas and information requests to cryptocurrency firms and advisors.

You might think this would hurt cryptocurrencies, but the prices of a number of them were up following the news. Bitcoin jumped nearly 6 percent on Thursday, as the token has often been seen as a "safe haven" in the cryptocurrency market.

HIVE Involved in Minting Virgin Coins

As many of you reading this know, U.S. Global Investors made a strategic investment in HIVE Blockchain Technologies in September, and as of today, it remains the only publicly-listed company that’s engaged in the mining of virgin tokens. HIVE and its partner Genesis Mining—the world’s largest cloud bitcoin mining company—are the leading miners and owners of Ether, the “crypto-fuel” for the Ethereum network. None of these assets has been used in any transaction, just as a newly-minted U.S. dollar, hot off the press, has never been used.

I continue to be optimistic about cryptocurrencies and see a very bright future for blockchain technology. The sentiment was similarly good among many of the attendees of last week's conference. It's only just the beginning.

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The Consumer Price Index (CPI) is one of the most widely recognized price measures for tracking the price of a market basket of goods and services purchased by individuals. The weights of components are based on consumer spending patterns.

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Frank Holmes has been appointed non-executive chairman of the Board of Directors ofHIVE Blockchain Technologies. Both Mr. Holmes and U.S. Global Investors own shares of HIVE, directly and indirectly.

Holdings may change daily. Holdings are reported as of the most recent quarter-end. None of the securities mentioned in the article were held by any accounts managed by U.S. Global Investors as of 12/31/2017.

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Net Asset Value
as of 03/19/2018

Global Resources Fund PSPFX $6.05 -0.04 Gold and Precious Metals Fund USERX $7.17 0.41 World Precious Minerals Fund UNWPX $4.30 0.22 China Region Fund USCOX $12.13 -0.14 Emerging Europe Fund EUROX $7.57 -0.06 All American Equity Fund GBTFX $25.24 -0.24 Holmes Macro Trends Fund MEGAX $19.67 -0.19 Near-Term Tax Free Fund NEARX $2.20 No Change U.S. Government Securities Ultra-Short Bond Fund UGSDX $1.99 No Change