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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.

Try Not to Kick Yourself When You See this Fund's One-Year Return...
April 12, 2018

Try not to kick yourself when you see this funds one year return

I’m very pleased to share with you that our Holmes Macro Trends Fund (MEGAX) beat its benchmark, the S&P 1500 Composite Index, for the 12-month period as of March 31. Whereas the benchmark returned 13.73 percent for the period, MEGAX returned an impressive 17.15 percent. We also have very favorable expectations for the fund for the remainder of this year and beyond because of its model that emphasizes returns on invested capital (ROIC) and growing revenues.

Holmes Marco Trends Fund MEGAX beat its benchamrk
click to enlarge

MEGAX seeks to identify strong sectors, and within those sectors, to identify companies that have the greatest potential for growth. We like to lean toward the “growthier” small- and mid-cap components of the broader S&P 1500, which covers about 90 percent of total market capitalization of the U.S. stock market.

An Appetite for Well Managed Companies

Specifically, we focus on companies that have a high ROIC as well as revenues that appear to be growing faster than their peers. We overweight companies whose shares are currently being accumulated by institutional investors and underweight names that, according to our technical overlay, show investor appetite is waning.

Finally, we omit companies that have low margins and low revenue per employee.

Can the energizer rally keep going and going

As an example of how we put our strategy into practice, we added Energizer Holdings last quarter after the company reported strong net earnings in fiscal year 2017. After taxes, the Energizer bunny reported $201.5 million in sales, or an incredible $3.27 per share. That’s up 58 percent from $127.7 million in 2016 and after a net loss of $4 million the previous year. In 2017, gross margin as a percent of net sales was 46.2 percent, an improvement over the 43.6 percent margin in 2016.

The position was well made, as Energizer charged up nearly 25 percent in the first quarter, making it one of the top performing stocks in the mid-cap S&P 400 Index. Can the Energizer rally “keep going and going”? We’ll continue to study the bunny very closely.

Small Business “On Fire”

Our emphasis on smaller-cap, domestic-focused names has worked especially well as concerns over tariffs and global trade have lately hurt a number of shares of large multinationals with high exposure to foreign markets. As I shared with you just this week, small-cap stocks, as measured by the S&P 600 Index, finished positive for both the first quarter of 2018 and the turbulent month of March. They outperformed large-cap S&P 500 Index names as well as mid-cap stocks, represented by the S&P 400 Index. Please note, though, that small-caps, while they have higher returns here, also have a history of higher volatility than large- and mid-caps.

small-caps outperformed large- and mid-caps
click to enlarge

Consider what small business owners themselves are saying. The most recent monthly Index of Small Business Optimism, conducted by the National Federation of Independent Business (NFIB), came in at 107.6, the second-highest reading in the survey’s 45-year history. And 32 percent of small business owners say now is a good time to expand, the highest percentage ever. This optimistic comes in response to corporate tax cuts and the Trump administration’s pledge to roll back regulations.

Interested in learning more? I urge you to visit the Holmes Macro Trends Fund (MEGAX) page today!

 

Please consider carefully a fund’s investment objectives, risks, charges and expenses. For this and other important information, obtain a fund prospectus by visiting www.usfunds.com or by calling 1-800-US-FUNDS (1-800-873-8637). Read it carefully before investing. Foreside Fund Services, LLC, Distributor. U.S. Global Investors is the investment adviser.

Total Annualized Returns as of 3/31/2018:

Fund One-Year Five-Year Ten-Year Gross Expense
Holmes Macro Fund (MEGAX) 17.15% 8.69% 4.20% 1.68%
S&P 1500 Composite Index 13.73% 13.21% 9.68% n/a

Expense ratio as stated in the most recent prospectus. Performance data quoted above is historical. Past performance is no guarantee of future results. Results reflect the reinvestment of dividends and other earnings. For a portion of periods, the fund had expense limitations, without which returns would have been lower. Current performance may be higher or lower than the performance data quoted. The principal value and investment return of an investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. Performance does not include the effect of any direct fees described in the fund’s prospectus which, if applicable, would lower your total returns. Performance quoted for periods of one year or less is cumulative and not annualized. Obtain performance data current to the most recent month-end at www.usfunds.com or 1-800-US-FUNDS.

Stock markets can be volatile and share prices can fluctuate in response to sector-related and other risks as described in the fund prospectus.

The S&P 1500 is a composite index that includes securities that account for 90% of the total market capitalization of the United States' stocks. The index includes small, mid and large cap stocks. The S&P 500 measures the value of stocks of the 500 largest corporations by market capitalization listed on the New York Stock Exchange or Nasdaq Composite. Standard & Poor's intention is to have a price that provides a quick look at the stock market and economy. The S&P Mid-Cap 400 Index tracks a diverse basket of medium-sized U.S. firms. A mid-cap stock is broadly defined as a company with a market capitalization ranging from about $2 billion to $10 billion. The S&P Small-Cap 600 Index consists of 600 small-cap stocks. A small-cap company is generally defined as a stock with a market capitalization between $300 million and $2 billion.

You cannot invest directly in an index.

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.

Return on invested capital (ROIC) is a calculation used to assess a company's efficiency at allocating the capital under its control to profitable investments. Return on invested capital gives a sense of how well a company is using its money to generate returns.

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

Fund portfolios are actively managed, and holdings may change daily. Holdings are reported as of the most recent quarter-end. Holdings in the Holmes Macro Trends Fund (MEGAX) as a percentage of net assets as of 3/31/2018: Energizer Holdings Inc. 2.47%.

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Seeking an Antidote to Global Trade Jitters? Check Out These Buying Opportunities!
April 9, 2018

american energy dominance

After being mostly absent in 2017, volatility has made a comeback. The S&P 500 Index closed down for the first three months of 2018—the first time it’s done so in 10 quarters. It also had its worst start to April since 1929. Gold performed as expected during the quarter, serving as a safe haven and delivering positive returns, while the price of oil surged more than 5 percent on U.S. dollar weakness and news that OPEC and Russia could be cooperating to limit output for a long period.

Oil and gold Led the pack in the first quarter
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Before continuing, I think it’s important for investors to remember that each asset class has its own DNA of volatility. For the 10-year period as of April 4, the 60-day, or quarterly, standard deviation for the S&P 500 was ±8 percent. What this means is that, even though the S&P was down 1.22 percent in the first quarter, the decline was well within its expected range of one standard deviation, which occurs roughly 68 percent of the time.

The same can be said for oil and gold. For the same time period, oil had a standard deviation of about ±20 percent, while gold bullion’s is right in line with the S&P: ±8 percent. That all of these assets stayed within one standard deviation for the 60-day trading period makes their performance a non-event. It’s when they exceed two standard deviations that investors might want to consider a trade, as the asset could be ready to revert back to its mean.

To learn more about standard deviations and other technical issues, download my whitepaper, “Managing Expectation: Anticipate Before You Participate in the Market.”

 Look Past the Short-Term Noise

Much of the recent selloff has been related either to fears over a potential trade war with China, the world’s second-largest economy, or expectations that tech stocks—most notably Facebook and Amazon—could face additional regulatory scrutiny.

Although U.S. tariffs on Chinese imports, and China’s proposed taxes on American goods, have not been imposed yet, markets are already beginning to price in the news. Shares of Boeing, the largest U.S. exporter by value, have dropped more than 8 percent since their high on February 27, following announced U.S. tariffs on imported steel and aluminum and China’s plan to levy as much as 25 percent on American-made aircraft. Aircrafts, by the way, are hands-down the United States’ most valuable export, followed by gasoline.

Big-Cap American Stocks Face Trade and Tweet Risk
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Meanwhile, Trump’s criticism of Amazon’s shipping deal with the U.S. Postal Service, not to mention the media’s negative coverage of Facebook’s relationship with British political consulting firm Cambridge Analytica, weighed especially hard on tech stocks.

(This is nothing new, though. To educate investors on how quants comb through social media and use sentiment analysis to make their trades, I like to show this video featuring the Trump and Dump Bot, which you can watch here.)

To be clear, I believe this is all short-term noise—even after Trump suggested adding tariffs on an additional $100 billion of Chinese goods Friday to combat the effects of alleged intellectual property theft. A trade war could be a concern sometime down the road, but I’m confident U.S. and Chinese officials can work together to avert a full-blown tit-for-tat standoff.

But if this risk is too great at the moment, an attractive place to be could be in domestic-focused, small- and mid-cap stocks, which have limited exposure to international trade compared to their large-cap siblings. They therefore could see little impact from any imposed tariffs.

Small-Cap Stocks, Big-League Growth

For the first quarter of 2018 and for the month of March, small-cap domestic stocks, as measured by the S&P 600 Index, ended with a positive gain. The S&P 400 Index, composed of mid-cap stocks, did slightly less better in March and gave up more than 1 percent in the first quarter.

small-caps outperformed large- and mid-caps
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Both groups fared better than the 500 largest U.S. companies, which were hit by international trade jitters. S&P 500 firms, after all, derive about half of their profits from overseas markets.

If you recall, small-caps skyrocketed  in the days immediately following the 2016 presidential election as investors anticipated the implementation of “America first” policies—deep corporate tax cuts, deregulation, tariffs on imported goods—that would greatly favor inward-facing companies.

Investors are making a similar bet today.

That’s not to say investors should rotate completely out of blue-chip stocks. Earnings per share (EPS) for S&P 500 companies are expected to come in very strong in the first quarter, according to FactSet data. However, it might be prudent to consider increasing your exposure to smaller firms with less dependence on trade with China and other countries.

Consider what small business owners themselves are saying. The most recent monthly Index of Small Business Optimism, conducted by the National Federation of Independent Business (NFIB), came in at 107.6, the second-highest reading in the survey’s 45-year history. And 32 percent of small business owners say now is a good time to expand, the highest percentage ever. This prompted NFIB economists William Dunkelberg and Holly Wade to write: “After years of small businesses sitting on the sidelines and not benefiting from the so-called recovery, Main Street is again on fire.”

Interested in learning how you can diversify with mid- and small-cap stocks? Click here!

Hedge Funds Are Jumping Back into Gold—What About You?

At the same time, there are some early warning signs of potential economic turbulence on the horizon. I would highly urge investors to ensure a portion of their portfolio is in a historically reliable store of value—investment-grade municipal bonds, for instance, and gold bullion and gold mining stocks.

One of the indicators some economists have their eye on right now is what’s known as the flattening yield curve—or the difference between long-term and short-term Treasury yields. When the latter exceeds the former, the yield curve is said to invert, and in the past this has often preceded an economic slowdown.

Recently, the difference between the 10-year and two-year T-note dropped below 50 basis points for the first time since October 2007. And with interest rates expected to be hiked three or four times this year, the yield curve could very well flatten even further.

Will this time be different?
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It could be for this reason, among others, that we’ve seen a huge jump in hedge funds betting on gold. According to Kitco News, citing Commodity Futures Trading Commission (CFTC) data, money managers increased their speculative long positions in gold futures by 34,928 contracts to a total of 183,080 for the week ended March 27. This represents the most significant jump in bullish sentiment in two years.

Investors’ attention is “back on gold,” George Gero, managing director with RBC Wealth Management, told Kitco. He added: “The gold market has solid geopolitical underpinnings.”

 

 

 

Standard deviation is a measure of the dispersion of a set of data from its mean. The more spread apart the data, the higher the deviation. Standard deviation is also known as historical volatility.

A basis point, or bp, is a common unit of measure for interest rates and other percentages in finance. One basis point is equal to 1/100th of 1%, or 0.01% (0.0001).

The U.S. dollar index (USDX) is a measure of the value of the U.S. dollar relative to the value of a basket of currencies of the majority of the U.S.'s most significant trading partners.  The Bloomberg Commodity Index is a broadly diversified index that tracks the commodities markets through commodity futures contracts.

The S&P 500 measures the value of stocks of the 500 largest corporations by market capitalization listed on the New York Stock Exchange or Nasdaq Composite. Standard & Poor's intention is to have a price that provides a quick look at the stock market and economy. The S&P Mid-Cap 400 Index tracks a diverse basket of medium-sized U.S. firms. A mid-cap stock is broadly defined as a company with a market capitalization ranging from about $2 billion to $10 billion. The S&P Small- Cap 600 Index consists of 600 small-cap stocks. A small-cap company is generally defined as a stock with a market capitalization between $300 million and $2 billion.

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.

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.

Holdings may change daily. Holdings are reported as of the most recent quarter-end. The following securities mentioned in the article were held by one or more accounts managed by U.S. Global Investors as of 12/31/2017: The Boeing Co.

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The 6 Fastest Growing Countries in Emerging Europe
April 3, 2018

american energy dominance

With volatility returning to domestic equities, it might be time for investors to consider increasing their exposure to foreign markets, specifically emerging Europe. As I shared with you in January, emerging Europe countries, as measured by the MSCI EM Europe 10/40 Index, finished last year up more than 20 percent, and so far in 2018, they’ve returned 1.17 percent, compared to the S&P 500 Index, which is down more than 3 percent.

One of our favorite ways to measure growth, whether on a macro scale or in individual markets, is by using the manufacturing purchasing manager’s index (PMI). Whereas gross domestic product (GDP) is backward-looking, PMI is a forward-looking economic indicator. We’ve found that it can forecast productivity and manufacturing activity three and six months out with a satisfactory level of accuracy.

With that in mind, I’d like to share with you the top six fastest-growing countries in emerging Europe, based on their just-released manufacturing PMIs for the month of March. Each market’s reading is currently above 50, indicating expansion, which is very good news indeed for the group as a whole. The higher the number, the faster the expansion.

We’ll start with the country with the lowest PMI in the group and work our way up.

Rank Country March PMI February PMI Percent Change
#6 Russia 50.6 50.2 0.8%

 

US net energy imports in 2017 fell to lowest levels since 1982
click to enlarge

Russia’s manufacturing sector improved a shade better in March compared to February, when it came close to giving up all momentum for the first time since August 2016. Geopolitical headwinds now threaten continued expansion, including additional international sanctions and rising tensions between the country and North Atlantic Treaty Organization (NATO) ally nations. At the same time, BCA Research recently took a positive view of Russia, saying the country’s conservative fiscal policy has allowed expenditures to grow only slightly since the oil crash in 2014. Overall spending has fallen considerably, improving the deficit.

Rank Country March PMI February PMI Percent Change
#5 Turkey 51.8 55.6 -6.8%

 

US now the number two oil producer expected to overtake russia by 2019
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Turkey isn’t just one of the fastest growing economies in Central and Eastern Europe (CEE)—it’s among the fastest in the world. Last year it defied skeptics by growing its GDP an estimated 7.3 percent year-over-year, more than China and India, thanks to a surge in household and government spending. Although the country’s March PMI came in lower than expected, its rate of growth is still above the historical trend, supported by greater volumes of new orders and rising output.

Rank Country March PMI February PMI Percent Change
#4 Poland 53.7 53.7 0%

 

big oil is generating as much profit at 60 dollar oil as it was at 100 dollar
click to enlarge

Poland is one of the world economy’s great success stories right now. A communist nation as recently as 1989, Poland has since transformed itself into one of the fastest growing free-market economies in the euro area. This September, in fact, the Eastern European country will officially be upgraded from the “advanced emerging” category to “developed” by FTSE Russell, placing it in the same company as other high-income nations such as the U.S., U.K., Japan, Germany, and others. In March, Poland’s PMI came in at a healthy 53.7, unchanged from its February reading. The manufacturing sector has now expanded for 42 straight months, a record since the series began in June 1998.

Rank Country March PMI February PMI Percent Change
#3 Greece 55 56.1 -1.9%

 

chinese huan has a long way to go as a reserve currency
click to enlarge

After nearly a decade of debt woes and government mismanagement, it finally looks as though Greece is catching a break, thanks in large part to massive amounts of foreign investment. Unemployment is falling rapidly, GDP growth has been positive for the past four quarters and its manufacturing sector is in expansion mode. The PMI for the Mediterranean country posted an incredible 55 in March, with business confidence and employment growth both hitting record series highs.

Rank Country March PMI February PMI Percent Change
#2 Hungary 57 57.4 -0.7%

 

chinese huan has a long way to go as a reserve currency
click to enlarge

Believe it or not, Hungary’s economy could be the crown jewel among CEE nations in 2018. According to Italian investment bank UniCredit, Hungary could potentially grow its GDP 4.5 percent this year on fast net wage growth and deleveraging, which is expected to support consumption and private investment. As for its manufacturing sector, the PMI reading for March came in at 57, down a hair from its February reading of 57.4. That leads us to the fastest growing CEE nation…

Rank Country March PMI February PMI Percent Change
#1 Czech Republic 57.3 58.8 -2.5%

 

chinese huan has a long way to go as a reserve currency
click to enlarge

Having posted a 57.3 PMI reading in March, the Czech Republic is currently the fastest growing nation in Central and Eastern Europe. Although the overall PMI slipped from 58.8 in February, the country is benefiting from sharp improvements in operating conditions across the value chain, including new orders and output. What’s more, growth is projected to improve even more over the next 12 months. In his monthly commentary, IHS Markit economist Sian Jones says that Czech business owners are “largely optimistic in regard to the year-ahead outlook, with over half of survey respondents expecting a rise in output.”

Interested in learning more? Watch this brief video on how you can take advantage of investment opportunities in emerging Europe!

 

The MSCI Emerging Markets (EM) Europe 10/40 Index is designed to measure the performance of the large and mid-cap representation across 6 Emerging Markets (EM) countries in Europe. The MSCI 10/40 equity indexes are designed and maintained on a daily basis to take into consideration the 10% and 40% concentration constraints on funds subject to the UCITS III Directive. With 86 constituents, the index covers approximately 85% of the free float-adjusted market capitalization in each country. The S&P 500 Index is a diverse index that includes 500 American companies that represent over 70% of the total market capitalization of the U.S. stock market.

The Purchasing Manager’s Index is an indicator of the economic health of the manufacturing sector. The PMI index is based on five major indicators: new orders, inventory levels, production, supplier deliveries and the employment environment.

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

 

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U.S. Energy Is Breaking All Kinds of Records — Are You Participating?
April 2, 2018

american energy dominance

If you recall, during the second presidential debate in October 2016, Hillary Clinton falsely claimed that the U.S. is “now, for the first time ever, energy independent.” Many were quick to point out the inaccuracies. For one, the U.S. has been a net energy exporter before, most recently in the 1950s. And two, America isn’t currently energy independent.

But that could change very soon. As I told you in February, the Energy Information Administration (EIA) estimates the U.S. will become a net exporter of energy by as early as 2022, and the agency recently shared fresh data that supports the narrative that America is on the cusp of taking the throne as the world’s leading energy powerhouse.

The Quest for American Energy Dominance

According to the EIA, U.S. net energy imports in 2017 fell to their lowest levels since 1982. From its high in 2007 of 34.7 quadrillion British thermal units (Btu), the difference between exports and imports has fallen steadily to 7.32 Btu, slightly above the 7.25 Btu in 1982.

US net energy imports in 2017 fell to lowest levels since 1982
click to enlarge

The decline last year was mainly due to record exports of crude oil and petroleum products, made possible since Congress lifted the U.S. oil export ban in December 2015.

And for the first time since 1957, the U.S. exported more liquefied natural gas (LNG) than it imported. Between 2016 and 2017, natural gas exports quadrupled from 0.5 billion cubic feet per day (Bcf/d) to 1.94 Bcf/d. The EIA attributes this acceleration to the expansion of export facilities in Louisiana and Maryland, with six additional ones currently under construction, according to Energy Secretary Rick Perry. As a result, the International Energy Agency (IEA) projects the U.S. will become the world’s leading LNG exporter by the mid-2020s.

All of this follows news that the U.S. is now the world’s number two crude oil producer. Late last year, U.S. output exceeded 10 million barrels a day for the first time since 1970, thanks largely to the surge in fracking and horizontal drilling activity. This helped push the country ahead of OPEC leader Saudi Arabia, and, by 2019, it could surpass Russia to become the largest producer in the world.

US now the number two oil producer expected to overtake russia by 2019
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Oil Majors Reward Shareholders

Some resource investors might worry that all this extra supply could depress prices and hurt profits. That’s a valid concern, but it’s worth pointing out that since its recent low of $26 a barrel in February 2016, the oil price has surged nearly 150 percent—all while the number of active wells in North America has risen.

It doesn’t hurt, of course, that demand for petroleum products is just as strong as it’s ever been right now. According to the latest monthly report from the American Petroleum Institute (API), U.S. demand in February reached its highest level since 2007. This was only the third February ever, in fact, that gasoline demand exceeded 9 million barrels a day, reflecting strenthening consumer sentiment and economic growth.    

And as I shared with you last month, major explorers and producers’s profits are now in line with what they were when oil was trading for $100 a barrel and more.

big oil is generating as much profit at 60 dollar oil as it was at 100 dollar
click to enlarge

According to Bloomberg, the majors are now “prioritizing investors over investments, channeling the extra cash that comes from $60 crude into share buybacks and higher dividends.”

I should add that, besides offering better opportunities for investors, energy independence helps make the U.S., its allies and, indeed, the whole world more secure.

Learn more about investment opportunities in oil and other natural resources by clicking here!

China Launches Oil Futures Contract, OPEC and Russia Enter Historic Pact

Other important developments are happening around the world right now that are already disrupting the global energy space.

The most notable is that China last Monday launched its own crude oil futures contract. Priced in yuan and traded on the Shanghai International Energy Exchange, it’s the first such Asian benchmark for oil deals.

How the stars could be aligned for 1500 gold

As the world’s largest consumer of crude, China seeks to gain some pricing power in the trillions of dollars of oil that are traded every year around the world. Back in April 2016, the country introduced its own yuan-denominated fix price for gold—which it also consumes more of than any other country. The Shanghai oil futures contract is similarly designed to wrest some control over pricing from the main benchmarks in New York and London—West Texas Intermediate (WTI) and Brent—and to promote the use of the yuan, also known as the renminbi.

Raising the yuan’s profile and transforming it into a leading global currency has been among Chinese president Xi Jinping’s key endeavors. He scored a big win in 2015, if you recall, when the International Monetary Fund (IMF) agreed to include it in its basket of reserve currencies, placing the yuan in the same league as the U.S. dollar, British pound, Japanese yen and euro.

But as you can see below, the yuan has a long way to go in its quest to challenge other currencies. As of last year, the U.S. dollar accounted for 63.5 percent of countries’ allocated reserve currencies, compared to the yuan, which had only a 1.12 percent share. Shanghai oil futures could possibly help improve that allocation.

chinese huan has a long way to go as a reserve currency
click to enlarge

The contract opened strong last Monday but has since fallen below WTI prices as speculators placed a series of bearish bets.

Click here to learn more about China and surrounding markets!

In other news, OPEC and Russia are reportedly hashing out the details on a historic alliance that would extend oil production curbs for a number of years, according to a Reuters exclusive. Saudi Arabia’s crown prince, Mohammed bin Salman, told the agency that Riyadh and Moscow were “working to shift from a year-to-year agreement to a 10- to 20-year agreement.”

Although not a member of the Organization of Petroleum Exporting Countries, Russia has often worked alongside the cartel to limit production in an effort to boost prices. A 10- to 20-year deal, however, would be unprecedented.

Oil price weakness has hurt both Russia and Saudi Arabia, as crude exports account for an oversize percentage of their total revenue. And as I’ve shared with you before, Saudi Arabia also seeks higher prices to support a possible initial public offering (IPO) this year of Saudi Aramco, the largest energy company in the world by far.

Looking for more insight on the global energy sector? Subscribe to our award-winning Investor Alert newsletter, delivered every Friday after the markets close!

 

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.

There is no guarantee that the issuers of any securities will declare dividends in the future or that, if declared, will remain at current levels or increase over time.

Holdings may change daily. Holdings are reported as of the most recent quarter-end. The following securities mentioned in the article were held by one or more accounts managed by U.S. Global Investors as of 12/31/2017: Royal Dutch Shell PLC, Chevron Corp., Exxon Mobil Corp.

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Looking Ahead to $20,000 Bitcoin
March 27, 2018

will bitcoin price follow its previous trajectory?

In last week’s Investor Alert, our investment team shared with you a report from Morgan Stanley that says bitcoin’s price decline since December mimics the Nasdaq tech bubble in the late 1990s. This isn’t earth-shattering news in and of itself. The main difference is that the bitcoin rout happened at 15 times the rate as the tech bubble.

Morgan Stanley has some good news for bitcoin bulls, however: The 70 percent decline is “nothing out of the ordinary,” and what’s more, such corrections “have historically preceded rallies.” Just as the Nasdaq gained back much of what it lost in the subsequent years—before the financial crisis pared losses even further—bitcoin could similarly be ready to stage a strong recovery.

Is Bitcoin pain almost finished
click to enlarge

One research firm, in fact, believes bitcoin and other digital coins, or “alt-coins,” have likely found a bottom. New York-based Fundstrat, headed by strategist Thomas Lee, issued a statement to investors last week saying that, though a cryptocurrency bull market isn’t necessarily underway, the worst of the pain could be “largely over.”

Fundstrat research shows that periods of cryptocurrency consolidation, or “purgation,” generally last 70 to 231 days. Bitcoin hit its all-time high in mid-December, almost 70 days ago as of March 26. Taking into consideration Fundstrat’s estimates, then, it’s possible the bear market could conclude sometime between now and early August.  

In the meantime, Lee writes, alt-coin investors should stick with larger-cap cryptocurrencies such as bitcoin, Ethereum and Ripple.

Take the Long-Term View

It’s helpful to compare bitcoin with Nasdaq, as Morgan Stanley did, but what about comparing the current cycle with one from the past?

In June 2011, bitcoin peaked at nearly $30 and found a bottom of $2.02 five months later, in November. It would be an additional 15 months before it returned to its former high. This might seem like a long time to some, but investors who managed to get in at the bottom would have seen their position grow more than 1,300 percent.

will bitcoin price follow its previous trajectory?
click to enlarge

So can bitcoin do the same today? Obviously no one can say for sure, but what I can say with certainty is that bitcoin, like all digital coins, is highly volatile. Plus, there’s not quite 10 years’ worth of data, meaning it’s been difficult to identify trends.

Cryptocurrencies are also currently facing tougher oversight from several world governments and central banks, not to mention Facebook and Twitter’s bans on ads promoting them—obstacles they didn’t have to contend with back in 2011 and 2012.

But I remain bullish. Cryptocurrencies are still in their very early stages. To return to the comparison with tech stocks, we don’t know at this point which digital coins will be tomorrow’s equivalent of Amazon, Google, Apple and Facebook. A long-term view is key.

Finally, I still believe in the power of Metcalfe’s law, which says that as more and more people adopt a new technology—cell phones, for instance, or Facebook—its value goes up geometrically. A poll conducted in February shows that just under 8 percent of American adults report ever owning or purchasing any cryptocurrencies. Market penetration, then, hasn’t been as pervasive as some might expect, but as people increasingly become more confident in dipping their toes in the space, demand could rise and, with it, prices.

 

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 Nasdaq Composite Index is the market capitalization-weighted index of approximately 3,000 common equities listed on the Nasdaq stock exchange.

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 05/18/2018

Global Resources Fund PSPFX $6.18 -0.06 Gold and Precious Metals Fund USERX $7.59 No Change World Precious Minerals Fund UNWPX $4.17 No Change China Region Fund USCOX $11.60 -0.01 Emerging Europe Fund EUROX $7.04 -0.05 All American Equity Fund GBTFX $25.44 -0.01 Holmes Macro Trends Fund MEGAX $19.52 No Change Near-Term Tax Free Fund NEARX $2.19 No Change U.S. Government Securities Ultra-Short Bond Fund UGSDX $1.99 No Change