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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.

Coming Housing Boom Could Mean It's Time to Add Raw Materials
December 20, 2017

Another housing boom

In its November report, mortgage security firm Freddie Mac called 2017 the “best year in a decade” for the housing market by a variety of measures. These include low inflation, strong job growth and historically-low mortgage rates. This assessment is very encouraging, not just for homebuyers and builders and the U.S. economy in general, but also for commodities, resources and raw materials as we head into 2018.

Although past performance is no guarantee of future results, it’s still instructive to look back at how materials performed the last time the U.S. was ramping up housing starts and mortgages. The last housing boom, which peaked in 2006, was accompanied by elevated commodity prices. We could see a return to these valuations over the next couple of years on higher demand, a stronger macroeconomic backdrop and cyclical fundamentals, as shown in the following chart courtesy of DoubleLine Capital:

equities versus commodities
click here to enlarge

Speaking on CNBC’s “Halftime Report” last week, DoubleLine founder Jeffrey Gundlach said he thought "investors should add commodities to their portfolios” for 2018, pointing out that they are just as cheap relative to stocks as they were at historical turning points.

“We’re at that level where in the past you would have wanted commodities” in your portfolio, Gundlach said. “The repetition of this is almost eerie. And so if you look at that chart, the value in commodities is, historically, exactly where you want it to be a buy.”

A Wealth of Positive Housing Data

There’s more to support the commodities narrative than cyclicality. 

For one, home builders right now are more confident of the future than they’ve been in over 18 years. December’s National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) soared to 74, eight points up from the November reading and its highest report since July 1999.

US home builder confidence soared to 18 year high in december
click here to enlarge

NAHB Chairman Granger MacDonald chalks up the incredible improvement in optimism to “new policies aimed at providing regulatory relief to the business community.” Other contributing factors include low unemployment rates, favorable demographics and a tight supply of existing home inventory.

In addition, new housing starts in November rose to a seasonally adjusted annual rate of 1.3 million, up 3.3 percent from October and a strong 12.9 percent from a year ago.

This is all very constructive (no pun intended), as the market is still trying to recover nearly a decade following the subprime mortgage crisis.

Millennials, the Largest U.S. Generation, Finally Entering the Market

We’ve seen booms and busts in new housing starts over the past several decades, but homeownership rates in the U.S. took a huge blow as a result of the Great Recession. The rate dipped to a 51-year low of 62.9 percent in the second quarter of 2016, indicating buyers, especially first-time millennial buyers, are still struggling to save up for down payments.

a decade after the financial crisis US housing market still in recovery mode
click here to enlarge

Economists with the National Association of Realtors (NAR) note that student debt has played a massive role in delaying homeownership for young people, by as many as seven years on average. When asked how student loan debt has impacted their life decisions, more than seven in 10 millennials (those born roughly between 1980 and 1998) ranked “purchasing a home” as the most affected decision, followed by “taking a vacation.”

Since reaching its low last year, however, the homeownership rate has steadily improved, ending at 63.9 percent in the second quarter of 2017, a three-year high. This leads me to believe that the worst is behind us and that as the economy and labor market continue to improve, so too will demand for new homes. I also have high hopes that the tax cuts President Donald Trump signed into law today will encourage even more millennials, who have until now been sidelined, to join their older cohorts in owning a home.

Time to Add Commodities?

Indeed, all of the conditions appear ripe for another housing boom. Economic growth is on the upswing. The country is at near-full employment. Inflation and 30-year mortgage rates are also historically low.

When we factor in residential fixed investment and housing services, housing as a whole contributes between 15 and 18 percent to national gross domestic product (GDP). That’s a huge slice of the pie. And as I’ve pointed out before, housing has an extremely high multiplier effect. For every home that’s built, 2.97 full-time jobs and $162,080 in wages and salaries are created, according to a 2014 estimate by the NAHB. 

Beyond that, increased home demand is good news for resources and raw materials. According to home-construction services firm Happho, for every 1,000 square feet of new housing, nearly 8,820 pounds of steel are required, as well as 400 bags of cement, 1,800 cubic feet of sand and 1,350 cubic feet of gravel and other aggregate. This doesn’t begin to touch on finishers such as brick, paint and tiles, or fittings such as windows, doors, plumbing and electrical. You can see the full infographic by clicking here.

Interested in learning how you can participate in the growing housing market? Unsure how to gain exposure to raw materials and commodities?


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 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.

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 500large 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 NAHB/Wells Fargo Housing Market Index gauges builder perceptions of current single-family home sales and sales expectations for the next six months as “good,” “fair” or “poor.” The survey also asks builders to rate traffic of prospective buyers as “high to very high,” “average” or “low to very low.” Scores for each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view conditions as good than poor.

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5 Big Questions for 2018
December 18, 2017

bitcoin accepted everywhere

Today marks the seventh day of Hanukkah, and in only seven days, many families across the world will be celebrating Christmas. Not only is it the season of giving, but it’s also time to reflect back on the past 12 months and look ahead to 2018.

Below are five questions to help guide your thinking when making investment decisions in the new year.  

1. Will stocks follow the historical presidential cycle?

U.S. presidential cycles and stocks click to enlarge

Next month marks President Donald Trump’s first year in office and the beginning of his second. How have markets responded to his pro-growth policies, including pledges to lower taxes and slash regulations?

The answer: Overwhelmingly. As of my writing this, the S&P 500 Index is up 19 percent year-to-date, far outperforming the historical returns we’ve seen in the first year of a president’s four-year term.

In the second year, returns have traditionally been lower than the first. From 1928 to 2016, such years produced average market gains of just above 4 percent, making it the weakest year.

The reason for lower returns in the first two years, according to CLSA analysts this week, could be that “an administration looks to put as much bad news and painful actions into the first two years to form a good bias for getting reelected or paving the way for the predecessor of its own party.” Recall that President Bill Clinton didn’t hesitate to hike taxes after getting elected—he signed the Omnibus Budget Reconciliation Act just eight months into his first term.

But Trump has taken a different strategy. As CLSA puts it, “all the good news is being front loaded in the first half of this presidential cycle.” Right out of the gate, Trump placed major executive and legislative agenda items on the docket, from an Obamacare repeal to deregulation to sweeping tax cuts.

Not all of these efforts have borne fruit, of course. Even last week, his tax overhaul appeared to be imperiled after serious concerns were raised by moderate Republican senators such as Marco Rubio, Bob Corker and Jeff Flake.

I remain optimistic, though, and I see no reason at the moment to think that 2018 won’t be an encore of 2017. We’re nine years into the current equities bull market, the second-longest in U.S. history, but there could still be plenty of “gas in the tank,” according to a Bank of America Merrill Lynch report this week.

So with only a month remaining to Trump’s first term, it’s important to remember the words of Warren Buffett a day before the president was sworn in. Even though Buffett backed Hillary Clinton in the election, he said that “America works and I think it’ll work fine under Donald Trump.”

2. Will S&P 500 Index companies continue to post record-level earnings per share (EPS) in 2018?

s and p 500 index could report record-level earnings per share in 2018
click to enlarge

Earnings per share (EPS) growth is one of the most reliable and closely monitored indicators of market health. It’s one of the key metrics we use to find the most growth-driven and profitable companies.

As my good friend Alex Green said in an interview back in August, “if you look back through history, you’d be hard-pressed to find a single example of a company that increased its earnings, quarter over quarter, year after year, and not see its stock tag along.”

Except for a slight dip from 2014 to 2015, when EPS for the S&P 500 Index fell from $119.70 to $117.55, earnings have been rising steadily since 2009.

As of today, EPS for 2017 stands at $133.73, a new record and up nearly 13 percent from last year.

Next year we could see them climb even higher, if estimates prove to be accurate. In a report last week, FactSet analysts predict EPS by year-end in 2018 to reach $143.17, a 7 percent increase from 2017.

In other words, the American stock market is poised to continue its record-setting bull run in 2018.


3. Can small and mid-size businesses get any more pumped than they are now?

u.s. small cap stocks head higher as optimism hit a near record high in november
click to enlarge

The short answer here is: Yes, they can—but not by much before a new all-time record is reached.

For the past 44 years, the National Federation of Independent Business (NFIB) has taken a monthly survey to measure the optimism of small-business owners, and in November, the index climbed to a skyscraping 107.5. That’s the second-highest reading ever, after the index hit 108.0 way back in July 1983 on the hopes of additional Reagan tax cuts.

If we drill down into the various index components, we find that owners are most optimistic about the next three months, with 27 percent saying it will be a “good time to expand,” up from only 11 percent one year ago. They’re ready to unleash capital, buy new equipment and increase labor.

In their monthly commentary, NFIB economists William Dunkelberg and Holly Wade wrote: “There is still much uncertainty about health care and taxes, but it appears that [small-business] owners believe that whatever Congress finally comes up with will be an improvement and so they remain positive.”

That positivity is shared by small-cap stock investors, who’ve driven up the Russell 2000 Index more than 12 percent since the beginning of the year.


4. What will drive gold prices higher?

U.S. dollar forecast to complete a seven year cycle in 2018 click to enlarge

As of Friday, gold was up more than 9 percent for the year. If it stays at its current price level, gold will log its best year since 2011, when it returned 10 percent.

The yellow metal has faced a number of significant headwinds in 2017, including surging equity markets around the world and rate hikes by the Federal Reserve. Under the circumstances, I would describe its performance as highly respectable.

Potential tailwinds in 2018 could help the yellow metal crack the $1,300 level and head higher.

That includes a weaker U.S. dollar. CLSA analysts this week noted that the dollar has traditionally risen in seven-year cycles. Between 1978 and 1985, it gained 68 percent; between 1995 and 2000, 41 percent. The current bull market so far has seen the dollar rise 35 percent, which has been a challenge for gold, commodities and U.S. exports.

That might be set to change in 2018, when we could see a completion of the seven-year cycle. As CLSA writes, “our tactics through 2018 would be to sell U.S. dollar strength in anticipation of break below 91-92 support.”

Other possible tailwinds include geopolitical risks, negative real interest rates across the globe, continually expanding global debt and overvalued equities.

On Monday, the North Atlantic Treaty Organization (NATO) raised concerns that Russia has developed a ground-launched cruise missile system that might violate a 1987 Cold War pact banning such weapons. It’s believed the missile system would be able to strike Europe on very short notice. Meanwhile, the U.S. State Department is working around the clock to dissuade North Korea from continuing its nuclear weapons program. As a store of value, gold has historically performed well in such uncertain times.

Meanwhile, two-year government bond yields in a number of European countries—the Netherlands, Germany, Austria, Belgium, France, Spain and more—are below zero. As I’ve explained many times before, negative real rates have traditionally been constructive for gold in that particular country’s currency.

Finally, there’s some concern that too much money is flowing into equities right now. According to Bloomberg, the total market cap for world equities is now just a “whisker” away from hitting $100 trillion—a monumental sum, to be sure. Should there be a correction, the investment case for gold and precious metals will become stronger than ever.


5. Can anything stop bitcoin?

Bitcoin trading thrives wherever regulators crack down most
click to enlarge

Bitcoin made some people a whole lot of money this year. One year ago today, the cryptocurrency was trading in the $770 to $780 range. On Friday, it briefly broke above $18,000. That’s a phenomenal return of 2,200 percent. The total market cap of all cryptocurrencies has already crossed above $500 billion and is well on its way to $1 trillion.

So is there anything that could stop its progress?

The most obvious answer might be regulations, but remember, bitcoin made these unexpected gains even as several countries clamped down on the digital currency. Venezuela, which will introduce its own government-sanctioned cryptocurrency, is scheduled to begin regulating bitcoin, but as the bolivar loses more and more of its value, residents have had to rely on bitcoin to survive.

It’s not surprising at all to see that bitcoin has undergone the greatest surge in peer-to-peer trading in countries that have imposed some of the most stringent regulations on cryptocurrencies. This is a currency, after all, that does not require any third-party involvement to trade. It’s able to bypass governments, central banks and borders with ease.

As I said last week, this is precisely why bitcoin is appealing to many investors. And according to Metcalfe’s law, more investors could mean higher ask prices.

Bitcoin might be very appealing right now, but it’s important to keep in mind that this has been a very volatile market. If I didn’t readily have the money to buy bitcoin, I wouldn’t go into debt and certainly wouldn’t mortgage my house to get my hands on it, as some people are reportedly doing.


I wish you all a Happy Hanukkah and Merry Christmas!



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 Stock Index is a widely recognized capitalization-weighted index of 500 common stock prices in U.S. companies. The Russell 2000 Index is a small-cap stock market index of the bottom 2,000 stocks in the Russell 3000 Index. The index is maintained by FTSE Russell, a subsidiary of the London Stock Exchange Group.

The U.S. Dollar Index (USDX, DXY) is an index (or measure) of the value of the United States dollar relative to a basket of foreign currencies, often referred to as a basket of U.S. trade partners' currencies.

The NFIB Small Business Economic Trends is an index derived from 10 components, with 1986=100. The index is seasonally adjusted for variations within the year. Monthly surveys are derived from a large sample of respondents drawn from the membership files of the NFIB. The NFIB survey provides an early health check on small businesses, which are critical to the economy. Small businesses account for about half of the nation's private workforce.

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Visit the Top Blockchain and Cryptocurrency Power Hubs of the World (VIDEO)
December 13, 2017

bitcoin accepted everywhere

The revolution might not be televised, but it will most certainly be digitized.

That’s the message, at least, of my friend Jonathan Roth’s short film on blockchain technology and cryptocurrencies, titled “Cryptocurrency Revolution: On the Frontlines of the World’s Hottest Tech Opportunity.”

I was very honored to participate in the making of this film, which takes viewers on a tour of some of the world’s key power hubs in the cryptocurrency industry. That includes Iceland, home of the Enigma Ethereum Mine.

The largest such mining farm in the world, Enigma is the crown jewel of Genesis Mining, whose billionaire cofounder and CEO, Marco Streng, likes to compare blockchain to the earliest days of the internet.

“Everyone knows by now that this space has huge potential and drives innovation, but we can’t know how big it will be,” Marco says in the film.

Similarly, few people in the mid-1990s could have guessed just how dominant Google and Amazon would become in people’s day-to-day lives.

This is a sentiment shared by my good friend Frank Giustra, founder of Lionsgate Entertainment, who was instrumental in helping HIVE Blockchain Technologies become the world’s very first publically-traded blockchain and cryptocurrency mining company.

“This game will evolve. It’s not going to stay static,” Frank says. “We just have to figure out how to stay relevant and part of what will be a technology that is not going to go away.”

Be a part of the digital revolution by watching the video below!


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

Free cash flow (FCF) is a measure of a company's financial performance, calculated as operating cash flow minus capital expenditures. FCF represents the cash that a company is able to generate after spending the money required to maintain or expand its asset base.

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 9/30/2017.

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




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This Week in Bitcoin: The IRS Targets Coinbase, Venezuela to Mint Its Own Cryptocurrency
December 11, 2017

bitcoin accepted everywhere

Writing about blockchain and bitcoin right now is a little like buying a new computer in the 1990s. The tech was advancing so fast in those days that as soon as you brought the thing home, it was sorely outdated. Similarly, the cryptocurrency world is changing so rapidly at the moment that even before “the ink dries” on one of my posts, some important new development has already surfaced.

Case in point: When Bloomberg ran a particular story last Monday—Bitcoin Is Now Bigger Than Buffett, Boeing and New Zealand”—bitcoin’s market cap hovered just above $185 billion, making it worth more than the likes of PepsiCo, Boeing and McDonald’s.

Bitcoin is now worth more than some of the worlds biggest companies as of decemeber 4
click to enlarge

Well, here it is a week later, and this chart is already outdated. As of Monday morning, bitcoin’s market cap topped $275 billion, bringing its total value comfortably above Coca-Cola, Toyota and Verizon (and now Bank of America, Walmart, Procter & Gamble, Pfizer, AT&T and Chevron). Next stop is Alphabet, which had a market cap of $288 billion at the end of the third quarter.

Or consider this: In May 2011, an early bitcoin investor named Greg Schoen tweeted his regret that he sold at $0.30, as the currency had then risen to $8.00 apiece.

I wish I kept my bitcoin tweet

Obviously we’ve seen earth-shattering appreciation since then. As of my writing this, bitcoin has breached the $17,000 level, up nearly 5.6 million percent—yes, you read that right, 5,600,000 percent—from our friend Greg’s exit point in 2011.

Bitcoin, of course, is just the largest fish in the entire universe of cryptocurrencies, which now number somewhere in the vicinity of 1,340, according to CoinMarketCap. If we combine the total market cap of all “altcoins” Monday morning, the amount exceeded $440 billion. That’s larger than the economies of Thailand, Nigeria and Austria. As of my writing this, as many as 15 coins had market caps over $2 billion.

total cryptocurrency universe market cap exceeded 400 billion for first time
click to enlarge

Coinbase Now Has More Accounts Than Charles Schwab

opening a coinbase account is as easy as opening a tinder account

This meteoric growth has attracted not just retail investors but also, inevitably, regulators. San Francisco-based Coinbase, which allows users to trade digital currencies, now boasts more active users than fellow San Francisco-based Charles Schwab, the second biggest brokerage firm following Fidelity. As of December 1, Coinbase had 13 million accounts, Schwab 10.6 million.

Contributing to Coinbase’s attractiveness is the ease with which someone can join. Whereas it can take up to two weeks to create a Schwab account, a Coinbase account can be opened in mere minutes, and as effortlessly as a Tinder account. This is one of the many reasons why both the popular online trading platform and dating service appeal to millennials.

According to Coinbase, as much as $50 billion have been traded on its platform since its inception, but as the number of accounts grows, we’ll likely see this dollar figure surge exponentially. This is the effect of Metcalf’s law, which I featured in an earlier post and discussed with SmallCapPower during the Mines and Money conference in London last month.

Frank Holmes speaking at Mines and Money Conference in London

The Rule of Unintended Consequences

If you recall, President Reagan once said: “Government’s view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops, subsidize it.” Surprising no one, then, Coinbase’s success has raised alarm bells for regulators and other government officials.

Ironically, it’s regulators that have unintentionally created the current environment in which cryptocurrencies now thrive. Back in May, I shared with you the fact that the number of listed companies here in the U.S. fell by more than half between 1996 and 2016. The addition of new financial rules and regulations, from Sarbanes-Oxley to Dodd-Frank, has encouraged more and more startups to avoid going public altogether, which is why we’re seeing an explosion right now in both stock prices—fewer listed companies means greater consolidation of fund flows into select stocks—and nontraditional methods of fundraising, from initial coin offerings (ICOs) to angel investing.

mob boss al capones bootlegging business thrived in the era of restrictive government policies

Consider the unintended consequences of Prohibition. Thanks to the 18th Amendment, the U.S. saw a sharp rise in organized crime and the emergence of notorious figures such as Al Capone.

By invoking “Scarface,” I’m not suggesting that all activities involving cryptocurrencies are illegal or malicious. I’m only saying that when rules and regulations become too restrictive, it invites new opportunities in unexpected ways.

And the beat goes on. After a months-long pushback, Coinbase agreed at the end of November to turn over the identities of 14,000 of its users to the Internal Revenue Service (IRS), which asserted that only 800 to 900 taxpayers reported bitcoin earnings between 2013 and 2015.

The tax agency initially requested access to all 13 million of Coinbase’s users, so I would call this an overall win for the exchange.

Bad News Is Good News

You might presume the IRS’ crackdown on Coinbase would discourage some potential bitcoin investors from participating. I would argue that the IRS incident is actually constructive for bitcoin because there’s very recent precedent of similar setbacks being turned into a windfall for digital currencies.

In mid-September, we saw the price of bitcoin dip sharply after China restricted new ICOs and JPMorgan Chase CEO Jamie Dimon knocked the digital currency as a “fraud,” comparing it to the Dutch tulip bubble in the 17th century. The one-two punch purged the market of weak-stomached investors, resulting in an intraday loss of $711 per coin.

Since mid-September, though, bitcoin has rallied close to 380 percent, even after the IRS came for its pound of flesh. On November 29, bitcoin swung wildly from as high as $11,427 to as low as $9,001, a difference of $2,426.

Those who managed to tolerate these swings in the past will likely continue to stay aboard the S.S. Bitcoin—after all, the big banks and IRS’ opposition to digital currencies is precisely why they’re in the game in the first place. Bitcoin enthusiasts value the currency because it’s decentralized, anonymous, finite and cannot be manipulated by “the powers that be,” unlike fiat money.

Put another way, that some world governments, big banks and the IRS seek to quash bitcoin is unequivocal confirmation of its value.

If You Can’t Beat Them, Join Them

That brings us to Venezuela’s recent announcement that it plans to launch its own cryptocurrency, dubbed the “petro,” which will reportedly be backed by oil, gold and diamond reserves.

The revelation comes as the beleaguered South American country’s economy continues to deteriorate since Nicolás Maduro took office in 2013. The country owes around $60 billion to bondholders yet has only $9.6 billion sitting in the bank. An estimated 80 percent of Venezuelans currently live in poverty. Food, medicine and other necessities are dangerously scarce, and inflation right now is among the worst the world has ever seen, comparable to Germany in the 1920s and Zimbabwe in the 80s.

Venezuela expected to face even higher hyperinflation

click to enlarge

This is inexcusable for such a resource-rich country. Venezuela, which depends on oil for around 95 percent of its export revenues, sits atop the world’s largest known oilfield. Amazingly, though, its output has been declining for several straight months. In September, production fell below 2 million barrels a day, a three-decade low, according to the Organization of Petroleum Exporting Countries (OPEC).

Conditions aren’t likely to improve for the country since Maduro consolidated power in July, effectively making himself absolute dictator and inviting harsh economic sanctions from the U.S. government.

This is precisely what drives Maduro’s interest in establishing a cryptocurrency—to circumvent U.S.-led sanctions. The petro will serve as a “buffer” between transactions, encrypting all incoming and outgoing money to free up the country’s monetary system from controls imposed by the U.S.

As explained by Bloomberg’s Leonid Bershidsky, foreign investors “will be able to lend money to Venezuela and get repaid in cryptocurrency, which Maduro wants them to spend on oil and other Venezuelan commodities” that are tied up by the U.S.

Russia has similar ambitions with its “CryptoRuble,” unveiled in October. Like Venezuela, Russia grapples with steep U.S. and international sanctions following its annexation of Crimea in 2014 and meddling in the 2016 U.S. election. Below is a flowchart— courtesy of Zura Kakushadze, professor of quantitative finance at Free University of Tbilisi, and Jim Kyung-Soo Liew, assistant professor of finance at John Hopkins University—illustrating how the CryptoRuble is designed to allow the Russian government to maintain full control of money flow into and out of the country’s coffers.

Schematic depiction of the money flow into and from cryptoruble

click to enlarge

According to Kakushadze and Kyung-Soo Liew:

With government-issued cryptocurrencies, central banks and sovereign governments will gain even more control, not less, than with the current banking system… This is any government’s dream come true!

To be clear, the way in which Venezuela and Russia plan to use cryptocurrencies is antithetical to their appeal in the eyes of many investors. Unlike bitcoin, Ethereum, Litecoin and other popular digital currencies, the petro and CryptoRuble are centralized—they are conceived and will be controlled exclusively by the Venezuelan and Russian governments.

And unlike bitcoin, they will not be mined, as gold is, but issued by governments, as fiat money is.

Again, Kakushadze and Kyung-Soo Liew:

The world order as we know it is changing, right before our eyes. This disruptive technology—cryptocurrencies—will indeed end up disrupting the status quo. However, at least in the mid-term, forward-thinking sovereign states that embrace and adapt it to their advantage will end up being the disruptors as opposed to disrupted. The U.S. is the sovereign state with the most to lose in their process, with a clear policy implication: adapt to the changing reality, issue CryptoDollars now, or risk being marginalized.

This assessment dovetails perfectly into a November report from Deutsche Bank strategists Jim Reid and Craig Nicol, who reflect on what they see as the end of traditional fiat money within the coming decades. Because fiat currencies are “inherently unstable and prone to high inflation,” Reid and Nicol write, “We may need to find an alternative.” Among other solutions, the two suggest cryptocurrencies, which “are as much about blockchain as anything else.”

Speaking of blockchain, Australia’s main stock market, the Australian Securities Exchange (ASX), is soon poised to become the first in the world to use blockchain’s superior ledger technology to process transactions, according to Bloomberg. It wouldn’t surprise me if other global stock markets, including the New York Stock Exchange (NYSE), quickly embraced this exciting new technology. 

How to Gain Exposure to Bitcoin Without Owning Any

And finally, both the Chicago Board Options Exchange (CBOE) and the Chicago Mercantile Exchange (CME) have set the table to offer bitcoin futures contracts for the first time ever this month—the CBOE this past Sunday, the CME a few days later. This will give investors a new way to participate in bitcoin and, in many skeptics’ minds, help “legitimize” the currency as a serious asset.

There are other ways to participate without actually owning bitcoin. In a recent Bloomberg story, Tom Lee of market research firm Fundstrat lists several companies and funds with exposure to the digital currency. Among his favorites is HIVE Blockchain Technologies, a blockchain infrastructure company involved in the mining of fresh new coins, never before traded. The first company of its kind to sell shares to the public, HIVE began trading on the TSX Venture Exchange on September 18.

I’m sure I’ll have more to say on these topics at a later time. In the meantime, I invite you to watch this short, 16-minute film titled “Cryptocurrency Revolution: On the Frontlines of the World’s Hottest Tech Opportunity.” It features myself, Frank Giustra and Marco Streng, co-founder and CEO of Genesis Mining, the world’s largest cloud bitcoin mining company.


All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor. Some links above may be directed to third-party websites. U.S. Global Investors does not endorse all information supplied by these websites and is not responsible for 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 (09/30/2017): The Boeing Co., Chevron Corp.

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

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Gold Looks Like a Bargain Just in Time for Christmas
December 4, 2017

Gold christmas tree decorations

One of the most compelling and engaging presenters at the Precious Metals Summit in London last month was Ronald-Peter Stöferle, a managing partner at Liechtenstein-based asset management company Incrementum. Incrementum, as you may know, is responsible for publishing the annually-updated, widely-read “In Gold We Trust” report, which I’ve cited a number of times before.

During his presentation, Stöferle shared the fact that his wife prefers to do her Christmas decoration shopping in January. When he asked her why she did this—Christmas should be the last thing on anyone’s mind in January—she explained that everything is half-off. A bargain’s a bargain, after all.

This is very smart. Here we are several days before Christmas, and demand for ornaments, lights and other decorations is red-hot, so be prepared to pay premium prices if you’re doing your shopping now. But mere hours after the Christmas presents have been unwrapped and Uncle Hank has fallen asleep on the couch with a glass of boozy eggnog, stores will begin slashing prices to get rid of inventory.

Gold bullion and mining stocks are currently in the “January” phase, so to speak, according to Stöferle. The Barron’s Gold Mining Index, which goes all the way back to 1938, recently underwent its longest bear market ever, between April 2011 and January 2016. And as I already shared with you, the World Gold Council (WGC) reported last month that gold demand fell to an eight-year low in the third quarter.

Barrons gold mining index bear markets since 1942
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“Most people get interested in stocks when everyone else is,” Warren Buffett famously said. “The time to get interested is when no one else is.”

The same logic applies to Christmas decorations, gold and mining stocks.

Gold on Track for Its Best Year Since 2010

As of my writing this, gold is trading around $1,280, up 11 percent in 2017. That’s off 5 percent from its 52-week high of $1,351 set in September. If it stays at its present level until the end of the year, the metal will end up logging its best year since 2010, when it returned 30 percent.

former national security advisor pleaded guilty to lying to fbi

Gold traded up on Friday as the U.S. dollar weakened following news that former National Security Advisor Mike Flynn pleaded guilty to lying to the FBI about conversations he had with Russian officials last December during the presidential transition. It’s possible that the details Flynn might provide as part of a plea bargain could help special prosecutor Robert Mueller advance his investigation into Russia’s meddling in the 2016 election.

But back to gold. Considering it’s faced a number of strong headwinds this year—a phenomenal equities bull run that’s drawn investors’ attention away from “safe haven” assets, lukewarm inflation and anticipation of additional rate hikes, among others—I would describe its performance in 2017 as highly respectable.

And yet if you listen to the mainstream financial news media, gold is “boring” and “flat.” Speaking to CNBC last week, Vertical Research partner Michael Dudas called the gold market “eerily quiet.”

10 day standard deviation

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Dudas was specifically describing gold’s volatility, but even here the facts tell a slightly different story. In the table to the right, you can see the 10-day standard deviation for a variety of assets, using data from the past 12 months. Gold traded with higher volatility than domestic equities, the U.S. dollar and global emerging markets. Of those measured, only oil and bitcoin showed higher volatility.

Based on volatility alone, it’s stocks that look pretty “boring” and “quiet” this year, but you’re not likely to hear a pundit or analyst describe them that way.

And with good reason. The S&P 500 hasn’t fallen more than 3 percent from a previous high for more than 388 days now, the longest stretch ever for the index. And for the first time in its 120-year history, the Dow Jones Industrial Average has reached four 1,000-point milestones in a single year—with a whole month left to go. It’s possible that excitement over the Senate’s tax bill will be enough to push the Dow above 25,000 sometime before the ball drops in Times Square. The drama involving Flynn, however, could threaten to derail those chances.

Dow jones industrial average made history again
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What this means is that, compared to domestic equities, gold is highly undervalued right now. The gold-to-S&P 500 ratio, a time-tested trading indicator, is near 50-year lows. I see this as a strong buy signal, especially now as we await the Federal Reserve’s decision to lift rates this month. If you recall, gold broke out strongly following the December rate hikes in 2015 and 2016.

Gold is a bargain right now compared to stocks
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In his December outlook on precious metals, Bloomberg Intelligence commodity strategist Mike McGlone writes that “gold is ripe to escape its cage soon,” adding that “prices just don’t get as compressed as they did for gold in November, indicating a breakout soon.”

Is a Recession Brewing? History Says Maybe

So what are the catalysts that could trigger a breakout? Stöferle mentions two: a possible recession and stronger inflation.

“I think the odds are pretty high that a recession might be upon us sooner or later because we’re in this rate hike cycle, and as always the central banks are way behind the curve,” he said.

What Stöferle is referring to is the strong historical correlation between new U.S. rate hike cycles and recessions. Going back more than 100 years, 15 of the last 18 recessions were directly preceded by monetary tightening.

Recessions have historically followed us rate hike cycles click to enlarge

The Federal Reserve isn’t just raising rates, remember. It’s also begun to unwind its $4.5 trillion balance sheet, which was built in the years following the financial crisis. This carries historical risk. The central bank has embarked on similar reductions six times in the past—in 1921-1922, 1928-1930, 1937, 1941, 1948-1950 and 2000—and all but one episode ended in recession.

“Quantitative tightening will fail,” Stöferle predicted.

Obviously, there’s no guarantee that this particular round will have the same outcome as past cycles, but if you agree with Stöferle, it might be prudent to have as much as 10 percent of your wealth in gold bullion and gold stocks.


The Risks Surrounding Tax Reform

Inflation is a trickier thing to forecast. A lot of people, myself included, had expected the cost of living to show signs of life this year in response to some of President Trump’s more protectionist and policies. But nearly 10 months into his term, no major legislation has been passed or signed.

That might be about to change with the highly anticipated tax reform bill, which the Senate passed late Friday night. If the bill reaches Trump’s desk, it will be the first time in a generation that the U.S. has amended its tax code.

But will the $1.5 trillion bill, as it’s currently written, lead to stronger economic growth and pay for itself, as its most vehement supports insist? My hope is that it will. As I’ve been saying for a while now, it’s time we begin relying more on fiscal policies to drive growth, especially now that the Fed is beginning to tighten policy.

In the spirit of staying balanced, though, there are troubling signs and forecasts that the bill could actually end up being a disappointment. After reviewing the bill, the Joint Committee on Taxation (JCT) estimates that its enactment could lead to a whopping $1.4 trillion increase in the deficit between now and 2027. Even if we factor in economic growth that might come as a result of reforms, the JCT says, we’d still be looking at a $1 trillion shortfall.

Many economists are also skeptical. A recent University of Chicago Booth School of Business survey of economists from Yale, MIT, Princeton, Harvard and other Ivy League schools found that over half did not believe the current tax bill will “substantially” grow GDP. Only 2 percent thought it would, and more than a third were uncertain. Additionally, nearly 90 percent believed that if the bill is enacted, the U.S. debt-to-GDP ratio will be “substantially” higher a decade from now.

And then there’s the Kansas experiment from five years ago. In May 2012, Governor Sam Brownback signed a sweeping state tax reform bill that in many ways resembles the Senate’s current tax bill. It slashed personal and business income taxes, consolidated the state’s three tax brackets into two and eliminated a number of credits and exemptions. Hopes were high that the reforms would kickstart economic expansion, help taxpayers and attract new business to the state.

Instead, none of that happened. Following the bill’s enactment, Kansas GDP growth remained stagnant, trailing the national growth rate as well as that of neighboring states and even its own rate from years past. This year, the nonprofit financial watchdog group Truth in Accounting gave Kansas a failing financial grade of D, citing its inability to pay its debts or balance its budget.

Kansas 2012 tax cuts failed to spur growth a lesson for the us click to enlarge

In June of this year, Kansas’ Republican-controlled state legislature voted to raise taxes for the first time since reforms were enacted and eventually had to override Governor Brownback’s veto. Many of those state legislators who initially supported the Kansas tax cuts are now warning federal lawmakers that similar outcomes could occur on a nationwide scale.

I’m not sharing this to discredit tax reform—in fact, I’m strongly in favor of it. However, I believe it’s important to highlight the fact that nothing in life is guaranteed. Hope for the best, prepare for the worst. What steps can you take now in the event the tax reform bill doesn’t accomplish what it’s designed to do—or worse? This type of uncertainly has historically made gold shine the brightest.

Think Gold Has Fallen Short of Expectations this Year? Don’t Blame Bitcoin

At conferences I’ve attended and spoken at recently—the Silver & Gold Summit in San Francisco and Mines and Money in London among them—the suggestion has been made by a few big-name investors and money managers that bitcoin’s meteoric rise is to blame for the market’s apparent disregard for gold and gold stocks right now. With bitcoin up more than 1,050 percent since the beginning of the year, even after a 21 percent dip last Wednesday, many market-watchers might simply be too star-struck by the newness of bitcoin to be bothered by the “barbarous relic.”

I happen to think this is a mistake. As much as I believe in the value of bitcoin, gold and gold stocks still play a crucial role in the modern portfolio.

As I told Kitco News’ Daniela Cambone at the Silver & Gold Summit, bitcoin isn’t responsible for dismantling gold. Although both assets are currencies, I don’t see them at odds because they serve very different functions. For one, gold is more than money—it’s worn as jewelry, widely used in dentistry and can be found in art and even some high-end foods. It’s been traded around the world for millennia and, unlike bitcoin, does not require electricity. Indeed, it conducts electricity, which is why you can find it in your iPhone and GoPro camera’s circuitry.

Frank Holmes on CNBC london

Bitcoin is more than money as well. It’s the most influential spokesperson, if you will, of blockchain technology, upon which the currency is built. Speaking with SmallCapPower’s Angela Harmantas at the Mines and Money conference in London, I made the comparison that bitcoin is to email as blockchain is to the internet. In the earliest days of the internet, few people truly understood what it was or could predict the implications of this new technology—but email they understood. It’s what woke people up to the idea of using the internet. Bitcoin is doing just that for blockchain.

But blockchain’s utility goes far beyond finance. As a decentralized, highly encrypted ledger, it has untold potential to change the way we run our lives, businesses and governments. Among other tasks, the technology can help manage digital rights to intellectual property, bring transparency to supply chains and reliably track the spending of public funds. It can even be used as a tamper-proof voting system, whether you’re voting for a new chairman of the board or president of the United States. One day soon, we might all be e-voting from our smartphones and tablets, reassured that our vote cannot be compromised.

For more on my outlook on bitcoin and blockchain, and to get my thoughts on why I think HIVE Blockchain Technology is well-positioned to be an industry leader, watch my full interview with Angela Harmantas.

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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.

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 Dow Jones Industrial Average (DJIA) is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange (NYSE) and the NASDAQ. The DJIA was invented by Charles Dow back in 1896. The MSCI Emerging Markets Index is an index created by Morgan Stanley Capital International (MSCI) designed to measure equity market performance in global emerging markets. The U.S. Dollar Index (USDX, DXY) is an index (or measure) of the value of the United States dollar relative to a basket of foreign currencies, often referred to as a basket of partners' currencies. The Barron’s Gold Mining Index (BGMI)  consists of publicly traded companies involved primarily in the mining for gold

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

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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