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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.

The Great American Splurge
November 28, 2016

Retail madness: more than 137 million american consumers plan to shop thanksgiving weekend

In a Frank Talk last week, I discussed the surge in small-cap stocks since Donald Trump’s election. A bet on smaller domestic stocks, I wrote, is a bet that Trump will deliver on his promise to “make America great again.” He plans to lower taxes, streamline regulations and spend big on infrastructure—all of which has led to a rally in the small-cap Russell 2000 Index and the 10-Year Treasury yield.

big moves in small-cap stocks and treasury yields since trump's election
click to enlarge

The ramifications of government policy change under Trump, especially fiscal policy, have the potential to be huge. Since Election Day, we’ve seen the strong U.S. dollar hurt gold, while the Canadian dollar and Chinese renminbi have dropped.

The question now is whether Federal Reserve Chair Janet Yellen will put the brakes on the so-called Trump rally. She asserts that Fed policy is not politically motivated, but I wonder how many people actually believe that. She’s already criticized Trump’s plans to tear up or at least significantly weaken Dodd-Frank Wall Street Reform.

Both former Fed Chair Alan Greenspan and billionaire investor Warren Buffett have recently suggested Dodd-Frank needs to go, with Greenspan telling CNBC that he’d love to see the 2010 law “disappear.” Buffett, meanwhile, commented in an interview this month that the U.S. is “less well equipped to handle a financial crisis today than we were in 2008. Dodd-Frank has taken away the Federal Reserve’s ability to act in a crisis.”

Retail madness: more than 137 million american consumers plan to shop thanksgiving weekend

Since the election, banks have seen strong inflows, as investors are betting that the financial industry could be one of the largest beneficiaries of Trump’s administration.

According to Evercore ISI analyst Glenn Schorr, “Animal spirits and higher confidence have returned, and investors are now expecting a better revenue, expense, tax, capital and regulatory profile for financials.” In addition, “we might have just flipped from feeling pretty late cycle right back to early cycle depending on how much we want to buy into Trump’s pro-growth agenda.”

Americans Take Advantage of Low Inflation

Last year, lower gas prices helped American households save $700 on average. Although savings aren’t likely to be as much this year, Americans managed to save in other ways—namely, food and beverages.

According to the American Farm Bureau Federation (AFBF), the cost of a typical Thanksgiving meal for 10—consisting of a turkey, stuffing, sweet potatoes, cranberries, a pumpkin pie and other traditional sides—fell 24 cents from last year’s average to $49.87. That translates to a per-person cost of just under $5, confirming that “U.S. consumers benefit from an abundant high-quality and affordable food supply,” says AFBF Director of Market Intelligence Dr. John Newton.

As I’ve said multiple times before, the U.S. shale oil boom helped deliver an “oil peace dividend” to the world, which drove transportation costs and, therefore, food and beverage costs down over the past two years.

A Thanksgiving Meal fell below $5 per person this year
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Low fuel costs also encouraged a huge number of families to hit the highway this Thanksgiving weekend. According to AAA, roughly 50 million people—about 1 million more than last year— journeyed 50 miles or more from their homes, the most since 2007.

With gas prices at their second lowest level in a decade, driving remains the most popular mode of transportation. But as I previously shared with you, flying has also become more and more affordable for many Americans. This week, an estimated 27 million passengers flew on U.S. airlines, an increase of 2.5 percent over last year.

27 million passengers will fly U.S. airlines this Thanksgiving week, up 2.5 percent from last year

Black Friday Is the New Cyber Monday

It isn’t just travel that’s back to pre-recession levels. This year, it appears more Americans than ever before—enjoying low inflation and rising wages—will be spending their savings on gifts for friends and family, if estimates from the National Retail Federation (NRF) are accurate.

According to the retail trade association, as many as 137.4 million consumers planned to shop this Thanksgiving weekend, nearly a whopping 60 percent of Americans. This figure is up from last year's 135.8 million people. This includes both in-store shopping as well as online shopping, which, as you might have noticed, is becoming a huge deal.

Black Friday remains the busiest shopping day, with 74 percent of consumers telling the NRF they planned to venture out into the crowds to take advantage of gotta-have-it bargains.

But e-commerce is quickly catching up, with the internet-only Cyber Monday second in sales to Black Friday. For the first time this holiday season, online purchases are expected to account for more than 10 percent of all retail sales, according to consumer research firm eMarketer. “Online sales,” reports Bloomberg, “are likely to climb to $94.7 billion, representing almost 11 percent of total sales in November and December, an all-time high.”

E-commerce is set to account for a record share of retails sales this holiday season
click to enlarge

The growing popularity of online shopping has prompted more and more brick-and-mortar retailers to push their e-commerce sales earlier to Black Friday and even Thanksgiving Day. In years past, retailers waited until Cyber Monday to post digital discounts, but today they risk losing market share among shoppers who increasingly prefer making purchases off their laptop and smartphone.

One of these retailers is Walmart, which will start offering online sales two days in advance, in a bid to stay ahead of competitor Amazon.  In a press release, the Arkansas-based behemoth announced it has tripled its assortment of online products, from 8 million last year to more than 23 million today.

Another Record Year for Packages Delivered

The rise in e-commerce has had the inevitable effect of giving more business to ground and air delivery companies such as FedEx and United Parcel Service (UPS). It’s expected that, with online sales jumping 17 percent this year, the number of packages handled and shipped will jump to a record high.

According to Business Insider, UPS—the world’s largest delivery company—projects it will ship a record-setting 700 million packages between Thanksgiving and Christmas, or 70 million more than the same time last year. FedEx hopes it can ship 10 percent more than the 325 million it delivered last year.

Meanwhile, Amazon’s plans to establish its own in-house transportation network have hit a setback. About 250 pilots contracted with Amazon partners Air Transport Service Group and Atlas Air Worldwide Holdings went on strike Tuesday over a “longstanding labor dispute.” The Jeff Bezos-run retailer has been determined to deliver its own products after bad weather in 2013 delayed millions of Christmas deliveries, but it appears these efforts are off to a rough start.

Wishing You Health, Wealth and Happiness!

I wish to conclude by giving thanks to our loyal Investor Alert readers as well as investors. Visit us on Facebook or Twitter and let us know what you’re thankful for this season!      

 

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 Russell 2000 Index is a U.S. equity index measuring the performance of the 2,000 smallest companies in the Russell 3000. The Russell 3000 Index consists of the 3,000 largest U.S. companies as determined by total market capitalization.

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 9/30/2016: United Parcel Service Inc.

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Small-Cap Investors See Big League Growth Under Trump
November 23, 2016

I’ve been in the financial industry a long time, and I’m continually amazed at the market’s astuteness in making reliable, actionable forecasts.

Consider the run-up to this year’s election. Nearly every poll pointed to Hillary Clinton taking the White House, with many pegging her chances at greater than 90 percent. The market took these prognosticators to task. Historically, when the S&P 500 has turned negative between July 31 and October 31, it’s spelled doom for the incumbent party candidate. This year, the market fell more than 2 percent, setting the stage for a Donald Trump victory. 

The Wisdom of Crowds: Market Accurately Predicted President-Elect Trump
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A thought-provoking Atlantic article asserts that “the press takes [Trump] literally, but not seriously; his supporters take him seriously, but not literally.” This is ostensibly how many Trump supporters were able to excuse his more off-color language and instead focus on his proposals. Markets were willing to do the same.  

Now, those same markets seem to be placing their bets on the likelihood that Trump’s “America First” policies will benefit small-cap companies especially.

The media is already calling it the “Trump rally.” As I write this, the Dow Jones Industrial Average closed above 19,000 for the first time ever, with the S&P 500 Index and Nasdaq Composite Index having recently set all-time highs.

But small-cap stocks have fared even better. Since Election Day, the small-cap Russell 2000 Index has made “big league” gains, surging more than 11 percent and hitting a record high. The index has been up for 13 straight days—its best run since 1996.

The Wisdom of Crowds: Market Accurately Predicted President-Elect Trump
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But why are investors focused on small-cap stocks specifically? Simply put, a bet on domestic small caps is a bet that Trump will deliver on his promise to “make America great again.”

Making Domestic Stocks Great Again

The president-elect’s proposals are aggressively inward-facing, which bodes well for companies with little foreign exposure. As a group, small caps have far less exposure to foreign markets than larger, multinational companies do. Because they rely a lot less on exports, they’re not as negatively affected by a strong U.S. dollar, which has the effect of making American-made products more expensive for foreign buyers.

Today the dollar is trading at 14-year highs, with expectations of moving even higher after a possible rate hike next month, followed by Trump’s inauguration in January.

The Wisdom of Crowds: Market Accurately Predicted President-Elect Trump
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According to his website, Trump plans to create at least 25 million new jobs over the next decade and grow the economy at 3.5 percent per year on average. He will manage to do this, he says, by lowering taxes and “scaling back years of disastrous regulations unilaterally imposed by our out-of-control bureaucracy.”

As I’ve shared with you before, regulations cost the U.S. economy approximately $2 trillion a year.

The president-elect also plans to spend as much as $1 trillion on infrastructure over the next 10 years, which the market has responded to approvingly.
This market behavior is yet another example of the “wisdom of crowds,” which I’ve discussed numerous times before. In one of my favorite books, 2005’s The Wisdom of Crowds,business writer James Surowiecki convincingly makes the case that large groups of people will nearly always be smarter and better at making predictions than an elite few.

The Wisdom of Investors

The Wisdom of Crowds BookAt first blush, this idea might seem counterintuitive. We’ve all heard of mob mentality. Indeed, giant crowds of people are sometimes capable of making impulsive, irrational and destructive decisions. Think of the Salem witch trials, which ended with the execution of 20 people, or the Holocaust.

But Surowiecki’s thesis says that large groups of diverse and independently-deciding people—investors, for instance—are far better at analyzing and aggregating mass amounts of information than individuals, even experts.

As an example, Surowiecki explores the market’s now-famous response to the tragic Challenger shuttle explosion in 1986. In the minutes following the televised disaster, “investors started dumping the stocks of the four major contractors who had participated in the Challenger launch: Rockwell International, which built the shuttle and its main engines; Lockheed, which managed ground support; Martin Marietta, which manufactured the ship’s external fuel tank; and Morton Thiokol, which built the solid-fuel booster rocket.”

One of these names, however, was hit the hardest—Thiokol. By the end of the trading day, it was down almost 12 percent, more than six standard deviations in the three months before the explosion, according to economists Michael Maloney and Harold Mulherin. What the market seemed to be saying is that Thiokol was to blame.

Investors Accurately Faulted Morton Thiokol for Challenger Explosion
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The thing is, there had been no public comments implicating the now-defunct manufacturer. It wouldn’t be for another six months, during a presidential commission hearing on the disaster, that evidence was released showing Thiokol’s O-ring, which is supposed to prevent hot gases from escaping the booster rockets, had been faulty.

On that day, Surowiecki writes, the stock market was “working as a pure weighting machine, undistorted by the factors—media speculation, momentum trading and Wall Street hype—that make it a peculiarly erratic mechanism for aggregating the collective wisdom of investors.”

Similarly, the market in 2016 managed to cut through the ugly campaign noise and rhetoric to select the candidate who eventually emerged as victor. And now, they appear just as convinced that Trump’s policies can unleash American growth and ingenuity.

 

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 Dow Jones Industrial Average is a price-weighted average of 30 blue chip stocks that are generally leaders in their industry. The Nasdaq Composite Index is a capitalization-weighted index of all Nasdaq National Market and SmallCap stocks. The Russell 2000 Index is a U.S. equity index measuring the performance of the 2,000 smallest companies in the Russell 3000. The Russell 3000 Index consists of the 3,000 largest U.S. companies as determined by total market capitalization.

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.

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 9/30/2016: Lockheed Martin Corp.

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Surprise! Buffett Books a Flight on Airline Stocks
November 21, 2016

warren buffett bets big on airlines

It’s never too late to change your mind.

After years of deriding the airline industry, Warren Buffett confirmed last week that his holding company, Berkshire Hathaway, has invested nearly $1.3 billion in four big-name domestic carriers: American, Delta, United and Southwest.

Domestic Airlines Surge Buffett Investment News
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The stake is a dramatic reversal for the 86-year-old investing wizard, who previously called the industry a capital “death trap” and once joked that investors would have been served well had Orville Wright’s plane been shot down at Kitty Hawk.

The thing is, Buffett held these opinions long before airlines began making the fundamental changes that would flip their fortunes from bankruptcy to record profitability. When Buffett first tried his hand at making money in the aviation industry in 1989, airlines were still struggling in a fiercely competitive marketplace. Many carriers called it quits, including President-elect Donald Trump’s Trump Shuttle, which ceased operations in 1992. Others spent years in bankruptcy court.

But following the massive wave of industry consolidation between 2005 and 2010, a new business environment emerged, one characterized by disciplined capacity growth, new sources of revenue, greater efficiency and a commitment to repairing balance sheets. I’ve written about these changes for the past 18 months, all of which are summarized in this brief five-minute video.

2 million people fly us every day

Buffett also likes airlines now for the same reason he’s long been a fan of railroads—namely, the barriers to entry are extremely high if not entirely impenetrable to new competitors. This is the “moat” Buffett refers to when talking about rail.

As a value investor, he prefers inexpensive stocks, and among industrials, airlines are cheapest of all, based on price-to-earnings and cash flow.

Airlines Least Expensive Among Industrials
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Buffett’s bullish rotation into airlines was followed by news last week that Citi also made fresh buys of Southwest, Delta, American and Allegiant shares, on the “broad theme that sector consolidation and an improved economy will reap benefits,” according to Seeking Alpha’s Clark Shultz.

Challenges still remain, of course, but domestic airlines today are profit-making, dividend-paying machines. In the first nine months of 2016, the top nine U.S. carriers—Alaska, Allegiant, American, Delta, Hawaiian, JetBlue, Southwest, Spirit and United—reported combined net income of $18.3 billion. That’s quite an improvement from the $11.2 billion they pocketed for the entire year in 2014.

Domestic airlines 11 billion shareholders nine month 2016

Over the same nine-month period, airlines returned $11.4 billion to shareholders via stock buybacks ($10.5 billion) and dividends ($912 million), according to industry trade group Airlines for America (A4A).

Here’s Why Blue Skies Could Last

In the near-term and long-term, airlines continue to look very attractive. Air travel demand is rising as incomes grow and the size of the global middle class expands.

This Thanksgiving week, more than 27 million passengers are expected to fly on U.S. airlines, an increase of 2.5 percent over the previous year, according to A4A. Much of the demand is being driven by affordable airfare, which is at its lowest in seven years.

The picture looks just as optimistic further down the road. The International Air Transport Association (IATA) sees global passenger demand nearly doubling over the next 20 years. The group expects 7.2 billion people to fly in 2035, up dramatically from 3.8 billion last year.

chinas middle class overtakes us

The Asia-Pacific region should be the biggest demand driver, with China displacing the U.S. as the world’s largest aviation market. As I’ve written about before, the U.S. and China both agreed to extend visas for business travelers, tourists and students, which has already led to increased travel between the two nations. When I last visited the New York Stock Exchange recently, I noticed that half of the tourists appeared to be from China.

What Effect Might President Trump Have on Airlines?

In the week following the presidential election, we saw modest gains in several sectors, including airlines. Evercore ISI’s proprietary Company Surveys, designed to monitor the economy on a weekly basis, showed a post-election bounce, rising 1.1 points to 49.6.

steady improvement week following election
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In many more ways than one, Donald Trump is unlike any other person ever to occupy the White House, bringing with him a unique set of skills and experiences that no other president can claim. As I mentioned earlier, he will become the first U.S. president who was formerly an airline executive. He also boasts an extensive background in tourism and hospitality, having built and managed everything from hotels to resorts to golf courses

Donald Trump first US president airline executive

Industry leaders, therefore, hope Trump will prove to be a powerful ally and take their side on several key issues. For starters, many are encouraged that the president-elect has proposed as much as $1 trillion in infrastructure spending on “our highways, bridges, tunnels, airports, schools, hospitals,” as he announced the day following last week’s election.

Trump has also promised to swing the pendulum away from monetary policy toward fiscal policy—cutting taxes and relaxing regulations—which has put Federal Reserve Chair Janet Yellen on the defensive. On Friday, she defended the Dodd-Frank Act, which Trump has vowed to dismantle, stating a repeal would increase the likelihood of another financial crisis.

As for the aviation industry, U.S. carriers have been pushing Congress for years to reform air traffic control so that the steering wheel is in the hands not of the Federal Aviation Administration (FAA) but a private, not-for-profit entity. Canada made a similar transition in 1996 when it turned authority of its civil air navigation service over to the privately-run Nav Canada, which today manages approximately 12 million aircraft movements a year.

The industry would also like to see open talks with several state-owned Middle Eastern carriers, whose governments provide tens of billions of dollars in “unfair” subsidies every year.

Jill Zuckman, chief spokesperson for Partnership for Open & Fair Skies, an airline lobby group, has urged Trump, a harsh critic of international trade agreements, to protect the interests of American airlines and workers.

“The Gulf carrier subsidies threaten the jobs of 300,000 U.S. aviation workers and the American aviation industry as a whole,” Zuckman alleged, “and we are optimistic that the Trump administration will stand up to the United Arab Emirates and Qatar, enforce our trade agreements and fight for American jobs.”

Other leaders see headwinds in some of Trump’s more isolationist and nativist rhetoric, particularly his tough stance on immigration from Mexico—currently the number two market for travel and tourism to the U.S.—and Arabic-speaking countries.

Arrivals into the U.S. by Country, 2013
Rank Country Number of Visitors,
in Millions
Percent Share
#1
Canada Flag
Canada
23.39 33.5%
#2
Mexico Flag
Mexico
14.34 20.6%
#3
UK Flag
United Kingdom
3.84 5.5%
#4
Japan Flag
Japan
3.73 5.3%
#5
Brazil Flag
Brazil
2.06 3.0%
#6
Germany Flag
Germany
1.92 2.7%
#7
China Flag
China
1.81 2.6%
#8
France Flag
France
1.50 2.2%
#9
South Korea Flag
South Korea
1.36 1.9%
#10
Australia Flag
Australia
1.21 1.7%

According to the Council on Foreign Relations, a travel ban on Muslims entering the U.S.—a controversial proposal Trump has since softened—could cost the U.S. economy as much as $71 billion a year and up to 132,000 American jobs. As The Economist pointed out in a recent article, travelers from the Middle East tend to be big spenders, shelling out 50 percent more per trip than Europeans on average.

Trump has also expressed interest in reversing current diplomatic relations with Cuba, favoring a reinstatement of old travel and trade embargos. (“The people of Cuba have struggled too long,” he tweeted in October. “Will reverse Obama’s Executive Orders and concessions towards Cuba until freedoms are restored.”) Many U.S. airlines have already begun scheduled flights to Havana, including United, American and Southwest, with others soon to follow (JetBlue, Alaska, Delta and Spirit, among others).

As for whom Trump might name as head of the Transportation Department—which oversees the FAA, Federal Highway Administration, Federal Railroad Administration and other agencies—rumors are circulating that it’s come down to either Rep. John Mica (R-Fla.), former House Transportation Committee chairman; or James Simpson, former commissioner of New Jersey’s Department of Transportation.

The airline industry has proven itself resilient time and again, emerging stronger from a decade ago. For investors, the group is relatively inexpensive and generous with its dividends and stock buybacks. Changes might very well be in the cards, but I remain bullish on airlines, just as Warren Buffett is.

 

CLICK HERE FOR ADDITIONAL RESEARCH ON THE AIRLINE INDUSTRY!

 

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.

Cash flow is the total amount of money being transferred into and out of a business, especially as affecting liquidity.

The price-earnings ratio (P/E Ratio) is the ratio for valuing a company that measures its current share price relative to its per-share earnings.

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 9/30/2016: American Airlines Group Inc., United Continental Holdings Inc., Delta Air Lines Inc., Southwest Airlines Co., Allegiant Travel Co., Alaska Air Group Inc., Hawaiian Holdings Inc., JetBlue Airways Corp., Spirit Airlines Inc. 

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Muni Bonds a Key to Making America Great Again
November 16, 2016


Ever since he made his presidential bid in June 2015, Donald Trump has vowed to “make America great again.” Part of that promise includes rebuilding the nation’s infrastructure, a monumental task that will require the financial backing of tax-free municipal bonds.

“We are going to fix our inner cities and rebuild our highways, bridges, tunnels, airports, schools, hospitals,” the president-elect told reporters the day after his historic victory. “We’re going to rebuild our infrastructure, which will become, by the way, second to none.”

To accomplish this, Trump has proposed a spending package as high as $1 trillion over the next 10 years. Although the private sector will be expected to finance a large portion of the work, massive amounts of public debt will be necessary.

This could be a “very big item for the muni market in the coming years,” according to John Vahey, managing director of federal policy for Bond Dealers of America, a trade association for  fixed-income dealers.

Americans already appear eager to get started repairing their infrastructure, which is facing a $3.6 trillion shortfall, according to the American Society of Civil Engineers (ASCE).

So far this year, state and local governments have issued nearly $150 billion in municipal bonds for new infrastructure projects, putting 2016 borrowing on a path to exceed levels in each of the last five years. And on Election Day, U.S. voters approved $55.7 billion in debt, the most since 2008.

Stay the Course

A possible headwind for munis is Trump’s proposal to reduce the top marginal income tax rate, from 39.6 percent to 33 percent. Although good for your pocketbook, such a move could limit the appeal of munis’ tax-exempt status among some top-earning investors.

Individual Income Tax Brackets Under the Trump Plan
Ordinary Income Rate Capital Gains Rate Single Filers Married Joint Filers
12% 0% $0 to $37,500 $0 to $75,000
25% 15% $37,500 to $112,500 $75,000 to $225,000
33% 20% $112,500+ $225,000+
Source: Tax Foundation, U.S. Global Investors

Other investors might be dazzled by what the media are calling the “Trump rally.” With the Dow Jones Industrial Average ending at a record high on Monday and Tuesday, munis could lose favor as investors increase their exposure to equities.

However, it’s important that we don’t overreact to market swings. A well-structured, diversified portfolio—one that also includes munis—is still the most prudent strategy going forward.

Reduce Volatility with Short-Term, Investment-Grade Munis

Something else to keep in mind are interest rates. It’s highly expected that the Federal Reserve will raise them next month, the first time it would do so since December of last year.

Even though rates will likely be lifted as little as 0.25 percent, it’s important to be aware that when rates rise, bond prices fall. At first glance, this inverse relationship might seem illogical, but it makes sense. If newly-issued bonds carry a higher yield, the value of existing bonds with lower rates declines.

That’s why investors should consider taking advantage of shorter-duration, investment-grade munis, which are less sensitive to rate increases than longer-term bonds whose maturities are further out.

Our Near-Term Tax Free Fund (NEARX) invests primarily in high-quality, investment-grade muni bonds in attractive jurisdictions. This strategy has led to more than two decades of positive annual returns, regardless of where interest rates were, what equity markets were doing or who occupied the White House.

Near-Germ Tax Free Fund Annual total Return
click to enlarge

I invite you to explore NEARX, which has delivered a phenomenal 21 straight years of positive returns. That’s a rare accomplishment that has been achieved by only 39 out of 31,306 equity and bond funds—around 0.12 percent—according to Morningstar data.

 

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.

Past performance does not guarantee future results.

Total Annualized Returns as of 9/30/2016
Fund One- Year Five-Year Ten-Year Gross
Expense
Ratio
Near-Term Tax Free Fund (NEARX) 1.26% 1.80% 2.88% 1.09%

Expense ratios as stated in the most recent prospectus. The Adviser of the Near-Term Tax Free Fund has contractually limited, through April 30, 2017, the total fund operating expenses (exclusive of acquired fund fees and expenses, extraordinary expenses, taxes, brokerage commissions and interest) to not exceed 0.45%. Total annual expenses after the waiver of 0.64% were 0.45%. 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.

Bond funds are subject to interest-rate risk; their value declines as interest rates rise. Though the Near-Term Tax Free Fund seeks minimal fluctuations in share price, it is subject to the risk that the credit quality of a portfolio holding could decline, as well as risk related to changes in the economic conditions of a state, region or issuer. These risks could cause the fund’s share price to decline. Tax-exempt income is federal income tax free. A portion of this income may be subject to state and local taxes and at times the alternative minimum tax. The Near-Term Tax Free Fund may invest up to 20% of its assets in securities that pay taxable interest. Income or fund distributions attributable to capital gains are usually subject to both state and federal income taxes.

The Near-Term Tax Free Fund invests at least 80 percent of its net assets investment-grade municipal securities. At the time of purchase for the fund’s portfolio, the ratings on the bonds must be one of the four highest ratings by Moody’s Investors Services (Aaa, Aa, A, Baa) or Standard & Poor’s Corporation (AAA, AA, A, BBB). Credit quality designations range from high (AAA to AA) to medium (A to BBB) to low (BB, B, CCC, CC to C). In the event a bond is rated by more than one of the ratings organizations, the highest rating is shown.

The Dow Jones Industrial Average is a price-weighted average of 30 blue chip stocks that are generally leaders in their industry.

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

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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What Trump’s Stunning Upset Means for Markets
November 14, 2016

Donald Trump and Hillary Clinton

Call it Brexit 2.0: American Edition.

Like their British counterparts, who voted in June to cut ties with the European Union (EU), American voters resoundingly rejected globalism last week, calling into question the United States’ involvement in military alliances such as the North Atlantic Treaty Organization (NATO)—which is 72 percent funded by U.S. tax dollars—and international trade deals, from the North American Free Trade Agreement (NAFTA) to the Trans-Pacific Partnership (TPP). Over the course of his campaign, Donald Trump sharply criticized such groups, vowing either to renegotiate the terms or pull out of them altogether. The future of the Paris climate agreement, ratified by over 100 countries as of this month, has also been thrown into uncertainty.

We all remember how Brexit was inaccurately predicted, with polls saying the referendum would fail. In a modern-day equivalent of “Dewey Defeats Truman,” U.S. polls also got the presidential election spectacularly wrong, missing the forest for the trees. Many polls, including CNN, Huffington Post and the Princeton Election Consortium, had Clinton’s chances of winning above 90 percent.

How did the media and pollsters get Election 2016 so wrong - visual capitalist

But in a reverse example of the so-called “Bradley effect,” which I shared with you before, people told pollsters one thing but did the exact opposite in the privacy of the voting booth.

U.S. voters largely repudiated political correctness, the Washington establishment and a biased media. They demanded sweeping, fundamental changes, and yet another Clinton or Bush just wasn’t the person for the job.

Zero Hedge quoted Nassim Taleb, scholar and author of “Black Swan: The Impact of the Highly Improbable” who put into words this frustration:

What we have been seeing worldwide, from India to the U.K. to the U.S., is the rebellion against the inner circle of no-skin-in-the-game policymaking “clerks” and journalists-insiders, that class of paternalistic semi-intellectual experts with some Ivy League, Oxford-Cambridge, or similar label-driven education who are telling the rest of us 1) what to do, 2) what to eat, 3) how to speak, 4) how to think… and 5) who to vote for.

In an interview on NPR, Alfonso Aguilar of the Latino Partnership for Conservative Principles spoke about the somewhat surprising election results, particularly among Latino voters, who were expected to hinder Trump’s chances of winning, especially with Trump’s comments about Mexican immigrants and immigration proposals. However, Aguilar commented that the reason 29 percent of the Latino vote went to Trump was because of the same issues cited by other American voters, namely jobs and the economy.

Congratulations, Readers

America's Best Hope - The Economist

National polls and financial publications might not have gotten it right, but you did. In an October 31 Frank Talk poll, I asked who you predicted would win the election. A third of you said Hillary Clinton, the other two thirds, Donald Trump. Our readers joined some neural network models and Jeffrey Gundlach, the DoubleLine Capital CEO and a Ph.D. mathematician, as some of the few who accurately predicted the outcome, beating the mega media channels.

World markets appeared to have wagered Clinton would win, judging from the selloff that ensued after it became clear Trump could pull off an upset. The one notable exception was Russia, as hopes improved that the U.S.—led by Trump, who has expressed admiration of Vladimir Putin—would lift economic sanctions against the Eastern European country.

Domestic stocks, however, were pointing to a Trump win all along, echoing the presidential election cycle that I’ve written about many times. In the three months ended October 31, the S&P 500 Index fell about 2 percent, and even more recently, the S&P 500 closed down for eight days in a row, the longest losing streak since October eight years ago. Historically, any loss during this period has foreshadowed a victory by the non-incumbent party candidate.

Social Media: The Great Disruptor

America just endured its first presidential election in which the majority of the electorate got its news from social media, says AdAge.

America's Best Hope - The Economist

Those worried about the bias of mainstream media need not worry, as it seems a majority of voters were paying more attention to discussions being had, and news being posted, on non-unionized social media. Both candidates utilized social platforms. Trump’s Twitter account in particular gave a no-frills view of his personal thoughts throughout the entire campaign…to all of his 14 million followers.

A Reuters article explains the cost effectiveness of social media on the campaign trail, saying Trump’s win has “upended prevailing concepts about the influence of money in American politics and raised question of whether a lean, media-savvy campaign can become the new model for winning office in the United States.” In fact, Trump is approaching, or may have passed, $100 million from donors who have given “small” donations of $200 or less, reports Politco.com. This surpasses the small donations made throughout the campaigns of many Democrats before him – the most memorable, perhaps, being Barack Obama’s.

The Winners and Losers

Like the British pound following Brexit, the Mexican peso tumbled dramatically, dipping to a record low on the heightened possibility that Trump, with the cooperation of a Republican-controlled Congress, would tear up NAFTA and make good on his promise to build a “big, beautiful” wall along the nearly 2,000-mile U.S.-Mexico border. Such a wall is estimated to cost between $15 billion and $25 billion.

Mexican Peso Selloff Following the U.S. Presidential Election
click to enlarge

Infrastructure names such as Vulcan Materials and Caterpillar rallied last Wednesday morning. Other winners included drug makers and pharmaceuticals, driven by the apparent relief that price controls would not be imposed under a Clinton administration. Private prison stocks such as Corrections Corp. and GEO Group also surged, as did global defense firms Northrop Grumman, Lockheed Martin and Raytheon.

A Trump presidency could be good news for the financial industry. Back in August, Trump announced that, if elected, he would place a “temporary moratorium” on new financial regulations, such as the Labor Department’s fiduciary rule, which regulates how financial advisors service clients. In fact, as laid out in Trump's first 100-day plan, he wants to implement a rule that eliminates two regulations for every one new regulation. As I’ve written about previously, this is very similar to what former Canadian Prime Minister Stephen Harper proposed – Canada’s “One-for-One Rule” introduced in April 2012.

If Trump has his way, taxpayers will be winners also. Many economists agree that cutting taxes will be good for corporate earnings, and by extension, the investing public. As Deutsche Bank points out, the Republicans want to “lower the effective corporate tax rate and try to stimulate growth and hopefully this causes the tax cut to pay for itself over time.”

Reduction in the statutory U.S. tax rate

Going forward, losers could include multinational technology firms that manufacture some or all of their products in China (Apple and Microsoft, for instance) and retailers that mostly sell Chinese-made goods (Walmart). The new president-elect has expressed interest in levying tariffs on Chinese imports, which, I was surprised to learn, he could very well do through the Office of the United States Trade Representative (USTR) and Commerce Department.

This would certainly push inflation up—raising prices on everything from TVs to iPhones to shoes to houseware—which in turn could light a fire under the Fear Trade.

Gold Swings on Trump Victory

Gold had a phenomenally volatile day last Wednesday, the biggest since Brexit. It rose as much as $60, breaching $1,300 an ounce, before ending the day down after U.S. equities rose and the dollar strengthened.

Gold ended down on Wednesday after an extremely volatile day.

Now that the initial shock of Trump’s win is over, the next big test for the yellow metal’s movement is the possibility of a December rate hike. Although gold continues to find support from low to negative government bond yields, we can likely expect the metal to remain relatively flat, at least until we know what the Federal Reserve’s next move will be.

As I shared with you in a recent Investor Alert, HSBC analysts predict a Trump win will be extremely bullish for gold. According to analyst James Steel, Trump’s “protectionist” policies could have a negative impact on global trade and increase federal deficits, which would be supportive of gold. The bank sees gold rising to as high as $1,500 an ounce by year-end.

In events reminiscent of 1997 and 2006, we are seeing an unwinding of the carry trade, which is putting pressure on gold. Investors have been buying Japanese debt at 0 percent interest rates, to buy gold and emerging markets. But now Japan is calling in its debts, causing investors to sell their gold and emerging markets investments.

In this environment, investors can keep in mind that short- term municipal bonds have been much more stable than two-year and five-year government bond yields, especially with the probability that the Fed will raise rates next month.

I invite you to join our upcoming webcast on gold, taking place this Thursday, November 17, at 3:30pm CT. I hope to share further insight into the world of gold and how the landscape is evolving – from the presidential election, to political events around the world, to the rise of complex algorithms influencing our daily lives. We believe that gold remains attractive for investors worldwide and hope that you’ll join in.

Recognizing Other Leaders

Last week, while I was in Melbourne to present a keynote address during the International Mining and Resources Conference, I also had the pleasure of presenting Mines and Money’s 2016 Legend in Mining award to Jake Klein, Executive Chairman of Evolution Mining. Jake, who formerly worked in the commodities division of Macquarie Group, got his start in the mining industry after making several visits to mines and smelters in China. He and two of his colleagues started the company called Sino Mining in 1995, where he was president and CEO. The company grew and was later sold for more than AU$2 billion. After this, he joined Conquest Mining, a small Australian company, which later became Evolution Mining, one of Australia’s rapidly growing gold mining companies.

Frank Holmes presents Jake Klein, executive chairman of evolution mining with legend in mining award this week at IMARC.

Jake was nominated by previous winners of the award as well as by members of the Australian investment community. Congratulations again!

 

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The following securities mentioned in the article were held by one or more accounts managed by U.S. Global Investors as of 09/30/2016: Evolution Mining Ltd., Lockheed Martin Corp., Northrop Grumman, Raytheon Co.

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

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Net Asset Value
as of 05/22/2017

Global Resources Fund PSPFX $5.40 0.02 Gold and Precious Metals Fund USERX $7.15 0.05 World Precious Minerals Fund UNWPX $6.29 0.02 China Region Fund USCOX $8.85 0.10 Emerging Europe Fund EUROX $6.41 0.03 All American Equity Fund GBTFX $24.19 0.17 Holmes Macro Trends Fund MEGAX $19.12 0.05 Near-Term Tax Free Fund NEARX $2.23 No Change U.S. Government Securities Ultra-Short Bond Fund UGSDX $2.00 No Change