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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 10 Most Competitive Countries in the World
October 5, 2015

runners on the starting line

Since 1979, the World Economic Forum (WEF) has annually published its Global Competitiveness Index (GCI), which, as you can probably guess, ranks the competitiveness of nations for which the group is able to gather sufficient data. This year, the WEF ranks 140 economies—from Switzerland to Guinea.

This is a report I anticipate every year because it’s an indispensable tool that helps policymakers and business leaders better understand what works and what doesn’t in creating stronger, more transparent, more efficacious societies that foster success and prosperity.

For the very curious, the more-than-400-page report is available for download on the WEF’s website.

Global Growth Starts at Home

The WEF defines competitiveness as “the set of institutions, policies and factors that determine the level of productivity of an economy, which in turn sets the level of prosperity that the country can earn.”

I agree with this definition. I often point out that government policy is a precursor to change, that such policy changes, such as the one India recently instituted regarding gold-investing, have powerful—and sometimes negative—consequences, many of them global. Here in the U.S., consider the recent implementation and impact of Dodd-Frank, or Obamacare, or FATCA (the Foreign Account Tax Compliance Act).

A recent Sovereign Man post makes this point very emphatically:

U.S. regulations have made its entire population guilty of crimes they’ve never heard of, often for the most innocent and innocuous activities.

Operating lemonade stands without a permit, collecting rainwater, failing to file a government survey are just a few activities now treated as criminal conspiracies.

And yet the government continues to publish upwards of a 1,000 pages PER DAY of new rules, regulations, and other proposals.

Presidential candidate Donald Trump, an advocate for fewer regulations, agrees. In a 2012 Washington Times op-ed, he wrote that “government regulations cost us annually $1.75 trillion. They constitute a stealth tax that is larger than the amount the Internal Revenue Service collects every year from corporations and individuals combined.”

The Economy Shrinks when Government Grows Too large

Consider this. In the U.S., we cap debt. We cap pollution. Imagine if we did the same for rules and regulations.

Please don’t get me wrong. Every sport requires a rulebook and referee of some kind, but the game becomes increasingly difficult to play and compete in when the rules keep changing and getting more restrictive. At some point, government spending related to such rules and regulations becomes too cumbersome. The cost exceeds the benefit, in other words, as you can see in the chart known as the “Rahn curve,” named for American economist Richard W. Rahn. 

I also frequently comment that governments and economic partnerships, such as the European Union, must maintain a healthy balance between monetary and fiscal policy to remain competitive on the world stage. When economies rely only on monetary policy but fail to address fiscal issues such as punitive taxation and over-bloated entitlement spending, imbalances occur. These imbalances inevitably slow the engines of business and innovation, like cholesterol in one’s arteries.

a penny-farthing economy o a precarious ride: governments must learn to balance monetary and fiscal policies to remain competitive globally

As for gold, many CNBC reporters like to comment on the metal’s recent underperformance, when in fact gold was down substantially less than the S&P 500 Index this past quarter. Government policy is imbalanced with restrictive, choking global regulations for trade and focused instead on tax collection. We need to reform taxes and streamline regulations to stimulate economic activity.

Speaking of which: Every year, the GCI lists what policymakers and business leaders identify as the most “problematic factors” for doing business in individual countries. It should come as no surprise that the top five factors on average include, in ranking order:

1) government bureaucracy
2) tax rates
3) restrictive labor regulations
4) access to finance
5) complexity of tax regulations

Regarding access to finance, the GCI notes that it has worsened in recent years. This worsening is certainly the result of the global financial crisis seven years ago, but financial regulation has gone too far, paralyzing the flow of credit.

As proof of this, the group writes: “Access to finance is now almost as problematic in advanced as in developing economies.”

The WEF’s insight, research and guidance are as needed now as they’ve ever been. We continue to see deterioration in the global purchasing managers’ index, mostly as a result of the “problematic factors” listed above.

Global Purchasing Managers' Index Continues to Deteriorate
click to enlarge

As large and important as China’s economy is, we can’t place the blame solely at the feet of its slowing economy for the world’s problems. If we truly wish to see an upturn in business and manufacturing activity, individual governments need to address the ever-amassing regulations, tax complexity and bureaucracy that act like sandpaper to the progress of business, innovations and prosperity.

Biggest Gainers and Losers

Before I share with you the top 10 most competitive nations—which haven’t really changed from the previous year—I want to highlight a few countries that made either some significant gains or losses.

runners on the starting line

The country that leaped the most was India, rising 16 spots from number 71 last year to 55. I don’t think many people will find this surprising. Prime Minister Narendra Modi’s election last year ushered in a new era of business development, foreign investment and anti-corruption. The “Make in India” initiative, launched by Modi in September 2014, has helped the country surpass China as the world’s top destination for foreign direct investment.

As I shared with you in March, India was the best-performing emerging market in 2014, rising more than 29 percent. Many analysts, furthermore, estimate that the country will emerge sometime this century as the world’s third-largest economy, following China and the U.S.

The GCI points out, however, that India continues to face significant challenges. Infrastructure deterioration, a huge lack of access to electricity and slow technological readiness are concerns Modi’s administration must take urgent action on.

Other notable climbers were the Czech Republic (gaining six points), Kazakhstan (eight points), Russia (eight points) and Vietnam (12 points). I shared with you last month that the Czech Republic has the highest PMI reading among emerging European countries and the fastest-growing economy in all of Europe, so its ascent was very much expected.

You might be taken aback, however, to see Russia rise so much, especially after the plunge in oil prices—so important to the country’s budget—the weakening of its currency and the imposition of additional sanctions following its invasion of Ukraine. The WEF no doubt anticipated readers’ disbelief as well, because it writes: “[T]his is explained mostly by a major revision of purchasing power parity estimates by the IMF (International Monetary Fund), which led to a 40 percent increase in Russia’s GDP when valued at PPP.”

Brazilian President Dilma Rousseff

The country that plummeted the most was one of India and Russia’s fellow BRIC countries, Brazil. Falling 18 spots, the South American nation now sits at number 75 out of 140, compared to last year’s 57.

As with India, no one should be shocked by this. The Marxist policies of President Dilma Rousseff, in office since 2011, have only managed to suffocate business development. Brazil ranks as one of the very worst countries in terms of burdensome government regulations, unethical business practices, effect of taxation on incentives to invest and hiring and firing procedures.  

Besides a loss of trust in public and private institutions because of rampant corruption, the GCI cites Brazil’s “large fiscal deficit,” “rising inflationary pressure” and “weak macroeconomic performance.”

Another BRIC country, China, holds steady at 28. You might recall that back in August, I reacted to the news of China’s stock market correction and economic slowdown, writing that “the world’s second-largest economy has begun to shift away from manufacturing and more toward consumption and the service industries.”

My views here are quite validated by the GCI’s assessment of the Asian country’s current economic condition, stating that China must “evolve to a model” that emphasizes “demand through domestic consumption.”  

Crème de la Crème

In the map below, you can see the current top 10 most competitive countries, according to The Global Competitiveness Report.

Top 10 Most Competitive Countries, According to the World Economic Forum
click to enlarge

As I mentioned earlier, not much has changed since last year. No new countries have entered or exited this exalted list, and there was very little rank-shuffling. For the seventh consecutive year, Switzerland is the most competitive country. For the fifth straight year, Singapore is number two. The U.S. comes in at number three for the second year. And so on.

For this reason, I won’t spend much time rehashing what I already said in my coverage of last year’s report. It’s likely you can already identify many of the probable reasons why these nations appear so highly on the index: access to good infrastructure and electricity, quality education and research institutions, availability of the latest technology, strong intellectual property rights and protectionism and much more.

Each one of these 10 countries has its own unique strengths and weaknesses, for sure, but the common theme among them can be traced back to the WEF’s definition of competitiveness. The most successful countries foster “institutions, policies and factors that determine the level of productivity of an economy, which in turn sets the level of prosperity that the country can earn.”

Recall my comparison of Singapore and Cuba in a March Frank Talk. Both small island-states were established in their present forms in 1959—but with two starkly different economic visions. Whereas one government chose to stress sound fiscal policies and an open business environment, the other all but abolished private enterprise.

As a result, Singapore is today the second-most competitive nation on earth, according to the World Economic Forum. Meanwhile, Cuba doesn’t even rank among the 140 countries the group studied.

To get global growth back on track, it’s imperative that countries follow the leads of Switzerland, Singapore, the U.S. and others that made it to the top of the WEF’s list.

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 Global Competitiveness Index, developed for the World Economic Forum, is used to assess competitiveness of nations. The Index is made up of over 113 variables, organized into 12 pillars, with each pillar representing an area considered as an important determinant of competitiveness: institutions, infrastructure, macroeconomic stability, health and primary education, higher education and training, goods market efficiency, labor market efficiency, financial market sophistication, technological readiness, market size, business sophistication and innovation.

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

The Rahn curve is an economic theory, proposed in 1996 by American economist Richard W. Rahn, which indicates that there is a level of government spending that maximizes economic growth. The theory is used by classical liberals to argue for a decrease in overall government spending and taxation.

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

BRIC refers to the emerging market countries Brazil, Russia, India and China.

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India Issues Its First Sovereign Gold Coin to Balance Gold Imports
October 1, 2015

Gold tends not to leave India once it enters. As the world’s largest importer, the country consumes massive quantities of the yellow metal—it’s on track to take in 900 tonnes of the stuff this year—where it remains in private families’ coffers, mostly in the form of jewelry and decorative heirlooms. It’s estimated that less than 10 percent of all Indian gold demand is in bars and coins.

That might change this month—strong emphasis on “might”—as the India Government Mint will issue its first-ever sovereign gold coin, just in time for the fall festival season, which kicks off November 11. The coin will reportedly feature the Ashoka Chakra, the traditional 24-spoked symbol that appears on India’s national flag.

Consider the immense popularity of the American Eagle, the Canadian Maple Leaf, the British Sovereign, the South African Krugerrand and others—and now this month, India’s coin will join their exalted ranks. You might wonder why India, whose notoriously insatiable demand for gold stretches back millennia, has only recently decided to join other nations in issuing a sovereign gold coin.

The answer has much to do with the government’s interest in trimming massive net inflows of the yellow metal and containing its impact on the country’s trade balance. As I said, gold is so highly-valued by Indian citizens that once it enters the country, it stays in the country, largely as family heirlooms.

The World Gold Council estimates that 50 percent of Indian wedding expenses is on gold. And when you consider that about 20 million weddings occur each year on average in India—many of them featuring gold in some capacity—it becomes very clear that this affinity to the precious metal is shared by all.

Furthermore, because many Indians distrust government banks, they prefer to protect their financial security by holding physical gold.

And who can blame them? India’s own central bank holds more than 557 tonnes of the metal for the very same reason: financial security.

But apparently the government takes the position that you can have too much of a good thing, even something as precious and auspicious as gold, and therefore seeks greater control on how it manages net inflows.

“Such an Indian gold coin would help reduce the demand for coins minted outside India and also help to recycle the gold available in the country,” says Arun Jaitley, India’s Minister of Finance.

But will Indians be buying? It’s probably too early to tell.

Indian Government Policy to Change Gold Investing

What can be said is that the plan to issue the coin is part of a broader government strategy to change the way Indians invest in gold. I always say that government policy is a precursor to change, and the new policies announced back in the spring are scheduled to go into effect soon.

One such program involves a gold bond, “which would not be backed by gold,” explains Jeffrey Christian, a managing partner at commodities consultancy group CPM Group, who spoke recently at the Denver Gold Forum. Instead, the bonds would be issued by the Reserve Bank of India, the underlying assumption being that some Indians would prefer gold-indexed bonds to actual bullion.

“And so they think that they can discourage physical gold demand because it put stress on [the government’s] current account balances a few years ago,” Christian says.

Then there’s the so-called “gold monetization scheme,” which is a program designed to encourage individuals and temples laden with gold to voluntarily deposit some of their bullion in exchange for a “2 percent or more” interest rate.

Theoretically, the gold would be held on deposit. In practice, however—again, according to Christian—it would be lent or sold to the jewelry industry, thereby reducing gold imports.

This means, of course, that the bullion—including everything from gold trinkets to cherished wedding ornaments—would be melted down.


“Not many [Indians] would want to see their long-preserved, family-inherited, emotionally-attached piece of yellow metal lose its identity and ‘feel’ by melting it for meager return,” writes columnist Dinesh Unnikrishnan of Indian news agency Firstpost.

The government’s multifaceted strategy might not be as drastic as the one enacted by President Franklin Roosevelt in 1933, which forbade the “hoarding of gold coin, gold bullion and gold certificates within the continental United States.” For now, Indians’ participation in the two progressed programs is completely voluntarily.

“Given the cultural and traditional affinity of Indians to their family-owned gold ornaments,” Unnikrishnan writes, “the only incentive for them to come forward and pledge their gold under the scheme is higher returns.”

Will Indians be enticed?

Take our poll!

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.

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How Will These Leaders of 4 Billion People Change the World?
September 28, 2015

Last week the U.S. played host to three prominent and illustrious leaders to billions of people: Chinese President Xi Jinping, Indian Prime Minister Narendra Modi and Pope Francis. Among them, they lead—either politically or spiritually—nearly 4 billion people worldwide, more than half of everyone living on the planet right now.

Shanghai Gold Exchange Withdrawals As Of August

The effect of their visits cannot be overstated. I was attending an ETF conference in New York City, where the arrival of the populist Francis, hugely popular and revered among more than just Catholics for his humility and inclusiveness, brought the already-clogged city streets to a veritable standstill. So stacked were the cars and trucks as a result of Pope Mania that I was forced to cancel scheduled interviews on CNBC and Bloomberg. New York Police Department Commissioner Bill Bratton said that the pontiff’s arrival in the Big Apple during the United Nations General Assembly—when 90 percent of the world leaders were in the city at the same time—was the largest security challenge the department and city had ever faced.

I have immense respect for his Holy One. He embraces change, both within the Vatican and globally, and for the Jesuit tradition of education and ministry.

For many people, including me, Pope Francis is a thought-provoking figure. In his speech to the United Nations last week, he said that economic progress can be achieved through “the legitimate redistribution of economic benefits by the state.” I question his economic logic while admiring his caring heart and good intentions. Far-reaching progress can best be achieved through development, not redistribution. The secular proverb “Give a man a fish and he’ll eat for a day, but teach him to fish and he’ll eat for a lifetime” comes to my mind.

Certainly the pontiff’s aspiration to feed the world is honorable, but the people who take the risk to plant the seeds and work hard to harvest the crops are not to blame for the hungers that exist. America is the most charitable nation on earth and our focus for increasing prosperity should be on helping people to fish and farm for a lifetime of financial independence.

Perhaps not as wildly anticipated, but no less important, were stateside visits from the heads of the second- and seventh-largest economies in the world, China and India.

Mr. Xi: Trust Me, All’s Well

In his first stateside visit, President Xi Jinping addressed approximately 700 American businesspeople in Seattle last week, during which he, according to Foreign Policy magazine, touched on “the usual promises to stay the course on market reforms, the insistence of China’s status as a developing country” and “the plea for mutual ‘deep’ cultural understanding,” among other promises.

Mr. Xi also reassured his audience to worry not about the Chinese stock market, which I’ve written frequently about. He defended the intervention his government has made, arguing that the government has stabilized further deterioration and contained investor panic. 

Likewise, he pledged to work with the U.S. to curb additional cybersecurity breaches such as the kind that struck Sony Pictures back in November 2014.

American Business Leaders Expect Massive Growth in India

Last week marked Indian Prime Minister Narendra Modi’s second visit to the U.S., the first time being in October 2014 when he spoke at Madison Square Gardens in a rousing, rock-star reception.

As is the case with most politicians from whom much is expected, Modi’s star has dulled somewhat since then. Many business leaders are starting to grow impatient about the slowness of his government’s ability to eliminate investment hurdles.

But the promise he brings of a modern India, with electricity and Internet access for all 1.2 billion Indians, still remains more than just a dream.

U.S. business leaders seek to capitalize on this growth.

Janet Yellen Interest Rate Liftoff Delayed Again

Let’s be clear, though: India still has a lot of catching up to do. Morgan Stanley estimates that the country is at least seven years behind China when it comes to Internet penetration and online shopping. In 2014, India had about 243 million active Internet users, or about 19 percent of its population. In the same year, China had some 641 million users, or nearly half of its population, according to Internet Live Stats.

Quite contradictorily, though, Facebook users in India have skyrocketed to 100 million active monthly accounts, which represent a larger presence on the social media platform than in the U.S, according to Tech2. This means there’s huge upside indeed.

Modi: Tech-in-Chief

Narendra Modi is one of the most tech-savvy world leaders, a characteristic he wants to encourage his fellow Indians to embrace. He’s a prolific user of Twitter, followed by a staggering 15.1 million people. By comparison, President Barack Obama’s official presidential Twitter handle, @POTUS, has 4.38 million followers while @Pontifex, Pope Francis’ Twitter handle, has 7.35 million followers.

Narendra Modi vs Pesident Obama Twitter account

It’s no wonder, then, that Modi sought an audience with top tech industry leaders such as Facebook founder and CEO Mark Zuckerberg, Apple CEO Tim Cook and Tesla Motors CEO Elon Musk—some of the same figures Mr. Xi met with earlier in the week. All of them have expressed interest in diverting more resources to India, where the next huge surge in Internet usage is expected to take place. Retail giant Amazon, for instance, plans to spend $2 billion to expand its presence in India. Facebook will offer a free Internet service through its Internet.org platform.

In a YouTube video, Sundar Pichai, Google’s current Product Chief and its next CEO, welcomed Modi on his visit to immigrant-friendly Silicon Valley. Born in India himself, Pichai highlighted the strong, longstanding partnership between Indian and America’s major tech hub, stating:

The bond between India and Silicon Valley is strong. India’s long been an exporter or talented tech companies… The products by Indian graduates have helped revolutionize the world, but it is India that’s now undergoing its own revolution… Prime Minister Modi’s digital India vision is central to the revolution. It focused on connecting the 1.2 billion people in India.

You can watch Pichai’s full comments below.

In his personal tweets, Modi reassures followers that the goal of his visit is to strengthen business relations between the U.S. and India and to open his country up to further investment opportunities. This is a persistent challenge, as India is widely seen as one of the more difficult countries to conduct business in.

Modi has repeatedly pledged to speed up efforts to improve his country’s business climate for foreign investors. 

In the picture above, you can see a seated Modi surrounded by powerful Fortune 500 executives such as Citigroup’s Michael O’Neill, PepsiCo’s Indra Nooyi, IBM’s Ginni Rometty, Lockheed Martin’s Marilyn Hewson, Boeing’s Bertrand-Marc Allen and many more.

During his visit, Modi approved a $3 billion deal with Boeing—which we own in both our All American Equity Fund (GBTFX) and Holmes Macro Trends Fund (MEGAX)—a purchase that’s eclipsed by Xi Jinping’s plan to buy 300 Boeing jets worth $38 billion, not to mention an arrangement for an assembly plant to be built in China.

Chinese President Xi Jinping just approved the purchase of $38 billion worth of Boeing jets.

In our quarterly earnings webcast, I mentioned the importance of staying abreast of government policy changes and the latest purchasing manager’s index (PMI) numbers. While India’s August PMI reading holds fairly steady at 52.3, indicating manufacturing expansion, China’s still remains in contraction territory at 47.3.

Both government policy reform and PMIs help our investment team inform its strategies. Government policy, as led by the G20 countries, has unfortunately been focused largely on synchronized global taxation and regulation since 2008. These are not great precursors for commodity demand.

When we can return to a point where governments are more focused on fiscal policies, reducing taxes, streamlining regulations and unleashing capital, I think that that would be a tipping point from a big macro sector theme.

So shorter term, we’ll be looking for the change in global PMIs, which would indicate global synchronized growth. The “magic” number is when PMI is above 50, and the momentum starts when the one month crosses above the three months. This is the positive, constructive sign that demand for commodities is picking up, and we’ll be looking for it.

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. Distributed by U.S. Global Brokerage, Inc.

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

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

Fund portfolios are actively managed, and holdings may change daily. Holdings are reported as of the most recent quarter-end. Holdings in the All American Equity Fund and Holmes Macro Trends Fund as a percentage of net assets as of 6/30/2015: Sony Corp. 0.00%; Facebook Inc. 2.22% Holmes Macro Trends Fund; Apple Inc. 3.10% All American Equity Fund, 4.46& Holmes Macro Trends Fund; Tesla Motors Inc. 0.00%; Amazon.com Inc. 0.00%; Google Inc. 0.00%; Citigroup Inc. 1.58% All American Equity Fund; PepsiCo Inc. 1.15% All American Equity Fund; IBM 0.93% All American Equity Fund; Lockheed Martin Corporation 0.00%; The Boeing Co. 1.06% All American Equity Fund, 1.50% Holmes Macro Trends Fund. 

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.

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Here Are Two Ways Investors Can Take Advantage of the Fed's Uncertainty
September 21, 2015

Federal Reserve Chair Janet Yellen last week blinked in the face of—as she described it—global uncertainty, low inflation, and a still-low U.S. labor force participation rate. I’ve written on the emerging markets slowdown numerous times in recent months, so her reasoning is not at all surprising.

Although interest rates could still be hiked in one of the two remaining times the Federal Open Market Committee (FOMC) meets this year, I’m inclined to think they’ll stay near zero until at least 2016.

Janet-Yellen-interest-rate-liftoff-delayed-again

The decision is a welcome one for both gold demand and new home purchases. When rates rise, gold becomes less attractive for some investors, who are encouraged to exchange their no-yielding gold for income-producing assets.

As for loans on new or existing homes, they don’t necessarily rise and fall in perfect correlation with interest rates—they’re more directly related to the 10-year Treasury bond yield—but there’s a strong psychological connection in many potential homebuyers’ minds.

An interest rate reprieve, then, might encourage borrowers to act before it’s “too late,” helping home sales. This could speed up the multiplier effect, or what occurs when there’s an increase in spending that increases income and consumption greater than the initial amount spent. When people buy a home, they also put carpenters to work, purchase new furniture, hire landscaping companies and more.

The same is true when taxes are lower. It creates less friction in the flow of money.

A Record-Setting Year for Chinese and Indian Gold Demand?

Following Yellen’s announcement, I told JT Long of the Gold Report that the Fed’s decision is a wash for precious metals, oil and gas prices. A rate hike would have likely caused the U.S. dollar to strengthen even further, which in turn would have put additional pressure on commodities.

I’ll be watching China’s purchasing managers’ index (PMI) numbers very closely in October and November to see if manufacturing activity will start to turn up. Since China is such an important consumer of metals and other raw materials, it’s crucial that its manufacturing sector break out of the recent slowdown.

A recent article by Oxford Club Resource Strategist Sean Brodrick points out that China’s gold demand, as tracked by deliveries out of the Shanghai Gold Exchange (SGE), is much healthier than many people believe. So far this year, demand has been 36 percent higher than around the same time in 2014, and 13.5 percent higher than in 2013—which was a record year.

Shanghai-Gold-Exchange-Withdrawals-as-of-August
click to enlarge

Chinese gold demand also tends to increase near the end of the year as the Chinese New Year approaches, so it’s possible 2015 could hit a new record.

Demand out of India is likewise surging, reaching 120 tonnes in August, compared to 50 tonnes this time last year. With important Indian fall festivals quickly approaching such as Diwali, the gold Love Trade is in full swing.

Homebuilders Feeling Good About the Future

Homebuilders-Confidence-is-at-10-Year-High

Speaking of love, U.S. homebuilders generally seem to have a rosy feeling about the housing market. According to a new survey by the National Association of Home Builders (NAHB), builder confidence in the market for new single-family homes rose to 62 in September, its highest level since November 2005. A reading over 50 means that builders have a positive attitude about economic conditions.

Driving this sentiment are historically low interest rates, low unemployment and steadily rising rents, which makes purchasing a home more appealing.

Homebuilders-Confidence-at-Highest-Point-Since-2005
click to enlarge

Housing starts in August fell for a second straight month, but they remain above the one million-unit mark—1.13 million, to be exact—so demand is still on solid footing. This week, Evercore ISI wrote:

Housing starts have already more than doubled and are clearly improving here in 2015. But they still have lots of room to increase.

What this means is there’s a lot of upside opportunity.

US-housing-starts-still-have-much-room-to-grow
click to enlarge

A better indicator of the market might be the number of permits filed for new homes, which ticked up 3.5 percent in August.

Planned-Private-Housing-Units-in-US-Rise-in-August
click to enlarge

We own Masco Corporation, which manufactures products for home improvement and new home construction markets. It’s up more than 23 percent year-to-date, while the S&P Homebuilders Select Industry Index is up nearly 30 percent during the same period.

Big Data: October Is the Best Time to Close on a New Home

The reason for a rise in permits is likely because the fall and winter months have traditionally been perceived as the best time of year to buy a new home, due to less competition from other buyers because of the colder weather.

Real estate information company RealtyTrac wanted to check the validity of this longstanding theory and found it be to mostly accurate. After analyzing 32 million home and condo sales since 2000, the group found that buyers tend to get the best deals during October—just next month—when sales prices were 2.6 percent below market value. And if you want to get really precise, October 8 was the absolute best day to close on a home, “when on average buyers have purchased 10.8 percent below estimated market value at the time of the sale,” according to RealtyTrac.

The worst month to buy a home in was April, when prices were at a 1.2 percent premium.

So the takeaway here is that homebuyers who have been sitting on the fence now have a double-incentive to act: historically low mortgage rates and a possible chance at killer bargains.

Government Policy Is a Precursor to Change

Last week, I discussed how homebuilding is important to money velocity, or the rate at which money is exchanged from one transaction to another. The multiplier effect of the housing market, according to the National Association of Realtors (NAR), is between 1.34 and 1.62 in the first year or two of the initial home purchase. What this means is that for every dollar spent on housing, the overall GDP increases by $1.34 and $1.62.

That’s huge. Not just for GDP growth but also job growth.

Global Construction magazine estimates that an average of 22 subcontractors are involved in the building of a single American home, from carpeting specialists to electricians to plumbers. These are just the subcontractors. The count doesn’t include full-time employees of the homebuilder.

All told, then, many more than 22 people are employed in the construction of each home in the U.S., on average. These professionals create wealth not just for themselves but for others as well.

According to Reuters, construction spending by the U.S. government increased 0.7 percent to a huge $1.08 trillion, the highest level since May 2008. Construction spending has increased for eight straight months, in fact.

This is why we always study government policies, because they’re precursors to change.

It’s why government bond yields spiked in anticipation of the Fed decision. The spike lowered the prices of bonds substantially. Based on our models, the drop in bond prices gave our portfolio managers a buy signal in our Near-Term Tax Free Fund (NEARX), allowing us to pick up some nice bargains in short-term municipal bonds attractive at that level.

While Americans are in the early stages of the presidential election cycle, and the debate stage is still crowded, Canadians will head to the polls in a month to decide the direction of their federal leadership.

I was in Toronto last week where the mood was tense as the effect of falling commodity prices hit the resource-based Canadian economy especially hard and the Canadian dollar was at its lowest level against the almighty American dollar since 2004.

If the Conservative Party remains in power, Prime Minister Stephen Harper will be the first person in more than a century to win four consecutive elections in Canada. It’s also the first three-way toss up in the nation’s history of Parliamentary elections.

Harper has been a reliable champion of commodity investments, small government and lower taxes—policies that I believe contribute to global growth and prosperity over the long term.

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. Distributed by U.S. Global Brokerage, Inc.

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

The S&P Homebuilders Select Industry Index is a modified equal weight index that represents the homebuilding sub-industry portion of the S&P Total Markets Index.

Fund portfolios are actively managed, and holdings may change daily. Holdings are reported as of the most recent quarter-end. Holdings in the Near-Term Tax Free Fund as a percentage of net assets as of 6/30/2015: Masco Corporation 0.00%.

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New Study: We're Nowhere Near Peak Coal Use in China and India
September 15, 2015

Resource investors, take note: By 2025, just 10 years from now, energy consumption in Asia will increase a whopping 31 percent. A whole two-thirds of that demand, driven largely by China and India, will be for fossil fuels, most notably coal.

That’s according to a new research piece by financial services group Macquarie, which writes that the estimated rise in fossil fuel demand is equivalent of “three times Saudi Arabia’s current (all-time-high) oil production.”

Change-in-Primary-Energy-Consumption-Between-2014-and-2025
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Macquarie’s research is in line with BP’s “Energy Outlook 2035,” released earlier this year, which predicts that more than half of the world’s energy consumption will come from China and India by the year 2035.

Chinese Indian Demand Fossil Fuels Coal Grow Next

Many readers might approach this news with a healthy dose of skepticism. Haven’t we been told that fossil fuels are falling out of favor? Aren’t governments placing caps on coal use to appease environmentalists and climate change crusaders?

It’s true that coal demand in China has declined a huge 6 percent so far in 2015, the result of anti-air pollution laws that temporarily restricted not just coal use but also factory operations and the amount of driving you can do. Last month I shared a striking photo of a man cycling through Beijing, a brilliant blue sky overhead—something I’ve personally never seen in my 25 years of visiting the city. As most people know, Beijing is notorious for its noxious yellow haze, and the government has been pressured lately to act. In Shanghai, authorities plan to close and relocate 150 factories in preparation for the proposed Shanghai Disneyland, the thinking being that the “Happiest Place on Earth” must have clear blue skies. 

I think we all agree that clean air is preferable to smog, but there needs to be a balanced approach to environmental policy that’s also business-friendly.

“Coal producers within China are definitely facing a consistent push by the government for clean energy,” says Xian Liang, portfolio manager of our China Region Fund (USCOX).

To get a better sense of the biblical quantity of raw materials China currently consumes, check out this infographic courtesy of Visual Capitalist.

Can India Pick Up China’s Slack?

Today, China and India collectively consume about 60 percent of all coal produced in the world. In absolute terms, consumption is expected to continue expanding as their populations balloon and the energy-thirsty middle class expands. In other words, as the energy pie gets much bigger, each slice should likewise grow.

By 2025, Macquarie writes, coal will still play a dominant role in China’s energy mix.

Coal-to-Remain-the-Dominant-Energy-Source-in-China-by-2025
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It’s possible that if China’s coal consumption dramatically declines, India will be there to fill the hole. Macquarie estimates that by 2025, India’s energy demand will rise 71 percent, with coal taking the lead among oil, gas, hydro, nuclear and others. The south Asian country is already the second-largest importer of thermal coal, and it might very well surpass China in the coming years. Macquarie writes:

Although all energy use will rise [in India], coal is the major theme as consumption and local production are both set to almost double by 2025 on the back of large-scale coal power plant construction plans.

The group adds that, unlike China, India has no present interest in reigning in its use of coal. Most emerging markets, India included, recognize that coal is an extremely affordable and reliable source of energy, necessary to drive economic growth.

Even if these predictions don’t come to fruition, the consensus is that we haven’t yet seen peak coal use in Asia. Estimates vary depending on the agency, but everyone seems to agree that demand in the medium-term will rise before it retreats. A 2014 MIT study even suggests that Chinese coal consumption could rise more than 70 percent between 2012 and 2040.

Consensus-We-Havent-Seen-Peak-Coal-Use-in-China
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Follow the Smart Money

With prices at multi-year lows and coal producers under pressure, some big name investors have used this as an opportunity to accumulate shares in depressed stocks. Recently I shared with you that influential billionaire investor George Soros just took a $2-million position in coal producers Peabody Energy and Arch Coal.

Maybe he’s on to something, if Macquarie’s research turns out to be accurate.

No one can deny that fossil fuels, and coal in particular, face many headwinds right now, including government policies intended to limit their use. The strong U.S. dollar has created havoc for commodities such as oil and coal, just as it has for American companies with business activities in foreign countries. And with many central banks around the globe continuing to devalue their currencies against the dollar, a strong greenback might be the “new normal” for a while.    

Also like oil, coal is facing oversupply issues, as producers had not anticipated a slowdown in emerging markets.

But there and elsewhere, coal will continue to play a vital role in providing affordable, reliable energy for decades to come.

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. Distributed by U.S. Global Brokerage, Inc.

Foreign and emerging market investing involves special risks such as currency fluctuation and less public disclosure, as well as economic and political risk. By investing in a specific geographic region, a regional fund’s returns and share price may be more volatile than those of a less concentrated portfolio.

Fund portfolios are actively managed, and holdings may change daily. Holdings are reported as of the most recent quarter-end. Holdings in the China Region Fund as a percentage of net assets as of 6/30/2015: Peabody Energy Corporation 0.00%, Arch Coal 0.00%.

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Net Asset Value
as of 09/25/2017

Global Resources Fund PSPFX $5.78 -0.04 Gold and Precious Metals Fund USERX $8.02 0.06 World Precious Minerals Fund UNWPX $6.69 0.06 China Region Fund USCOX $10.96 -0.46 Emerging Europe Fund EUROX $6.94 -0.06 All American Equity Fund GBTFX $24.34 0.10 Holmes Macro Trends Fund MEGAX $19.99 0.03 Near-Term Tax Free Fund NEARX $2.23 No Change U.S. Government Securities Ultra-Short Bond Fund UGSDX $2.00 No Change