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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.

Follow the Leaders: Learning from ETFs, BCA and the New PM
October 26, 2015

Reggie Browne, the Goldfather of ETFs, gave the opening remarks at the ETF conference in Austin.Last Thursday I had the pleasure of attending an intensive daylong ETF conference in Austin, just up the road from our office in San Antonio. Hosted by Cantor Fitzgerald, the conference was designed for institutional investors.

Welcoming the group was Reginald “Reggie” Browne, the “Godfather of ETFs,” who now serves as the senior managing director at Cantor Fitzgerald. His celebrity and prominence are nearly as big as his six-foot-five frame—and with good reason. Reggie has been instrumental in building the ETF landscape over the last decade and convincing investors of the power of the exchange-traded fund.

One of the panels featured chief investment officers from the Texas Teacher Retirement System (TRS). Jase Auby, Lee Partridge and Tom Tull discussed potential shifts in asset allocation under a rising interest rate environment, among other topics.

The TRS, one of the largest pension funds in the U.S., makes significant use of gold in its investment strategy, holding the yellow metal in many forms over the years. The same is true for the $20 billion University of Texas endowment fund.

Bruce Zimmerman, chief investment officer for UTIMCO, told CNBC in 2011 that the $20 billion endowment holds gold as a diversifier and hedge against currencies. This is precisely what we tell investors, and it’s validating to see such huge funds put it in practice.

During the ETF panel, I asked Jase, Lee, Tom and moderator Ronnie Jung about their thoughts on real interest rates and their relationship with gold. Everyone’s speculating on when the Federal Reserve will hike interest rates, but real interest rates, as I shared with you this week, appear to have already risen. (As a reminder, real interest rates are what you get when you deduct the monthly rate of inflation from the 10-year Treasury yield.) A 10 percent upswing in the U.S. dollar is equivalent to the federal funds rate being hiked 100 basis points.

This has had a huge effect on the yellow metal. When real rates are negative, gold has tended to do well. Conversely, when they’re positive—and rising, as they are now—it’s been a headwind for gold. This relationship was confirmed by the research of Barry Bannister, chief equity strategist for Stifel, who visited our office last week.

I also appreciated the TRS group’s bullishness on China. Their position is that, because everyone is negative on China right now, all sorts of investment opportunities open up from a contrarian point of view.

The World’s Second-Largest Economy in Flux

I’ve commented before that China has been moving away from a manufacturing-based economy and instead focusing more on services—financials, real estate, insurance, ecommerce and the like.

China's Services Industry Surpasses 50 Pecent GDP
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While the country’s purchasing managers’ index (PMI) reading has been in contraction mode since March of this year, these service industries are ever-expanding. The problem is that the transformation has not been fast enough to offset the massive size of the manufacturing sector.

But investment opportunities in this sector still exist. Anyone who’s traveled more than 100 miles inland knows that China is under-urbanized. Ever since Deng Xiaoping created special tax-free zones along the eastern Chinese coastline in 1978, most of the country’s growth has been concentrated in these few regions and municipalities. The interior provinces, on the other hand, have remained largely rural.

You can see this for yourself in the chart below, provided by Marko Papic, chief geopolitical strategist for BCA Research, who briefed our investments team this week. BCA is an influential, independent investment strategy firm with more than 65 years of experience conducting excellent macroeconomic research.

Chinese Interior Provinces Still Need Investment-Led Growth
click to enlarge

We just learned that the People’s Bank of China cut both lending and saving rates 0.25 percent, to 4.35 percent and 1.50 percent respectively. This will cause negative real rates in China to fall even lower, which is good for gold demand.

It will also likely add to the Fed’s list of doubts about raising its own rates. In a world where every other major country is stimulating its economy by cutting rates and devaluing its currency, it makes less and less sense for the U.S. to hike rates.

BCA’s Marko Papic stressed the need to see further stimulus in China. Without it, commodities and global growth in general are at risk. Some economists believe we might be headed for a global recession.

Difference of Opinion When It Comes to Defining Global Recession

Depending on who you ask, there are different ideas of what global recession looks like. The generally accepted one in the U.S. is two consecutive quarterly declines in real GDP. The International Monetary Fund (IMF), however, uses a different measure. Among other economic conditions, annual GDP must fall below 3 percent, a high benchmark and one that requires much stimulus.

Global growth for 2015 is at 3.3 percent, the IMF calculates, precariously close to the 3 percent threshold. 

BCA Research: The Trans-Pacific Partnership Is Needed to Fast-Track Global Growth

This is where the Trans-Pacific Partnership (TPP) comes into play, which is the stance BCA also takes. The landmark trade agreement, involving 12 nations, was signed earlier this month. Although it still requires ratification, the TPP could boost the world economy by an incredible $223 billion by 2025, according to the Peterson Institute for International Economics.

The 12 Apostles of the Historic Trans-Pacific Partnership
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Like Father, Like Son: Canada Elects a New Leader

I feel blessed to have had the chance to meet Prime Minister Pierre Trudeau in 1978. I'm second from the right.

One of the TPP’s biggest supporters was outgoing Canadian Prime Minister Stephen Harper. But the newly elected Justin Trudeau, member of the Liberal party, has also come out in support of free trade agreements. The hope is that he will continue to take this position where the TPP is concerned.

Although Trudeau earned his degree in education from the University of British Columbia and taught as a school teacher for many years, he is by no means a stranger to politics. He’s served as a Member of Parliament since 2008, and his father, Pierre Trudeau, served as Canada’s prime minister for 15 years.

Back in the 1970s, in fact, I campaigned for Pierre Trudeau alongside Dr. John Evans, a Rhodes Scholar. This was during Trudeau’s first stint in office, before being voted out in 1979 and then returning to serve again in 1984.

His son, only 43, ran on a campaign of hope and change—sound familiar?—and promised that, if elected, he would help the economy by increasing infrastructure spending. Unlike some other world leaders, he wants to put people to work instead of establishing a welfare state. Trudeau plans to raise revenue by taxing recreational marijuana—if he succeeds at legalizing it, that is.

Justin Trudeau boxes his way to center stage

One of the main criticisms of Trudeau the Younger is that he’s inexperienced politically. But here in the U.S., take a look at who’s currently topping the polls in the Republican field: business magnate Donald Trump, neurosurgeon Dr. Ben Carson and former Hewlett-Packard CEO Carly Fiorina. Accomplished though they are, none of them has been elected to office. This goes to show that voters have grown fed up with career politicians who lack accountability.

 

Next Stop, the Big Easy

Former Federal Reserve Chair Alan Greenspan one of the many distinguished speakers at the New Orleans Investment ConferenceThis week will kick off my short conference road trip, beginning with the 2015 New Orleans Investment Conference, happening October 28 – 31. For 41 years, this event has attracted some of the world’s most distinguished speakers—from Margaret Thatcher to Steve Forbes to Norman Schwarzkopf—and this year’s no exception. I look forward to speaking again this year alongside some of the brightest minds in the industry at what some call the “World’s Greatest Investment Event.”

After that, I’ll head to Peru for the Mining & Investment Latin America Summit, November 4 – 5, and wrap things up in Melbourne, Australia, at the International Mining and Resources Conference.

I hope you’ll join me!

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. The following securities mentioned in the article were held by one or more of U.S. Global Investors Funds as of 9/30/2015: Hewlett-Packard Co. 0.00%.

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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China Then and Now, in Pictures
October 15, 2015

Beijing, China

It was in October 1993 when I first visited China to sniff out investment opportunities.

At the time, the Asian country was still going through an economic and existential transition that had been set off by the Tiananmen Square protests four years earlier. Along with the former Soviet Union, China had fallen out of the top 10 largest economies in the world.

How things have changed. I’ve since returned to China many times, and I’ve watched its economy grow to become the second-largest in the world. Based on purchasing power parity (PPP), it’s the largest. And according to Credit Suisse, the size of China’s middle class has for the first time overtaken the U.S. to become the world’s most populous—109 million Chinese compared to 92 million Americans.

I invite you to explore our exciting new slideshow that tells the story of how the People’s Republic of China evolved, from a struggling, divided communist nation in 1949 to an economic powerhouse today.

Discover how China became the world's second-largest economy - slideshow

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 these 12 TPP Nations Could Forever Change Global Growth
October 12, 2015

Historic. Landmark. Groundbreaking. Revolutionary.

These are among many of the words that have been used lately to describe the Trans-Pacific Partnership (TPP) trade pact, which was finally signed in Atlanta last Monday by 12 participating Pacific Rim nations.

The current members include Canada, the United States, Mexico, Peru, Chile, Japan, Vietnam, Malaysia, Brunei, Singapore, Australia and New Zealand.

runners on the starting line

After nearly seven years of negotiations, the TPP promises to deliver unprecedented free and fair global trade among the 12 participant nations.

Once ratified by each country’s congress or parliament—which is likely to happen in early 2016—the accord will become the most significant, most economically-impactful trade deal in history. As many as 18,000 tariffs are expected to be eliminated. It will remove barriers to foreign investment, streamline customs procedures and create an international investor-state dispute settlement (ISDS) system, among much more.

Global Purchasing Managers' Index Continues to Deteriorate
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The Peterson Institute for International Economics, a Washington, D.C.-based think tank, predicts that the resultant savings could boost the world economy by an incredible $223 billion by 2025.

Today, the 12 members control more than a quarter of all global trade, representing close to $10 trillion. But it’s estimated that once the TPP goes live, the trade percentage could climb to as high as 50 percent, according to CLSA.

The trade pact couldn’t have come at a better time. Global growth is slowing, and mounting tariffs threaten to suffocate trade. Even though the TPP’s full implementation is months and, in some cases, years away, it’s encouraging to know that positive change is on its way.

Having said that, no one knows the full details yet and it might be a while before we can see the official documents. When that time comes, we’ll analyze the deal to see which countries, industries and sectors stand to benefit the most. And of course the pact has already become the subject of criticism, targeted specifically at how it handles pharmaceuticals and intellectual property.

All in all, however, the world has needed such an agreement for years now to bring unilateral trade liberalization into the 21st century.

China Misses First-Mover Advantage but Isn’t out of the Race

The most notable player missing-in-action is China, and to a lesser extent Korea, both of which have taken a “wait and see” attitude. That will likely change in the coming years. China sat this round out because the trade deal would have imposed several stringent economic, labor and environmental conditions on the Asian giant, as it does on all TPP nations.

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

But China and Korea will doubtlessly have little choice but to join the team once they see the enormous benefits enjoyed by participating countries. China’s southern neighbor Vietnam, for instance, is expected to see a huge 10 percent boost in its GDP by 2025—twice as much as any other Asian market—according to Credit Suisse. Malaysia, a 5 percent boost.

The business relationship between the U.S. and China—the world’s two largest economies—grows stronger every day, and China doesn’t want to see its competitive edge dulled by other Asian countries that chose to be members of the TPP.

Here in Texas, where a lot of public signage is written in both English and Spanish, I’m starting to see more and more Mandarin, an indicator that U.S.-China relations are strengthening. The picture of the ad, which I took at the San Marcos Premium Outlets mall just north of San Antonio, is clearly targeted to Chinese tourists. It’s an ad for China Merchants Bank and reads: “In America, use Merchants Bank credit card! Very American!”

 

Vietnam Will See the Biggest Long-Term Economic Benefits

“Very American,” indeed. To be clear, the real winner in the formation of the TPP is the U.S., for whom the deal is as much about geopolitics as it is about trade. In a briefing this week, the National Bank of Canada writes that the TPP “would allow the United States to take the lead in setting the rules of commerce for about 40 percent of the global economy.”

But as I said, Vietnam is poised to see the biggest upside potential as a result of the deal. The Southeast Asian country is a large manufacturer and exporter of textiles, apparel and footwear, all of which the U.S. currently imposes a very high 17 percent duty on. That’s set to disappear, saving the country billions. Because foreign investment in Vietnam is expected to accelerate under the deal, banks, consumer goods and construction are also set to benefit.

Global Purchasing Managers' Index Continues to Deteriorate
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Malaysia is another country that stands to see sweeping changes. Right now the country doesn’t have a trade agreement with the U.S., Canada, Mexico or Peru. Once the deal is ratified and implemented, Malaysia’s vital palm oil, rubber, plywood, electronics, textile and automotive parts industries will be open for business to some of the world’s largest economies.

As for Japan, its all-important, $538 billion auto industry will receive a huge shot in the arm. Consultancy firm Eurasia Group estimates that the TPP could help add $105 billion to Japan’s GDP by 2025.

Say It with Me: Government Policy Is a Precursor to Change

Not only is the Trans-Pacific Partnership great for global trade but it also promises to help bring fiscal and monetary policies into balance. The deal is a welcome and much-needed development from a fiscal perspective, one that we haven’t seen from world governments in more than a generation. Lately, everything’s been about monetary policy—specifically quantitative easing and currency manipulation—to stimulate growth.  A reduction in taxes, tariffs and regulation also promotes growth.

Top 10 Most Competitive Countries, According to the World Economic Forum
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Here at U.S. Global Investors, we often say it’s the policy, not the party, that really matters. Republicans, Democrats and Independents alike are all capable of effecting change that can both move the U.S. forward as well as set it back.

On President Barack Obama’s watch, many new restrictive rules and regulations have been enacted in the U.S. that clog up the flow of capital like cholesterol and hinder business growth and innovation. I’ve written and spoken about these policies on many occasions.

At the same time, we must acknowledge that he’s been one of the most fervent champions for the creation of the TPP, even going so far as to stand up against several prominent members of his own party. I’m certain that in the decades to come, the TPP will emerge as the Obama administration’s crowning foreign policy achievement.

What the Influencers Are Saying

I’d like to end by sharing some compelling comments on the TPP by key policymakers, business leaders and economists. Their optimism should convince anyone that the TPP, once ratified, could end up being the best thing to happen to global trade in at least a generation.

To my Canadian friends and readers, I wish you a happy and blessed Canadian Thanksgiving!

Malaysia currently puts a 30 percent tax on American auto parts. Vietnam puts a tax of as much as 70 percent on every car American automakers sell in Vietnam. Under this agreement, all those foreign taxes will fall. Most of them will fall to zero. So we are knocking down barriers that are currently preventing American businesses from selling in these countries and are preventing American workers from benefiting from those sales to the fastest-growing, most dynamic region in the world.

U.S. President Barack Obama

This agreement in my view is truly transformational. To have one set of rules for 12 destinations is going to turbo charge regional supply chains and global supply chains and reduce costs.

Australia Minister for Trade and Investment Andrew Robb

Free-trade agreements create new opportunities for American companies and their workers. I thank the United States Trade Representative and fellow trade negotiators for their commitment to finalizing this agreement. U.S. companies need to be able to compete and win in global markets to support well-paying jobs at home. It’s critical we provide our manufacturers and exporters with the best tools to compete on a level-playing field in markets worldwide.

Boeing President and CEO Dennis Muilenburg

In many parts of the world, food and agricultural products still face the legacy of high import barriers. We believe the Trans-Pacific Partnership will allow food to move more freely across borders from places of plenty to places of need, which benefits farmers and consumers around the world.

Cargill Chairman and CEO David MacLennan

 

Canada’s mining industry has been a strong advocate for liberalized trade and investment flows for many years. NAFTA, free trade agreements with Chile, Peru, Colombia and other countries in Latin America, Africa and Asia have all helped to increase Canadian exports and investment, supporting jobs for Canadians here and abroad. TPP, representing such a massive trade block, including critical emerging markets, is a trading partnership Canada must not risk being left out of.

Mining Association of Canada President and CEO Pierre Gratton

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

Fund portfolios are actively managed, and holdings may change daily. Holdings are reported as of the most recent quarter-end. The following securities mentioned in the article were held by one or more of U.S. Global Investors Funds as of 9/30/2015: The Boeing Co.

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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?

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