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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 Biggest Global Tax Break Ever Bubbles Up from Texas Oil Industry
September 25, 2017

What Makes Texas Unique and Great

Recently, I had the privilege of appearing on “Countdown to the Closing Bell,” Liz Claman’s program on Fox Business. When asked if I was nervous that stocks are heading too high, I said that I’m very bullish. All around the world, exports are up, GDPs are up and the global purchasing manager’s index (PMI) is up.

Oil prices continue to remain low, however, thanks in large part to the ingenuity of Texas fracking companies. As I told Liz, this has served as a multibillion-dollar “peace dividend” that has mostly helped net importing markets, including “Chindia”—China and India combined, where 40 percent of the world’s population lives—Japan and the European Union.

What Makes Texas Unique and Great

I can’t emphasize enough how impressive it is that Texas shale oil producers continue to ramp up output even with crude remaining in the $50 per barrel range.

This underscores their efficiency and innovation in drawing on oil reserves that were largely out-of-reach as recently as 10 or 12 years ago. What’s more, common law property rights here in the U.S. benefit mining companies in ways that simply can’t be found in Latin America and other parts of the world that operate under civil law.

According to the Energy Information Administration’s (EIA) most recent report on drilling productivity, total U.S. shale oil output is expected to climb above 6 million barrels a day for the first time in September. The biggest contributors are Texas shale oilfields, which will exceed 4 million barrels a day. West Texas’ Permian Basin alone represents nearly 400 percent of these gains, according to research firm Macrostrategy Partnership.

Drilling productivity up in Texas shale regions despite lower oil prices
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The typical Permian well remains very profitable even with $50-a-barrel oil, according to Bloomberg New Energy Finance. The research group estimates that oil would need to drop below $45 a barrel for some Permian wells to become unprofitable.

Christi Craddick, the Texas Railroad Commissioner, praised the Texas fracking industry in her address at the annual Panhandle Producers and Royalty Owners Association (PPROA) meeting last week. She noted how essential shale oil producers are to the Texas economy, adding that despite the downturn in oil prices, “the Texas oil and gas industry has shown extraordinary resilience.”

“When times were tough, the industry did what it does best—innovate,” she said. “Because of your ingenuity, we’re seeing industry growth today despite the price of oil.”

Again, it’s this ingenuity that’s kept oil prices relatively low, which in turn has helped strengthen GDPs in oil-importing emerging markets and squeeze the revenue of exporters such as Russia, Qatar, Saudi Arabia and others.

Texas-based oil and gas exploration company Anadarko Petroleum was one of the top performing natural resource stocks last week, gaining more than 12 percent. The surge came on the heels of the company’s announcement that it approved a $2.5 billion stock buyback program.

Explore investment opportunities in oil and other natural resources!

Coming Together as a Community

A month after the Texas Gulf Coast was devastated by the unprecedented wind and rains of Hurricane Harvey, the cleanup and rebuilding continues. As I shared with you in an earlier post, the Texas economy is one of the strongest in the world, and its residents are committing to rebuilding Houston and other affected areas better than ever before. As a proud Texan by way of Canada, I can say that it’s in our culture to come to one another’s aid in times of need and help rebuild.

Synchronized Global Growth Is Finally Here: OECD

What Makes Texas Unique and Great

I believe that my bullishness was validated last week with the release of the Organization for Economic Cooperation and Development’s (OECD) quarterly economic outlook. According to the Paris-based group, synchronized global growth is finally within sight, with no major economy in contraction mode for the first time since 2008. World GDP is expected to advance 3.5 percent in 2017—its best year since 2011—and 3.7 percent in 2018.

A synchronized short term global upturn
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This news comes only a couple of weeks following the release of the August global manufacturing PMI, which shows that manufacturing activity around the world accelerated to its highest level in over six years. Not only is the index currently above its three-month moving average, but it’s also now held above the key 50 threshold for a year and a half, indicating strong, sustained industry expansion.

Global manufacturing PMI at 75 month high in August
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As I’ve shown before, the global PMI has been a good indicator of exports and commodity prices three to six months out, so I see this as very positive.

Where to Invest in the Global Bull Run

World markets seem to agree. Not only are domestic averages closing at record highs on a near-daily basis, but global stocks continue to head higher as well. The MSCI World Index, which tracks equity performance across 23 developed countries, is up 14 percent so far this year as of September 20. And just so we’re clear that emerging countries aren’t being left out, the MSCI Emerging Markets Index has gained close to 30 percent over the same time period.

One of the most attractive regions to invest in right now is Asia, specifically the China region, which has outperformed both the American and European markets year-to-date. The Hang Seng Index has advanced more than 27 percent, driven mostly by financials and tech stocks such as Tencent and AAC Technologies.

In addition, Asian stocks look very cheap, trading at only 13.97 times earnings. The S&P 500 Index, by comparison, is currently trading at 21.44 times earnings.

 

A Rebalance of Monetary and Fiscal Policies Needed for Sustainable Growth

But back to the OECD report. The group points out that the good times could easily come to an end if world governments don’t make efforts to balance monetary and fiscal policies, something I’ve been urging for years now.

Central banks are eyeing the stimulus exit door, with the Federal Reserve planning to begin unwinding its $4.5 trillion balance sheet as early as next month. The European Central Bank (ECB) ready to reduce its monthly bond-purchasing program sometime in early 2018, and the Bank of England (BOE) isexpected to raise interest rates in November for the first time since 2007.

As such, governments need to strengthen business investment, global trade and wage growth. The OECD adds that “more ambitious structural reforms” in emerging economies “are needed to ensure that the global economy moves to a stronger and more sustainable growth path.”

Only then can this new period of synchronized global growth be sustained in the long term.

 

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

The MSCI World Index is a free-float weighted equity index. It was developed with a base value of 100 as of December 31, 1969. The index includes developed world markets, and does not include emerging markets. The MSCI EM (Emerging Markets) Index is a free-float weighted equity index that captures large and mid-cap representation across Emerging Markets (EM) countries. The index covers approximately 85% of the free float-adjusted market capitalization in each country. The Hang Seng Index is a free-float capitalization-weighted index of a selection of companies from the Stock Exchange of Hong Kong. The components of the index are divided into four subindices: Commerce and Industry, Finance, Utilities, and Properties. The index was developed with a base level of 100 as of July 31, 1964. The S&P 500 Index is a capitalization-weighted index of 500 stocks. The Index is designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. The index was developed with a based level of 10 for the 1941-43 based period.

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 6/30/2017: Tencent Holdings Ltd., AAC Technologies Holdings Inc.

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Gold and Bitcoin Surge on North Korea Fears
September 11, 2017

bicion

If you’re familiar with ABC’s popular reality show Shark Tank, you should already be familiar with the concept behind the San Antonio Angel Network (SAAN). Select entrepreneurs and innovators pitch their startup ideas to accredited investors, who can choose to make early-stage investments in a potentially successful company.

I attended an SAAN meeting last week at Ferrari of San Antonio, and what struck me the most was how fluid and seamless the whole thing is. Other professionals in attendance, including lawyers and CPAs, had a similar opinion, with some of them saying it was because there wasn’t any bureaucracy or red tape to hamstring the presenters.

This is unlike the world of mutual funds, which I believe has become excessively regulated.

As I’ve said numerous times before, regulation is essential, just as referees are essential to a basketball game. No one disputes that, because otherwise there would be chaos.

Similarly, the new and very unregulated world of cryptocurrencies has grown dramatically, beyond bitcoin and ethereum. Did you know there are over 800 cryptocurrencies? These new initial coin offerings, called ICOs, are like initial public offerings (IPOs) but with little regulation or accountability. As I’ve commented before, if the refs get too powerful or too numerous, and the rules too complex, the game becomes nearly unplayable.

Cryptocurrencies Still Draw Investor Attention Following China Crackdown

Bitcoin, ethereum and other cryptocurrencies have had a meteoric year, with more than $2 billion raised in ICOs so far in 2017, according to Bloomberg. Approximately $155 billion in cryptocurrencies are in circulation around the world right now. Bitcoin by itself is at $78 billion, which is close to the $90 billion invested in all gold ETFs.

Cryptocurrencies have made red hot moves this past year
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Like gold, cryptos are favored by those who have a deep distrust of fiat currency, or paper money. Money, after all, is built on trust, and the blockchain technology that bitcoin is built on top of automates trust through an electronic ledger that cannot be altered. Every transaction is anonymous and peer-to-peer. The system is entirely decentralized and democratic. No monetary authority can see who owns what and where money is flowing.

This, of course, is a huge reason why some world governments want to crack down on the Wild West of virtual currencies, especially with bitcoin surging close to $5,000 this month.

China did just that last week, putting a halt to new ICOs and crypto transactions. In response, ethereum tumbled as much as 15.8 percent last Monday, or $55 a unit. Bitcoin lost $394 a unit.

China’s decision comes a little more than a month after the SEC said cryptocurrencies are securities and therefore should probably be regulated as such. At this point, though, the implications are unclear.

What’s clear to me—after seeing firsthand how easily and quickly transactions are made—is that there’s no going back. It’s possible cryptocurrencies will one day be regulated. But I’m confident bitcoin, ethereum and some other virtual currencies offer enough value to weather such a potential roadblock.

I also believe there has to be a happy medium between the excessively regulated fund industry and the potential chaos of the cryptocurrency. This is what I witnessed at the SAAN event I mentioned, which allowed the professionals in attendance to gain information, ask questions and make informed decisions.

Gold Trading Above $1,350 an Ounce

Speaking on cryptocurrencies last week, Mark Mobius, executive chairman of Templeton Emerging Markets Group, said gold could be a beneficiary of China’s decision to clamp down on ICOs. As more governments and central banks turn their attention to virtual currencies, investors could move back into the yellow metal as a store of value.

That’s a possibility, but I think gold’s price action right now is being driven by negative real Treasury yields and fears over a potential conflict with North Korea. Adjusted for inflation, the two-year and five-year Treasuries are both currently yielding negative amounts, and the 10-year continues to fall closer to 0 percent.

Real treasury yeilds fall further
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As I’ve explained numerous times before, gold and real interest rates share an inverse relationship. It makes little sense to invest in an asset that’s guaranteed to cost you money—which is the case with the two-year and five-year government bond right now. Investors seeking a “safe haven” might therefore add to their weighting in gold, especially with North Korea’s Kim Jong-Un raising tensions.

The yellow metal closed above $1,350 an ounce, more than a one-year high.   

Gold price up more than 15 percent year to date
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Despite Efforts to Control Spending, National Debt Expected to Continue Growing: CBO

Similarly driving the gold Fear Trade are concerns over the national debt. Last week President Donald Trump sided with Congressional Democrats in raising the federal borrowing limit to allow Hurricane Harvey recovery aid to pass. An initial package of $7.85 billion for Harvey victims was agreed upon, but with total costs expected to be as high as $190 billion—more than the combined costs of Hurricanes Katrina and Sandy—and with Hurricane Irma yet to make landfall in Florida, the federal aid amount could eventually run even higher.

Trump partially ran on reigning in government spending, which I and many others would like to see. Even so, this might not be enough to control our runaway debt. According to an August report by the Congressional Budget Office (CBO), debt will likely continue to grow as spending for large federal benefit programs—Social Security, Medicare and the like—outpaces revenue. Interest payments on the debt will only continue to accelerate as well.

Below is a chart showing national debt as a percentage of GDP going back to the founding of the U.S. Although we’ve seen periodic spikes in response to national crises, the debt could soar to unprecedented levels within the next 10 years.

Federal debt expected to continue rising
click to enlarge

Financial writer Alex Green, the Oxford Club’s chief strategist, told me during my recent interview with him that he thought out-of-control spending posed a greater threat to our country than even North Korea.

I tend to agree with him, and that’s why I believe that investors should have a 10 percent allocation in gold, with 5 percent in bullion and 5 percent in gold stocks, mutual funds and ETFs.

I urge you to watch this brief video on investing opportunities in gold miners!

 

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.

Gold, precious metals, and precious minerals funds may be susceptible to adverse economic, political or regulatory developments due to concentrating in a single theme. The prices of gold, precious metals, and precious minerals are subject to substantial price fluctuations over short periods of time and may be affected by unpredicted international monetary and political policies. We suggest investing no more than 5% to 10% of your portfolio in these sectors.

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Is this the Start of a Hot New Metals Bull Market?
August 14, 2017

Aluminum metals

Major U.S. indices slid for a second straight week as President Donald Trump and North Korea both escalated their saber-rattling, with Kim Jong-un explicitly targeting Guam, home to a number of American military bases, and Trump tweeting Friday that “Military solutions are now fully in place, locked and loaded.” The S&P 500 Index fell 1.5 percent on Thursday, its largest one-day decline since May. Military stocks, however, were up, led by Raytheon, Lockheed Martin and Northrop Grumman.

As expected, the Fear Trade boosted gold on safe haven demand. The yellow metal finished the week just under $1,300, a level we haven’t seen since November 2016. Last week, Ray Dalio, founder of Bridgewater Associates, the largest hedge fund in the world, said it was time for investors to put between 5 and 10 percent of their portfolio in gold as a precaution against global and domestic geopolitical risks. The threat of nuclear war is at the top of everyone’s mind, but Dalio reminds us that our indecisive Congress could very well fail to agree on raising the debt ceiling next month, meaning a “good” government shutdown, as Trump once put it, would follow.

Dalio’s not the only one recommending gold right now. Speaking to CNBC last week, commodities expert Dennis Gartman, editor and publisher of the widely-read Gartman Letter, said that he believed “gold is about to break out on the upside strongly” in response to geopolitical risks and inflationary pressures. Gartman thinks investors should have between 10 and 15 percent of their portfolio in gold.

Government shutdowns haven’t always been harmful to the stock market—during the last one, in October 2013, stocks actually gained about 3 percent—but I agree that it might be prudent right now for investors to de-risk and ensure their portfolios include safe haven assets such as gold and municipal bonds. Dalio and Gartman’s allocation percentages mirror my own. For years, I’ve recommended a 10 percent weighting in gold, with 5 percent in bullion and 5 percent in high-quality gold stocks, mutual funds and ETFs.

 

Analysts Bullish on Metals and Commodities

Weaker US Dollar helped commodities beat the market in july

click to enlarge

Like stocks, the U.S. dollar continued its slide last week. This has lent support not just to gold but also commodities, specifically industrial metals. The Bloomberg Commodity Index actually beat the market in July, the first time it’s done so this year.

If we look at the index’s constituents, we find that six metals—aluminum, copper, zinc, gold, silver and nickel—have been the top drivers of performance this year, thanks to a weaker dollar, China’s commitment to rein in oversupply and heightened demand. According to Bloomberg, an index of these six raw metals has jumped to its highest in more than two years.

Some market observers believe this is only the beginning. Guy Wolf, an analyst with Marex Spectron Group, told Bloomberg that he doesn’t “see anything” to make him doubt the firm’s belief that metals “are now in a bull market.”

“As people start to realize that the reasons for prices going up are robust and sustainable, that’s going to bring more money into the market,” Wolf added.

This bullish sentiment is shared by Mike McGlone, senior commodities analyst with Bloomberg Intelligence, who writes that commodities’ strong performance in July  “could be the beginning of a trend.”

“Supported by demand exceeding supply, on the back of multiple years of declining prices, a peaking dollar should mark an inflection point for sustained commodity recovery,” McGlone says.

I can’t say whether we might eventually see the highs of the commodities supercycle in the 2000s, but this news is certainly constructive.

Aluminum Liftoff

The top performer right now is aluminum, up more than 20 percent year-to-date. Last week it breached $2,000 a tonne for the first time since December 2014 and is currently trading strongly above its 50-day and 200-day moving averages.

US ISM non-manufacturing PMI sinks to 11 month low in july
click to enlarge

Demand for aluminum is growing in the automotive and packaging industries, its two key markets. With consumers and governments demanding better fuel efficiency, automakers are increasingly turning to aluminum, which is around 40 percent lighter than steel. According to Ducker Worldwide, a market research firm, the amount of aluminum used to build each new vehicle will double between the early 2010s and 2025, eventually reaching 500 pounds. That’s up from only 100 pounds per vehicle, which was the case in the 1970s. Airline manufacturers such as Boeing and Airbus are also expected to increase demand for the lightweight metal.

Supply-side conditions are also improving. Prices have struggled in recent years as China—which accounts for roughly 40 percent of world output—flooded the market with cheap, and often illegal, metal. Recently, however, the Asian giant has called for dramatic capacity cuts in a number of provinces. By the end of 2017, an estimated 4 million metric tons of capacity will have closed, or one-tenth of the country’s total annual output, according to MetalMiner.

Also supporting prices is the Commerce Department’s decision last week to slap duties on aluminum coming into the U.S. from a number of Chinese producers that were found to be heavily subsidized by the Chinese government.

The Virginia-based Aluminum Association applauded the decision, saying that its members “are very pleased with the Commerce Department’s finding and we greatly appreciate Secretary [Wilbur] Ross’s leadership in enforcing U.S. trade laws to combat unfair practices.”

The aluminum industry, the trade group says, supports more than 20,000 American jobs, both directly and indirectly, and accounts for $6.8 billion in economic activity.

Miners Getting Back to Work

There’s perhaps no greater signal of a shift in sentiment than an increase in mining activity as producers take advantage of higher prices. Bloomberg reported last week that the number of new holes drilled around the globe has accelerated for five straight quarters as of June. What’s more, drilling activity so far this quarter, as of August 7, suggests that number could extend to six quarters.

US ISM non-manufacturing PMI sinks to 11 month low in july
click to enlarge

I believe activity will only continue to expand as China pursues further large infrastructure projects, which will require even more raw materials such as aluminum, copper, zinc and other base metals. And I still have confidence that Trump and Congress can deliver on a grand infrastructure deal—the president has been turning up the heat on Senate Majority Leader Mitch McConnell, writing on Twitter that the Kentucky senator needs to “get back to work” and put “a great Infrastructure Bill on my desk for signing.”

With government spending on infrastructure falling to a record low of 1.4 percent of GDP in the second quarter, such a bill would help modernize our nation’s roads, bridges, waterways and more. It would also serve as a huge bipartisan win for Trump, which he sorely needs to build up his political capital.

But beyond that, a $1 trillion infrastructure deal would greatly boost demand for metals and other raw materials, perhaps ushering in a new commodities supercycle.

 

 

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 Bloomberg Commodity Index is made up of 22 exchange-traded futures on physical commodities. The index represents 20 commodities, which are weighted to account for economic significance and market liquidity.

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 6/30/2017: The Boeing Co., Airbus SE.

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How to Invest in China’s New High-Tech Economy
August 9, 2017

How to Invest in China’s New High-Tech Economy

I’m pleased to share with you that our China Region Fund (USCOX) beat its benchmark, the Hang Seng Composite Index (HSCI), by an impressive margin for the one-year, three-year and five-year periods, as of August 1. The fund has closely tracked the HSCI, but since late February of this year, it’s pulled sharply ahead.

U.S. Global Investors China region fund beat benchmark in multiple time periods
click to enlarge

There have been recent fears among economists and investors alike that China’s debt-fueled economy would contract as it transitions from old-school manufacturing to services, but the Asian giant has been far more resilient than most anticipated. Its gross domestic product (GDP) for the second quarter rose 6.9 percent over the same period last year, beating expectations and putting the country on track to meet the International Monetary Fund’s 2017 growth forecast of 6.5 percent.

China's second quarter GDP growth in Line with Three-Year Average
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June economic data was particularly robust. Services were among the main contributors to growth, rising 7.7 percent year-over-year. Industrial production accelerated 7.6 percent during the month. Exports rose 11.3 percent compared to June 2016, totaling nearly $200 billion.

China’s manufacturing industry also continued to expand, with the country’s official purchasing manager’s index (PMI) posting a 51.4 in July. While this is down slightly from June’s 51.7, it’s still above 50, indicating growth, and marks the 12th straight month of expansion.

Chinese manufacturing holds above 50 in July
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This has all been a tailwind for USCOX, but we managed to beat the HSCI mainly by pivoting toward what I call China 2.0 and overweighting companies involved in high-tech industries. The second-largest economy has long fulfilled the role as the world’s top workhorse, producing biblical amounts of nearly every key resource, from cement to coal to steel. But lately, China has begun focusing its massive workforce and intellectual capital on advanced manufactured goods and services, which its own citizens demand more and more of as incomes rise.

This is where we see the most attractive opportunities for growth in China—not necessarily in the cement factories of Anhui Province but in the tech hubs of Shenzhen, Shanghai and Beijing.

China’s Rapid Digitalization

As the economic think tank Milken Institute wrote in September 2016, Shenzhen is “one of the pioneers in China’s new economy.” Not only is the city a fast-growing tech hub, but it’s also a “fertile ground for startup companies.”

The city is home to Chinese internet services provider Tencent, which surpassed Wells Fargo in April as the world’s 10th biggest company by value. It’s one of the largest holdings in USCOX and has been a top performer of 2017, up 70 percent year-to-date as of August 7.

The firm’s online payment system, Tenpay, has been a phenomenal revenue driver as China has steadily become the world’s largest e-commerce market, representing 42 percent of all online transactions globally as of 2016. That’s up remarkably from only 0.4 percent of all such transactions in 2005, according to management consulting firm McKinsey & Company.

It’s not hard to see what’s driving this rapid digitalization. Today’s China, with a relatively youthful median age of 37 and high urbanization rate, has 731 million internet-users—more than the U.S. and European Union combined. Since 2012, the country has been the world’s largest smartphone market, which has benefited companies such as Tencent.

It’s also been a tailwind for Chinese electronic components producers, Sunny Optical Technology Group among them. The research and development company is one of the largest cell phone camera module manufacturers in the world, but it also produces lenses for numerous other applications, including microscopes, drones, TVs, automobiles and more.

sunny optical technology group share price
click to enlarge

One of our top holdings in USCOX, Sunny Optical is up 185 percent year-to-date as of August 7. Its stock popped 17 percent on July 18 after the company reported net profit for the first half of the year was 120 percent over the same period in 2016.

Among other Chinese tech firms we like are BYD Electronic, TravelSky Technology and Apple-supplier AAC Technologies.

Autos Driving Fund Performance

Also driving fund performance were automobile manufacturers. As the number one auto market, China had a knockout 2016, with sales jumping 13.7 percent to 28 million units as consumers took advantage of the government’s tax cut on smaller-engine vehicles. The country registered more than 352,000 new electric vehicles in 2016, compared to only 159,000 in the U.S.

Sales slipped in the first quarter of this year as the tax cut was reduced, but they recovered in June, rising 2.3 percent compared to the same month last year.

Our two favorite Chinese auto names right now are Guangzhou and Geely Auto, the latter of which was our top holding in USCOX as of June 30. Geely, which bought Swedish car-manufacturer Volvo in 2010, is China’s largest non-government controlled automaker. July sales rose an amazing 88 percent compared to the same month last year, bringing the company’s market capitalization up to $22 billion. That’s about half of Ford Motors’ $43 billion market cap.

Year-to-date as of August 7, Geely shares are up more than 150 percent.

Old Economy Still Thriving

None of this is to suggest that China’s old economy, characterized by raw materials production and low-cost manufacturing, is disappearing any time very soon. The country cranked out a record amount of raw steel in June, with output rising to 73.23 million metric tons, a 5.7 percent increase over June 2016. Mill and smelter operators, responding to high steel prices, didn’t seem fazed by President Donald Trump’s threat to impose tariffs on Chinese steel, used in everything from cars to bridges to skyscrapers.

We’re focusing mostly on more advanced, high-tech industries, however, because that’s where we see the greatest opportunities for growth. The results, as you can see in the performance charts above, speak for themselves.

 

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

Total Annualized Returns as of 6/30/2016
  One-Year Five-Year Ten-Year Gross Expense Ratio
China Region Fund 33.80% 7.01% -0.35% 2.76%
Hang Seng Composite Index 28.24% 9.43% 4.60% n/a

Expense ratios as stated in the most recent prospectus. The Adviser of the China Region Fund has voluntarily limited total fund operating expenses (exclusive of acquired fund fees and expenses of 0.02%, extraordinary expenses, taxes, brokerage commissions and interest, and advisory fee performance adjustments) to not exceed 2.55%. With the voluntary expense waiver amount of 0.38%, total annual expenses after reimbursement were 2.36%. U.S. Global Investors, Inc. can modify or terminate the voluntary limit at any time, which may lower a fund’s yield or return. 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.

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.

The Hang Seng Composite Index is a market-cap weighted index that covers about 95% of the total market capitalization of companies listed on the Main Board of the Hong Kong Stock Exchange.

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 China Region Fund as a percentage of net assets as of 6/30/2017: Tencent Holdings Inc. 6.20%, Wells Fargo & Co. 0.00%, Sunny Optical Technology Group Co. Ltd. 6.75%, BYD Electronic Co. Ltd. 3.85%, TravelSky Technology Ltd. 3.34%, Apple Inc. 0.00%, AAC Technologies Holdings Inc. 3.00%, Guangzhou Automobile Group Co. Ltd. 4.63%, Geely Automobile Holdings Ltd. 8.96%, Ford Motor Co. 0.00%. 

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Russia Collusion Story: A Big “Nothing Burger” or a Case for Gold?
July 17, 2017

Russia Collusion Story: A Big “Nothing Burger” or a Case for Gold?

Gold got a boost Friday on weaker-than-expected inflation and retail sales figures, casting doubt on the Federal Reserve’s ability to continue normalizing interest rates this year.

Consumer prices rose slightly in June, at their slowest pace so far this year. The consumer price index (CPI), released on Friday, showed the cost of living in America rising only 1.6 percent compared to the same month last year, significantly down from the most recent high of 2.8 percent in February and below the Fed’s target of 2 percent. Much of the decline was due to energy prices, which fell 1.6 percent from May.

consumer prices continued to expand in june yet at a slower pace
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As I’ve explained elsewhere, CPI is an important economic indicator for gold investors to track. The yellow metal has historically responded positively when inflation rises—and especially when it pushes the yield on a government bond into negative territory. Why lock your money up in a 2-year or 5-year Treasury that’s guaranteed to give you a negative yield?

portfolio manager samuel paleaz poses near equipment in macraes the largest gold mine in new zealand

But right now the gold Fear Trade is being supported by what some are calling turmoil in the Trump administration. Last week the Russia collusion story took a new twist, with emails surfacing showing that Donald Trump Jr.; Jared Kushner, the president’s son-in-law and now-senior advisor; and former Trump campaign manager Paul Manafort all agreed to meet with a Russian lawyer last summer under the pretext that she had dirt on Hillary Clinton.

Whether or not this meeting is “collusion” is not for me to say, but the optics of it certainly look bad, and it threatens to undermine the president’s agenda even more. For the first time last week, an article of impeachment was formally introduced on the House floor that accuses Trump of obstructing justice. The article is unlikely to go very far in the Republican-controlled House, but it adds further uncertainty to Trump’s ability to achieve some of his goals, including tax reform and infrastructure spending. I’ll have more to say on this later

A Contrarian View of China

A new report from CLSA shows that Asian markets and Europe were the top performers during the first six months of the year. Korea took the top spot, surging more than 25 percent, followed closely by China.

asia and europe are the top market drivers so far this year
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Despite persistent negative “news” about China in the mainstream media, conditions in the world’s second-largest economy are improving. Consumption is up and household income remains strong. The number of high net worth individuals (HNWIs) in China—those with at least 10 million renminbi ($1.5 million) in investable income—rose to 1.6 million last year, about nine times the number only 10 years ago. It’s estimated we could see as many as 1.87 million Chinese HNWIs by the end of 2017.

According to CLSA, global trade is robust, with emerging markets, and particularly China, driving most of the acceleration this year. In the first three months of 2017, global trade grew 4 percent compared to the same period last year, its fastest pace since 2011.

“Indeed the early months of 2017 have seen China become easily the biggest single country driver of Asian trade growth,” writes Eric Fishwick, head of economic research at CLSA.

A lot of this growth can be attributed to Beijing’s monumental One Belt, One Road infrastructure project, which I’ve highlighted many times before. But according to Alexious Lee, CLSA’s head of China industrial research, a “more nationalist America” in the first six months of the year has likely given China more leverage to assume “a larger global, and especially regional, leadership role.”

This comports with what I said back in January, in a Frank Talk titled “China Sets the Stage to Replace the U.S. as Global Trade Leader.” With President Donald Trump having already withdrawn the U.S. from the Trans-Pacific Partnership (TPP) and promising to renegotiate or tear up other trade agreements—he recently tweeted that the U.S. has “made some of the worst Trade Deals in world history”—China has emerged, amazingly, as a champion of free trade, a position of power it will likely continue to capitalize on.

The country’s overseas construction orders have continued to expand, with agreements signed since 2013 valued at more than $600 billion.

business is booming for china
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Emerging Europe Expected to Remain Strong

Another recent report, this one from Capital Economics, shows that the investment case for emerging Europe remains strong in 2017. Russia is expected to strengthen over the next 12 months, while Poland, Hungary, the Czech Republic and Slovakia are likely to remain attractive.

“Russia’s economy has pulled out of recession and growth in the coming quarters will be stronger than most anticipate,” the research firm writes, adding that its central bank’s loosening of monetary policy should support the recovery even further.

To be sure, the region faces strong headwinds, including a rapidly aging population and the loss of an estimated 20 million skilled workers to foreign markets over the past 25 years, according to a July 11 presentation from the International Monetary Fund (IMF).

But I believe that as conditions in central emerging Europe countries continue to improve, many of those workers will be returning home. Life in the region is not the same as it was 10 or 20 years ago, when good jobs might have been scarce. Firms are now growing at a healthy rate and hiring more workers. As you can see below, unemployment rates in Poland, Hungary and the Czech Republic have been falling steadily since at least 2012 and are now lower than the broader European Union.    

emerging europe countries hard at work
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This strength is reflected in emerging Europe’s capital markets. For the 12-month period as of July 12, Hungary’s Budapest Stock Exchange is up 38 percent. Poland’s WIG20 is up more than 43 percent. Meanwhile, the STOXX Europe 600 Index—which includes some of the largest Western European companies—has made gains of only 17 percent over the same period.

 

Markets Still Believe in Trump

As we all know, the mainstream media’s criticism and ire aren’t reserved for China alone. Ninety-nine percent of the media right now is against President Trump, for a number of reasons—some of them deserved, some of them not.

Markets, however, seem not to care what the media or polls have to say. The Dow Jones Industrial Average continues to hit new all-time highs. Even though it’s stalled a few times, the “Trump rally” appears to be in full-speed-ahead mode, more than eight months after the election.

Back in November, I wrote about one of my favorite books, James Surowiecki’s The Wisdom of Crowds, which argues that large groups of people will nearly always be smarter and better at making predictions than an “elite” few. Surowiecki’s ideas were vindicated last year when investors accurately predicted Trump’s election, with markets turning negative between July 31 and October 31.

For the same reason, I think it’s important we pay close attention to what markets are forecasting today.

The White House is under siege on multiple fronts, which, as I said, has been positive for gold’s Fear Trade. But equity investors also seem to like the direction Trump is taking, whether it’s pushing for tax reform and deregulation or shaking up the “beltway party,” composed of deeply entrenched D.C. lobbyists and career bureaucrats. Just last week, the president made waves for firing a number of bureaucrats at the Department of Veteran Affairs (VA), long plagued by scandal and controversy. Since he took office in January, Trump has told more than 500 VA workers “You’re fired!”   

The Fundamentals of “Quantamental”

Of course, we look at so much more than government policy when making investment decisions. We take a blended approach of not only assessing fundamentals such as market share and returns on capital but also conducting quantitative analysis.

It’s this combination that some in the industry are calling “quantamental” investing. At first glance, “quantamental” might sound like nothing more than cute wordplay—not unlike “labsky,” “bullmation” and other clever names we give mixed-breed dogs—but it’s rapidly replacing traditional investment strategies at the institutional level.

Business Insider puts it in simple terms: “Quantamental managers combine the bottom-up stock-picking skills of fundamental investors with the use of computing power and big-data sets to test their hypotheses.”

See my Vancouver Investment Conference presentation, “What’s Driving Gold: The Invasion of the Quants,” to learn more about how we use quantitative analysis, machine learning and data mining.

Wall Street: The Birthplace of American Capitalism and Government

moments after closing bell june 29

The concept of quantamentals helps explain our entry into smart-factor ETFs. As most of you already know, members of my team and I visited the New York Stock Exchange (NYSE) three weeks ago to mark the launch of our latest ETF.

While there, Doug Yones, head of exchange-traded products at the NYSE, gave us a short history lesson about the exchange and surrounding area.

Most investors are aware that the NYSE, which is celebrating its 225th anniversary this year, is the epicenter of capitalism—not just in the U.S. but also globally.

moments after closing bell june 29

What many people might not realize is that on the site where the exchange now stands, Alexander Hamilton, the first U.S. treasury secretary, floated bonds to replace the debt the nascent country had incurred during the Revolutionary War.

Right next door to the NYSE is Federal Hall, where George Washington took his first oath of office in April 1789. The building today serves as a museum and memorial to the first U.S. president, whose statue now looks out over Wall Street and its passersby.

In this one single block of Wall Street, therefore, American capitalism and government were born. Here you can find the essential DNA of the American experiment, which, over the many years, has fostered our entrepreneurial spirit to form capital and to create new businesses and jobs. Growth, innovation and competition run through our veins, and that’s largely because of the events that unfolded centuries ago at the NYSE and Federal Hall.

For more insight and commentary like this, subscribe to my award-winning CEO blog, Frank Talk.

 

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The Consumer Price Index (CPI) is one of the most widely recognized price measures for tracking the price of a market basket of goods and services purchased by individuals.  The weights of components are based on consumer spending patterns.

The Budapest Stock Exchange Index is a capitalization-weighted index adjusted for free float. The index tracks the daily price-only performance of large, actively traded shares on the Budapest Stock Exchange. The WIG20 Index is a modified capitalization-weighted index of 20 Polish stocks which are listed on the main market. The STOXX Europe 600 Index is derived from the STOXX Europe Total Market Index (TMI) and is a subset of the STOXX Global 1800 Index. With a fixed number of 600 components, the STOXX Europe 600 Index represents large, mid and small capitalization companies across 18 countries of the European region: Austria, Belgium, Czech Republic, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Norway, Portugal, Spain, Sweden, Switzerland and the United Kingdom. The Dow Jones Industrial Average is a price-weighted average of 30 blue chip stocks that are generally leaders in their industry.

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Net Asset Value
as of 11/24/2017

Global Resources Fund PSPFX $6.07 0.10 Gold and Precious Metals Fund USERX $7.39 0.03 World Precious Minerals Fund UNWPX $5.78 0.02 China Region Fund USCOX $11.95 -0.23 Emerging Europe Fund EUROX $7.07 -0.02 All American Equity Fund GBTFX $24.08 0.02 Holmes Macro Trends Fund MEGAX $21.36 No Change Near-Term Tax Free Fund NEARX $2.21 No Change U.S. Government Securities Ultra-Short Bond Fund UGSDX $2.00 No Change