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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.

5 Charts That Show 2017 Could Be a Banner Year for Retailers
February 23, 2017

Thursday morning, Treasury Secretary Steven Mnuchin told CNBC that we could expect “significant” tax reform by August, including tax cuts for middle-income Americans and corporations. Like clockwork, the major stock indices rallied to all-time highs in intraday trading. As of yesterday, the Dow Jones Industrial Average has closed at record highs for the past nine days, and it wouldn’t surprise me if this gets stretched out to 10 days—or longer.

Era of Good Feelings: Dow Jones closes at all-time high for nine straight days
click to enlarge

Investors aren’t the only ones jumping on the couch with joy, however. American consumers are expressing levels of confidence we haven’t seen in years, suggesting 2017 could be a banner year for retailers, who already saw a phenomenal year-over-year sales increase of 5.6 percent in January. This, of course, bodes well for the U.S. economy going forward, as consumer spending makes up an estimated 70 percent of the country’s economic activity.

Beside a host of positive economic data—low unemployment, strong household income growth—recent consumer polls and surveys show Americans feel confident about their financial prospects in the coming year and are ready to start splurging.

Consumer Exuberance at 13-Year High

The closely watched University of Michigan Consumer Sentiment Index raced up to a 13-year high in January, posting a final reading of 98.5. There’s little doubt that much of this exuberance stemmed from President Donald Trump’s pledges to cut and simplify taxes and deregulate businesses. Although the index cooled to 95.7 in February, this still bodes very well for retailers.

Consumer Confidence Rose to a 13-Year High in January
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On Surer Financial Footing

According to McKinsey & Company’s recent Consumer Sentiment Survey, conducted online in September, more American consumers expressed feelings of stronger financial security than at any time in the past eight years. When asked if they were living paycheck to paycheck, for instance, less than a quarter said yes, compared to more than half of respondents who answered in the affirmative in 2009. In addition, fewer U.S. consumers said they were using money-saving strategies such as using coupons and loyalty cards or waiting for a sale before making a big-ticket purchase.  

Consumer Confidence Rose to a 13-Year High in January
click to enlarge

U.S. Among the Most Confident Countries

In the fourth quarter of 2016, American consumers were the world’s third-most confident consumers, according to Nielsen’s just-released Consumer Confidence Report. The country moved up an amazing 17 points during the three-month period, the most of any country in the 63-country survey. It was also one of only two countries representing Europe or the Americas to appear in the top 10, the other being Demark at number nine. By all measures, Americans were optimistic about the coming year. Six in 10 said now was a good time to buy the things they wanted, and intentions to spend on vacations rose 11 percent. Meanwhile, recessionary fears dropped dramatically.

Top 10 Most Optimistic Countries in Global Consumer Confidence Survey
Q4 2016
Score Country Change from Previous Quarter
136 India +3
132 Philippines 0
123 United States +17
120 Indonesia -2
112 Vietnam +5
110 Thailand +2
108 United Arab Emirates 0
108 China +2
107 Denmark 0
106 Pakistan +5

Before moving on, I must say that it’s incredible to see India retain the number one spot for the eighth consecutive quarter, despite the effects of Prime Minister Narendra Modi’s demonetization scheme in November.

Strong Retail Sales Expected… With a Caveat

All of this renewed optimism will translate, hopefully, into stronger retail sales. The National Retail Federation (NRF) projected 2017 sales, excluding automobiles, fuel and restaurants, to grow between 3.7 percent and 4.2 percent from 2016. This would put growth above the 10-year average of 2.9 percent and make it the best year since 2012.

Consumer Confidence Rose to a 13-Year High in January
click to enlarge

The NRF tempered this enthusiasm, however, by pointing out the risks of Trump’s protectionist agenda, writing that “lawmakers should take note and stand firm against any policies, rules or regulations that would increase the cost of everyday goods for American consumers.”

This attitude was echoed by Walmart CFO Brett Biggs, who told reporters this week that he was most concerned about Trump and House Republicans’ plan for a border adjustment tax.

“Clearly anything that would potentially raise prices for our customers in the U.S. is a concern for us,” Biggs said, according to Business Insider.  

This week, Trump met with eight retail CEOs, whose companies represent a combined $270 billion in sales in 2016. Two of these CEOs in particular, Target’s Brian Cornell and Best Buy’s Hubert Joly, voiced their strong opposition to a border tax, as it could significantly raise prices and dampen consumers’ feel-good mood.

With that said, I hope President Trump will make the right decision for American businesses and consumers, with respect to trade. Enthusiasm right now seems to be riding predominantly on tax reform and deregulation, and it’s at risk of being derailed by higher taxes at the border.

 

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

The University of Michigan Confidence Index is a survey of consumer confidence conducted by the University of Michigan.  The report, released on the tenth of each month, gives a snapshot of whether or not consumers are willing to spend money.

The online Consumer Sentiment Survey was in the field from September 3 to 27, 2015, and garnered responses from at least 1,000 consumers in each of 21 countries, plus another 1,000 consumers across the Middle East and 250 consumers in Taiwan. Because the survey was administered online, the sample largely reflects the characteristics of the typical online population—younger, urban, and more affluent.

The Nielsen Global Consumer Confidence Survey is an online survey of more than 30,000 respondents across countries in Africa, Asia-Pacific, Europe, Latin America, the Middle East and North America. It uses age and gender quotas to ensure the results are representative of Internet users. Scores above 100 indicate optimism.

Holdings may change daily. Holdings are reported as of the most recent quarter-end. None of the securities mentioned in the article were held by any accounts managed by U.S. Global Investors as of 12/31/2016.

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Gold Gets a Shot in the Arm from Inflation and China
February 21, 2017

buffett buys more airlines

Inflation just got another jolt, rising as much as 2.5 percent year-over-year in January, the highest such rate since March 2012. Led by higher gasoline, rent and health care costs, consumer prices have now advanced for the sixth straight month. In addition, January is the second straight month for rates to be above the Federal Reserve’s target of 2 percent.

Air fares are also climbing, and speaking of air fares, billionaire investor Warren Buffett added to his domestic airline holdings, we learned last week. Buffett’s holding company, Berkshire Hathaway, is now the second-largest holder of American Airlines, with an 8.79 percent share of the company. It also increased its holdings in Delta Air Lines by over 800 percent, to 60 million shares. The company now owns 43.2 million shares of Southwest Airlines, and it increased its stake in United Continental to about 28 million shares.

What else is driving the airline industry?

 

A March rate hike now looks all but imminent. Many economists—including the Goldman Sachs economists I had the pleasure to hear speak this week—expect to see at least three such hikes this year alone.

US Inflation Zooms up 5 Year High
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Gold responded accordingly, closing above $1,240 for the first time since soon after the November election. Below you can see the gold price charted against the inflation-adjusted 10-year Treasury yield, which is now in subzero territory.


US Inflation Zooms up 5 Year High
click to enlarge

The question I have is: Why would an investor deliberately choose to lose money? But that’s precisely what’s happening now with inflation where it is.

  2-Year 3-Year 10-Year
Treasury Yield 1.22% 1.95% 2.45%
Consumer Price Index 2.50% 2.50% 2.50%
Real Yield -1.28% -0.55% -0.05%
As of February 16
Source: Federal Reserve, U.S. Global Investors

These were among some of the topics addressed by former Fed Chair Alan Greenspan, who spoke with the World Gold Council (WGC) for the winter edition of its “Gold Investor.”

Gold primary global currency

"Significant increases in inflation will ultimately increase the price of gold,” Greenspan said. “Investment in gold now is insurance. It’s not for short-term gain, but for long-term protection.”

He also reiterated his view, which I share, that gold is much more than just a metal but a currency:

I view gold as the primary global currency. It is the only currency, along with silver, that does not require a counterparty signature. Gold, however, has always been far more valuable per ounce than silver. No one refuses gold as payment to discharge an obligation. Credit instruments and fiat currency depend on the credit worthiness of a counterparty. Gold, along with silver, is one of the only currencies that has an intrinsic value. It has always been that way. No one questions its value, and it has always been a valuable commodity, first coined in Asia Minor in 600 BC.

Although major stock indices continue to hit fresh all-time highs on hopes of tax reform and fiscal stimulus, it’s important to temper the exuberance with a little prudence. The bull market, currently in its eighth year, is facing some significant geopolitical and macroeconomic uncertainty, and we could be getting late in the economic cycle. This makes gold’s investment case even more attractive. For the 10-year period, the yellow metal has shown an inverse correlation to risk assets such as stocks and high-yield bonds. It might be time to ensure that your portfolio has the recommended 10 percent in gold—that includes 5 percent in gold coins and jewelry, the other 5 percent in quality gold equities and mutual funds.

China and India to Lead World Economy by 2050

The long-term investment case for gold looks just as compelling following bullish reports last week from PricewaterhouseCoopers (PwC) and Morgan Stanley. China and India are the world’s top two consumers of gold, and both countries are expected to make huge economic gains in the next few decades. This is likely to boost gold demand even more, which has a high correlation with discretionary income growth.

China alone consumed approximately 2,000 metric tons in 2016, or roughly 60 percent of all the new gold that was mined during the year, according to veteran mining commentator Lawrie Williams, who based his estimates on calculations made by BullionStar’s Koos Jansen. The 2,000 metric tons is a much higher figure than what analysts and the media have been telling us, but I’ve always suspected China’s annual consumption to run higher than “official” numbers. 

According to PwC’s models, China and India should become the world’s number one and number two largest economies by 2050 based on purchasing power parity (PPP). China, of course, is already the largest economy by that measure, but PwC sees the Asian giant surpassing the U.S. economy on an absolute basis by as early as 2030.


Top 10 Economies Dominated Emerging Markets 2050
click to enlarge

As for India, it “currently comprises 7 percent of world GDP at PPP, which we project to rise steadily to over 15 percent by 2050,” PwC writes. “This is a remarkable increase of 8 percentage points, gaining the most ground of any of the countries we modeled.”

I think it’s also worth highlighting Indonesia, which is expected to replace Japan as the fourth-largest economy by midcentury. E7 economies, in fact, could end up dominating the top 10, with Mexico moving up to number seven and France dropping off. You can see the full list on PwC’s site.

China Set to Become High Income by 2027

Then there’s Morgan Stanley’s 118-page report, “Why we are bullish on China.” The investment bank sees a number of dramatic changes over the coming years, the most significant being China’s transition from a middle-income nation to a prosperous, high-income nation sometime between 2024 and 2027. (The high-income threshold is a gross national income (GNI) of around $12,500 per capita.) This would make China one of only three countries with populations over 20 million that have managed to accomplish this feat in the past 30 years, the other two being South Korea and Poland.


Top 10 Economies Dominated Emerging Markets 2050
click to enlarge

This trajectory is supported by a number of expectations, including, most importantly, Morgan Stanley’s confidence that China will manage to avoid a debt-related financial crisis, as some investors might now believe is forthcoming. The bank’s view is that the Chinese government will successfully provide “adequate policy buffers and deft management of the policy cycle” to ensure the growth of per capita incomes.

Other key transitions will additionally need to take place for the country to reach high-income status by 2027, including transitioning from a high investment economic model to high consumption and implementing meaningful state-owned enterprise reform. Although China is currently transitioning from a manufacturing economy to one that’s focused on consumption and services, the country will also need to emphasize high value-added manufacturing.

chineseshoppers

   In addition, since President Donald Trump has officially withdrawn the U.S. from the Trans-Pacific Partnership (TPP), China could very well use this as an opportunity to take the lead in global trade, Morgan Stanley writes. This view aligns with comments I’ve previously made. China is already reportedly weighing its options with two alternative free-trade agreements (FTAs), one that includes the U.S. (the Free Trade Area of the Asia Pacific) and one that does not (the Regional Comprehensive Economic Partnership). It’s probably safe to say, however, that given Trump’s opposition to FTAs, trade negotiations involving the U.S. are unlikely to happen anytime soon.

Investors Underweight China

Taken together, this is all good news for gold. Again, when incomes rise in China and India, gold demand has historically benefited.

But it also makes China a compelling place to invest in. And yet investors have tended to be shy, underweighting the country for at least a decade in relation to the broader emerging markets universe.     

Time Reverse Course China Stocks 2050
click to enlarge

This, despite the fact that China has largely outperformed emerging markets for the last 15 years. According to Morgan Stanley, the MSCI China Index has delivered a compound annual growth rate (CAGR) of 13 percent for the 15-year period, versus the MSCI Emerging Markets Index’s CAGR of 10 percent over the same period.

 

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 MSCI China Index captures large and mid-cap representation across China H shares, B shares, Red chips, P chips and foreign listings (e.g. ADRs). With 150 constituents, the index covers about 85% of this China equity universe. The MSCI Emerging Markets Index captures large and mid-cap representation across 23 Emerging Markets (EM) countries. With 832 constituents, the index covers approximately 85% of the free float-adjusted market capitalization in each country.

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 12/31/2016: American Airlines Group Inc., Delta Air Lines Inc., United Continental Holdings Inc., Southwest Airlines Co.

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Want to Find the Opportunities? Follow the Sentiment
February 15, 2017

more and more, quants are using sentiment analysis tools

On Monday I had the opportunity to attend a conference at Goldman Sachs’ Dallas office. Among the dozens of money managers and investors who attended, a combined $1 trillion in assets was represented. The speakers were numerous, from famed economist Jan Hatzius, Goldman’s head of global economics, to Jeff Currie, global head of commodities research. Everyone was exceedingly smart and articulate, and I left the conference feeling recharged with much to think about.

One of the most fascinating takeaways was Goldman’s increased use of sentiment analysis tools. Basically what this means is sophisticated software trawls the internet in real time for public attitudes and opinions on companies, products, sectors, industries, countries—you name it. Sources can include press releases, news stories, earnings calls, blogs, social media and more. All of this data is gathered and analyzed, giving quants and other highly sophisticated investors a better idea of where tomorrow’s opportunities lie.

We have experience gauging sentiment using platforms designed by Meltwater and ScribbleLive, and I was pleased to see our efforts validated.

Goldman’s preferred system is Stanford’s CoreNLP, which is able to break down and analyze sentences in a number of different ways (and different languages to boot). Below is just a sampling of what the process looks like.   

CoreNLP

This strategy has been working well, Goldman said, and investors and managers plan to continue practicing it.

As I said, we take sentiment very seriously. In last week’s Investor Alert, we made note of the fact that the media’s use of the word “uncertainty” has soared to a record high since the November election. This is in line with recent movements in the Global Economic Policy Uncertainty Index, which is also now at all-time highs following Donald Trump’s election and Brexit in the U.K.   

Uncertainty is Soaring
click to enlarge

Goldman Bullish on Commodities

At the same time, small business optimism in the U.S., as measured by the National Federation of Independent Business (NFIB), soared to a 12-year high on the back of Trump’s election. At 105.8, its December reading was up a phenomenal five standard deviations. Much of this optimism was driven by Trump’s pledge to roll back regulations and lower corporate taxes, a point I’ve made several times already. Goldman echoed this thought, arguing the U.S. is behind the curve on cutting corporate taxes, compared to the average rate of the 35-member Organization for Economic Cooperation and Development (OECD).

The U.S. has lagged in cutting corporate tax rates
click to enlarge

Using its sentiment analysis tools, however, Goldman managed to come to these conclusions as early as November—which is the same month the investment bank turned bullish on commodities for the first time in four years.

Goldman’s line of reasoning? When business optimism goes up, capital expenditure (capex) also goes up, and when capex goes up, commodities tend to follow. I should add that the bank has historically been neutral on commodities, recommending an overweight position only four times in the last 20 years. So when it does become bullish, investors should pay attention.

 

Look at the Timing

But there’s more to the commodity investment case than sentiment. The timing looks ideal as well.

Below, take a look at the output gap, which measures the difference between an economy’s actual manufacturing output and its potential output. When the gap is positive, that means demand is high and output is at more than full capacity. When it’s negative, that means demand has shrunk and output is less than what an economy should be capable of producing.

Output Gap Suggests We are transitioning into the third stage of business cycle
click to enlarge

You can see that the output gap in the U.S. is finally turning positive, therefore entering the third stage of the business cycle, the best for real assets. The third stage is expansionary, characterized as having high output and fast growth—not to mention traditionally higher returns. We all know that past performance is no guarantee of future results. But similar periods in the past—shaded in gray—were associated with commodity super-cycles, the most recent one being the 2000s commodities boom driven by emerging markets, particularly China.   

So far this year, the Bloomberg Commodities Index has risen 1.7 percent, compared to a negative 3.4 percent for the same number of trading days last year. If you remember, commodities ended positively in 2016 for the first time in six years, so there should be further room to run.

 

The Global Economic Policy Uncertainty (EPU) Index is calculated as the GDP-weighted average of monthly EPU index values for the U.S., Canada, Brazil, Chile, the U.K., Germany, Italy, Spain, France, the Netherlands, Russia, India, China, South Korea, Japan, Ireland and Australia, using GDP data from the International Monetary Fund’s (IMF) World Economic Outlook Database.

Standard deviation is a measure of the dispersion of a set of data from its mean. The more spread apart the data, the higher the deviation. Standard deviation is also known as historical volatility.

The 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.

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Trump’s Tax Plan Could Cost You. Here’s What to Do About It
February 7, 2017

Top earners have traditionally been attracted to municipal bonds for their tax-exempt status at the federal and often state and local levels. In the wake of President Donald Trump’s stunning upset victory, however, muni investors were forced to readjust their expectations of fiscal policy going forward. Because Trump had campaigned on deep cuts to corporate and personal income taxes, equities soared while munis sold off, ending a near-record 54 weeks of net inflows.

This appears to have been premature, for a couple of reasons.

Tax Reform Unlikely to Happen Anytime Soon

House Speaker Ryan: We'll tackle Obamacare and infrastructure before tax reform As I explained to you this week, Trump and congressional Republicans are currently butting heads on how best to handle tax reform, with many lawmakers saying it’s unlikely they’ll get around to it during the new president’s first 100 days, and possibly his first 200 days.

According to House Speaker Paul Ryan, Congress will focus instead on replacing the Affordable Care Act (ACA) and funding Trump’s $1 trillion infrastructure spending package before it worries about taxes. With an estimated 30 million Americans enrolled on Obamacare exchanges, finding a suitable replacement is of high importance and might take some time. The same goes with negotiating a costly infrastructure deal, which several fiscally conservative lawmakers are hesitant to support.

Besides, we all know how fast Congress operates, even on a good day. Former President Barack Obama took office in January 2009, and even with a Democratic majority in the House and Senate, his signature health care law didn’t reach his desk until March the following year.

All of this is to say that it might be premature to start dumping your munis, or withhold an investment in munis, purely on the notion that income taxes are about to get a haircut. We’re probably looking at many more months of Obama-era tax rates, including the 3.8 percent Obamacare surcharge on investment income.

Other investors have realized this as well, which is why we’re seeing positive net inflows back into muni bond funds.

OIl Historically Rallied in the Two Years Following OPEC's Agreement to Cut Production
click to enlarge

Plus, You Could End Up Paying More in Taxes

If enacted as conceived, Trump’s tax reform plan would indeed be the most significant in decades, simplifying the number of tax brackets from seven to three, lowering the top rate from 39.6 percent to 33 percent and eliminating personal exemptions and filing status options.

Trump's tax proposals could end up costing some americans.

One of the unintended consequences of this is that income taxes could actually go up for certain middle-income filers. According to an analysis of Trump’s proposal by the independent Tax Policy Center, as many as 8 million American families, including a majority of single-parent households and large families, could end up paying more than they do now (emphasis mine):   

Increasing the standard deduction would significantly reduce the number of filers who itemize. We estimate that 27 million (60 percent) of the 45 million filers who would otherwise itemize in 2017 would opt for the standard deduction. Repealing personal exemptions and the head of household filing status, however, would cause many large families and single parents to face tax increases.

What this means is that tax-exempt muni bonds could still play a valuable role in your portfolio.

But What About Rising Interest Rates?

In December, the Federal Reserve lifted interest rates for only the second time in nearly a decade, and many expect to see up to three additional increases this year.

It’s important to be aware that when rates rise, bond prices fall because if newly issued bonds carry a higher yield, the value of existing bonds with lower rates declines.

This is why I believe investors should take advantage of short- and intermediate-term munis, which are less sensitive to rate increases than longer-term bonds, whose maturities are further out. 

Our Near-Term Tax Free Fund (NEARX) invests primarily in short-term municipal debt issued by quality, fiscally responsible jurisdictions. As of December 31, the fund is rated four stars overall by Morningstar among 172 funds in the Muni National Short category.

Morningstar Rating

Overall/172
3-Year/172
5-Year/147
10-Year/94

Morningstar ratings based on risk-adjusted return and number of funds
Category: Muni National Short
Through: December 31, 2016

 

To learn more, check out

 

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.

Morningstar Ratings are based on risk-adjusted return. The Morningstar Rating for a fund is derived from a weighted-average of the performance figures associated with its three-, five- and ten-year (if applicable) Morningstar Rating metrics. Past performance does not guarantee future results. For each fund with at least a three-year history, Morningstar calculates a Morningstar Ratingä based on a Morningstar Risk-Adjusted Return measure that accounts for variation in a fund’s monthly performance (including the effects of sales charges, loads, and redemption fees), placing more emphasis on downward variations and rewarding consistent performance. The top 10% of funds in each category receive 5 stars, the next 22.5% receive 4 stars, the next 35% receive 3 stars, the next 22.5% receive 2 stars and the bottom 10% receive 1 star. (Each share class is counted as a fraction of one fund within this scale and rated separately, which may cause slight variations in the distribution percentages.)

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.

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

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Investors Shift Back into Gold as Trump’s Honeymoon Period Ends
February 6, 2017

Investors Shift Back into Gold as Trump’s Honeymoon Period Ends

That didn’t take long.

After little more than two weeks, President Donald Trump’s honeymoon with Wall Street appears to have been put on hold—for the moment, at least—with major indices making only tepid moves since his January 20 inauguration. That includes the small-cap Russell 2000 Index, which surged in the days following Election Day on hopes that Trump’s pledge to roll back regulations and lower corporate taxes would benefit domestic small businesses the most.

Is Trump's Honeymoon with Wall Street Over Already?
click to enlarge

And therein lies part of the problem. Although the president managed to sign an executive order last week requiring the elimination of two federal regulations for every new rule that’s adopted (and ordered a review of Dodd-Frank and former President Obama’s fiduciary rule), other campaign promises that initially excited investors—tax reform and an infrastructure spending deal among them—might have already hit a roadblock.

According to Reuters, a three-day meeting in Philadelphia between President Trump and congressional Republicans ended in a stalemate, with it looking less and less likely that tax reform will happen during Trump’s first 100 days in office—perhaps even the first 200 days. As for infrastructure, several Republicans were reportedly wary of committing to such an enormous spending package before more complete details become available.

Travis Kalanick, Uber CEO, dropped out of Trump's business advisory panel

Meanwhile, Trump’s seven-nation travel ban received a lukewarm—and, in some cases, hostile—reception from many in the business world who have traditionally depended on foreign talent. That’s especially the case in Silicon Valley, where close to 40 percent of all workers are foreign-born, according to the 2016 Silicon Valley Index. (Around the same percentage of Fortune 500 companies were founded by immigrants or children of immigrants, including Steve Jobs, whose biological father was Syrian.) One of the more dramatic responses toward the travel ban was Uber CEO Travis Kalanick’s dropping out of Trump’s business advisory panel, following an outcry from users of the popular ride-sharing app who saw his participation with the president as an endorsement of his immigration policies.

Notable Silicon Valley Immigrants

I’ve shared with you before that the media often take Trump literally but not seriously, whereas his supporters take him seriously but not literally. I think it’s evident that the market is finally coming to terms with the fact that Trump, unlike every other politician before him, actually meant everything he said on the campaign trail, including his more protectionist and nationalist ideas.

Although I don’t necessarily agree with Trump’s plans to raise tariffs, withdraw from free-trade agreements and restrict international travel, it might be easy to some to see why he feels American companies need protecting from foreign competition. Last week I attended the Harvard Business School CEO Presidents’ Seminar in Boston, and among the topics we discussed was China’s ascent as an economic and corporate juggernaut. Take a look at the chart below, using data from Fortune Magazine’s annual list of the world’s 500 largest companies by revenue. Whereas the U.S. has lost ground globally over the past 20 years, China’s share of large companies has exploded, from having only three on the list in 1995 to 103 in 2015. The number of Japanese firms, meanwhile, has more than halved in that time.  

U.S. Has Lost Share of World's Largest Companies to China
click to enlarge

I will say, while I’m on this topic, that the uncertainty and unpredictablilty surrounding Trump has given active management a strong opportunity to demonstrate its value in the investment world. Assessing the risks and implications of his actions, policies and tweets, which change daily, really requires a human touch that fund managers and analysts can provide.

Dollar Down, Gold Up

One of those implications is the U.S. dollar’s decline. Following Trump’s comment that it was “too strong” and hurt American exporters’ competitiveness, currency traders shorted the greenback, causing it to have the worst start to a year since 1987.   

U.S. Dollar Has Rockiest Beginning of the Year Since 1987, Boosting Gold
click to enlarge

This, coupled with a more dovish Federal Reserve, expectations of higher inflation and growing demand for a safe haven, has helped push gold prices back above $1,200 an ounce. January, in fact, was the best month for the yellow metal since June, when Brexit anxiety and negative government bond yields sent it to as high as $1,370.

Gold Posts Its Biggest Monthly Gain Since June 2016
click to enlarge

Demand for gold as an investment was up a whopping 70 percent year-over-year in 2016, according to the World Gold Council. Gold ETFs had their second-best year on record. But immediately following the November election, outflows from gold ETFs and other products accelerated, eventually shedding some 193 metric tons.

But now, just two weeks into Trump’s term as president, the gold bulls are banging the drum, with several large hedge fund managers taking a contrarian bet on the precious metal.    

Inflationary pressures are indeed intensifying. U.S. consumer prices rose 2.1 percent in December year-over-year, their fastest pace since 2014, and inflation across the globe is beating market forecasts, with the Citi Global Inflation Surprise Index turning positive for the first time since 2012. Anything above zero indicates that actual inflation is stronger than expectations for the month.

Global Inflation Beats Expectations in December for the First Time Since 2012
click to enlarge

 

 

OPEC Making Good on Production Agreement

Among the commodities showing resilience right now is oil, especially on reports that the Organization of Petroleum Exporting Countries (OPEC) is 60 percent of the way to reaching its output target after agreeing to cutting production in early December for the first time since 2008.

Gold Posts Its Biggest Monthly Gain Since June 2016
click to enlarge

Of course, this news is tempered by analysts’ expectations that U.S. producers will export more crude than four OPEC members combined in 2017. According to Bloomberg, the U.S. could sell as much as 800,000 barrels a day overseas, which is more than Libya, Qatar, Ecuador and Gabon produced in December.

 

All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every invest. Some links above may be directed to third-party websites. U.S. Global Investors does not endorse all information supplied by these websites and is not responsible for their content.

The Dow Jones Industrial Average is a price-weighted average of 30 blue chip stocks that are generally leaders in their industry. The S&P 500 Stock Index is a widely recognized capitalization-weighted index of 500 common stock prices in U.S. companies. The Russell 2000 Index is a U.S. equity index measuring the performance of the 2,000 smallest companies in the Russell 3000, a widely recognized small-cap index.

The U.S. Trade Weighted Dollar Index provides a general indication of the international value of the U.S. dollar.

The Citi Global Inflation Surprise Index measure price surprises relative to market expectations. Readings below zero indicate that actual inflation is below market expectations, where readings above zero indicate that inflation is above expectations.

Holdings may change daily. Holdings are reported as of the most recent quarter-end. None of the securities mentioned in the article were held by any accounts managed by U.S. Global Investors as of 12/30/2016.

Share “Investors Shift Back into Gold as Trump’s Honeymoon Period Ends”

Net Asset Value
as of 02/24/2017

Global Resources Fund PSPFX $5.76 -0.05 Gold and Precious Metals Fund USERX $8.68 -0.10 World Precious Minerals Fund UNWPX $7.46 -0.09 China Region Fund USCOX $8.10 -0.11 Emerging Europe Fund EUROX $6.11 -0.09 All American Equity Fund GBTFX $24.66 0.07 Holmes Macro Trends Fund MEGAX $19.09 0.03 Near-Term Tax Free Fund NEARX $2.22 No Change U.S. Government Securities Ultra-Short Bond Fund UGSDX $2.00 No Change