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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.

Here’s Why Bitcoin Won’t Replace Gold So Easily
October 9, 2017

GoGo Gold

What a week it was.

First and foremost, I’d like to acknowledge the horrific mass shooting that occurred in Las Vegas, the deadliest in modern American history. On behalf of everyone at U.S. Global Investors, I extend my sincerest and most heartfelt condolences to the victims and their families.

The memory of the shooting was still fresh in people’s minds during last Tuesday’s Hollywood premiere of Blade Runner 2049, which nixed the usual red carpet and other glitz in light of the tragedy. Before the film, producers shared poignant words, saying that in times such as these, the arts are crucial now more than ever.

I had the distinct privilege to attend the premiere. My good friend Frank Giustra, whose production company Thunderbird Entertainment owns a stake in the Blade Runner franchise, was kind enough to invite me along. Despite the somber mood—a pivotal scene in the film even takes place in an irradiated Las Vegas—I thought Blade Runner 2049 was spectacular. Even if you’re not a fan of the original 1982 film, it’s still worth experiencing in theaters. Hans Zimmer and Benjamin Wallfisch’s synth-heavy score is especially haunting.

CNET recently published an interesting piece examining the accuracy of future tech as depicted in the original Blade Runner, from androids to flying cars to off-world travel read the article here.

Still in the Early Innings of Cryptocurrencies

Speaking of the future, I spoke on the topic of the blockchain last week at the Subscriber Investment Summit in Vancouver. My presentation focused on the future of mining—not just of gold and precious metals but also cryptocurrencies.

Believe it or not, there are upwards of 2,100 digital currencies being traded in the world right now, with a combined market cap of nearly $150 billion, according to Coinranking.com.

Obviously not all of these cryptos will survive. We’re still in the early innings. Last month I compared this exciting new digital world to the earliest days of the dotcom era, and just as there were winners and losers then, so too will there be winners and losers today. Although bitcoin and Ethereum appear to be the frontrunners right now, recall that only 20 years ago AOL and Yahoo! were poised to dominate the internet. How times have changed!

It will be interesting to see which coins emerge as the “Amazon” and “Google” of cryptocurrencies.

For now, Ethereum has some huge backers. The Enterprise Ethereum Alliance (EEA), according to its website, seeks to “learn from and build upon the only smart contract supporting blockchain currently running in real-world production—Ethereum.” The EEA includes several big-name financial and tech firms such as Credit Suisse, Intel, Microsoft and JPMorgan Chase, whose own CEO, Jamie Dimon, knocked cryptos a couple of weeks ago.

To learn more about the blockchain and cryptocurrencies, watch this engaging two-minute video.

Understanding blockchain in two minutes

 

Will Bitcoin Replace Gold?

Lately I’ve been seeing more and more headlines asking whether cryptos are “killing” gold. Would the gold price be higher today if massive amounts of money weren’t flowing into bitcoin? Both assets, after all, are sometimes favored as safe havens. They’re decentralized and accepted all over the world, 24 hours a day. Transactions are anonymous. Supply is limited.

Have gold and bitcoin peaked for 2017
click to enlarge

But I don’t think for a second that cryptocurrencies will ever replace gold, for a number of reasons. For one, cryptos are strictly forms of currency, whereas gold has many other time-tested applications, from jewelry to dentistry to electronics.

Unlike cryptos, gold doesn’t require electricity to trade. This makes it especially useful in situations such as hurricane-ravished Puerto Rico, where 95 percent of people are reportedly still without power. Right now the island’s economy is cash-only. If you have gold jewelry or coins, they can be converted into cash—all without electricity or WiFi.

Finally, gold remains one of the most liquid assets, traded daily in well-established exchanges all around the globe. Every day, some £13.8 billion, or $18 billion, worth of physical gold are traded in London alone, according to the London Bullion Market Association (LBMA). The cryptocurrency market, although expanding rapidly, is not quite there yet.

I will admit, though, that bitcoin is energizing some investors, especially millennials, in ways that gold might have a hard time doing. The proof is all over the internet. You can find a number of TED Talks on bitcoin, cryptocurrencies and the blockchain, but to my knowledge, none is available on gold investing. YouTube is likewise bursting at the seams with videos on cryptos.

Bitcoin is up 350 percent for the year, Ethereum an unbelievable 3,600 percent. Gold, meanwhile, is up around 10 percent. Producers, as measured by the NYSE Arca Gold Miners Index, have gained 11.5 percent in 2017, 23 percent since its 52-week low in December 2016.

 

 

Look Past the Negativity to Find the Good News

The news is filled with negative headlines, and sometimes it’s challenging to stay positive. Take Friday’s jobs report. It showed that the U.S. lost 33,000 jobs in September, the first month in seven years that this happened. A weak report was expected because of Hurricane Irma, but no one could have guessed the losses would be this deep.

The jobs report wasn’t all bad news, however. For one, the decline is very likely temporary. Beyond that, a record 4.88 million Americans who were previously sitting out of the labor force found work last month. This helped the unemployment rate fall to 4.2 percent, a 16-year low.

Have gold and bitcoin peaked for 2017
click to enlarge

There’s more that supports a stronger U.S. economy. As I shared with you last week, the Manufacturing ISM Purchasing Managers’ Index (PMI) rose to a 13-year high in September, indicating rapid expansion in the manufacturing industry. Factory orders were up during the month. Auto sales were up. Oil has stayed in the relatively low $50-a-barrel range, which is good for transportation and industrials, especially airlines. Small-cap stocks, as measured by the Russell 2000 Index, continue to climb above their 50-day and 200-day moving averages as excitement over tax reform intensifies.

These are among the reasons why I remain bullish.

One final note: Speaking on tax reform, Warren Buffett told CNBC last week that he’s waiting to sell assets until he knows the plan will go through. “I would feel kind of silly if I realized $1 billion worth of gains and paid $350 million in tax on it if I just waited a few months and would have paid $250 million,” he said.

It’s a fair comment, and I imagine other like-minded, forward-thinking investors, buyers and sellers will also wait to make huge transactions if they can help it. Tax reform isn’t a done deal, but I think it has a much better chance of being signed into law than a health care overhaul.

Upcoming Event

Later this month I’ll be in Barcelona attending and speaking at the 18th annual LBMA/LPPM Precious Metals Conference, where I’ll be speaking on quant investing. If you’re in the area between October 15 and 17, I’d be thrilled to see you! You can register here.

 

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 Russell 2000 Index is a U.S. equity index measuring the performance of the 2,000 smallest companies in the Russell 3000. The Russell 3000 Index consists of the 3,000 largest U.S. companies as determined by total market capitalization. The NYSE Arca Gold Miners Index is a modified market capitalization weighted index comprised of publicly traded companies involved primarily in the mining for gold and silver.  The index benchmark value was 500.0 at the close of trading on December 20, 2002.

The ISM manufacturing composite index is a diffusion index calculated from five of the eight sub-components of a monthly survey of purchasing managers at roughly 300 manufacturing firms from 21 industries in all 50 states.

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 6/30/2017.

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Manufacturers Just Had a Gangbuster Month
October 5, 2017

U.S. Manufacturing activity expanded at fastest pace since 2004 in september

American manufacturers grew at their fastest pace since May 2004 in September, according to the Institute for Supply Management (ISM). Manufacturing activity, as measured by the ISM Purchasing Managers’ Index (PMI), expanded for the 100th straight month, climbing to a 13-year high of 60.8. The higher above 50, the more rapid the acceleration.

U.S. Manufacturing Activity Expanded for 100th straight month in september
click to enlarge

Not only is this reflective of a strengthening U.S. economy, but it also supports demand for commodities going forward. With construction spending also up in the U.S., I think the time could be ripe for investors to consider increasing their allocation to energy, natural resources and basic materials.

According to the ISM report, growth was fastest in prices, which rose 9.5 percentage points from the August level. Factories reported having to pay higher prices for materials including textiles, plastics, wood products, chemical products and more. Other areas that saw rapid expansion were supplier deliveries, up 7.3 percentage points in September, and new orders, up 4.3 percentage points.

Hurricanes Harvey and Irma disrupted supply chains in August and September, prompting companies to stockpile goods as a precautionary measure. This likely lifted the already-impressive ISM reading somewhat, but it doesn’t change the strong fundamentals that underlie the U.S. economy in general right now.

Optimism Among Manufacturers Historically High

Manufacturers’ optimism remained historically high during the September quarter, with nearly 90 percent of those surveyed by the National Association of Manufacturers (NAM) saying they expected to see strong industry growth over the next 12 months. That reading’s up more than 28 percentage points compared to the same quarter last year.

U.S. Manufacturers' Business Optimism Remained Historically High in Third Quarter
click to enlarge

In the March quarter following the U.S. election, the survey rose to the highest level in its 20-year history as manufacturers expressed optimism in President Donald Trump’s plans to lower corporate taxes and streamline industry regulations. Although the reading has cooled since then, optimism still remained at historically high levels during the quarter.

Other Regions Showed Marked Improvement

The U.S. wasn’t the only region that made strong gains. Manufacturing activity in the world’s two other major economies, China and the eurozone, surged in September. China’s official manufacturing PMI rose to a five-year high of 52.4, representing the 14th straight month of expansion and beating analysts’ expectations.

Chinese manufacturing profits are among the highest in years, spurred by government spending on infrastructure, higher prices and stronger exports.
The eurozone PMI, meanwhile, climbed to a 79-month high of 58.1 in September, with output and new orders expanding in all eight of the ranked countries. Backlogs of work reached its steepest acceleration in over 11 years.  Even Greece, which has struggled to come out from under mountains of debt, registered a 52.8, a 111-month high.

All of this could be a tailwind for companies engaged in the production of natural resources and basic materials. Such companies make up a little over 60 percent of our Global Resources Fund (PSPFX). We believe energy companies also stand to benefit from increased manufacturing activity, make up close to 20 percent of the portfolio.

I urge you to visit our fund page and see if the Global Resources Fund is right for you.

 

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.

Foreign and emerging market investing involves special risks such as currency fluctuation and less public disclosure, as well as economic and political risk.

The ISM Manufacturing Index is based on surveys of more than 300 manufacturing firms by the Institute of Supply Management. The ISM Manufacturing Index monitors employment, production, inventories, new orders and supplier deliveries.

The NAM Manufacturers’ Outlook Survey is conducted quarterly among the National Association of Manufacturers’ membership of small, medium and large manufacturers.

The Purchasing Managers' Index (PMI) is an indicator of the economic health of the manufacturing sector. The PMI is based on five major indicators: new orders, inventory levels, production, supplier deliveries and the employment environment.

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This Could Be a No-Brainer Gold Buying Opportunity
October 2, 2017

GoGo Gold

Last week I was pleased to be the keynote speaker at the Denver Gold Show in beautiful Colorado Springs, Colorado. Attendance was strong, sentiment was up and my presentation on quant gold investing was very well received.

Frank Holmes keynote Speaker at The Denver Gold Show

As I’ve explained before, our firm uses quantamentals in our gold investing process, combining old-fashioned, bottom-up stock picking with big data and machine learning. This allows us to screen for the best possible producers with the most attractive balance sheets. We prefer miners that have a proven track record of sustainable profitability even when precious metal prices are down.

It’s these quantamentals that went into the creation of our newest quant ETF, our first to launch in Canada.

On Friday, I was thrilled to be back in my hometown of Toronto, where Galileo team members and I had the privilege of opening the Toronto Stock Exchange. The TSX, as you may know, has a long history of being the world’s premiere marketplace for mining stocks, and in 2016, 57 percent of the world’s financing for mining companies was done on the TSX. It’s only fitting, then, that our new ETF is traded there.

I urge you to listen to the ETF Trends webcast in which Tom Lydon and I discuss the gold market today and the factors we use in picking the strongest gold stocks.

Prepare for Gold to Get Sloppy, but Backdrop Remains Strong into Year-End

Early last week, North Korea said it was interpreting some of President Donald Trump’s comments as a declaration of war, insisting it can freely shoot down American military planes even if they’re not flying in North Korean airspace. As everyone is pointing out, the country has made similar threats in the past, but with Trump as president, there could be an added level of unpredictability.

Ordinarily, we would expect geopolitical risk of this scale to boost the price of gold on increased safe haven demand. Instead, the yellow metal struggled last week to extend the gains it’s made in 2017 so far.

Markets are closed but shopping is in during Chinas Golden Week

The main contributor to the pullback is likely the fact that markets in China will be closed this week in observance of Golden Week. Think of Golden Week as China’s Fourth of July—if the Fourth of July lasted for several days. This year marks the 68th anniversary of the founding of the People’s Republic of China.

Given that the country is the world’s largest gold market, the metal has in the past depreciated leading up to the week-long celebration. If you remember from last year, gold was knocked down significantly after someone dumped as much as $2.25 billion of the metal in the futures market, and on October 2, gold suffered its biggest one-day loss in three years. Last week it fell 1.33 percent.

Gold price has traded down prior to chinas Golden Week in October
click to enlarge

As you can see above, gold immediately rallied following the correction in 2014 and 2015, but it continued to drop in 2013 and 2016.

There’s no telling what it might do this year, of course, but I believe this could be a good buying opportunity, as the fourth-quarter Indian wedding season has historically brought with it higher gold prices on stronger demand. The backdrop looks favorable for all metals, in fact, as we head into the final quarter of the year, with improving global economic and manufacturing activity suggesting demand could surge.

Granted, other factors besides Golden Week are putting pressure on gold right now. The U.S. dollar just had one of its best months of the year, and the real five-year Treasury yield turned positive. Keep your eyes on yields, though, because as soon as they turn negative again, gold could take off.

Then there’s the record-setting stock market, which might discourage some investors from seeking a safe haven. But I think it’s worth pointing out that gold has remarkably held its own during this bull run, closely keeping track with the S&P 500 Index in 2017. As of last Friday, the S&P 500 was up 11.6 percent year-to-date, gold 11.5 percent.

U.S. Ready to Reform Tax Code for First Time in More than 30 Years

Small-cap stocks, as measured by the Russell 2000 Index, were among the biggest winners immediately following the November election, the idea being that Trump’s “America first” policies would benefit smaller, domestic companies with less exposure to foreign markets the most.

This trade was put on hold somewhat as Trump’s pro-growth agenda repeatedly stalled in Congress. But renewed talks of tax reform last week excited investors, helping to push the Russell 2000 back into record-closing territory. For the 12-month period, the index of American small-cap stocks is beating the S&P 500 by nearly 3 percent.

Small cap stocks jump on tax return excitement
click to enlarge

The bottom line is that Congressional Republicans—and Trump—need this win after the multiple failed attempts to repeal and replace Obamacare. Tax reform should be much easier to achieve, as there seems to be greater consensus on what needs to be done.

Indeed, the tax code has not been fundamentally changed in more than 30 years. If Trump gets his way, the number of personal income tax brackets will fall from seven to three, with the top marginal rate lowered from 39.6 percent to 35 percent.

US tax code hasnt been overhauled in a generation
click to enlarge

The corporate tax rate, meanwhile, would be set at a more reasonable 20 percent, down from 35 percent—currently the highest rate in the world among developed economies. This should help U.S.-based firms become much more competitive, and ideally it would encourage multinationals to bring home the estimated $3.6 trillion in cash held overseas.

As I told Fox Business’ Liz Claman on her show recently, I’m very bullish right now, with global GDPs and the purchasing manager’s index (PMI) headed higher. U.S. tax reform should only encourage further growth, both here and abroad.

Stay Informed

Many exciting developments are coming down the pipeline! I’ll be traveling more, speaking to investors, executives and other business leaders. Make sure you’re subscribed to my award-winning CEO blog Frank Talk to stay in the loop!

 

 

 

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

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.

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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
click to enlarge

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
click to enlarge

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
click to enlarge

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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The Blockchain Could Potentially Be as Disruptive as Amazon Was in the 1990s
September 18, 2017

By Frank Holmes
CEO and Chief Investment Officer
U.S. Global Investors

Block chain map

A quote often attributed to St. Augustine, the early Christian theologian, is: “The world is a book, and those who do not travel read only a page.” I feel blessed to be able to travel as much as I do—not because I’m a big fan of 10-hour flights or living out of a hotel room. I feel blessed because travel allows me to meet and speak at length with some truly fascinating and successful people, from CEOs of firms both large and small, to deal lawyers, to audit partners.

Hearing varying opinions on global issues and politics has helped expand the scope and depth of my “book,” or understanding of the world. In turn, I enjoy sharing some of these thoughts with you, as regular readers of Investor Alert and Frank Talk know well.

Opinions come a dime a dozen, of course, and in today’s hyper-partisan world, it’s impossible to expect everyone to agree on all things all of the time.

Case in point: I recently polled readers on their approval of the way Donald Trump has handled his job as president so far. This isn’t a scientific poll by any stretch of the imagination, but for whatever it’s worth, a combined 56 percent of participants said they approve of the president. Amazingly, that’s roughly the percentage of Electoral College votes given to Trump in November. (The exact figure is 56.87 percent.)

Do you approve or disapprove of the way Donald Trump is handling his job as President
click to enlarge

Some could easily take from this poll that Frank Talk readers are huge Trump supporters—and many of them are—but that would be overlooking the fact that nearly 40 percent said they disapprove of the way he’s handled his job.

I share this because it serves as a relatively accurate cross section of the types of opinions and perspectives I come across during my travels. Some of those opinions end up informing my own thinking, some don’t—but all of them are added to my “book.”

Now with North Korea launching even more rockets over Japan, the market continues to make new highs. This is what I was asked most often last week on CNBC Asia, Bloomberg Radio and Fox Business. As I said then, I’m bullish because the purchasing manager’s index (PMI) is up and oil prices are down, thanks to the ingenuity of Texas fracking, which has created a global peace tax break. The weaker dollar is also favorable for exports and gold.

Block chain map

Bitcoin on Sale After the China-Dimon One-Two Punch

Someone whose opinion I greatly admire, even if I don’t always agree with it, is Jamie Dimon’s. The highly-respected JPMorgan Chase CEO was asked last week at a global financial services conference in New York to share his thoughts on bitcoin—which can be as polarizing as President Trump. Some people love the cryptocurrency, some people hate it.

JP Morgan CEO Jamie Dimon

Dimon, who’s decidedly in the latter camp, didn’t mince his words.

Although he likes blockchain technology, which bitcoin is built on top of, he began by saying he would fire any JPMorgan trader who was caught trading bitcoin, which he went on to call “stupid,” “dangerous” and “a fraud.”

“You can’t have a business where people can invent a currency out of thin air,” he said.

With all due respect to Dimon, some might point out that “inventing a currency out of thin air” is how we got Federal Reserve Notes and other forms of paper money in the first place. Even he admits this:

“The first thing a nation does when it forms itself—literally the first—is forming currency.”

Bitcoin—and any of the 800 other cryptocurrencies—takes this idea to the next level, the main difference being that no third party or monetary authority controls its issuances or transactions. It’s all peer-to-peer.

Governments tend to resist anything that disrupts the status quo, which is why we saw China restrict new initial coin offerings (ICOs) the week before last. I suspect we’ll see a few more countries attempt to regulate ICOs in other ways, and as long as these regulations are fair and reasonable, I welcome them.

The bitcoin price was knocked down following the one-two punch of China and Dimon, falling 39 percent from its peak of $4,919 on September 1. Last Thursday it lost more than $611 a unit, one of its worst days ever, but on Friday the cryptocurrency rallied strongly again.

With its ability to validate all transactions in an immutable electronic ledger, the blockchain has the potential to be as disruptive as Amazon was in the late 1990s. When the company went public in 1997, there were serious doubts whether people would willingly give up their credit card information just to buy a book. Since then, Amazon stock is up 8,000 percent, and founder Jeff Bezos briefly overtook Bill Gates in July to become the world’s wealthiest person.

If you’re curious to learn more about how blockchains work, I recommend that you watch this engaging two-minute video.

Gold Price Correlated to Money Supply Growth

In some ways, cryptocurrency more closely resembles gold. Just as there’s only so much gold that can be mined in the world, the number of bitcoins that can ever be mined is set at 21 billion. But the exact amount is irrelevant. It could have been set at 21 trillion—the point is that supply is limited and finite.

bicion

The same cannot be said of the U.S. dollar, or any fiat currency, which today is printed “out of thin air” with abandon. This has led to hyperinflation in some instances and destroyed the value of several countries’ currency, including the Zimbabwean dollar and, more recently, the Venezuelan bolivar.

I’m not suggesting we’ll see the same thing happen here in the U.S. Nevertheless, rampant money-printing has certainly contributed to many people’s dwindling trust in traditional monetary systems. A 2016 Gallup poll found that Americans’ confidence in banks is stuck below 30 percent, where it’s been since the beginning of the financial crisis nearly 10 years ago.

When more money is printed, gold has traditionally been a beneficiary, for two key reasons: 1) If the money-printing is accompanied by economic growth, greater access to capital might boost demand for luxury items, including gold (the Love Trade); and 2) If the money-printing isn’t accompanied by economic growth, inflationary pressures might prompt investors to increase their exposure to real assets, such as gold (the Fear Trade).

These were among the findings in a 2010 World Gold Council (WGC) study. Even after seven years, the findings still apply. As you can see below, the price of gold expanded over the years as more and more money was printed.

 

Gold price correlates with M2 money
click to enlarge

If we want to get really technical, the WGC estimates that for every  1 percent increase in U.S. money supply, the price of gold tends to rise 0.9 percent—nearly as much—within six months.  

According to the most recent Federal Reserve report (September 7), more than $13.67 trillion in M2, or broad money, are now in circulation. That’s up about 1 percent since the end of June, when M2 stood at $13.54 trillion.

So will the gold price climb 1 percent in response? That would amount to only $13 an ounce, but remember, there are other factors driving gold, including negative real interest rates and geopolitical uncertainty.

 

 

One final note: A former UBS metals trader was arrested and charged last week with fraud and conspiracy over his alleged role in placing “spoof” orders for precious metals futures contracts. Andre Flotron, a Swiss citizen, was arrested while visiting his girlfriend in New Jersey. Flotron began working for UBS in 1999 but was put on leave in 2014.

See Zero Hedge for more on conspiracies and convictions in court over price manipulation of precious metals. Many cryptocurrency advocates allege this is why Jamie Dimon is so aggressive in knocking down bitcoin. The enthusiasm for bitcoin has accelerated this year with South Korean and Japanese banks accepting them as a form of money.

 

 

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 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.

M2 Money Supply is a broad measure of money supply that includes M1 in addition to all time-related deposits, savings deposits, and non-institutional money-market funds.

Holdings may change daily. Holdings are reported as of the most recent quarter-end. None of the securities mentioned in the article was held by any accounts managed by U.S. Global Investors as of 6/30/2017.

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Net Asset Value
as of 10/19/2017

Global Resources Fund PSPFX $5.81 -0.03 Gold and Precious Metals Fund USERX $7.92 -0.01 World Precious Minerals Fund UNWPX $6.33 -0.04 China Region Fund USCOX $11.35 -0.21 Emerging Europe Fund EUROX $7.03 -0.04 All American Equity Fund GBTFX $24.27 -0.02 Holmes Macro Trends Fund MEGAX $20.79 No Change Near-Term Tax Free Fund NEARX $2.23 No Change U.S. Government Securities Ultra-Short Bond Fund UGSDX $2.00 No Change