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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.

Commodities Halftime Report: Separating the Wheat from the Chaff
July 10, 2017

amber waves of grain wheat is the best performing commodity of 2017

Of the 14 commodities we track closely at U.S. Global Investors, wheat rose to take the top spot for the first half of 2017, returning more than 25 percent. The grain was followed closely by palladium—used primarily in the production of catalytic converters—which gained 24 percent.

seperating the wheat from the chaff
click to enlarge

To view our ever-popular, interactive Periodic Table of Commodity Returns, click here.

Between the start of the year and June 30, the Bloomberg Commodity Index contracted 4.03 percent, with energy weighing down on the mostly strong performances of precious and industrial metals and agriculturals.

Contributing to metals’ gains was U.S. dollar weakness. During the first six months, the greenback lost 7.54 percent, responding partially to President Donald Trump’s comment in April that the dollar was “getting too strong.”

More recently, the president tweeted his thoughts on gas prices, which he pointed out were “the lowest in the U.S. in over ten years” for the July Fourth holiday. “I would like to see them go even lower,” he added.

Trump Goes to Warsaw

Speaking of Trump, I feel as if he has represented the U.S. and its values admirably during his visit to Europe last week. His speech in Warsaw sought to strengthen ties between America and Poland, which the New York Times just named the “next economic powerhouse.”

ahead of the g20 meeting this week, Presidend Trump and First Lady Melania arrived in Poland, greeted by Polish President Adrezej Duda and wife Agata.

Trump drew attention to a danger that’s “invisible” yet every bit as dangerous as terrorism and extremism—namely, “the steady creep of government bureaucracy that drains the vitality and wealth of the people.”

The U.S. and Poland “became great not because of paperwork and regulations,” the president said, “but because people were allowed to chase their dreams and pursue their destinies.”

This is the Trump I believe voters elected last November. If he were only able to stay on message and give his Twitter account a rest, he might more easily help engender and inspire an environment that better reflects the vision he described to his Polish audience.

I’m also encouraged by his first one-on-one meeting with Russian President Vladimir Putin. From what I’ve read, it sounds as if the two leaders managed to make some progress on Syria, with both sides agreeing to cooperate in maintaining “safe zones.”

Oil Embroiled

Regarding lower gas prices, Trump just might get his wish. Having fallen 14.30 percent in the first six months, oil is currently underperforming its price action of the past four years.

2017 oil underperforming the past four years
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Much of the thanks for oil’s slump goes to U.S. shale producers, which were quick to reactivate dormant rigs following the Organization of Petroleum Exporting Countries’ (OPEC) December announcement that it would be cutting production. As a result, the market is awash in black gold. In May, the Energy Information Administration (EIA) estimated that domestic output should average 9.3 million barrels a day this year and nearly 10 million in 2018, a level unseen in the U.S. since 1970.

West Texas Intermediate (WTI) popped above $47 a barrel last week, however, on news that oil and gas inventories in the U.S. dropped sharply the previous week. What’s more, the number of active North American oil rigs fell by two in the week ended June 30, from 758 to 756 rigs, the first such contraction since January, according to the Baker Hughes Rig Count.

Although constructive, there’s still quite a bit of terrain to cover before oil reaches the low- to mid-$50s we saw at the start of the year.

Where’s the Wheat?

As I told you back in May, the U.S. reclaimed its longstanding title as the world’s number one wheat exporter this year, displacing Russia, whose weak currency gave the Eastern European country a competitive advantage.

We might soon slip to second place yet again, for two primary reasons: 1) low U.S. wheat plantings and 2) severe droughts and unexpectedly hot weather conditions in the Northern Plains.

According to a March report from the U.S. Department of Agriculture (USDA), American farmers just aren’t planting wheat like they used to. Not only are we seeing shrinkage in the acreage devoted to the amber grain—more and more farmers are switching to soybeans—but wheat seedings are down for a second straight year. The USDA, in fact, estimates them to be at their lowest level ever since records began nearly 100 years ago in 1919.

As to the second point, severe to extreme hot and dry weather conditions in the Northern Plains—specifically in areas of Montana and the Dakotas—are putting wheat (and corn) on the defensive. According to the U.S. Drought Monitor, parts of Montana just experienced their driest May and June in 99 years and the driest January through June since 1983. Last week alone, temperatures in the region surged into the 90s and 100s, about 15 to 20 degrees above the norm. These conditions are expected to persist for several more weeks.

drought in the northern plains has impacted spring wheat conditions
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Supply constraints have pushed the grain up 25 percent so far this year to a nearly two-year high. A bushel now costs a little over $5, but some analysts see it rising above $6 and $7.

Precious Metals Continue to Shine

Also benefiting from limited supply is silver, which climbed nearly 4.5 percent as of June 30. The Silver Institute reported in May that global silver mine production in 2016 declined for the first time in 14 years on lower-than-expected output from lead, zinc and gold projects. World supply decreased 0.6 percent year-over-year, or about 32.6 million ounces.

Meanwhile, silver’s use in solar photovoltaic (PV) cells hit a new record high last year, further boosting demand. As I shared with you in May, solar ranked as the number one source of new electric generating capacity in the U.S. in 2016, followed by natural gas and wind.

In the first half of 2017, palladium, the silvery-white metal used in the production of catalytic converters, has surged to a 16-year high on speculative demand.

palladium price closing in on 16 year high
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At first blush, this trade might seem counterintuitive. After all, gas-powered vehicles, which use catalytic converters to control emissions, are expected to be surpassed in sales by electric vehicles, which do not require palladium, as early as 2040. Volvo just announced that it would completely phase out gas-only vehicles by 2019. Meanwhile, Tesla’s first mass-market battery electric vehicle (BEV) finally hit production last week.

Driving palladium’s rally this year, though, are bets that European car buyers will soon be switching from diesel-burning to gas-burning cars because of emissions concerns.

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

Palladium—one of the rarest elements on earth and mined almost exclusively in Russia and South Africa—is the smallest precious metals market, making its prices particularly vulnerable to such speculative trading. It’s achieved near-price parity with its sister metal, platinum, for the first time in two decades.  

On the other end of the spectrum is gold, whose market is larger than many major global stock and bond markets. Those include U.K. gilts, German bunds, the FTSE 100 Index, the Hang Seng Index and others.

Up 7.75 percent in the first six months, gold was supported largely by strong demand in India as consumers made their purchases ahead of the government’s Goods and Services Tax (GST), in effect since July 1, which levies a 3 percent tax on gold.

The impact of the country’s demonetization in December is also still being felt, with Indians’ confidence in fiat currencies tested. I believe Prime Minister Narendra Modi’s scheme to combat black money and public corruption, while admirable, has only reinforced Indians’ faith in the yellow metal as a store of value.

With consumer prices in the U.S. possibly set to begin rising on President Trump’s more protectionist policies—once he can get them enacted—gold priced in dollars could also be headed higher.

The Road Ahead

There’s a lot we’ll be keeping our eyes on in the second half of the year. For one, look to India’s upcoming Diwali holiday and fourth-quarter wedding season, during which gold gift-giving is considered auspicious.

Earlier in the year, I was excited about Trump’s ambitious infrastructure agenda, which would have greatly boosted domestic demand for base metals and energy. But with the Senate still locked in negotiations over what to do about Obamacare, an infrastructure deal looks as if it’s months if not years away.

Finally, I think with Tesla firing up its Nevada-based Gigafactory, investors would be prudent to keep their eyes on aluminum, cobalt, nickel and especially copper, as electric vehicles use around three times as much of the red metal as conventional vehicles. Lithium, which I featured back in March, is also expected to be a beneficiary of the move to BEVs.

 

 

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 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.
The FTSE 100 Index is an index of the 100 companies listed on the London Stock Exchange with the highest market capitalization.

The Hang Seng Index is a capitalization-weighted index of 33 companies that represent approximately 70 percent of the total market capitalization of The Stock Exchange of Hong Kong.

The Baker Hughes North American rig count is released weekly at noon central time on the last day of the work week. 

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 3/31/2017.

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Investor Beware! What Does the Illinois Budget Crisis Mean for Your Bond Fund?
July 6, 2017

L-Train Tracks, Pilsen Neighborhood Chicago Illinois

A recent Capital Economics (CE) report shines an unforgiving light on Illinois’ ongoing budget woes—and what it finds isn’t pretty. The crisis, which has affected every level of government in the state, is a cautionary tale for not only public spending run amok but also independent investors taking too large of a risk by seeking high yields.

The Land of Lincoln’s credit is already the lowest-rated in the union and, until recently, its debt came precariously close to being downgraded to “junk.” Were this to happen, it would become the first state ever to receive such an ignoble rating.

The state’s 10-year bond yield has soared in recent months, which might attract certain unwary speculators. It’s our belief, however, that such debt should generally be avoided, as the risks are especially high.

Illinois 10-Year Bond Yield Soared as State Flirted with "Junk" Status
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As I write this, a state budget could possibly be successfully negotiated, making it the first time in over two years that Illinois has operated with a budget. Republican Gov. Bruce Rauner already vetoed the first bill that reached his desk, which includes tax hikes, but the veto was immediately overridden by the State Senate and is now headed for the House.

No matter the outcome, the point here is that political dysfunction is unfavorable—to put it lightly—and muni investors should remain cautious.

Illinois isn’t the only state facing problems. Connecticut, Delaware, Maine, Massachusetts, New Jersey, Oregon, Rhode Island and Wisconsin are all (or were) mired in similar budgetary impasses. New Jersey public beaches reopened just in time for July 4 celebrations after a high-profile government shutdown closed them down.

For many muni investors, navigating around these numerous pitfalls might seem overwhelming. That’s why I believe an actively-managed municipal bond fund such as our Near-Term Tax Free Fund (NEARX) could be the solution.

More than 95 percent of NEARX is invested in munis that hold between an A and AAA investment-grade rating as of March 31. What this means is we’ve historically avoided exposure to debt issued by poorly-managed municipalities.

We also like to stay on the short end of the yield curve, especially now that the Federal Reserve has begun a new interest rate cycle. When rates rise, bond prices fall, and short- and intermediate-term munis are less sensitive to rate increases than longer-term munis whose maturities are further out.

To learn more about how rates affect municipal bonds, read our whitepaper.

On the Brink of Bankruptcy

Illinois’ total debt currently stands at about $60 billion, according to Capital Economics, which is above Detroit’s $20 billion bankruptcy in 2013 and just below Puerto Rico’s $70 billion debt. The state’s unfunded pensions—for teachers, professors, state employees, judges, emergency personnel and more—could be as high as $250 billion. That puts each Illinoisan on the hook for an estimated $56,000.

Political dysfunction and mismanagement are bad enough, but the state’s adverse demographics make matters even worse.

Illinois is one of only four states whose populations shrank over the past five years, the others being Connecticut, Vermont and West Virginia. CE estimates that over the next decade, the state’s population could grow only 2.2 percent, far below the national average. The number of retirees, meanwhile, could surge 34 percent.

Bottom 10 State Percent Changes in U.S. Population, 2010-2016
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That means fewer working-age Illinoisans are expected to be counted on to support retirees in the coming years, driving up the amount of unfunded pensions even higher.

So even if the Illinois government can resolve its budget soon, we see this as only a short-term fix. The state has even larger obstacles emerging on the horizon.

Our Solution

Again, this is why I think an actively-managed muni fund like NEARX is an attractive solution. Whereas other muni funds might accumulate Illinois debt based on its high yield, regardless of risk, we generally have stuck to investment-grade munis.

It must be said that if you look at NEARX’s holdings today, you’ll see that Illinois is one of its top issuers. The bonds were purchased at an earlier time, before the state’s budgetary problems really began to worsen. We haven’t accumulated any more since it became clear to us that the risks were too great.

We continue to hold the debt because we’re confident the state’s government can successfully unravel the political gridlock and arrive at a short-term resolution. It’s the state’s long-term demographic risks that investors should especially worry about. Our longest Illinois bonds mature in 2021, and as long as the state doesn’t default in the next four years—which, in our opinion, is highly unlikely—we should get a good return on the bonds based on their yield when they were purchased.

 

 

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.

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.

A bond’s credit quality is determined by private independent rating agencies such as Standard & Poor’s, Moody’s and Fitch. Credit quality designations range from high (AAA to AA) to medium (A to BBB) to low (BB, B, CCC, CC to C).

The Near-Term Tax Free Fund invests at least 80 percent of its net assets in investment-grade municipal securities. At the time of purchase for the fund's portfolio, the ratings on the bonds must be one of the four highest ratings by Moody's Investors Services (Aaa, Aa, A, Baa) or Standard & Poor's Corporation (AAA, AA, A, BBB). Credit quality designations range from high (AAA to AA) to medium (A to BBB) to low (BB, B, CCC, CC to C). In the event a bond is rated by more than one of the ratings organizations, the highest rating is shown.

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San Francisco Named a Global Leader in Disruptive Innovation
June 29, 2017

Bay Area Leads the U.S. in Patents

When people think of San Francisco, they might think of the Golden Gate Bridge, cable cars, Chinatown, the 49ers or Giants. I’m a fan of all of those things, but what usually comes to mind when I think of San Francisco is Silicon Valley, the world’s premiere hub for innovation and entrepreneurialism. That makes it, I believe, one of the most attractive places in the world to invest.

Others clearly share this belief.  One consulting firm, in fact, just named San Francisco as having the best long-term outlook in terms of innovation and business.

Since 2008, A.T. Kearney has annually ranked the world’s most innovative cities, and for the second straight year, the City by the Bay topped the group’s list of cities with the greatest outlook “to attract and retain global capital, people and ideas.” Decisive factors included not just innovation but also personal well-being, economics and governance.

Rounding out the top five cities were New York, Paris, London and Boston. But for my money, San Francisco, and indeed the broader Bay Area and Silicon Valley, offers the most attractive investment opportunities, for numerous reasons.

Patents and Venture Capital Galore

San Francisco—and its fellow Bay cities San Jose, Oakland, Mountain View and others—is ground zero for American innovation. Taken as a whole, the Bay Area has far and away the most patents than any other American city, after surpassing New York City in 1995. It grew from contributing only 4 percent of U.S. patents in 1976 to 16 percent by 2008.

Bay Area Leads the U.S. in Patents
click to enlarge

A.T. Kearney’s report cites San Francisco’s strong start-up ecosystem, emphasis on technology and willingness to take risks as contributing factors to the city’s rapid increases in the number of U.S. patents.

The Bay Area also leads the nation in the amount of venture capital that pours in every year. A study conducted in 2012 by the Bay Area Council Economic Institute and Booz & Company found that the region, where most Silicon Valley companies are headquartered, attracted between 35 and 40 percent of all U.S. venture capital investment. Much of the investment focused on information technology, biotechnology, internet, digital entertainment and “cleantech” firms.

Bay Area Captured between 35% and 40% of U.S. Venture Capital Investment
click to enlarge

In 2016, San Francisco ranked 10th in the nation in terms of the number of Fortune 500 companies, or those with the highest gross revenue. With 11 such companies calling San Francisco home, the city is the only one in California, interestingly, that appears in the top 10.

Disruption HQ

Perhaps more so than any other region in the world, the Bay Area produces new companies that disrupt and redefine entire industries. Think Google (Alphabet), Intuit, Netflix, eBay, Tesla Motors, Cisco Systems and others—many of which we’ve owned at one point or another in our two domestic equity funds, the All American Equity Fund (GBTFX) and Holmes Macro Trends Fund (MEGAX).

John Bardeen, William Shockley and Walter Brattain, inventors of the transitorWe can thank Stanford University for a lot of this innovative spirit. Founded in 1885 by railroad magnate and former California governor Leland Stanford, the school’s mission from the start was to teach not just traditional liberal arts but also technology and engineering.

Whole books have been devoted to what Stanford—which Reuters named as the world’s most innovative university in 2016—has contributed to our world, from antibody therapies to data analytics to DSL. In 1991, the first websites in North America went online at the school’s National Accelerator Laboratory, paving the way for the Internet Age we live in today.

One of Stanford’s most influential professors, Frederick Terman, was not only renowned for his research in electronics and radio engineering, but he also pushed his students to form their own companies. Known today as the “Father of Silicon Valley,” Terman personally invested in many of these companies, one of which was Hewlett-Packard, founded in Palo Alto in 1939.

The title “Father of Silicon Valley” is also sometimes shared by William Shockley, who came to Stanford in 1963 to teach electrical engineering. Earlier in his career, in 1947, he and his Bell Telephone Laboratories colleagues John Bardeen and Walter Brattain invented the transistor, an achievement that’s absolutely fundamental to modern electronics. The transistor can be found in nearly everything we use and enjoy today, from cars to jets to computers. For this creation, Shockley and his co-inventors were awarded the Nobel Prize in 1956.

Sign of First Silicon DeviceThat same year, Shockley and seven other scientists founded Shockley Semiconductor Laboratory, the “first silicon device and research manufacturing company in Silicon Valley,” as a plaque marking the spot in Mountain View reads today. The work conducted at the laboratory, which closed in 1968, is literally the reason why Silicon Valley is so named. (The building was later used as a furniture store, then a produce market. It was eventually torn down.)

It’s impossible to overemphasize the importance of Stanford’s economic contributions. A 2012 study estimated that the approximately 40,000 companies founded by Stanford alumni since the 1930s generate world revenues in the neighborhood of $2.7 trillion—every year. If they were their own independent nation, they would be the world’s 10th largest economy.

Manifest Destiny

As pleased as I am to see that San Francisco ranked first in the world for its “disruptive innovation,” as A.T. Kearney puts it, I’m not surprised. The city has long been an agent of change and a prime destination for those seeking fortune and glory.

When gold was discovered in California in 1848, San Francisco became an overnight mecca for miners from all corners of the world. Its population swelled from 1,000 in 1848 to 20,000 just two years later. The city grew so rapidly in size and importance, it was eventually selected as the westernmost stop along the first transcontinental railroad.

Today, innovative ideas are sought just as fervently as 49ers sought gold, and it’s precisely those ideas that we invest in. Both the All American Equity Fund (GBTFX) and Holmes Macro Trends Fund (MEGAX) have a 16 percent to 17 percent exposure to Silicon Valley-type tech firms—firms like Apple, NetApp, Qualcomm, eBay, Interdigital and others. I believe they’re well positioned to continue attracting and retaining capital and talent for many years to come.

 

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

Fund portfolios are actively managed, and holdings may change daily. Holdings are reported as of the most recent quarter-end. Holdings in the All American Equity Fund and Holmes Macro Trends Fund as a percentage of net assets as of 3/31/2017: Alphabet Inc. 0.00%; Intuit Inc. 0.00%; Netflix Inc. 0.00%; eBay Inc. 0.00%; Tesla Inc. 0.00%; Cisco Systems Inc. 0.00%; Apple Inc. 0.00%; Qualcomm Inc. 2.72% in All American Equity Fund, 0.00% in Holmes Macro Trends Fund; InterDigital Inc. 0.00%; Hewlett Packard Enterprise Co. 0.00%; NetApp Inc. 3.05% in All American Equity Fund, 0.00% in Holmes Macro Trends Fund.  

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.

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One Easy Way to Invest in the “Asian Century”
June 15, 2017

One Easy Way to Invest in the “Asian Century”

The 19th century belonged to the United Kingdom, the 20th century to the United States. Many market experts and analysts now speculate that the 21st century will be remembered as the “Asian Century,” dominated by rising superpowers such as Indonesia, India and China.

It’s those last two countries, India and China—home to nearly 40 percent of the world’s population—that I want to focus on. Both emerging markets offer attractive investment opportunities, especially for growth investors who seek to derisk from American equities.

Look at how dramatically the two have expanded in the last half century. As recently as 1970, neither country controlled a significant share of world gross domestic product (GDP). As of June of this year, however, China represents more than 15 percent of world GDP, India more than 3 percent. This has displaced Russia and Spain, itself the world’s wealthiest economy in the 16th century.

China and India Cracked the Top 10 List of World Economies
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And the expansion is expected to continue. Back in February, I shared with you research from PricewaterhouseCoopers (PwC), which predicts that by 2050, China and India will become the world’s number one and number two largest economies based on purchasing power parity (PPP). (PPP, if you’re unfamiliar, is a theory that states that exchange rates between two nations are equal when price levels of a fixed basket of goods and services are the same.)

top 10 economies expected to be dominated by 7 largest markets in 2050
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Also note Indonesia, which is expected to replace Japan as the fourth-largest economy by midcentury.

A Surge in Middle Class Spenders

What should excite investors the most is the growing size of the middle class in China and India. More middle class consumers means more spending on goods and services and more investing.

Remember, China’s middle class is already larger than that found here in the U.S., according to Credit Suisse. In October 2015, the investment bank reported that, for the first time, the size of China’s middle class had exceeded that of America’s middle class, 109 million to 92 million. As incomes rise, so too does demand for durables, luxury goods, vehicles, air travel, energy and more.

109 million for the first time, the size of china's middle class has overtaken the U.S. 109 million compared to 92 million

Living standards have risen dramatically in China. According to Dr. Ira Kalish, a specialist in global economic issues for Deloitte, hourly wages for manufacturing jobs in China are now higher than those found in Latin American countries except for Chile. They’re even nearing wages found in lower-income European countries such as Greece and Portugal.  

Looking ahead to 2030, China is expected to have a mind-boggling 1 billion people—more than three times the current U.S. population—enjoying a middle class lifestyle filled with middle class things, from cars to designer clothes to electronics and appliances.

Asia's Growing Middle Class
click to enlarge

India, meanwhile, will have an estimated 475 million people among its middle class ranks. The South Asian country is currently the fastest-growing G20 economy, with Morgan Stanley analysts estimating year-over-year growth to hit 7.9 percent in December. Driving this growth is a steady increase in wages and pensions, which will support consumption of goods and services.

Demographic trends in India make the country look especially favorable. As I’ve shared with you before, India has a young population, with an average age of 29. (The average age in China, by comparison, is around 37, while Japan’s is 48.) By 2020, more than 64 percent of Indians will be under the age of 35. For many years to come, therefore, India will have a much larger group of working-age individuals than any other country on earth.

In fact, India’s total population could now be larger than China’s, according to new estimates. Yi Fuxian, a researcher at the University of Wisconsin-Madison, believes China’s population is much smaller than official statistics, owing to years of slower population growth under the one-child policy. Yi insists that about 90 million fewer people reside in China than previously thought, meaning its 2017 population could be closer to 1.29 billion people. That would narrowly make India, home to 1.31 billion people, the world’s most populous country.

Investing in 40 Percent of Humanity

So how can investors take advantage of this rapid growth in spending power?

One of the best ways, I believe, is with our China Region Fund (USCOX), which invests in securities in the authorized China securities markets (Hong Kong, Shenzhen and Shanghai) as well as the surrounding countries, including India.

The fund, which seeks to achieve long-term capital appreciation, focuses on companies that we believe are poised to benefit the most from an increase in middle class consumption. That includes automotive firms (Geely Automotive, Great Wall Motor), pharmaceuticals (CSPC Pharmaceutical, Sinopharm), information technology (Tencent, NetEase), consumer discretionary (Anta Sports) and much more.

For the one-year period as of June 12, USCOX was up more than 35 percent, well ahead of its 50-day and 200-day moving averages.

U.S. Global Investors China Region Fund (USCOX)
click to enlarge

Click here to see the fund’s performance.

To learn more about investment opportunities in the “Asian Century,” visit the USCOX fund page!

 

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. By investing in a specific geographic region, a regional fund’s returns and share price may be more volatile than those of a less conc entrated portfolio.

Fund portfolios are actively managed, and holdings may change daily. Holdings are reported as of the most recent quarter-end. Holdings in the China Region Fund as a percentage of net assets as of 3/31/2017: Geely Automobile Holdings Ltd. 7.00%, Great Wall Motor Co. Ltd. 0.54%, CSPC Pharmaceutical Group Ltd. 3.48%, Sinopharm Group Co. Ltd. 1.84%, Tencent Holdings Ltd. 5.47%, NetEase Inc. 0.75%, ANTA Sports Products Ltd. 2.36%.

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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Hope for the Best but Prepare for the Worst (with Gold and Munis)
June 12, 2017

Hope for the best expect the worst

Last week investors shrugged off even more drama coming out of Washington. Stocks continued to rally and hit record highs, even as former FBI director James Comey testified that, in his opinion, President Donald Trump fired him in an attempt to lift the “cloud” of the Russia investigation.

If true, this suggests obstruction of justice, an impeachable offense. And if impeached, or in the event of a resignation, Trump’s political agenda would likely be derailed. The last (and only) time a U.S. president resigned, the Dow Jones Industrial Average lost up to 40 percent, as a recent article in TheStreet reminds us.

But markets paid no mind to Comey’s insinuations, underscoring investors’ confidence that tax reform and deregulation will proceed as planned. And sure enough, just hours after Comey testified, the House of Representatives voted to repeal key parts of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which has contributed to an alarming number of small bank closures since its passage in 2010.

So once again, the wisdom of crowds prevails. If you remember, markets were forecasting as far back ago as last summer that Trump would win the November election.

This doesn’t mean, however, that Trump’s problems are behind him.

Last week I was speaking with Mike Ward, a top publisher with Agora Financial, who compared Presidents Trump and Ronald Reagan. It was suggested that, despite Trump’s apparent affection for the 40th president, he has so far failed to live up to the Great Communicator’s memory of optimism and deep respect for the office.

Whereas Reagan wanted to “tear down this wall,” Trump wants to “put up that wall.” Whereas Reagan insisted it was “morning in America,” Trump insists it’s “American carnage.” Reagan succeeded in building coalitions and unifying our allies against the Soviet Union. Trump has already managed to destabilize many of those alliances.

During the 1988 vice-presidential debate, Texas Senator Lloyd Bentsen famously ribbed then-Senator of Indiana Dan Quale for comparing himself favorably to John F. Kennedy. “I served with Jack Kennedy. I knew Jack Kennedy,” Bentsen said. “Senator, you’re no Jack Kennedy.”

Similarly, many observers are of the opinion that Trump is no Reagan.

Don’t get me wrong. I remain hopeful. President Trump wants to make America great again, and it’s still well within his power to do so—if he can practice some self-restraint and not get caught up in petty feuds. Voters support his vision. They gave him not only the Executive Branch but also Congress and most states’ governorships and legislatures.

You could say I’m hoping for the best but preparing for the worst. I advise investors to do the same. No one can say what the future holds, and it’s prudent to have a portion of your portfolio in gold, gold stocks and short-term, tax-free municipal bonds, all of which have a history of performing well in volatile times.

Gold Poised for a Breakout

Following bitcoin’s breathtaking ascent to fresh highs, gold rose to a seven-month high last week on safe-haven demand, stopping just short of the psychologically important $1,300 level. Supported by Fear Trade factors such as geopolitical turmoil—both in the U.S. and abroad—and low to negative government bond yields, gold’s move here can be seen as a bullish sign.

As others have pointed out, the yellow metal breached the downward trend of the past six years, possibly pointing to further gains.

gold just breached key resistence
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Under pressure from a beleaguered White House and stalled policy reform, the U.S. dollar continued to sink last week, with gold outperforming the greenback for the first time since the November election. Because gold is priced in dollars, its value increases when the dollar contracts.

Gold outperforms the US dollar for the first time since election
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It’s also important for investors to remember that gold has often rallied when Treasuries yielded little or nothing. Why would investors knowingly lock in guaranteed losses for the next two or five years, or near-zero returns for the next 10 years? That’s precisely what Treasuries are offering, as you can see below:

Low to negative real treasury yeilds support gold
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Minus inflation, the two-year Treasury yielded negative 0.96 percent in April; the five-year, negative 0.38 percent; and the 10-year, a paltry 0.10 percent. (I’m using April data since May inflation data won’t be available until this Wednesday, but I expect results to look the same.)  

When this happens, investors tend to shift into other safe-haven assets, including municipal bonds and gold.

Year-to-date, the yellow metal is up more than 9.7 percent, even as the stock market extends its rally. This runs counter to what we’ve seen in the past. As I’ve explained before, gold usually has a low correlation to other assets, including stocks and bonds, which is why investors all around the globe favor it as a diversifier.

So what gives?

Top Money Managers Sound the Warning Bell

One of the most compelling answers to this question, I believe, is that stocks appear to be overvalued right now, in turn boosting gold’s safe-haven investment case. This is the assessment of Bill Gross, the legendary bond guru who currently manages $2 billion with Janus Henderson.

Speaking at the Bloomberg Invest New York summit last week, the 73-year-old Gross said markets are now at their highest risk levels since before the 2008 financial crisis. Loose monetary policy has artificially inflated stock prices despite weak economic growth, he said, adding: “Instead of buying low and selling high, you’re buying high and crossing your fingers.”

Doomsdayers bill gross paul singer marc faber trouble brewing capital markets

Marc Faber, the Swiss investor often referred to as Dr. Doom, echoed Gross’ thoughts, telling CNBC last week that “everything” is in a bubble right now, similar to the days of the dotcom bust of the late 1990s. And when this bubble bursts, Marc said, investors could lose as much as half of their assets.

That stocks appear overvalued could be a driver of gold’s performance right now, with savvy investors, anticipating a possible market correction, loading up on assets that have historically held their value in times of economic crisis.

A cadre of other top money managers and analysts share Bill Gross and Marc’s less-than-rosy market view.

At the same Bloomberg event, billionaire hedge fund manager Paul Singer—whose firm, Elliott Management, recently raised $5 billion in as little as 24 hours—warned attendees that the U.S. was at risk of another debt shock.

“What we have today is a global financial system that’s just about as leveraged—and in many cases more leveraged—than before 2008, and I don’t think the financial system is more sound,” Singer said.

Indeed, U.S. debt levels are higher now than they’ve ever been, according to the Federal Reserve Bank of New York. In the first quarter of 2017, total U.S. household indebtedness reached a mind-boggling $12.73 trillion. That’s $150 billion more than the end of 2016 and $50 billion above the previous peak set in 2008.

Low to negative real treasury yeilds support gold
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Even more concerning is the fact that the number of delinquencies grew for the second straight quarter as more income-strapped Americans binged on credit. We could be headed for a massive hangover.

Cumulatively, these warnings stress the importance of hoping for the best while planning for the worst. In the past, there have been few ways as effective at preserving wealth as gold, gold stocks and tax-free, short-term munis.  

Gold Vaults a Sign of Increased Demand

Demand for safety deposit boxes is surging as more savers and investors convert cash into gold

The world’s two largest consumers of gold by far, China and India, are currently importing enormous amounts of the yellow metal on safe-haven demand. Bloomberg reports that China could boost its gold purchases from Hong Kong as much as 50 percent this year over concerns of currency devaluation, a slowing real estate market and shaky stocks. Imports could advance to 1,000 metric tons, which would be the most since 2013.

Meanwhile, India—whose affection for gold goes back millennia—saw its imports of the yellow metal rise fourfold in May compared to the same month last year as traders fear a higher tax rate on jewelry. Imports climbed to 126 tons, versus 31.5 tons last May.

As impressive as this news is, there’s no sign more compelling that investors have an insatiable appetite for gold right now than the growing demand for safety-deposit boxes. According to Bloomberg, companies in Europe are scrambling to meet customers’ needs for a safe, inexpensive place to store their bullion in the face of negative interest rates and rising inflation. Two firms in particular have plans to build additional facilities capable of holding 100 million euros ($112 million) each in bars and coins.

Daniel Marburger, CEO of European coin dealer CoinInvest, told Bloomberg that he had just finished working with a German customer whose bank account was charged negative interest rates. To prevent this from happening again, the customer converted his cash into gold and silver, which he sees as a more reliable store of value.

Negative rates are “definitely a driving factor and will lead to more sales and also more storage clients,” Marburger said.

 

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Net Asset Value
as of 06/18/2018

Global Resources Fund PSPFX $5.82 -0.01 Gold and Precious Metals Fund USERX $7.59 -0.02 World Precious Minerals Fund UNWPX $3.86 -0.03 China Region Fund USCOX $11.75 -0.05 Emerging Europe Fund EUROX $6.64 -0.08 All American Equity Fund GBTFX $25.97 No Change Holmes Macro Trends Fund MEGAX $20.15 -0.07 Near-Term Tax Free Fund NEARX $2.20 No Change U.S. Government Securities Ultra-Short Bond Fund UGSDX $2.00 No Change