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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.

Will the Gold Bull Market Resume After the Summer Correction?
July 25, 2016

Donald Trump accepting the Republican nomination for president this week

Looking more Las Vegas casino than Oval Office, the stage Donald Trump delivered his nomination acceptance speech from Thursday was all gold, from the stairs to the podium, completely befitting of his showman-like style. Whether you support or oppose Trump, it’s time to face reality. This is really happening, and we should all brace ourselves for what will surely be one of America’s messiest, ugliest general election seasons.

Only time will tell which candidate will be triumphant in November, but in the meantime, one of the winners might very well be gold, which has traditionally attracted investors in times of political and economic uncertainty. In the United Kingdom, which voted one month ago to leave the European Union, gold dealers are seeing “unprecedented” demand, especially from first-time buyers. Some investors are reportedly even converting 40 to 50 percent of their net worth into bullion, though that’s not advisable. (I always suggest a 10 percent weighting, diversified in physical gold and gold mining stocks.) In Japan, where government bond yields have fallen below zero and faith in Abenomics is flagging, gold sales are soaring.

It’s not unreasonable to expect the same here in the U.S. between now and November (and beyond).

Strong U.S. Dollar and Treasury Yields Weighing on Gold

More so than the upcoming election, gold prices are being driven by U.S. dollar action, interest rates and low-to-negative bond yields around the world. (Between $11 trillion and $13 trillion worth of global sovereign debt currently carries a negative yield.) Right now the yellow metal is in correction mode on a strengthening dollar and rising two-year and 10-year Treasury yields, both of which share an inverse relationship with gold.

Gold Corrects on Rise of 10-Year Treasury Yield
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It’s also worth mentioning that the summer months have historically been among the weakest. By contrast, some of the highest gold returns of the year have occurred in September, when the Love Trade heats up in India in anticipation of Diwali and the wedding season.

Gold's Average Monthly Gains and Losses, 1975 - 2013
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For the past several trading days, gold demand had also been overshadowed by a hot equities market, with many stocks hitting 52-week highs. Both the S&P 500 Index and Dow Jones Industrial Average closed at all-time highs, twice in the latter’s case. The CNN Fear & Greed Index, which measures investor sentiment, is currently in “Extreme Greed” mode, at more than a two-year high.

Markets in Extreme Greed Mode

With gold taking a breather, now might be a good buying opportunity. Since 1970 there have been only four major gold bull markets, and the consensus among analysts right now is that we’re in the early stages of a new one, with end-of-year forecasts in the $1,400 an ounce range.

Learn more about what’s driving gold.

Rumors of Brexit’s Negative Impact Have Been Greatly Exaggerated

Despite gold’s correction, the metal got a boost last Thursday courtesy of Mario Draghi. The European Central Bank (ECB) president, as expected, announced that euro area interest rates and asset purchases would remain unchanged as economic ramifications of the Brexit referendum continue to be assessed.

Speaking of Brexit, Draghi noted that markets have met the volatility and uncertainty in the month following the U.K. referendum with “encouraging resilience.” Like many others, he had predicted that Brexit would dramatically stunt euro growth, but as we’ve already seen, such claims are overdone. In a note released last week, securities trading firm KCG wrote that June 24, the day following the British referendum, “was no repeat of August 24,” a reference to the “flash crash” that struck equities last summer and led to ETF mispricing.

Last week, the International Monetary Fund (IMF) trimmed 0.1 percent from its global economic growth forecast for the year, singling out Brexit fallout as the culprit. Curiously, though, the organization sees the U.K. growing faster than both Germany and France this year and next. This disconnect prompted U.K. Independence Party MP Douglas Carswell to label the IMF as “clowns” with “serious credibility problems.”

IMF Sees the U.K. Growing Faster Than Germany and France, Despite Brexit
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Following Draghi’s statement, gold prices immediately popped in Thursday morning trading, effectively hitting the pause button on the correction. On Friday, though, prices continued to slide, contributing to gold’s second straight week of losses.

The next hurdle to be cleared is a U.S. interest rate hike. Expectations that rates will go up in September have wobbled back and forth since Brexit, but in recent days, it’s been reported that Federal Reserve officials feel confident enough to raise them at least once before the end of the year. Gold will face additional pressure if rates are allowed to rise, but if the Fed chooses to stand pat, it could serve as another catalyst for a price surge.

 

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

The CNN Fear & Greed Index monitors seven market factors, including stock price momentum, stock price strength, stock price breadth, put and call options, junk bond demand, market volatility and safe haven demand, by calculating how far they have veered from their averages relative to how far they normally veer, on a scale of 0 to 100, with 0 indicating fear and 100 greed. Then, the seven scores are equally combined into one.

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4 Winners to Emerge from Brexit
July 5, 2016

30 Year Mortgage Rates at Record Lows?

Last week my friend John Mauldin, chairman of Mauldin Economics, released a special Brexit edition of his popular investments newsletter Outside the Box. In it he shared a post written by geopolitical strategist George Friedman that describes a recent meeting among six foreign ministers representing the European Union’s founding member states: Belgium, France, Germany, Italy, Luxembourg and the Netherlands. The topic of discussion was the possible causes and implications of the U.K.’s decision to leave the EU.

What George finds extraordinary is that, in their follow-up statement, the ministers appear to capitulate, admitting they “recognize different levels of ambition amongst Member States when it comes to the project of European integration.”

As George puts it, this is their way of acknowledging—finally?—the impossible task of enforcing uniformity across the European continent, home to many different peoples and cultures, all with different goals and aspirations.

If nothing else, this alone should be seen as a positive consequence of Brexit. It’s too early to tell what direction the EU will take post-Brexit, or whether any material policy changes will be made, but it seems as if the cries of resentment and frustration that have risen up from England and Wales (and, to a lesser extent, Scotland and Northern Ireland) have not fallen on deaf ears.

This is precisely what I’ve been writing about the last few weeks. If you’ve been following the mainstream media’s coverage of Brexit, you might think it’s little more than a reactionary, anti-immigrant groundswell. Don’t get me wrong—immigration is certainly part of it. Trying to integrate 333,000 people a year into the country’s national health care and school system has pushed the bandwidth of the British economy.

But the U.K.’s grievances—some of which I discussed in previous commentaries—are much more varied than that. And following the historic referendum, EU bureaucrats seem to be taking the gripes seriously, which we can count as a win not just for the U.K. but other member states as well.

Below are four more winners to have emerged from Brexit.

1. Gold Investors

The day after the referendum, gold jumped nearly 5 percent and since then has held above $1,300 an ounce, helping to achieve its best first half of the year since 1974. The yellow metal, which has historically been sought by investors during times of political and economic uncertainty, is also strengthening now that a U.S. interest rate hike seems less and less likely post-Brexit.

Markets, in fact, seem to have completely shed any belief that the Federal Reserve will raise rates this year. Bets that rates will be cut by September spiked before retreating, while bets that they would be left untouched surged 48.6 percent.

Bets on Fed Rate Cuts Surge Post-Brexit
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This bodes well for gold, which has traditionally shared an inverse relationship with interest rates. When savings account rates and yields on government bonds are low, gold suddenly becomes much more attractive to hold as a store of value.

This is especially true in countries where rates are negative. The yield on the German 10-year Bund recently fell below zero, and the Swiss 30-year government bond yield turned negative, in effect charging investors for the privilege of holding their cash.

But American investors aren’t immune. Last Friday, the yield on the 10-year Treasury fell to as low as 1.385 percent, an all-time record.

Learn where the opportunities are in today’s gold market.

Across the pond, British rates are likely to be slashed this summer, according to Bank of England Governor Mark Carney. In response, Britain’s FTSE 100 Index roared up to a 10-month high, erasing all Brexit-inflicted losses.

British Stocks Quickly Rebound to Pre-Brexit Levels
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2. U.S. Homeowners

The promise of continued low rates in Brexit’s wake could be good news for U.S. homeowners, both current and potential. For the week ended June 24, the mortgage rate on a 30-year home loan fell to 3.75 percent, its lowest level since May 2013, according to the Mortgage Bankers Association. Some analysts are even forecasting mortgage rates—which tend to track 10-year Treasury yields—to sink to record lows in the coming weeks. This move is expected to spur a wave of new loan applications and refinancing as borrowers rush to lock in historically low rates.

U.S. Home Prices Soar as Mortgage Rates Fall
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Home prices in the U.S., meanwhile, continue to improve after the financial crisis. Prices advanced 5 percent year-over-year in April, according to new data from the S&P/Case-Shiller Home Prices Indices. The 20-City Composite Index, in fact, is back up to its winter 2007 level.

3. British Luxury Goods Makers

In the immediate aftermath of the U.K. referendum, Donald Trump suggested the pound’s dramatic decline could encourage more foreign tourists to visit Turnberry, Scotland, where he owns a luxury golf resort. Many in the media criticized him for the comment, arguing he seems to care only about how he might profit from Brexit. But the thing is, he’s right.

Because of the drop in the pound, which sent it to levels not seen in more than 30 years, U.S. and Chinese interest in travel to Britain has already seen a huge spike. This could be a potential windfall for Britain’s luxury goods industry, which posted sales averaging nearly $1 billion in 2014, according to advisory firm Deloitte. Clothing designer Burberry, Britain’s largest luxury company, could end up being a beneficiary, along with many other major European brands found in the U.K.

Weak Pound Seen Benefiting British Luxury Goods Companies
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I’ve mentioned before how Chinese tourists spend more than any other country’s. Now, a March report by the World Travel & Tourism Council (WTTC) found that in 2015, outbound Chinese travelers shelled out a massive $215 billion overseas, representing an increase of 53 percent from the previous year. A weakened pound should only intensify demand even more.

4. British Taxpayers

According to the Daily Express, about 10,000 Brussels-based bureaucrats earn more than—and in many cases, more than twice as much as—U.K. Prime Minister David Cameron, who has a gross annual salary of 142,500 pounds. What’s more, they pay the euro equivalent of 50,000 pounds less per year than Cameron does. And before the 2015 Christmas break, these Eurocrats, who all enjoy a final salary pension, just gave themselves a 2.4 percent raise.

The British referendum was in large part a rejection of this brand of elitism. Similar to what many Americans feel today, taxpayers in the U.K. are fed up with seeing their money leave the British shores only to line the pockets of unelected officials, with little to show for it in return.

The two-year transition period that follows will likely present many challenges, but in the long run, an independent Britain will be able to set its own immigration policies, impose its own rules and regulations, negotiate the terms of its own trade agreements and much more.

Note: A correction was made July 7 regarding immigration figures.

 

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 FTSE 100 Index is an index of the 100 companies listed on the London Stock Exchange with the highest market capitalization. The S&P/Case-Shiller 20-City Composite Home Price Index seeks to measures the value of residential real estate in 20 major U.S. metropolitan areas: Atlanta, Boston, Charlotte, Chicago, Cleveland, Dallas, Denver, Detroit, Las Vegas, Los Angeles, Miami, Minneapolis, New York, Phoenix, Portland, San Diego, San Francisco, Seattle, Tampa and Washington, D.C.

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 3/31/2016.

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How Will Brexit Affect EU Sanctions Against Russia?
June 29, 2016

How Will Brexit Affect EU Sanctions Against Russia?

Brexit has dominated world headlines for the last couple of weeks, and with good reason: The U.K.’s historic referendum has already roiled markets around the globe; raised serious questions about immigration, trade and diplomacy; cast a harsh spotlight on the EU’s avalanche of rules and regulations; and divided member states on the best way forward. Among other far-reaching consequences, Brexit could end up causing Europe to rethink its sanctions policy against Russia, following a vote in Brussels last week to extend them another six months.

Russian Exports BreakdownNearly everyone agrees that Russia and President Vladimir Putin are among the winners because of Brexit. The U.K. is the EU’s most vocal critic of Russia’s 2014 annexation of the Crimean Peninsula and was instrumental in the decision to levy sanctions against the country’s financials, energy and defense sectors two years ago.

Several EU countries, including Austria and Hungary, have expressed interest in lifting, or at least softening, sanctions, as they can no longer afford to miss out on trade with Russia. Countries that have faced difficulty offsetting lost trade opportunities are Finland, Poland and the Baltic states—Latvia, Estonia and Lithuania. The French parliament recently adopted a resolution to urge Brussels to drop all sanctions. Italy’s Upper House of Parliament, meanwhile, approved a resolution opposing any automatic renewal of sanctions.

Britain’s exclusion from any future policy decision-making, then, could help Moscow’s chances to renegotiate terms.

In the long term, this bodes well for Russia’s economy, which has been hammered by not just sanctions but also falling oil prices during the last two years. In 2013, energy accounted for 70 percent of all exports, with crude alone representing a third. What’s helped keep oil producers profitable is the weakened ruble, which has lowered labor costs while making exports more competitive.

Double Whammy: Sanctions and Low Oil Prices

Estimates vary as to which has done more damage to the country’s currency—sanctions or the drop in Brent oil. As I’ve pointed out before, there’s a clear correlation between the ruble and oil prices.

Which Have Hurt the Russian Ruble More? Brent Prices or Sanctions?
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But sanctions have made their own significant impact. According to the International Monetary Fund (IMF), trade restrictions were responsible for a 1.5 percent decline in Russia’s gross domestic product (GDP) in 2015, with the effects intensifying the longer they’re in place. The Economic Expert Group, a Russian fiscal policy consultancy, estimates that between 2014 and 2017, international sanctions and the plunge in oil prices will cost Russia a whopping $600 billion. A large percent of this includes capital flight, though we’ve seen its rate slow since sanctions were first announced. Renaissance Capital believes $45 billion will leave the country this year, an improvement from the $64 billion lost in 2015 and $125 billion in 2014.

Foreign Direct Investment in Russia Has Declined Dramatically Because of Sanctions
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Exports have likewise taken a huge hit. In April, exports fell to $21 billion, a 28 percent decline from the same time a year earlier.

International Sanctions Takin Their Toll Russian Exports
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What Now?

Just as the U.K. won’t officially leave the EU for another two years, the removal of sanctions won’t happen anytime soon. As I said, EU officials already voted last week to extend them another six months. Many people, including Putin, doubt whether Brexit will materially change Russia’s relationship with the European trading bloc.

(On a side note, it’s interesting that even Putin recognizes why Brits voted the way they did: “No one wants to feed and subsidize weaker economies, support other countries, entire peoples,” he told reporters on Friday.)

However, there’s mounting pressure among individual EU member states to drop or at least soften sanctions, and with Britain, the bloc’s strongest supporter of restrictions, voting to leave, an opportunity to revisit terms could surface sooner than expected.

 

 

All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor. By clicking the link(s) above, you will be directed to a third-party website(s). U.S. Global Investors does not endorse all information supplied by this/these website(s) and is not responsible for its/their content.

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A Classic Case of Failed Socialism: What’s Next After the Brexit?
June 27, 2016

Brexit Vote

Defying sentiment polls leading up to last week’s historic Brexit referendum, British voters said “thanks, but no thanks” to excessive EU taxation and regulation, choosing to take back Britain’s sovereignty in financing, budgeting, immigration policy and other areas essential to a nation’s self-identity. It was a momentous victory for the “leave” camp, led by former London mayor Boris Johnson and U.K. Independence Party leader Nigel Farage, who invoked the 1990s sci-fi action film “Independence Day” by declaring June 23 “our independence day” from foreign rule.

As I’ve been saying the last couple of weeks, British citizens and businesses have grown fed up with an avalanche of failed socialist rules and regulations from Brussels, responsible for bringing growth and innovation to a grinding halt. Even if the referendum had gone the other way, it should still have served as a wake-up call to the European Union’s unelected bureaucratic dictators. Euroscepticism and populist movements are gathering momentum in EU countries from Italy to France to Sweden, and the week before last, fiercely independent Switzerland, which voted against joining the EU in the 1990s, finally yanked its membership application for good.

American voters should be paying attention. Many have already pointed out the parallels between the Brexit movement and Donald Trump’s populist campaign for president. This connection was not lost on Trump, who tweeted early Friday morning: “They took their country back, just like we will take America back.”

Britain’s decision to leave exposes the fragility of trade right now and mounting apprehension toward globalization. The EU is mired in tepid growth, and the blame cannot be pinned on immigrants, as some have tried to do. Instead, Brussels’ policies are anti-growth. Moore’s Law says the number of transistors in a microchip doubles every two years. That’s just a fact. American entrepreneurs embrace and indeed push the limits of technological innovation, but “Eurocrats,” to a large extent, seem to be in open opposition to it. This is why many large, successful American tech firms such as Facebook and Google are treated with such hostility in Europe. The bureaucrats are so against growth and prosperity, it wouldn’t surprise me if they tried to do away with Moore’s Law.

A Legendary Day for Gold

Immediately after results were announced, the British pound sterling, one of the world’s reserve currencies, collapsed spectacularly against the dollar, plunging to levels not seen since Margaret Thatcher’s administration. The euro, the world’s only fiat currency without a country, fell more than 2 percent.

Gold, meanwhile, screamed past $1,300 an ounce to hit a two-year high, proving again that the yellow metal is sound money and fervently sought by investors worldwide as a safe haven during times of economic and political uncertainty.

Gold and British Pound Make Huge Moves Following Brexit Referendum
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Uncertainty is indeed the order of the day. As the World Gold Council (WGC) put it on Friday, “It is difficult to find an event to compare this to.” Trading blocs have fractured before, but none as large and significant as the EU. As the world’s fourth most liquid currency, gold saw massive trading volumes. At the Shanghai Gold Exchange, an all-time record amount of gold was traded following the Brexit—the equivalent of 143 tonnes in all.

“We expect to see strong and sustained inflows into the gold market, driven by the intense market uncertainty that now faces the global markets,” the WGC wrote.

The Brexit lifted not just bullion but gold stocks as well, with many of them climbing to fresh highs. Shares of Barrick Gold shot up 10 percent in early-morning trading while Yamana Gold and Newmont Mining both saw gains of over 8 percent.

I’ve always advocated a 10 percent weighting in gold—5 percent in physical gold, 5 percent in gold stocks—with rebalancing done on a quarterly basis. Gold is now up at least one standard deviation for the 60-day period, meaning now might be a good time to take some profits and rebalance. It’s been a spectacular six months!

Learn how you can take advantage of rising gold equities.

So What Happens Now?

As I said, global growth is unstable, especially in the EU, and the Brexit will only add to the instability. This will likely continue to be the case in the short and intermediate terms as markets digest the implications of the U.K.’s historic exit.

It should be noted that the country will remain a member of the EU for two more years, during which time the nature of the relationship following the official divorce can be negotiated. These negotiations will take place without David Cameron, who unexpectedly announced early Friday morning that he was stepping down as prime minister.

The results of the referendum also call into question the unity of the kingdom itself. England and Wales both voted to leave the European bloc while Scotland and Northern Ireland were aligned in their desire to remain members.

A House Divided
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Keep Calm and Invest-On

Reacting to the outcome, Nicola Sturgeon, the First Minister of Scotland and leader of the Scottish National Party, said the people of Scotland see their future “as part of the European Union.” A second attempt at pulling out of the U.K., then, seems likely. In September 2014, you might remember, a referendum to quit the United Kingdom failed. Northern Ireland will become the only part of the U.K. to share a land border with an EU country (the Republic of Ireland), and it’s unclear at the moment whether a physical border, complete with passport control checks, will need to be erected.

In the meantime, it’s important to “keep calm and invest on.” We should expect volatility in the short term, but the global selloff might be a good opportunity to nibble at stocks that could rally once the initial shock has subsided.

For investors looking to minimize the volatility, short-term, tax-free municipal bonds continue to be attractive on global negative interest rates and falling currencies. Muni bond funds have seen inflows of more than $30 billion this year alone, with the week ended June 22 seeing the highest inflows in over three years at $1.4 billion.

Explore the $3.7 trillion muni market.

 

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.

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.

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 3/31/2016: Barrick Gold Corp., Yamana Gold Inc.

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What Brexit Is All About: Taxation (and Regulation) Without Representation
June 20, 2016

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

Global slowdown worries high Indias booming economy

I want to continue the Brexit conversation from last week. With only three days left before U.K. voters head to the polls, expectations of which side might win are beginning to shift toward the “Brexiteers,” while betting markets are still putting money on the “stay” campaign. However, the probability of victory for those who favor keeping their European Union membership has weakened rather remarkably in the last month, falling from over 80 percent in mid-May to around 62 percent today, according to BCA Research.

Probability of a stay Brexit vote outcome
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One of the main grievances is the burden of EU regulations, which are decided by unelected officials in Brussels with little to no cost-benefit analysis. These rules, which regulate everything from the number of hours someone can work (48 hours) to vacuum cleaner power, ultimately stifle growth and innovation.

Consider the so-called FANG stocks—Facebook, Amazon, Netflix and Google. These four tech behemoths, not to mention Apple, rank among the most disruptive, transformative companies the world has ever seen. They also happen to be American. Nothing like them exists in Europe—or, for that matter, anywhere else across the globe.

George Soros

When’s the last time a major scientific or technological breakthrough was made in France? In Germany? Where’s Europe’s answer to Silicon Valley?

It’s not that these countries lack capable thinkers and entrepreneurs. Far from it. Europe was once at the center of everything, from science to music to business. But now that Piketty-style “envy economics” reign supreme in the EU, innovation has increasingly shifted west toward the U.S.

And it doesn’t end there. EU officials continually try to make demands on how these companies conduct their business, whether that be regulating Amazon and Netflix’s original streaming content or suing Facebook over privacy issues.

These are among the questions and concerns Brexiteers and Eurosceptics are bringing to the fore. And no matter the referendum’s outcome, they’re not likely to go away any time soon. In fact, this could very well be the beginning and should serve as a wakeup call to EU policymakers. Just as American colonists protested taxation without representation over 240 years by dumping an entire shipment of English tea into Boston Harbor, many Brits today are staging their own taxpayers’ revolt by demanding control over their own economy, budgeting, immigration policies and more.

This is more broadly a debate over common law (the U.K.) and civil law (the Continent). Under common law, there’s greater protection of wealth and intellectual property. You’re presumed innocent until proven guilty. Why are real estate prices higher in London, New York City and Hong Kong than in Rome, Paris and Berlin? Common law.

Also at issue is the EU’s immigration and open borders policy, which has brought more than 600,000 asylum seekers into the U.K. in recent years.

I invite you to watch Brexit: The Movie, a Hollywood-caliber documentary that details many of the arguments in favor of the U.K. leaving the EU. When London financial markets were deregulated in the 1980s under Prime Minister Margaret Thatcher, it led to what is known as the “Big Bang,” named for the skyrocketing growth in market activity, and the same could very well happen to the U.K.’s economy post-Brexi.

The High Cost of Indirect Taxation

The U.K.’s EU club membership, so to speak, varies year-to-year, but it averages between 8 and 10 billion pounds—the equivalent of $11 billion and $14 billion—making the kingdom the third largest net contributor after Germany and France. But the costs don’t stop there. Towering above the contribution to the EU’s budget are costs associated with the bloc’s endless regulations—what I refer to as indirect taxation.

According to Open Europe, a nonpartisan European policy think tank, the top 100 most expensive EU regulations set the U.K. back an annual 33.3 billion pounds, equivalent to $49 billion. This amount exceeds what the U.K. Treasury collects in Council Tax (a tax on domestic property) on an annual basis.

Global Manufacturing Sector Stagnates May

And remember, that’s just the top 100. The “acquis communautaire,” the EU’s body of rules, directives and regulations, is a mammoth 170,000 pages long. Among the costliest regulations are the Renewable Energy Strategy (4.7 billion pounds a year), the Working Time Directive (4.2 billion a year) and the EU Climate and Energy Package (3.4 billion a year).

Tim Congdon, a prominent British economist and businessman, shows that such regulations—again, passed by unelected officials, similar to agencies here in the U.S.—have been a significant detriment to EU growth. Writing for the pro-leave group Economists for Brexit, he states: “It is obvious that the economies of EU member states are falling behind those of other high-income countries, falling behind consistently, and by a significant amount. Too much regulation must be the main explanation.”

Euro area lags behind other high-income societies
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Of course, these rules won’t disappear overnight if the U.K. chooses to leave. But it would be a step in the right direction toward repatriating a level of autonomy over the country’s own laws.

In the meantime, investors are bracing for the referendum with gold, which has rallied 7 percent this month, breaking above $1,300 an ounce . The yellow metal has historically been favored as a “safe haven” investment during times of political and economic uncertainty. Read my latest gold commentary on Forbes.

And with interest rates at near-zero or negative levels, droves of European fixed-income investors are abandoning government debt for American municipal bonds. The German 10-year government bond yield fell to subzero levels last week for the first time ever, spurring additional European flight into munis, which still offer attractive yields, relatively low volatility and diversification benefits.

Explore the $3.7 trillion muni market!

Let’s Not Forget to Clean House Here in the U.S.

The EU is hardly the world’s only offender when it comes to passing onerous regulations. The U.S. government continues to add to the already-bloated Federal Registry, which now stands at 80,260 pages as of the end of 2015. That year, federal regulations cost U.S. businesses a staggering $1.885 trillion, or $15,000 per household, according to the Competitiveness Enterprise Institute (CEI). If U.S. regulations were its own economy, in fact, they would be the world’s ninth largest, sandwiched in between India and Russia.

U.S. regulation costs would be the ninth-largest economy in the world
click to enlarge

This is something our next president will have no choice but to address. 2015 was a record year for adding new regulations. We can’t continue going down this path. The problem is that I haven’t seen either Donald Trump or Hillary Clinton make a serious commitment to streamlining rules and laws that affect businesses, especially small to medium-size businesses. According to a 2015 National Small Business Association (NSBA) survey, “regulatory burdens” was near the top of the list of challenges small business owners said threatened growth and the survival of their companies. I’m convinced that the candidate with the strongest economic and deregulatory plan has the best chance at winning the election in November.

Global Manufacturing Sector Stagnates May

 

For whatever it’s worth, though, a poll in Institutional Investor found that large-scale investors appear to favor Clinton for president right now by a pretty wide margin. When asked if Wall Street will rally behind Trump, a whopping 84 percent said no.

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.

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 3/31/2016: Apple Inc.

Diversification does not protect an investor from market risks and does not assure a profit.

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Net Asset Value
as of 09/25/2017

Global Resources Fund PSPFX $5.78 -0.04 Gold and Precious Metals Fund USERX $8.02 0.06 World Precious Minerals Fund UNWPX $6.69 0.06 China Region Fund USCOX $10.96 -0.46 Emerging Europe Fund EUROX $6.94 -0.06 All American Equity Fund GBTFX $24.34 0.10 Holmes Macro Trends Fund MEGAX $19.99 0.03 Near-Term Tax Free Fund NEARX $2.23 No Change U.S. Government Securities Ultra-Short Bond Fund UGSDX $2.00 No Change