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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 Gold Finish 2015 with a Gain?
October 19, 2015

Gold-Ready-For-His-Closeup

After its stellar performance last week, gold might do something it hasn’t done since 2012—that is, end the year in positive territory. You can see past returns for yourself in our perennially popular Periodic Table of Commodities Return.

Responding to a weaker U.S. dollar, continued contraction in global growth and wide speculation that interest rates will stay near-zero for the remainder of the year, the yellow metal broke above its 200-day moving average and is close to erasing its 2015 losses.

gold-breaks-above-its-200-day-moving-average
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This could be the price reversal many gold bulls have been expecting.

Back in August I shared with you that legendary hedge fund manager Stanley Druckenmiller, who’s made some mythic calls over his long career, invested $323 million of his own money in gold, now the largest position in his family funds. Although such a large weighting isn’t appropriate for all investors—I’ve always recommended 10 percent in gold: 5 percent in gold stocks, 5 percent in bullion—it looks as if Druckenmiller made another good call.

The big news last week was that Walmart took a massive hit after the retail giant said it expected a profit slump in 2016. Walmart investors lost a whopping $24 billion—$21 billion on Wednesday alone. While this news dominated the headlines, it’s important to recognize that the total amount of net assets in the SPDR Gold Trust, the world’s largest gold-backed ETF, is just slightly more than Walmart’s one-week loss.

in-one-week-walmart-shares-lose-nearly-as-much-as-GLD-total-net-assets

“Death” of the Dollar?

It’s no mere coincidence that gold’s breakout coincides with the weakening of the U.S. dollar last week. The greenback signaled what’s known as a “death cross,” just in time for Halloween. Widely recognized as the start of a bearish trend, a death cross occurs when the 50-day moving average crosses below the 200-day.

This hasn’t happened since September 2013.

US-dollar-experiences-a-death-cross
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As ominous as this sounds, it’s good news for gold and other metals and commodities, not to mention emerging markets and American exports. For the past year, the strong dollar has crushed these assets, something I write and speak about frequently. If the death cross does indeed indicate the start of a downward trend, gold might have the breathing room it needs to reach the important $1,200 resistance level.

Our China Region Fund (USCOX) and Emerging Europe Fund (EUROX) have responded well to the dollar’s drop, both of them crossing above their 50-day moving averages.

China-Region-Fund-USCOX-Crossed-above-50-Day-Moving-Average
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Emerging-Europe-Fund-EUROX-Crossed-above-50-Day-Moving-Average
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When we factor in the Love Trade, gold has even further upside potential. In India, the world’s largest consumer of the precious metal, the annual wedding and fall festival season has officially begun, which has historically triggered a spike in demand. This period is followed by Christmas and the Chinese New Year in February, when gold prices have surged, based on the shorter-term, five-year pattern.

Gold-seasonality
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Russian Air Strikes Ignite the Fear Trade

Gold has also likely benefited in the short term by the Fear Trade, specifically global geopolitical events such as Russia’s involvement in Syria. We should never welcome war, but the truth is that political turmoil very often has had a positive effect on commodity prices and currencies. Both the Russian ruble and Brent oil are currently above their 50-day moving averages.

the-russian-ruble-and-brent-oil-are-above-their-50-day-moving-averages
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In a recent piece titled “The New Cold War Battlefield… and How It Will Affect Oil Prices,” Dr. Kent Moors, global energy strategist for “Oil & Energy Investor,” writes that what happens in the Middle East has “always had a rather direct impact on energy prices and the prospects for investing in the sector.”

Syrian-president-Basher-al-Assad-shaking-hands-with-Russian-president-Vladimir-Putin

The difference today, Moors says, is that Syria “is a rising power vacuum right smack in the middle of the largest concentration of global crude production.”

This is a theme that’s explored in even further detail in my friend Marin Katusa’s bestselling book, “The Colder War: How the Global Energy Trade Slipped from America’s Gasp.”

Speaking of Marin, his Katusa Research and Cambridge House International will be co-producing the Silver Summit and Resource Expo in San Francisco November 23 and 24. I’ll be giving the opening keynote address. If you’d like to attend the conference as my guest, send me an email for a complimentary registration.

Real Interest Rates, Real Impact on Gold

The Fear Trade also includes monetary and fiscal policies such as money supply and real interest rates. As opposed to geopolitical events, which might have an immediate effect on gold, these drivers can have a long-term influence.

As a reminder, real interest rates are what you get when you deduct the rate of inflation from the 10-year Treasury yield. For example, if Treasury yields were at 2 percent and inflation was also at 2 percent, you wouldn’t really be earning anything. But if inflation was at 3 percent, you’d be experiencing a negative real rate.

When gold hit its all-time high of $1,900 per ounce in August 2011, real interest rates were sitting at -3 percent. In other words, if you bought the 10-year, you essentially lost 3 percent a year on your “safe” Treasury investment. Since gold doesn’t cost anything to hold, it became more attractive and the metal’s price soared.

Today, the U.S. has virtually no inflation, so real interest rates are at 2 percent, a swing of 500 basis points since August 2011. This has lately had a negative effect on gold, which means it’s even more remarkable that the precious metal has broken above its 200-day moving average.

Our office was visited last week by Barry Bannister, CFA, the chief equity strategist for investment firm Stifel, who gave us buckets of useful macroeconomic research, much of which validated what we’ve been saying for a long time regarding the relationship between the price of gold and real interest rates.

Barry made the case that real interest rates are even higher than we realize. He argued that the reason the Federal Reserve hasn’t allowed rates to lift off yet is because—you might want to sit down for this—it already has, in an “invisible” interest rate hike of 4 percent. Quantitative easing (QE), Barry said, was “negative” interest rates, and that “economic recovery and time ‘raised’ rates to 0 percent, a de facto rate hike.”

Gold’s rally last week occurred in spite of this “invisible” rate hike.

Active Management on Top

Even with gold prices off around 38 percent since the August 2011 high, our Gold and Precious Metals Fund (USERX) has done well, outperforming the Market Vectors Gold Miners ETF (GDX) and PowerShares Global Gold & Precious Metals ETF (PSAU).

active-management-on-top-USERX-vs-gold-ETF-peers
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Speaking to Investor’s Business Daily, portfolio manager Ralph Aldis pointed out that one of the reasons why our fund has outperformed is because we’re able to apply our tacit knowledge of company executives and management teams, as well as anticipate and act on political risks in countries we invest in. This is a skill (and benefit) that only active management can provide.

Both the GDX and the PSAU are strictly market capitalization-weighted, so they might miss out on unexpected “success stories.”

“They end up owning the biggest companies, which because of their size have difficulty growing,” Ralph told IBD.

Klondex Mines is one such success story. It’s the fund’s top weighting, at 17 percent—and yet because of its market-cap, it isn’t included at all in the two ETFs.

As Ralph told The Gold Report last week, “I want to own companies where management can increase the value proposition,” regardless of gold prices.

To end, I’d like to congratulate the U.S. Global communications team for receiving five STAR awards from the Mutual Fund Education Alliance Thursday night for excellence in investor education. Please help me applaud the team’s efforts and your commitment to being a curious and informed investor by sharing our award-winning communications with your friends, family and colleagues.

Thanks you for being a subscriber to our award-winning communications!

P.S. It’s with sadness to inform you of the passing of Raymond Edward “Ed” Flood. Ed spent his whole life and career in the mining industry, serving most recently as the CEO of Concordia Resource Corp. Back in the mid-1990s, he was the founding president of Ivanhoe Mines, today a massive producer of copper, gold and other metals that operates mostly in southern Africa.  We were early investors in Ivanhoe.

My path crossed with Ed’s many times over the years, and I came to know him as not only a talented money manager but also an exceptional human being. I join everyone else who knew him, both personally and professionally, when I say that he’ll be sorely missed.

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. Distributed by U.S. Global Brokerage, Inc.

 

 

Past performance does not guarantee future results.

 

 

Total Annualized Returns as of 9/30/2015:
Fund Year to Date One-Year Five-Year Ten-Year Gross Expense Ratio Expense Cap
Emerging Europe Fund (EUROX) 17.84% -26.10% -10.43% -4.65% 2.29% N/A
China Region Fund (USCOX) -11.46% -6.68% -4.78% 2.53% 2.97% 2.55%
Gold and Precious Metals Fund (USERX) -6.98% -21.82% -20.11% -1.79% 1.97% 1.90%
Market Vectors Gold Miners ETF (GDX) -25.39% -35.31% -23.97% N/A 0.53% N/A
SPDR Gold Shares ETF (GLD) -7.39% -8.79% -3.53% N/A 0.40% N/A
PowerShares Global Gold & Precious Metals Portfolio ETF (PSAU) -26.26% -34.84% -22.62% N/A 0.75% N/A

Expense ratios as stated in the most recent prospectus. The expense cap is a voluntary limit on total fund operating expenses (exclusive of any acquired fund fees and expenses, performance fees, extraordinary expenses, taxes, brokerage commissions and interest) that U.S. Global Investors, Inc. can modify or terminate at any time, which may lower a fund’s yield or return. Performance data quoted above is historical. Past performance is no guarantee of future results. Results reflect the reinvestment of dividends and other earnings. For a portion of periods, the fund had expense limitations, without which returns would have been lower. Current performance may be higher or lower than the performance data quoted. The principal value and investment return of an investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. Performance does not include the effect of any direct fees described in the fund’s prospectus (e.g., short-term trading fees of 0.05%) which, if applicable, would lower your total returns. Performance quoted for periods of one year or less is cumulative and not annualized. Obtain performance data current to the most recent month-end at www.usfunds.com or 1-800-US-FUNDS.

For information regarding the investment objectives, strategies, liquidity, risks, expenses and fees of the Market Vectors Gold Miners ETF, SPDR Gold Shares ETF, or the Powershares Global Gold & Precious Metals Portfolio please refer to those funds’ prospectuses.

Investment Objective: The Gold and Precious Metals Fund is an actively managed mutual fund that focuses on gold and precious metals producing companies. The Market Vectors Gold Miners ETF is a passively managed fund that seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the NYSE Arca Gold Miners Index. The investment objective of the SPDR Gold Trust is for the shares to reflect the performance of the price of gold bullion, less the expenses of the Trust’s operations. The PowerShares Global Gold & Precious Metals ETF is a passively managed fund that seeks to replicate as closely as possible, before fees and expense, the price and yield performance of the NASDAQ OMX Global Gold and Precious Metals Index.

Liquidity: The Gold and Precious Metals Fund can be purchased or sold at a net asset value (NAV) determined at the end of each trading day. The Market Vectors Gold Miners ETF, SPDR Gold Shares ETF and Powershares Global Gold & Precious Metals Portfolio can be purchased or sold intraday. These purchases and redemptions may generate brokerage commissions and other charges not reflected in the ETF’s published expense ratio.

Safety/Fluctuations of principal/return: Loss of money is a risk of investing in the Gold and Precious Metals Fund, the Market Vectors Gold Miners ETF, the SPDR Gold Shares ETF and the Powershares Global Gold & Precious Metals Portfolio. Shares of all of these securities are subject to sudden fluctuations in value.

Tax features: The Gold and Precious Metals Fund may make distributions that may be taxed as ordinary income or capital gains. Mutual funds are pass-through entities, so the shareholder is responsible for taxes due on distributions.

The Market Vectors Gold Miners ETF and the Powershares Global Gold & Precious Metals Portfolio may make distributions that are expected to be taxed as ordinary income or capital gains. However, ETFs are designed to minimize taxable distributions to shareholders. Shareholders of the SPDR Gold Trust will generally be treated as if they directly owned a pro rata share of the underlying assets held in the Trust. Shareholders also will be treated as if they directly received their respective pro rata shares of the Trust’s income and proceeds, and directly incurred their pro rata share of the Trust’s expenses.

The sale of shares of both mutual funds and ETFs may be subject to capital gains taxes by the shareholder.

Information provided here is neither tax nor legal advice and is general in nature. Federal and state laws and regulations are subject to change.

Foreign and emerging market investing involves special risks such as currency fluctuation and less public disclosure, as well as economic and political risk. By investing in a specific geographic region, a regional fund’s returns and share price may be more volatile than those of a less concentrated portfolio. The Emerging Europe Fund invests more than 25% of its investments in companies principally engaged in the oil & gas or banking industries. The risk of concentrating investments in this group of industries will make the fund more susceptible to risk in these industries than funds which do not concentrate their investments in an industry and may make the fund’s performance more volatile.

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

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, Emerging Europe Fund and Gold and Precious Metals Fund as a percentage of net assets as of 9/30/2015: Wal-Mart Stores Inc. 0.00%, SPDR Gold Shares ETF 0.00%, Market Vectors Gold Miners ETF 0.00%, PowerShares Global Gold & Precious Metals Portfolio ETF 0.00%, Klondex Mines Ltd. in Gold and Precious Metals Fund 16.91%, Concordia Resource Corp. 0.00%, Ivanhoe Mines Ltd. 0.00%.

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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Emerging Europe Analyst: “Poland Today Reminds Me of America”
July 22, 2015

Joanna Sawicka, research analyst for USGI's Emerging Euroope Fund (EUROX), in her hometown of Bialystok, PolandJoanna Sawicka still remembers having to wait in line for hours to buy food and school supplies. In communist-controlled Poland, such basic goods were rationed. Families received special government-issued cards that permitted them to buy only the minimal amount of meat per month. This experience made a lasting impression on Joanna as a child and inspired her to work toward a life in which she would not want for anything.

Now the research analyst for our Emerging Europe Fund (EUROX), Joanna recently visited her native Poland and found it to be a drastically different country from the one she grew up in. I sat down with her to chat about her travels and where she thought the Eastern European country might be headed from here.

So tell me about your trip.
Basically it was a family trip. I got to spend time with my parents and some old friends, not to mention check out how Poland looks now and see the changes that have happened since I last visited nine years ago.

I combined the trip with a short two-day visit to Warsaw, where I attended the Capital Markets Summit at the Warsaw Stock Exchange. The main topics of discussion during the conference included real estate and the growing role of debt capital markets. We also discussed the continued effort to privatize Polish businesses, a process that began in 1991 after the fall of communism.  

What’s changed since your last visit?
I saw big changes. There’s now a small business on every street corner. A lot of my old friends own businesses now. Poland is the largest beneficiary of European Union funds, and people are clearly taking advantage of having more money and better opportunities.

Another change I saw were the highways and roads being developed. They’re so much bigger and better from when I was a child. The highway from Warsaw to Bialystok, where I was born, used to be one lane each way. Now it’s being developed into two lanes each way, so it will be faster, better-looking and more convenient. The cars are also better now than what I remember. The Fiats and Polonezes have been replaced with Mercedes and BMWs.

On the other hand, electronics and clothing have become very expensive. While I was over there, I priced the iPad for my daughter and was surprised to find that it was quite a bit more expensive than here in the U.S. I was also able to visit CCC, one of the holdings in the Emerging Europe Fund. It’s a retail shoe and handbag store that looks a little like Payless ShoeSource, but it’s bigger and nicer. It’s being managed very cost-efficiently because they have few people working there.

CCC, Polish shoe and handbag retailer

What advice do you have for someone who’s interested in investing in Poland?
As always, if you’re investing in another country, you need to be careful with currencies. As for Poland in particular, be selective. There are many good opportunities, but it’s important to be familiar with the company’s story as well as the people managing it. Right now, political risk is a concern, and the financial sector is under some pressure. The populist Law and Justice Party seeks to increase taxes on banks and opposes the domestic ownership of lenders.

What do you see in store for Poland?
I see Poland moving forward quickly and with confidence. When I was little, the neighborhood grocery store carried next to nothing other than milk and bread. For meat, you had to wait in a line for a couple of hours. Today, I can go to the same store and easily find anything that’s available here in the U.S. In fact, Polish stores carry an even wider selection of produce and other goods than what Americans might be used to.

In that respect, the Poland of today reminds me of America. It has so many new opportunities, and people’s lives have vastly improved since the end of communism. Investment dollars are coming in from abroad, and many people have taken the opportunity to open up their own businesses. It’s still more challenging to open a business in Poland than in the U.S., though. There’s so much bureaucracy, and the paperwork takes a lot of time to complete. You have to know the right people. Although there is room for further improvement, I’m very proud of Poland and its people.

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. Distributed by U.S. Global Brokerage, Inc.

Foreign and emerging market investing involves special risks such as currency fluctuation and less public disclosure, as well as economic and political risk. By investing in a specific geographic region, a regional fund’s returns and share price may be more volatile than those of a less concentrated portfolio. The Emerging Europe Fund invests more than 25% of its investments in companies principally engaged in the oil & gas or banking industries.  The risk of concentrating investments in this group of industries will make the fund more susceptible to risk in these industries than funds which do not concentrate their investments in an industry and may make the fund’s performance more volatile.

Fund portfolios are actively managed, and holdings may change daily. Holdings are reported as of the most recent quarter-end. Holdings in the Emerging Europe Fund as a percentage of net assets as of 6/30/2015: CCC SA 0.80%, Fiat Chrysler Automobiles N.V. 0.00%, Bayerische Motoren Werke AG 1.03%.

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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Global Investors: You Should Be Paying Attention to this Economic Indicator
July 13, 2015

Reality set in for investors last week: Tremors are shaking up the global markets.

A “no” vote from the Greek referendum last Sunday, the vast stock market selloff in China, and the volatile movements in the price of U.S. crude oil have made it clear the worldwide economy is collectively riding the brakes. The 3.5-hour halt in trading on the NYSE also added to investors’ unease.

It's been hard to ignore the wild market headlines this week.

Last week on BNN TV, Canada’s leading business station, I explained that an important forward-looking economic indicator we closely monitor at U.S. Global Investors can help make sense of this slowdown: the global manufacturing purchasing managers’ index (PMI), which we've written about many times. Coupled with this, our portfolio managers recognize that during highly volatile markets adjusting cash levels in our funds is key.

In addition to our own macro models, BCA Research , a highly respected independent research company, pointed out that PMIs in developing economies have plunged to new lows.  The International Monetary Fund also revised downward its global growth forecast for 2015. On this account, bad news is good news, as central bankers are scrambling to stimulate economic growth.

Emerging Markets Manufacturing PMI is Plunging
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As active managers, we have raised our cash levels looking for opportunities in a sloppy market, particularly in our China Region Fund (USCOX). This allows us to mitigate risk and deploy that cash when stocks look attractive per our model, which focuses on factors like high returns on invested capital, sales per share growth and dividend per share growth.

The Trend is Your Friend

It’s common for investors to look at gross domestic product (GDP) when making decisions about how to deploy capital. Unlike GDP, which looks back or in the rearview mirror, PMI is forward-looking. PMI gathers data such as global output, new orders, exports, prices and employment, making it a reliable indicator for both commodity performance and business activity. ISM, or Manufacturing Institute for Supply Management, is the U.S.-specific calculation of PMI.

Take a look at global PMI. It has continued on a three-month downtrend for the month of June.

Global Manufacturing PMI Continues Its Downtrend
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Similarly, PMI in the U.S. peaked seven months ago but has since been modestly declining. The threat of rising rates has been a contributing factor, and although Federal Reserve Chairwoman Janet Yellen stated Friday that the U.S. is on track to raise rates in September, many agree that this date is too soon.

U.S. Manufacturing PMI Declines After Peak
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Card Counting: Using the PMI Pattern to Your Investing Advantage

Understanding PMI is one way investors can use patterns to improve their chances of positive returns in the market – just like card counting in a game of Blackjack.

When looking at PMIs, a reading of 50 or above indicates manufacturing expansion, while a reading below 50 indicates a slowing economy. PMIs for individual countries like China and Greece are negative right now, meaning that manufacturing activity is contracting.

Our investment team’s research has shown that when the one-month reading crossed below the three-month trend, there was a significant probability that materials, energy and commodities would fall six months later. Conversely, when it crossed above, manufacturing activity would ramp up, which greatly improved the performance of commodities such as copper and crude oil, along with the materials and energy sectors.

Commodities and Commodity Stocks Historically Rose Six Months After PMI "Cross-Above"
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The Great Shift in Seasonal Oil

As I explain in our Managing Expectations whitepaper, using seasonal patterns, along with global PMI, is another way to understand trends in the market and the world at large.

Historically, the hurricane season in August/September has shut down the supply of oil offshore, leading to a peak in relative price around this time. But as you can see in the chart below, the new technology of fracking and a corresponding increase of U.S. onshore production, have led to a surplus, drastically shifting the shorter-term seasonal pattern in oil.

U.S. Manufacturing PMI Declines After Peak
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Staying Nimble During Changing Landscapes

Professor of Mathematics at the University of Oxford, Marcus du Sautoy, said it best:

“Although the world looks messy and chaotic, if you translate it into the world of numbers and shapes, patterns emerge and you start to understand why things are the way they are.”

The global markets right now indeed appear “messy and chaotic,” but curious investors and fund managers realize that specific tools and patterns help them navigate through the complexity and intensity of constantly changing landscapes.

In fact, it is the agile active management and the use of these investment tools that landed two of our funds in Investor’s Business Daily’s “Weekly Review” section last week.  This particular section of IBD is a screened list of top-rated stocks for the week, along with the top-performing funds that own these particular stocks. Our Holmes Macro Trends Fund (MEGAX) and Global Resources Fund (PSPFX) are recognized for owning nine of these top stocks.

Subscribing to our award-winning Investor Alert newsletter is one way investors can stay on top of geopolitical and economic events that could affect their investments.  We’d really appreciate it if you’d share our publication with your friends and colleagues!

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. Distributed by U.S. Global Brokerage, Inc.

Past performance does not guarantee future results.

Foreign and emerging market investing involves special risks such as currency fluctuation and less public disclosure, as well as economic and political risk. By investing in a specific geographic region, a regional fund’s returns and share price may be more volatile than those of a less concentrated portfolio. Because the Global Resources Fund concentrates its investments in specific industries, the fund may be subject to greater risks and fluctuations than a portfolio representing a broader range of industries. Stock markets can be volatile and share prices can fluctuate in response to sector-related and other risks as described in the fund prospectus.

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.

The S&P 500 Energy Index is a capitalization-weighted index that tracks the companies in the energy sector as a subset of the S&P 500. The S&P 500 Materials Index is a capitalization-weighted index that tracks the companies in the material sector as a subset of the S&P 500.

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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Investors Take Shelter as Greek Referendum Nears
July 1, 2015

American industrialist J. Paul Getty once said: “If you owe the bank $100, that’s your problem. If you owe the bank $100 million, that’s the bank’s problem.”

And when the amount is $1.73 billion, it’s everyone’s problem. Greece is officially in arrears for missing its scheduled payment Tuesday to the International Monetary Fund (IMF). Expecting this, American stocks had their largest one-day drop of 2015 on Monday. Market volatility, as measured by the VIX, spiked sharply.

Volatility Spikes on Greek Fears
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Investors responded by seeking safe-haven investments such as Treasuries, gold and municipal bonds.

This Sunday, Greece plans to vote on whether to comply with their creditors’ present conditions or to reject the terms, a choice some think could lead to a so-called Grexit from the eurozone. Currently, there’s no such exit clause written into the legal fabric of the currency system other than leaving the entire European Union, an extreme “solution.” No matter how this particular act plays out, there are still more (and even larger) loan payments waiting in the wings, the next one owed to the European Central Bank (ECB) and totaling nearly $4 billion.

German Chancellor Angela Merkel, whose country holds the greatest total amount of Greek debt, officially refused to renegotiate the bailout terms until after the referendum.

Which Countries Would Suffer the Most If Greece Defaulted on Its Debt
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In many ways, the unfolding Greek drama is playing out like a sequel to the Cyprus banking crisis two years ago, which also had far-reaching ripple effects in world markets. But the present situation could potentially have much larger ramifications.

How Cyprus Prevented Capital Flight and Saved Its Economy

Cyprus has climbed most of the way out of its financial hole after making bad loans to—wouldn’t you know it?—Greece, following the 2008 crisis. One of the ways the Cypriot government managed to do this was by implementing capital controls. Cyprus imposed restrictions on how many euros could be withdrawn per day or taken out of the country, and ATMs rationed cash.

Can Greece hold up its economy?Similar capital controls are now in place in Greece. Banks are closed until at least next Monday—the day after the referendum—and no more than 60 euros may be withdrawn from ATMs per day, per account. Greeks traveling abroad also face restrictions. Even parents who have children studying abroad will need to apply for permission to send them money. These inconveniences are forcing citizens to realize the possible, and potentially very unpleasant, consequences of a no vote in the upcoming referendum.

One opinion poll right now shows that a slim majority of Greek respondents are in favor of working out a deal with the IMF and other lenders. Former Cypriot Minister of Finance Michael Sarris—who’s had plenty of experience with debt negotiations—agrees. He urges Greece to vote yes, stating that to do so “takes [them] back to the negotiating table with the chance of a better outcome.”

Among the Greek voters, of course, are pensioners and low-income Greeks who receive government benefits. Fed up with austerity, such voters seem much more likely to vote no. But this way of thinking is precisely what landed Greece in its current situation to begin with. For years the country has been financing its ever-expanding budget with loans from European banks and the IMF, with no plan in place on how to repay them. In fact, Greece has spent 90 of the last 192 years in one financial crisis or another, according to Bank of America Merrill Lynch.

Greece Has Spent 90 of the Past 192 Years in Financial Crisis
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For this reason and more, MSCI, global index provider, is seriously considering demoting Greece from the emerging market category to the solitary, windswept “standalone” category, which includes Venezuela, Ghana, Zimbabwe and other outliers.

Greek Stocks Trail Europe
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This past April, Cyprus lifted the last of its capital controls. Although it was a painful process, things are moving in a positive direction. Let’s hope the people of Greece make the right decision so that their country can likewise begin the recovery process.

Greece Unlikely to Leave the Eurozone

Obviously this topic is of interest to our investors, so I’ll be sure to update you on how our investment team is handling the situation. For now, it’s important to know that a Grexit is unlikely to happen. Such a move would be a huge, symbolic blow not only to Greece, one of the earliest members of the fledgling European Community, but also the monetary experiment known as the euro. Even Greek Prime Minister Alexis Tsipras admits that the cost to the EU for kicking Greece out of the eurozone would be too immense.

The uncertainty has sent shockwaves through world markets, prompting investors to seek safety in core investment assets, including municipal bonds.

Our Near-Term Tax Free Fund (NEARX) invests heavily in quality, short-term munis. Having provided investors with over 20 straight years of positive returns, NEARX holds five stars overall from Morningstar, among 185 Municipal National Short-Term funds as of 5/31/2015, based on risk-adjusted return.

Explore NEARX!

 

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. Distributed by U.S. Global Brokerage, Inc.

Total Annualized Returns as of 3/31/2015:
Fund One-Year Five-Year Ten-Year Gross Expense Ratio Expense Cap
Near-Term Tax Free Fund 2.38% 2.59% 3.10% 1.08% 0.45%

Expense ratio as stated in the most recent prospectus.The expense cap is a contractual limit through April 30, 2016, for the Near-Term Tax Free Fund, on total fund operating expenses (exclusive of acquired fund fees and expenses, extraordinary expenses, taxes, brokerage commissions and interest).Performance data quoted above is historical. Past performance is no guarantee of future results. Results reflect the reinvestment of dividends and other earnings. For a portion of periods, the fund had expense limitations, without which returns would have been lower. Current performance may be higher or lower than the performance data quoted. The principal value and investment return of an investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. Performance does not include the effect of any direct fees described in the fund’s prospectus which, if applicable, would lower your total returns. Performance quoted for periods of one year or less is cumulative and not annualized. Obtain performance data current to the most recent month-end at www.usfunds.com or 1-800-US-FUNDS.

Morningstar Rating

Overall/185
3-Year/185
5-Year/161
10-Year/111

Morningstar ratings based on risk-adjusted return and number of funds
Category: Municipal National Short-term funds
Through: 5/31/2015

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

Bond funds are subject to interest-rate risk; their value declines as interest rates rise. Though the Near-Term Tax Free Fund seeks minimal fluctuations in share price, it is subject to the risk that the credit quality of a portfolio holding could decline, as well as risk related to changes in the economic conditions of a state, region or issuer. These risks could cause the fund’s share price to decline. Tax-exempt income is federal income tax free. A portion of this income may be subject to state and local taxes and at times the alternative minimum tax. The Near-Term Tax Free Fund may invest up to 20% of its assets in securities that pay taxable interest. Income or fund distributions attributable to capital gains are usually subject to both state and federal income taxes.

The Chicago Board Options Exchange (CBOE) Volatility Index (VIX) shows the market's expectation of 30-day volatility.

The S&P 500 Stock Index is a widely recognized capitalization-weighted index of 500 common stock prices in U.S. companies.

The EURO STOXX 50 Index provides a Blue-chip representation of supersector leaders in the eurozone. The index covers 50 stocks from 12 eurozone countries: Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain.

Fund portfolios are actively managed, and holdings may change daily. Holdings are reported as of the most recent quarter-end. Holdings in the Near-Term Tax Free Fund as a percentage of net assets as of 3/31/2015: Global X FTSE Greece 20 ETF 0.00%.

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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Innovation and Efficiency Drive U.S. Oil Supply and Demand
March 30, 2015

Innovation and Efficiency Drive U.S. Oil Supply and Demand

Oil mounted a strong surge last Thursday as Saudi Arabia-led forces carried out a series of airstrikes against Houthi militants in Yemen, part of which is bordered by the Bab el-Mandeb strait, an important shipping “chokepoint.” For the first time in three weeks, Brent oil prices rose to $59 while West Texas Intermediate (WTI) crude closed above $51 after an incredible seven-day rally.

However, the conflict wasn’t enough to sustain the uptrend, and prices slipped today—WTI to $48.41.

“The significance of the conflict was overblown, at least in terms of its effect on oil,” says Brian Hicks, portfolio manager of our Global Resources Fund (PSPFX). “There’s still too much supply.”

Indeed, U.S. crude oil supply is noticeably on the rise. As you can see in the chart below, the weekly crude reserves are significantly above the five-year average and sharply headed higher. 

U.S. Crude Oil Reserves
click to enlarge

Last week we learned that storage at Cushing, Oklahoma, reached 54.4 million barrels, a new high. Cushing is important to monitor because it’s the nation’s largest storage facility and serves as the pricing point for WTI. Since it was upgraded in 2011, maximum capacity now stands at 85 million barrels.

But if the current fill rate keeps up—2.12 million barrels a week—the cap could be reached as soon as this June, however unlikely that seems. Vehicle sales are up, as is the number of miles being driven on U.S. highways, and the busy summer travel season is fast approaching.

American Innovation to Thank

Simply put, technological advances such as hydraulic fracturing, or fracking, have made the oil-extraction process much more efficient than anything we’ve seen before. Amazingly, output continues to climb even as the number of rigs in operation has dropped for the fifteenth week.

U.S. Rig Count Falls for Fifteenth Week, but Oil Production continues to Climb
click to enlarge

“Productivity is up 50 percent over the last five years,” Brian says. “There’s already been some slowdown, but we’re still seeing the strong momentum from last year.”

That momentum could be enough to propel us toward 10 million barrels a day, something we haven’t seen in this country since 1970.

This incredible rise in efficiency has led some analysts to foresee a possible “storage crisis” in North America. It’s possible—though, again, unlikely—that we’ll eventually reach a point when there just isn’t any more commercial storage space. “Crisis” is certainly a loaded word, but such an event could serve as the catalyst that forces companies to make meaningful production cuts, which would help oil prices recover.

In the meantime, energy storage and transportation companies such as Kinder Morgan and Tsakos Energy Navigation are profiting in a world of abundant oil. Tsakos recently saw strong trading after it announced a dividend, and last week Morgan Stanley gave the company a “buy” rating.

Another area that’s benefited in this climate is the plastic packaging and container industry. Since oil prices began to go off the cliff last summer, returns for Graphic Packaging have climbed more than 20 percent; Sealed Air, 39 percent; and Berry Plastics, 42 percent.   

Demand Not Dissipating

At the same time that fracking has pushed daily U.S. oil output to 32-year highs, improvements to our vehicles’ internal combustion engines have increased the number of miles we can drive on a tank of gas to all-time highs.

Fuel Efficiency in U.S. Cars and Trucks is Trending Upward
click to enlarge

Requiring less fuel to get farther doesn’t mean demand is slipping. Quite the opposite, actually. Car and truck sales are expected to climb for the sixth straight year in 2015, a winning streak we haven’t seen in over 50 years.

U.S. Car and Light Truck Sales Return to Pre-Recession Levels
click to enlarge

Automobile pricing and information website TrueCar predicts that 17 million light-weight vehicles will be driven off car lots by the end of 2015, a 10-year high.

Since 2009—when sales plummeted to roughly 10 million units, their most depressed state since 1982—year-over-year sales growth has surged as the U.S. has pulled itself out of the recession. In each of the past 12 months, 200,000 or more new jobs were made available to Americans, the most since 1977.

Americans are not only buying more vehicles—some as new additions, others to replace aging clunkers—but they’re also taking them on the road more, especially now that national average fuel prices have fallen more than 31 percent from a year ago.

In fact, Americans drove a record 3.05 trillion miles on U.S. highways in January for the 12-month period, breaking the previous record set in November 2007. And with the busy summer travel season ahead of us, we should expect to see this number rise even more.   

Americans Drove a Record Number of Miles on U.S. highways in January
click to enlarge

Three trillion miles, by the way, is equivalent to taking more than 200 round trips to Pluto.

Airlines improving their fuel efficiency

That’s a lot of fuel being consumed—even if our vehicles are more fuel-efficient.

According to the Energy Information Administration (EIA), gas consumption in 2015 will rise 1 percent over the previous year to reach 9 million barrels a day—a little under the number of barrels of oil the U.S. now produces daily.

Add to that the fuel consumption coming from U.S. airlines, which are also working on improving fuel-efficiency. As I pointed out earlier this month, the number of miles flown on both domestic and international carriers is flying higher, along with the number of seats per flight.

Down Under

Last week I was in Melbourne, Australia, attending a conference for chief executives from all over the world. It’s always inspiring and exhilarating to meet and share ideas with so many other global innovators, thinkers and problem-solvers. This is ultimately what’s needed to cultivate the ideas that can lead to the sorts of life-changing advancements I discussed above.

Have a blessed week, and happy investing! 

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. Distributed by U.S. Global Brokerage, Inc.

Foreign and emerging market investing involves special risks such as currency fluctuation and less public disclosure, as well as economic and political risk. Because the Global Resources Fund concentrates its investments in specific industries, the fund may be subject to greater risks and fluctuations than a portfolio representing a broader range of industries.

Fund portfolios are actively managed, and holdings may change daily. Holdings are reported as of the most recent quarter-end. Holdings in the Global Resources Fund as a percentage of net assets as of 12/31/2014: Kinder Morgan, Inc. 0.00%, Tsakos Energy Navigation Ltd 0.00%, Graphic Packaging Holding Co. 0.00%, Sealed Air Corp. 0.0%, Berry Plastics Group, Inc. 0.0%,

There is no guarantee that the issuers of any securities will declare dividends in the future or that, if declared, will remain at current levels or increase over time.

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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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