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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.

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"
click to enlarge

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
click to enlarge

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
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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
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“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
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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
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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
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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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Why Bad News Is Good News in Europe—7 Charts Showing What You Really Need to Know
February 23, 2015

There’s little denying that the U.S. economy is on the upswing since the recession. Manufacturing is strong, jobless claims are falling and wages are rising. Delta Air Lines, which we own in our Holmes Macro Trends Fund (MEGAX), recently announced that it will be giving its 80,000 employees $1.1 billion in profit sharing, while Wal-Mart, held in our All American Equity Fund (GBTFX), unveiled plans to hike its minimum wage to $9 an hour in April.

Indeed, things are shaping up here in the U.S., but unfortunately this has not been the case in Europe. From Greek drama to Russian aggression, bad news seems to be the order of the day.

Until now.

Because of central banks’ monetary easing, weakening currencies and low fuel costs—courtesy of the American fracking boom—Europe is finally showing signs that it’s ready to turn the corner and set a path toward lasting economic recovery.

Europe-Recovery-Globe

1. Emerging Europe PMIs Swinging Up

The Purchasing Managers’ Index (PMI), as I’ve often said, is a highly effective tool that we use to forecast manufacturing activity six months out. Any reading above 50 indicates growth in manufacturing; anything below, contraction. This allows us to manage our expectations and get a good sense of where to position our funds.

As you can see, the European Union (EU) as a whole has recently improved, but emerging countries such as the Czech Republic, Poland and Hungary are posting very solid numbers in the mid-50s range. Much of this is due to low fuel costs and weaker currencies, which make exports more attractive.

Purchasing-Managers-Index-PMI-European-Union-vs-Emerging-Europe-Countries
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2. Growth in the Eurozone Is Good for the Globe

Our investment team’s research has shown that when the one-month reading for the global PMI crossed below the three-month moving average, 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, not to mention the materials and energy sectors.

Commodities-and-Commodity-Stocks-Historically-Rose-Fell-Six-Months-After-PMI-Cross-Above-Below
click to enlarge

It’s very welcome news, then, to see growth in the eurozone, since its PMI readings are factored into the global score. Last week we learned that the preliminary Flash Eurozone PMI advanced to 53.5 for the month of February. This is huge. Not only is it a seven-month high for the eurozone, but it’s also nearly in line with the U.S. reading, which came in at 54.3. Even France—a perennial and disappointing laggard in manufacturing—posted its best results in three-and-a-half years.

3. Surprise! Europe Is Beating Expectations

The Citi Economic Surprise Index, simply put, tells you if a country or region’s economic news is beating—or, conversely, falling below—analysts’ expectations. The higher the number, the more it indicates that economic data is exceeding forecasts.

Eurozone-Economic-News-Beating-Expectations-While-the-US-Trailing-Expectations
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You can see above where the eurozone has surprised consensus. For most of 2014, the region was in a declining trend, whereas the U.S. was headed higher. More recently, though, we’ve seen a huge advancement in Europe, despite negative news coming out of areas such as Greece—which last week managed to strike a deal with its euro-partners to extend the Mediterranean country’s bailout program by four months.

4. GDP Growing

If you look at Europe’s GDP as a whole, it’s expected to grow slightly over 1 percent in 2015. But the GDP in Eastern European countries such as the Czech Republic, Romania, Poland and Hungary is expected to grow double that or more.

Central-Eastern-European-CEE-Countries-GDP-Growth-Outperforms
click to enlarge

These countries are benefiting from the broad recovery, for sure, but they also have their own dynamics. As emerging markets, they have more room to run and grow. 

5. No Lack of Confidence in Consumption

Another sign that the European recovery is underway is the recent uptick in spending habits. Not only does the consumer confidence index (CCI) for the eurozone far exceed its long-term average, but it’s also at its highest reading since soon before the financial crisis.

Eurozone-Consumer-Confidence-at-89-Month-High
click to enlarge

6. Russia, the Not-So-Bad News Bear?

Nearly every day we’re reminded of Russia’s political and financial troubles, but the worst is likely behind us. It appears as if Russia’s market and currency, the ruble, bottomed in mid-December. This is also the first time since the summer that the MICEX Index crossed above its 50-day moving average, breaking through resistance.

Russian-MICEX-Index
click to enlarge

The situation in Ukraine is not pretty, but global investors understand it and are getting comfortable putting their money in Russia again because it’s inexpensive. The bad news has been priced in, and it looks as if the market is willing to move higher.

Russian credit default swaps (CDS) are also looking better. CDSs allow sellers to assume and buyers to reduce default risk on a bond. The swap spreads improved in February, indicating the market is looking past current events such as international sanctions and the ceasefire in Ukraine and seeing Russia’s risk declining in the future.   

7. Low Valuations, High Dividend Yields

Emerging European equities, like Russian stocks, are trading at a big discount relative to those in U.S. and Western European markets. 

Emerging Europe Cheap Relative to Developed Markets
Country Index P/E Ratio Dividend Yield
Western Europe Stoxx 600 23.6 3.6%
United States S&P 500 Index 18.4 2.0%
Poland WIG 20 15.5 3.9%
Romania Bucharest BET Index 9.9 3.6%
Turkey BIST 100 Index 9.6 1.8%
Russia MICEX Index 9.0 4.1%

Many of the emerging European countries are currently trading at less than 10 times. Therefore, you get that winning combination of low valuation and high dividend yield.

We’re definitely starting to see the early signs that Europe is reflating its economy. Attractive PMI data, positive economic surprises and growing consumer confidence all point to a strong recovery, one that should bode well for global investors in general and our Emerging Europe Fund (EUROX) specifically. 

In case you missed this week’s webcast on this very topic, you can still listen to the replay on demand and download the slideshow.

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.

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

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.

The J.P. Morgan Global Purchasing Manager’s Index is an indicator of the economic health of the global manufacturing sector. The PMI index is based on five major indicators: new orders, inventory levels, production, supplier deliveries and the employment environment.

The Eurozone Purchasing Managers' Index is produced by Markit and is based on original survey data collected from a representative panel of around 5,000 companies based in the euro area manufacturing and service sectors. National manufacturing data are included for Germany, France, Italy, Spain, the Netherlands, Austria, the Republic of Ireland and Greece. National services data are included for Germany, France, Italy, Spain and the Republic of Ireland. The flash estimate is typically based on approximately 85%–90% of total PMI survey responses each month and is designed to provide an accurate advance indication of the final PMI data.

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.

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 Citigroup Economic Surprise Indices are objective and quantitative measures of economic news. They are defined as weighted historical standard deviations of data surprises (actual releases vs Bloomberg survey median). A positive reading of the Economic Surprise Index suggests that economic releases have on balance been beating consensus. The indices are calculated daily in a rolling three-month window.

The Consumer Confidence Index (CCI) is an indicator which measures consumer confidence in the Economy.

The MICEX Index is the real-time cap-weighted Russian composite index.  It comprises 30 most liquid stocks of Russian largest and most developed companies from 10 main economy sectors.  The MICEX Index was launched on September 22, 1997, base value 100.  The MICEX Index is calculated and disseminated by the MICEX Stock Exchange, the main Russian stock exchange.

The STOXX 600 Banks (Price) Index (SX7P) is a capitalization-weighted index which includes European companies that are involved in the bank sector. 

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

The WIG20 Index is a modified capitalization-weighted index of 20 Polish stocks which as listed on the main market. The index is the underlying instrument for futures transactions listed on the Warsaw Stock Exchange.

The Bucharest Exchange Trading Index (BET) is a capitalization weighted index, comprised of the 10 most liquid stocks listed on the BSE tier 1. The index is a Price index and was developed with a base value of 1000 as of September 22, 1997.

The Borsa Istanbul 100 Index is a capitalization-weighted index composed of National Market companies except investment trusts. The constituents of the BIST National 100 Index are selected on the basis of pre-determined criteria directed for the companies to be included in the indices.

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, Holmes Macro Trends Fund and Emerging Europe Fund as a percentage of net assets as of 12/31/2014: Delta Air Lines, Inc. 1.28% Holmes Macro Trends Fund; Wal-Mart Stores, Inc. 1.14% All American Equity Fund.

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

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.

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Currency Wars Heat up as Central Banks Race to Cut Rates
February 2, 2015

Frank Holmes in Zurich holding a gold barThe Chinese Year of the Ram will kick off at the end of this month, but for now it looks as if 2015 will be the Year of the Central Banks.

I spend a lot of time talking about gold, oil and emerging markets, and it’s important to recognize what drives these asset classes’ performance. Government and fiscal policy often have much to do with it. But in the past three months, we’ve seen central banks take center stage to engage in a new currency war: a race to the bottom of the exchange rate in an attempt to weaken their own currencies and undercut competitor nations.

Indeed, amid rock-bottom oil prices, deflation fears and slowing growth, policymakers from every corner of the globe are enacting some sort of monetary easing program. Last month alone, 14 countries cut rates and loosened borrowing standards, the most recent one being Russia.

A weak currency makes export prices more competitive and can help give inflation a boost, among other benefits.

“The U.S. seems to be the only country right now that doesn’t mind having a strong currency,” says John Derrick, Director of Research here at U.S. Global Investors.

Since July, major currencies have fallen more than 15 percent against the greenback.

U.S. Dollar CLimbing HIgher Against Other World Currencies
click to enlarge

Two weeks ago, Switzerland’s central bank surprised markets by unpegging the Swiss franc from the euro in an attempt to protect its currency, known as a safe haven, against a sliding European bill. Its 10-year bond yield then retreated into negative territory, meaning investors are essentially paying the government to lend it money.

This and other monetary shifts have huge effects on commodities, specifically gold. As I told Resource Investing News last week:

Gold is money. And whenever there’s negative real interest rates, gold in those currencies start to rise. Whenever interest rates are positive, and the government will pay you more than inflation, then gold falls in that country’s currency. Last year, only the U.S. dollar had positive real rates of return. All the other countries had negative real rates of return, so gold performed exceptionally well.

Other countries whose central banks have enacted monetary easing are Canada, India, Turkey, Denmark and Singapore, not to mention the European Central Bank (ECB), which recently unveiled a much-needed trillion-dollar stimulus package.

U.S. Dollar CLimbing HIgher Against Other World Currencies

Gold bears are puzzled as hedge funds raise bullish gold bets.A recent BCA Research report forecasts that as a result of quantitative easing (QE), a weak euro and low oil prices, the eurozone should grow “by about 2 percentage points over the next two years, taking growth from the current level of 1 percent to around 3 percent. This is well above the range of any mainstream forecast.” The report continues: “[European] banks, in particular, are likely to outperform, as they will be the direct beneficiaries of rising credit demand, falling default rates and the ECB’s efforts to reflate asset prices.” This bodes well for our Emerging Europe Fund (EUROX), which is overweight financials.

Speaking of oil, the current average price of a gallon of gas, according to AAA’s Daily Fuel Gauge Report, is $2.05. But in the UK, where I visited last week, it’s over $6. That’s actually down from $9 in June. You can see why Brits don’t drive trucks and SUVs.

But that’s the power of currencies. As illustrated by the clever image of a Chinese panda crushing an American eagle, China’s economy surpassed our own late last year, based on purchasing-power parity (PPP).

China's Economy Surpasses the U.S.'s Based on Purchasing Power Parity
click to enlarge

Burgerology: Price of a Big Mac as of 2015Financial columnist Brett Arends puts it into perspective just how huge this development really is: “For the first time since Ulysses S. Grant was president, America is not the leading economic power on the planet.”

An easier way to comprehend PPP is by using The Economist’s Big Mac Index, a “lighthearted guide to whether currencies are at their ‘correct’ level.” The index takes into account the price of McDonald’s signature sandwich in several countries and compares it to the price of one here in the U.S. to determine whether those currencies are undervalued or overvalued. A Big Mac in China, for instance, costs $2.77, suggesting the yuan is undervalued by 42 percent. The same burger in Switzerland will set you back $7.54, making the franc overvalued by 57 percent. 

Earning More in a Low Interest Rate World

From what we know, the Federal Reserve is the only central bank in the world that’s considering raising rates sometime this year, having ended its own QE program in October.

Last month we learned that the Consumer Price Index (CPI), or the cost of living, fell 0.4 percent in December, its biggest decline in over six years. We’re not alone, as the rest of the world is also bracing for deflation:

Global Consumer Price Index (CPI) Trends
click to enlarge

Following Fed Chair Janet Yellen’s announcement last Wednesday, the bond market rallied, pushing the 10-year yield to a 20-month low.

U.S. 10-Year Bond Yield Dips to a 20-Month Low
click to enlarge

Interest rates remain at historic lows, where they might very well stay this year. But when they do begin to rise—whenever that will be—shorter-term bond funds offer more protection than longer-term bond funds. That’s basic risk management. We always encourage investors to understand the DNA of volatility. Every asset class has its own unique characteristics. For example:

The Longer the Maturity, the Greater the Price Volatiity
click to enlarge

Our Near-Term Tax Free Fund (NEARX) invests in shorter-term municipal bonds, thereby taking off some of the risk if the Fed decides to raise rates this year. We’re very proud of this fund, as it’s delivered 20 years of consistent positive returns. Among 25,000 equity and bond funds in the U.S., only 30 have achieved the feat of giving investors positive returns for the same duration, according to Lipper.

That equates to a rare 0.1 percent, roughly the same probability that your son or grandson will be drafted into the NFL and play in the Super Bowl.

In the past 30 years, we’ve experienced massive volatility in both the equity and bond markets, and we’re thrilled for our shareholders that we’ve been able to deliver such a stellar product, under the expert management of John Derrick. What’s more, NEARX continues to maintain its coveted 5-star overall rating from Morningstar, among 173 Municipal National Short-Term funds as of 12/31/2014, based on risk-adjusted return. If you are in Orlando next week, come by the World Money Show to hear John talk about the fund’s history of success. The event is free and my team would love to meet you at booth 514.

Request more information on NEARX today!

 

Upcoming Webcast

To those who listened in on our last webcast, “Bad News Is Good News: A Contrarian Case for Commodities,” we hope you enjoyed it and received some good, actionable insight. If you weren’t able to join us, you can watch the webcast at your convenience on demand. Our next webcast is coming up February 18 and will focus on emerging markets, China in particular. We hope you’ll join us! We’ll be sharing a registration link soon.

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.

Morningstar Rating

     Overall/173
     3-Year/173
     5-Year/142
    10-Year/103

Morningstar ratings based on risk-adjusted return and number of funds
Category: Municipal National Short-term funds
Through: 12/31/2014

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.

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.

Although Lipper makes reasonable efforts to ensure the accuracy and reliability of the data contained herein, the accuracy is not guaranteed by Lipper. Users acknowledge that they have not relied upon any warranty, condition, guarantee, or representation made by Lipper. Any use of the data for analyzing, managing, or trading financial instruments is at the user's own risk. This is not an offer to buy or sell securities.

The Consumer Price Index (CPI) is one of the most widely recognized price measures for tracking the price of a market basket of goods and services purchased by individuals.  The weights of components are based on consumer spending patterns.

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 and Near-Term Tax Free Fund as a percentage of net assets as of 12/31/2015: McDonald’s Corp. 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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Net Asset Value
as of 11/22/2017

Global Resources Fund PSPFX $5.97 0.03 Gold and Precious Metals Fund USERX $7.36 No Change World Precious Minerals Fund UNWPX $5.76 0.03 China Region Fund USCOX $12.18 0.03 Emerging Europe Fund EUROX $7.09 0.04 All American Equity Fund GBTFX $24.06 -0.05 Holmes Macro Trends Fund MEGAX $21.36 -0.06 Near-Term Tax Free Fund NEARX $2.21 -0.01 U.S. Government Securities Ultra-Short Bond Fund UGSDX $2.00 No Change