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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.

China’s Economy Is Undergoing a Huge Transformation That No One’s Talking About
August 31, 2015

The photo you see below was snapped recently in Beijing. It might not be that special to some readers, but in my 25 years of visiting the Chinese capital, I’ve never seen a blue sky because it’s always been blotted out by yellow smog. Beijing is clearly undergoing a massive transformation right now. This might please proponents of the green movement, but it’s ultimately harmful to the health of China's manufacturing sector.

Blue skies ahead? A cyclist pedals through Tiananmen Squar in Beijing

On the other hand, blue skies could be ahead for China’s service industries.

Misconception and exaggeration are circling China’s economy right now like a flock of hungry buzzards. If you listen only to the popular media, you might believe that the Asian giant is teetering on the brink of economic disaster, with the Shanghai Composite Index’s recent correction and devaluation of the renminbi held up as “proof.”

Don’t get me wrong. These events are indeed significant and have real consequences. They also make for some great, sensational headlines, as I discussed earlier this month.

But what gets hardly any coverage is that China’s economy is not weakening so much as it’s changing, much like Beijing’s skies. Take a look at the following two charts, courtesy of BCA Research:

China's Economy is Shifting Away from Manufacturing More Towards Services
click to enlarge

You can see that the world’s second-largest economy has begun to shift away from manufacturing and more toward consumption and the service industries. While the country’s purchasing managers’ index (PMI) reading has been in contraction mode since March of this year, the service industries—which include financial services, insurance, entertainment, tourism and more—are ever-expanding. The problem is that the transformation has not been fast enough to offset the massive size of the manufacturing sector.

the Czech Republic's PMI came in at an impressive 57.50 in July up from 56.90 in June

Just as a refresher, the PMI is forward-looking and resets every 30 days. It helps investors manage expectations. Consider this: The best-performing country in our Emerging Europe Fund (EUROX) is the Czech Republic—which also happens to have one of the highest PMI readings. Coincidence?

In China, overseas travel, cinema box office revenue and ecommerce are all seeing “explosive growth,” according to BCA. The country’s once-struggling real estate market is also robust. The government just relaxed rules to permit more foreigners to purchase mainland property.

But you’d be hard-pressed to come across any of this constructive news because it’s not particularly good for ratings.

A recent Economist article makes this point very clear:

The property market matters far more for China’s economy than equities do. Housing and land account for the vast majority of collateral in the financial system and play a much bigger role in spurring on growth. Yet the barrage of bearish headlines about share prices has obscured news of a property rebound. House prices have perked up nationwide for three straight months. Two months after the stock market first crashed, this upturn continues.

“Commodity Imports Have Actually Been Quite Strong”

Again, China’s transformation from a manufacturing-based economy to one that focuses on consumption has real consequences, one of the most significant being the softening of global commodity prices. As I told Daniela Cambone on last week’s Gold Game Film, gold’s Love Trade has become not a No Trade, but a Slow Trade. We’ve seen demand cool along with a decline in GDP per capita, the PMI readings and China’s M2 money supply growth.

Below you can see the relationship between China’s M2 money supply growth and metal prices. Since its peak in late 2009, money supply growth has been dropping year-over-year, driving down metal prices.

China's falling money supply since 2009 peak has driven down metal prices
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Money supply growth tends to be a “first mover.” When it has contracted, the PMI has usually followed. Recently, this has hurt economies that depend on China as a net buyer of raw materials, including Brazil, which supplies the Asian country with iron ore, soybeans and many other commodities, and Australia.

Australian Dollar and Brazilian Real Retreat with Drop in China's Money Supply
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When M2 money supply growth and the PMIs are rising, commodity prices can also rise. But that’s not what’s happening. It’s important to recognize that when new orders for finished products fall, there’s less consumption of energy to manufacture and ship. Again, this might make the greenies happy, but it’s ultimately bad for manufacturing.

I’ve said several times before that China is the 800-pound commodities gorilla, and it continues to be so. The country currently consumes about a quarter of the total global output of gold. For nickel, copper, zinc, tin and steel, it’s around half of world consumption. For aluminum, it’s more than half.

These are huge figures. But investors should know that Chinese imports of these important metals and materials still remain strong. Tom Pugh, a commodities economist at Capital Economics, told the Wall Street Journal last week that the market has it wrong about China, that the drop in demand has been overstated:

If you look at Chinese commodity imports over the last few months, they’ve actually been quite strong. A lot of it is just that people thought China would continue to grow at 10 percent a year, ad infinitum, and now people are just realizing that’s not going to happen.

Reuters took a similar stance, reporting that “there were at least 21 commodities that showed increases in imports greater than 20 percent in July this year, compared to the same month in 2014.” Weakening demand has been caused by a number of reasons, including “structural oversupply” and “the impact of the recent volatility in equity markets.”

But it’s important to keep things in perspective. Compared to past major market crashes, China’s recent correction doesn’t appear that bad.

China's Crash is Big, But Not the Biggest

Any bad news in this case can be seen as good news. I think that in the next three months we might see further monetary stimulus, following the currency debasement nearly three weeks ago. We might also see the implementation of new reforms in order to address the colossal infrastructure programs China has announced in the last couple of years, the most monumental being the “One Road, One Belt” initiative.

Dividend-Paying Stocks Helped Stanch the Losses

As investors and money managers, it’s crucial that we be cognizant of the changes China is undergoing. With volatility high in the Chinese markets right now, we’ve raised the cash level in our China Region Fund (USCOX), and after the dust settles somewhat and the right opportunities arise, we’ll be prepared to deploy the cash. We’re also diversified outside of China.

We managed to slow the losses during the Shanghai correction by being invested in high-quality, dividend-paying stocks.

According to daily data collected since December 2004, the median trailing price-to-earnings (P/E) ratio for the Shanghai Composite Index constituents currently sits at 48.6 times earnings. If it reverts to the mean, risk is 32 percent to the downside for the index. Currently, the P/E ratio of our China Region Fund constituents sits around 16 times. This suggests that USCOX has less downside risk and is cheaper than the Shanghai Composite.

Median Trailing Price-to-Earnings Ratio for Shanghai Composite Index Constituents
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We seek to take advantage of the trend toward consumption by increasing our exposure to the growing service industries—technology, Internet and ecommerce companies (Tencent is one of our top 10 holdings); financial services (AIA and Ping An Insurance); and enviornmental services (wastewater treatment services provider CT Environmental).

Golden State Warriors guard Klay Thompson unveiling the KT Fire ANTA EARLIER THIS YEAR

Rising sports participation among white collar workers in China is very visibile these days. Xian Liang, portfolio manager of USCOX, says that his friends back in Shanghai share with him, via WeChat, how they track their daily runs using mapping apps on their phones.

With that said, an attractive company is Anta Sports, an emerging, innovative sportswear franchise. Fans of the Golden State Warriors might recall that guard Klay Thompson endorsed its products earlier this year.

We believe the China region remains one of the most compelling growth stories in the world and continues to provide exciting investment opportunities. 

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.

The Shanghai Composite Index (SSE) is an index of all stocks that trade on the Shanghai Stock Exchange. The Dow Jones Industrial Average is a price-weighted average of 30 blue chip stocks that are generally leaders in their industry. The Nasdaq Composite Index is a capitalization-weighted index of all Nasdaq National Market and SmallCap stocks. The S&P 500 Stock Index is a widely recognized capitalization-weighted index of 500 common stock prices in U.S. companies.

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

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

Standard deviation is a measure of the dispersion of a set of data from its mean. The more spread apart the data, the higher the deviation. Standard deviation is also known as historical volatility.

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.

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 China Region Fund as a percentage of net assets as of 6/30/2015: Tencent Holdings Ltd. 6.52% China Region Fund, AIA Group Ltd. 1.92% China Region Fund, Ping An Insurance Group Co. 3.28% China Region Fund, CT Environmental Group Ltd. 0.52% China Region Fund, ANTA Sports Products Ltd. 0.57% China Region Fund.

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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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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Billions and Billions Pour into India and China
June 8, 2015
Indian-Prime-Minister-Narendra-Modi

It’s been a little over a year since Narendra Modi took office in India, and so far the results have been mostly positive for the South Asian country and the surrounding region. Among other achievements, Modi’s government has managed to enact important policy reforms, increase public investments in infrastructure, lower food inflation and generally open India up to business on a global scale.

CLSA’s chief equity strategist, Christopher Wood, gives the country accolades in his most recent newsletter. Wood writes that while “the halo effect has come off the Modi phenomenon” somewhat, India nonetheless remains “the most promising major emerging market story on a five- to 10-year view globally.”

Looking ahead, analysts forecast that India’s economy will expand between 7.5 percent and 8.5 percent for the 2015 and 2016 fiscal years, faster than any other G20 nation, including China.

India-Growth-Forecasts-for-2015-2016-are-strong
click to enlarge

This is growth that can be sustained for the long-term, a topic I wrote about last October. According to the International Monetary Fund, within the next decade and a half, “India will have the largest, and among the youngest, workforces in the world, and will need to create jobs for the roughly one hundred million young Indians who will enter the job market in the coming decade.” By 2050, India is expected to be the world’s second-largest economy based on purchasing power parity, following China.

Global investors recognize these positive data points and are piling into Indian equities, especially now that aggressive monetary easing in the country seems likely. CLSA’s Wood points out that $737 million a month on average have flowed into India-focused mutual funds since Modi took office last May, a dramatic reversal from the amounts seen prior to that.

Historically Low Interest Rates Help Push Chinese Equities Higher

Indeed, rate cuts have been constructive for not only Indian equities but also the Chinese market. As you can see below, easing cycles have historically coincided with strong market rallies in the MSCI China Index, a proxy for China H-shares, or stocks of Chinese companies listed on foreign exchanges. H-shares are one of the principal ways our China Region Fund (USCOX) has participated in the current bull market.

Chinese-Easing-Cycles-Have-Been-Bullish-for-Chinese-Stocksclick to enlarge

After three cuts in the most recent easing cycle, Chinese rates now stand at their lowest point ever, helping the index move higher in its quest to regain its November 2007 highs.

H-Shares Half as Cheap as Chinese Domestic Equities

Judging from the rally in H-shares, some investors might be concerned that the market is too expensive right now. On the contrary, H-shares, expressed below by the Hang Seng Index, are trading at a much cheaper multiple of 8.9 times estimated earnings to A-shares’ 17.4, a discount of 48 percent.

China-H-Shares-are-48-percent-cheaper-than-china-a-shares
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You can also see that both H-shares and A-shares have traded at much higher multiples in the past, evidence that the rally is not yet overdone.

When we compare this trading cycle with the previous major rally that occurred from June 2005 to October 2007, we see that the run-up has plenty of room to climb higher.

Shanghai-Composite-Index-is-Outpacing-the-Previous-Major-Bull-Rally
click to enlarge

“We might be in the middle of a bull market, not the end,” says Xian Liang, portfolio manager of USCOX. 

Like Indian equities, Chinese equities are attracting massive amounts of fund inflows. For the week ending May 27, global investors reallocated $4.6 billion to A-shares ahead of FTSE indexing.

Global-investors-reallocation-to-china-in-progress-what-about-you
click to enlarge

Last Thursday, the Shanghai Composite Index fell 6.5 percent, probably due to profit-taking. This represented the most significant correction since January, when the Chinese government curbed margin lending. It’s important for investors to look beyond the short-term noise and recognize that any correction this cycle could be seen as an opportunity to accumulate.

Again, USCOX continues to participate in this bull market through China H-shares and A-share exchange-traded funds. This helped the fund achieve a “golden cross” in January, which occurs when the 50-day moving average crosses above the 200-day moving average.

USGIs-China-Region-Fund-Achieved-a-Golden-Cross-on-January-2-2015
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Such technical indicators are seen as harbingers of strong growth. This particular move shows that the Chinese market has the support it needs to maintain upward momentum.

American Companies Buy Back $71 Billion of Stock in May Alone

As for American equities, they continue their trend of rewarding shareholders in the form of dividends and stock buybacks. Last week I mentioned that the amount in buybacks is expected to reach a staggering $1.2 trillion by year’s end, surpassing the all-time high of $863 billion set in 2007.

Stock market research firm Birinyi Associates reports that U.S. companies repurchased over $71 billion of shares in May alone.

May-Stock-Buyback-Amount-was-Second-Highest-in-17-Years
click to enlarge

One more compelling reason we find the domestic market so attractive, and offer investors the opportunity to participate with our All American Equity Fund (GBTFX). All of the holdings in GBTFX either pay a dividend or are currently buying back their stock.

Countless Jets Will Need to Be Replaced in the Coming Years

A final note I’d like to end on is the sheer number of jumbo jets that will need replacing in the coming years as domestic airlines seek to incorporate smaller, more efficient aircraft. Manufacturers Boeing and Airbus certainly have their work cut out for them and, in fact, face years’ worth of backlogs.

Domestic-Airlines-Seek-More-Fuel-Efficient-Aircraft-Older-Models-are-Put-to-Pasture

Business Insider recently shared a slideshow that reveals what happens when airlines retire older models in their fleet. Many of them end up at the Southern California Logistics Airport, where they wait to be resold, dismantled or put back into commission. You can view the slideshow here.

Total Annualized Returns as of 3/31/2015:
Fund One-Year Five-Year Ten-Year Gross Expense Ratio Expense Cap
China Region Fund 6.63% 0.52% 5.14% 2.97% 2.55%

 

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.

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.

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 MSCI China Free Index is a capitalization weighted index that monitors the performance of stocks from the country of China. The Hang Seng Index is a capitalization-weighted index of 33 companies that represent approximately 70 percent of the total market capitalization of The Stock Exchange of Hong Kong. The Shanghai Stock Exchange Composite Index is a capitalization-weighted index that tracks the daily price performance of all A-shares and B-shares listed on the Shanghai Stock Exchange.

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.

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 and All American Equity Fund as a percentage of net assets as of 3/31/2015: The Boeing Co. 0.00%, Airbus Group SE 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
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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.

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A Tale of Two Economies: Singapore and Cuba
March 26, 2015
A Victoria's Secret in the Toronto Pearson International Airport

It would be nearly impossible to find two world leaders in living memory whose influence is more inextricably linked to the countries they presided over than Cuba’s Fidel Castro and Singapore’s Lee Kuan Yew, who passed away this Monday at the age of 91.

You might find this hard to believe now, but in 1959—the year both leaders assumed power—Cuba was a much wealthier nation than Singapore. Whereas Singapore was little more than a sleepy former colonial trading and naval outpost with very few natural resources, Cuba enjoyed a thriving tourism industry and was rich in tobacco, sugar and coffee.

Fast forward about 55 years, and things couldn’t have reversed more dramatically, as you can see in the images below.

Cube in 1950, Singapore in 1950, Cuba today, Singapore today

The ever-widening divergence between the two nations serves as a textbook case study of a) the economic atrophy that’s indicative of Soviet-style communism, and b) the sky-is-the-limit prosperity that comes with the sort of American-style free market capitalism Lee introduced to Singapore.

Sound fiscal policy, a strong emphasis on free trade and competitive tax rates have transformed the Southeast Asian city-state from an impoverished third world country into a bustling metropolis and global financial hub that today rivals New York City, London and Switzerland. Between 1965 and 1990—the year he stepped down as prime minister—Lee grew Singapore’s per capita GDP a massive 2,800 percent, from $500 to $14,500.

Since then, its per capita GDP based on purchasing power parity (PPP) has caught up with and zoomed past America’s.

Lee Kuan Yew's Singapore Flourished while Fidel Castro's Cuba Floundered

Under Castro and his brother Raúl’s control, Cuba’s once-promising economy has deteriorated, private enterprise has all but been abolished and the poverty rate stands at 26 percent. According to the CIA’s World Factbook, “the average Cuban’s standard of living remains at a lower level than before the collapse of the Soviet Union.” Its government is currently facing bankruptcy. And among 11.3 million of Cuba’s inhabitants, only 5 million—less than 45 percent of the population—participate in the labor force.

Compare that to Singapore: Even though the island is home to a mere 5.4 million people, its labor force hovers above 3.4 million.

Singapore Had Third-Highest GDP Based on Purchasing Power Parity (PPP) Per Capita

Because of the free-market policies that Lee implemented, Singapore is ranked first in the world on the World Bank Group’s Ease of Doing Business list and, for the fourth consecutive year, ranked second on the World Economic Forum’s Global Competitiveness Report. The Heritage Foundation ranks the nation second on its 2015 Index of Economic Freedom, writing:

Sustained efforts to build a world-class financial center and further open its market to global commerce have led to advances in… economic freedoms, including financial freedom and investment freedom.

Cuba, meanwhile, comes in at number 177 on the Heritage Foundation’s list and is the “least free of 29 countries in the South and Central America/Caribbean region.” The Caribbean island-state doesn’t rank at all on the World Bank Group’s list, which includes 189 world economies.

Many successful international businesses have emerged and thrived in the Singapore that Lee created, the most notable being Singapore Airlines. Founded in 1947, the carrier has ascended to become one of the most profitable companies in the world. It’s been recognized as the world’s best airline countless times by dozens of groups and publications. Recently it appeared on Fortune’s Most Admired Companies list.

Singapore AIrlines

Xian Liang, portfolio manager of our China Region Fund (USCOX), notes that Lee’s key legacy is an emphasis on pragmatism and adaptability.

Lee was a great visionary indeed,” Xian says. “He achieved wonders, fast-tracking Singapore’s GDP growth to U.S. levels.

We at U.S. Global Investors honor the legacy of Lee Kuan Yew, founder of modern-day Singapore. He showed the world that when a country chooses to open its markets and foster a friendly business environment, strength and prosperity follow. Even on the other side of the globe, the American Dream lives on.

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 Global Competitiveness Index, developed for the World Economic Forum, is used to assess competitiveness of nations. The Index is made up of over 113 variables, organized into 12 pillars, with each pillar representing an area considered as an important determinant of competitiveness: institutions, infrastructure, macroeconomic stability, health and primary education, higher education and training, goods market efficiency, labor market efficiency, financial market sophistication, technological readiness, market size, business sophistication and innovation.

The Ease of Doing Business Index is an index created by the World Bank Group. Higher rankings (a low numerical value) indicate better, usually simpler, regulations for businesses and stronger protections of property rights.

The Index of Economic Freedom is an annual index and ranking created by The Heritage Foundation and The Wall Street Journal in 1995 to measure the degree of economic freedom in the world's nations.

Fund portfolios are actively managed, and holdings may change daily. Holdings are reported as of the most recent quarter-end. Holdings in the China Region Fund as a percentage of net assets as of 12/31/2014: Singapore Airlines 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 02/23/2018

Global Resources Fund PSPFX $6.24 0.07 Gold and Precious Metals Fund USERX $7.03 0.09 World Precious Minerals Fund UNWPX $4.25 0.07 China Region Fund USCOX $12.01 0.21 Emerging Europe Fund EUROX $7.83 -0.01 All American Equity Fund GBTFX $25.53 0.31 Holmes Macro Trends Fund MEGAX $19.61 0.28 Near-Term Tax Free Fund NEARX $2.20 No Change U.S. Government Securities Ultra-Short Bond Fund UGSDX $2.00 0.01