Share this page with your friends:

Print

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.

11 Reasons Why Everyone Wants to Move to Texas
August 30, 2016

Texas Wind Power

As many of you know, I was born in Canada but moved to the great State of Texas 26 years ago when I bought a controlling stake in U.S. Global Investors. As a “Tex-Can,” I’m so proud of my adoptive state and grateful for all that it’s done to help our company flourish.

But you don’t have to be a business owner to love and appreciate Texas. As you’ll see, many people are moving to the Lone Star State to take advantage of its many employment opportunities, tax advantages and all-around greatness. Below are just 11 reasons why more and more people want to move to Texas!  

1. Check out Our Mettle

The 2016 Olympic Games in Rio de Janeiro now belongs to history, and by a very wide margin, American competitors walked away with the most medals: 121 altogether. Looking at gold medals, the U.S. still ranked first, with 46 won. But if we took away what Texas collected, the Land of the Free would have fallen to third place, behind the U.K. and China.

Texas would rank third in Olympic gold medals if it were its own country
click to enlarge

Houston was the winningest Texas city. Home to Olympic medalists Simone Biles, Simone Manuel, Kerron Clement and more, H-Town is now 10 gold medals richer.

2. Moneybags

Texas is competitive in more than just Olympic events, of course. The state has the second-largest gross domestic product (GDP) in the Union, following California. If it were its own country, Texas would clock in at number 12 in the world, snuggled in between Canada and Australia.

Texas would rank twelth in GDP if it were its own country
click to enlarge

3. Tex-Can

If Texas were its own nation, in fact, its economy would be about the same size as Canada’s.

The Global Scale of America's Economy
click to enlarge

4. This Is Oil Country

Another thing Texas has in common with Canada? Black gold. Barrelsful of it.

Last month, Oslo-based Rystad Energy shared a report that shows the U.S. as now having the world’s largest reserve of recoverable oil, with 264 billion barrels in existing fields, unconventional shale and as-yet undiscovered areas. This is the first time such a report has moved the country ahead of both Saudi Arabia and Russia.

Were it not for the contributions of oil-rich Texas, however, this might not be the case. Thanks in large part to fracking in prolific fields such as the Eagle Ford Formation and Sprayberry Trend, the state leads all others in crude production, annually gushing out more than a third of total U.S. output.

You can see how the fracking boom helped propel the state into the same league as major OPEC nations Iraq, Iran, United Arab Emirates and Kuwait.

Texas Oil Production Raced Up to OPEC Gulf States
click to enlarge

5. A Mighty Wind

Texas is more than oil, of course. The natural-resource-rich state is also known for its natural gas production (it leads the nation), coal, electricity (again, number one in the States) and renewable energy—specifically, wind energy.

Texas Wind Power

Thanks to Competitive Renewable Energy Zones (CREZ) and $33 billion in invested capital, Texas ranks first in the nation for installed wind capacity and the number of megawatts generated by wind. In 2015, close to 10 percent of the state’s electricity production came from wind, according to the American Wind Energy Association.

With an estimated 17,000 Texans already employed in the state’s wind energy industry, Texas is in the process of installing an additional 5,200 megawatts.

6. Men at Work

Speaking of employment, that’s something else you can find a lot of in the Lone Star State. The oil industry might have taken a hit from falling crude prices, but the Texas economy has proven resilient. As you can see, the 2007-2008 global financial crisis had much less of an impact on state unemployment rates compared to other major countries and regions such as Canada, Australia, the European Union and United States.  

Texas Currently Has Lowest Unemployment Rate Among Selected Countries and Regions
click to enlarge

7. All Roads Lead to Texas

Welcome to Texas, drive friendly The Texas Way

Important to keeping business and commerce flowing, as well as helping commuters travel to and from their work, are roads. Texas has them in spades. According to the U.S. Department of Transportation, the state is connected by 313,596 miles of public road, the most of any state. With 18 numbered interstate highways, it also has more interstate miles than any other does.

If it were its own country, Texas would rank 13th by road network size, somewhere between Germany and Sweden.

At only $0.20 per gallon, the Texas gas tax is among the most reasonable in the nation. And because almost that entire amount goes to public transportation—$0.05 is devoted to public education—Texas has some of the best roads in the U.S.

While we’re on the topic of transportation, Texas also boasts the most airports of any state—1,415, according to StateMaster. Two of the four major U.S. carriers, American Airlines and Southwest Airlines, are headquartered in the Lone Star State.    

8. No Income Tax

There are only seven states without an income tax, Texas among them. (Alaska, Florida, Nevada, South Dakota, Washington and Wyoming round out the list.) 

Average Income Tax by State
click to enlarge

Neither does the state impose a corporate income tax, and last summer, Governor Gregg Abbott approved $4 billion in tax cuts for businesses and homeowners.

9. Gold Star State

The Texas bullion depository will be first in the nation

Governor Abbott is also responsible for what will be a first in the United States. More than a year after he signed a law to repatriate $1 billion in Texas gold bullion from a private HSBC vault in New York, construction will soon begin on the Texas Bullion Depository. Such a state-run gold depository doesn’t currently exist anywhere else in the U.S. It’s hoped that it will help turn Texas into a “financial Mecca,” in the words of one state senator.

10. Population Destination

Low taxes are one of the main appeals driving Texas’ rapid population growth. According to the Census Bureau, five of the 11 fastest-growing U.S. cities by population can be found in Texas. Ranking number two in the nation is New Braunfels, a lovely town originally settled by Germans that lies midway between San Antonio and Austin.

Between July 2014 and July 2015, the Lone Star State added 490,036 new residents, the most of any state by a wide margin.

Texas Added More REsidents than any other STate
click to enlarge

To put this in perspective, the number of new Texas arrivals alone between 2014 and 2015 exceeds the total populations of several countries, including Malta (population: 429,366, as of December 2014), Brunei (411,900, as of July 2014) and Iceland (336,060, as of June 2016). 

11. Bet on Tech

Texas Leads the Nation in Technology Exports

It’s not just people moving to Texas, though. Companies are as well—specifically tech companies, and, to get even more granular, Silicon Valley tech companies. The San Francisco Chronicle reports that, in recent years, more than $1 billion in taxable income has flowed from the Bay Area to Texas, as tech firms have sought not just lower taxes but also simpler regulation.

Indeed, the Lone Star State has emerged as a formidable tech hub to rival Silicon Valley. Employing more than 270,000 people, the state’s tech industry supports firms ranging in size from hip Austin startups to massive Fortune 500 companies such as Dell, Texas Instruments and Rackspace Hosting (which just agreed to a $4.3 billion acquisition deal by private equity firm Apollo Global Management).

For the last three years, Texas has led the nation in high-tech exports—everything from semiconductors to communications equipment. Last year, in fact, the state’s total sales amount exceeded California’s by a whopping $6.3 billion.

No wonder so many people are choosing Texas as the place to hang their hat!

 

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

Holdings may change daily. Holdings are reported as of the most recent quarter-end. The following securities mentioned in the article were held by one or more accounts managed by U.S. Global Investors as of 6/30/2016: American Airlines Inc., Southwest Airlines Co.

Share “11 Reasons Why Everyone Wants to Move to Texas”

Silver Takes the Gold: Commodities Halftime Report 2016
July 11, 2016

Silver Takes the Gold: Commodities Halftime Report 2016

Here we are at the halfway point of the year, less than two months away from the Rio 2016 Olympic Games. As a group, commodities are the top performing asset class, beating domestic equities, the U.S. dollar and Treasuries.

Commodities, the Top Performer in First Half of 2016

Below is our ever-popular Periodic Table of Commodities Returns, updated to reflect the first half of 2016. Click to see an enlarged version.

The Periodic Table of Commodity Returns
click to enlarge

Commodities’ performance is quite a reversal from the weakness we’ve seen lately, particularly last year, but we shouldn’t expect another 2004 or 2005, when global trade was humming. Conditions are still not ripe for a real takeoff, with manufacturing activity in China and the eurozone struggling to gain momentum.

But there’s hope. Many of the challenges standing in the way of growth were exposed when Britain voted last month to leave the European Union (EU), which I’ve been writing about for the past few weeks. Most recently, I highlighted some of the winners to emerge from Brexit, among them gold investors, U.S. homeowners and British luxury goods makers.

Hopefully we can add global trade to the list. Brexit has brought to light some of the corruption and economic strangulation by regulation that chokes the flow of capital. Last week I had the opportunity to speak with some EU citizens. Their frustration was palpable. The cronyism among the EU’s unelected officials is nothing new, but it’s only worsened over the past decade and a half, they said. The British referendum has encouraged a balanced, intercontinental discussion on the direction Brussels must take now that the corruption and depth of discontent have been exposed for the world to see.    

Precious Metals Shine Brightly on Macroeconomic and Geopolitical Concerns

Silver demand had a phenomenal 2015, with retail investment and jewelry fabrication both reaching all-time highs. Led by consumers in the U.S. and India, coin and bar investment soared 24 percent from the previous year, while jewelers gobbled up a record 226.5 million ounces. According to the Silver Institute’s World Silver Survey 2016, metal demand for photovoltaic installation climbed 23 percent in 2015, offsetting some of the losses we continue to see in photographic applications.

Global Demand for Silver Bars Surged 24% in 2015
click to enlarge

Caused by worries of a summer interest rate hike and uptick in the U.S. dollar, gold and silver both stalled in May but have since rallied on the back of Brexit and with government bond yields in freefall. For the first time ever, Switzerland’s entire stock of bonds has fallen below zero, with the 50-year yield plummeting to negative 0.03 percent on July 5.

Switzerland 50-Year Bond Yield
click to enlarge

All-time low yields can also be found in the U.S.—where the 10-year Treasury yield fell nearly 38 percent in the first half—U.K., Canada, Germany, France, Australia, Japan and elsewhere. Roughly $10 trillion worth of global government debt, in fact, now carry low to subzero yields.

This has been highly constructive for gold and silver, as yields and precious metals tend to be inversely related.

What’s more, the rally doesn’t appear to be done, with UBS analysts making the case last week that we’re in the early stages of a new bull run. Credit Suisse sees gold testing the $1,500 an ounce mark as early as the beginning of 2017. As for silver, some forecasters place it at between $25 and $32 an ounce by year’s end.

The risk now is that higher prices are pushing away some potential investors. Today Bloomberg reported that gold imports in India plunged a sizable 52 percent in the first half of 2016, compared to the same period in 2015.

Supply and Demand Rebalancing?

Much of the price appreciation has been driven by a global rebalance in supply and demand. Dismal prices over the last couple of years compelled explorers and producers to cut activity and other capital expenditures, while demand continues to rise.

This dynamic certainly helped  zinc, the best performing industrial metal of 2016 so far. During the first four months of the year, mine production fell 8.1 percent from the same time a year earlier due to declines in Australia, India, Peru and Ireland, according to the International Lead and Zinc Study Group. In January, London-based Verdanta Resources made its last zinc shipment from its Lisheen Mine in Ireland, which for the last 17 years had produced an average 300,000 tonnes of zinc and 38,000 tonnes of lead concentrate per year.

Meanwhile, the demand for refined zinc, used primarily to galvanize steel, is expected to increase 3.5 percent this year. What might surprise you is that a large percentage of this growth can be attributed to China, which is still investing heavily in infrastructure, even as money supply growth has slowed.

This rebalancing has also bolstered crude oil prices, up 73 percent since its 2016 low in February. Unplanned production outages in Canada, Nigeria, Iraq and elsewhere removed a collective 3.6 million barrels per day off the market in May alone. Coupled with ongoing declines in the North American rig count—U.S. crude production is now at a two-year low—this helped nudge prices up to levels not seen since July 2015.

Month-over-month change in global oil supply disruptions
click to enlarge

At the same time, global consumption is expected to increase by 1.5 million barrels a day both this year and next, according to the U.S. Energy Information Administration (EIA), with North America and Asia, particularly China and India, responsible for much of the growth.

Record Automobile Sales Support Commodities

Crude consumption is also being supported by robust automobile sales, which set a six-month record in the U.S. following six straight years of growth. Between January and June, sales reached an all-time high of 8.65 million units, up 1.5 percent from the same period last year. In China, the world’s number one auto market, 10.7 million vehicles were sold in the first five months, an impressive year-over-year increase of 7 percent. Sales of light vehicles, especially motorcycles, have been strong in India.

As you might expect, this has likewise benefited demand for platinum and palladium, both used in the production of autocatalysts. The CPM Group anticipates palladium demand to reach an all-time high this year, up 3 percent from last year, on tightened emissions standards and the purchase of larger cars and trucks in the U.S. on lower fuel costs. (The larger the engine, the more palladium or platinum is needed to reduce emissions.)

Autocatalyst Production Driving Palladium Demand
click to enlarge

Since January, the platinum group metals (PGMs) have increased over a third in price, marking the end of an 18-month bear cycle, according to Metals Focus’ Platinum & Palladium Focus 2016. Fundamentals have improved since last year, when EU growth concerns and Volkswagen’s emissions scandal weighed heavily on investment prospects.

Like zinc, crude and other commodities, the PGMs were supported the last six months by lower output levels, as labor disputes in South Africa—the world’s largest platinum producer and number two largest palladium producing country—disrupted operations.

EXPLORE INVESTMENT OPPORTUNITIES IN PRECIOUS METALS

 

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

Holdings may change daily. Holdings are reported as of the most recent quarter-end. None of the securities mentioned in the article were held by any accounts managed by U.S. Global Investors as of 03/31/2016.

Share “Silver Takes the Gold: Commodities Halftime Report 2016”

Canada Wildfires Still Not Reflected in Official Oil Inventories
June 16, 2016

The Alberta wildfires have knocked millions of barrels of oil offline.

A month and a half after they began, the Fort McMurray wildfires in Alberta, Canada still blaze on in contained patches. Already estimated to be the most expensive disaster in Canadian history, costing the Albertan economy $70 million per day, the fires are now believed to be the work of humans, according to the Royal Canadian Mounted Police (RCMP).

Regardless of how it started, “the beast,” as some call it, has been a major disruptor to oil sands operations north of the fires. Affected exploration companies are looking at a collective loss of more than $1.4 billion. The U.S. Energy Information Administration (EIA) estimates that an average of 800,000 barrels per day in production were taken offline last month, contributing greatly to May’s having the highest monthly level of unplanned global oil supply disruptions since the agency began tracking such data in 2011.

Altogether, 3.6 million barrels per day were lost in May around the world, nudging crude prices up to levels we haven’t seen since July of last year.

Month-over-Month change in global oil supply disruptions
click to enlarge

This month, disruptions caused by the fires are expected to average 400,000 barrels per day. Many companies such as Suncor Energy, ConocoPhillips Canada, Syncrude Canada and Athabasca Oil have returned to the oil sands and are now beginning to pump crude again, but it will be weeks before they resume full production.

Similarly, it will be days before the disruptions “show up” in the official inventories at Cushing, Oklahoma, the largest commercial storage hub in the U.S. When this happens, it might prompt investors to buy crude based on lower inventories, even if only in the short term, helping to lift prices even more.

All Pipes Lead to Cushing

A lot of Canadian oil—not to mention crude from North Dakota and gas from Pennsylvania—bottlenecks in Cushing, Oklahoma, where it’s all stored and blended. From there it’s dispatched by rail and pipelines to refineries in the Gulf of Mexico and elsewhere.

Major U.S. Crude Oil Pip Lines


click to enlarge

Every week, the EIA releases a report detailing crude flows and oil stock levels in each of the nation’s Petroleum Administration for Defense Districts, or PADDs, of which there are five: New England (PADD 1), Midwest (2), Gulf Coast (3), Rocky Mountain (4) and West Coast (5). Many analysts and investors pay special attention to PADD 2 because, among other reasons, the overwhelming majority of Canada’s crude exports to the U.S. enter through the Midwest district, usually through Chicago, before ending up in Cushing.

Looking at PADD 2, then, gives you a good idea of what percentage of inventory change at Cushing is a reflection of fluctuations in Canada’s output.

Good Things Come to Those Who Wait

Below, you can see that storage levels in PADD 2 are still above their five-year range, though with a narrower margin than the same time last year. At the tail end of the weekly amount, the line is clearly tapering down—maybe not dramatically, but it’s a good sign that supply and demand could be starting to rebalance, as I discussed in an earlier post.

PADD 2 Crude Oil Stocks
click to enlarge

You might infer that at least some of this drawdown is a result of the production outages in Alberta. But the truth is that we probably won’t see a meaningful decline until later this month. That’s mainly because oil moves at only three to five miles per hour through the Keystone Pipeline, creating a delay of between five and six weeks from the time it leaves Calgary to the time it arrives in Cushing. The other reason is that Canada might have initially exported some of its local inventories to make up for the supply disruption.

Sophisticated investors have already accounted for this time delay. They will also be first to act when the disruption is fully reflected in the EIA’s weekly reports.

In any case, lower inventories in the short-term should temporarily help supply and demand rebalance, along with the drop in the North American rig count.

 

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

Holdings may change daily. Holdings are reported as of the most recent quarter-end. The following securities mentioned in the article were held by one or more accounts managed by U.S. Global Investors as of 3/31/2016:  Suncor Energy Inc.

Share “Canada Wildfires Still Not Reflected in Official Oil Inventories”

Is India the New China?
June 6, 2016

Global slowdown worries high Indias booming economy

A “slow-growth trap.” That’s how the Organization for Economic Cooperation and Development (OECD) described the global economy last week in its latest Global Economic Outlook. The group sees world GDP advancing only 3 percent in 2016, the same as last year, with a slight bump up to 3.3 percent in 2017.

Catherine Mann, the OECD’s chief economist, urged policymakers around the world to prioritize structural reforms that “enhance market competition, innovation and dynamism,” as monetary policy has been used alone as the main tool for far too long. The longer the global economy remains in this “slow-growth trap,” Mann said, the harder it will become to revive market forces.

This is precisely in-line with what I, and many of my colleagues, have stressed for months now. To push the economy on a high-growth path, we need structural fiscal reforms, both here and abroad. One need only look at the global purchasing managers’ index (PMI) to see that manufacturing conditions have been slowing for the past several years since the financial crisis. The PMI in May registered a 50.0, which Markit Economics describes as “lethargic” and “low gear.”

Global Manufacturing Sector Stagnates May
click to enlarge

U.S. manufacturing also saw further weakness in May, with its PMI reading falling to 50.7, more than a six-year low. The eurozone’s PMI fell to 51.5, a three-month low. Meanwhile, the Caixin China General Manufacturing PMI came in at 49.2, still below the neutral 50 threshold.

It’s clear that policymakers need to address slow growth with smarter fiscal policies, lower taxes and streamlined regulations. Zero and negative interest rate policies are taking their final gasp as far as what they can accomplish.

Indian Prime Minister Narendra Modi

One of the bright spots continues to be India, whose own manufacturing sector expanded for the fifth straight month in May. The country’s GDP advanced an impressive 7.9 percent in the first quarter, following 7.3 percent year-over-year growth in 2015. This helps it retain its position as the world’s fastest growing major economy. Credit Suisse ranked India first in April’s Emerging Consumer Survey 2016, noting that “Indian consumers stand out among their emerging market peers with higher confidence about their current and future finances and relatively lower inflation expectations.”

Many analysts are referring to this as the “Modi effect,” in honor of Prime Minister Narendra Modi, elected two years ago on promises to reinvigorate business growth by cutting red tape and increasing infrastructure spending. Modi, who is scheduled to visit Washington this week, has had limited success at this point. But to be fair, India’s challenges run deep, and it will take quite a bit longer to make substantial changes to the country’s notorious regulations and corruption.

India’s Oil Demand Ready for Takeoff

Make no mistake, China’s oil demand is still massive, second only to the U.S. But it has begun to contract in recent months, and there to offset the difference is India, who is expected to have the fastest growing demand for crude between now and 2040, according to the International Energy Agency (IEA). India’s consumption stood at 4.5 million barrels a day in March, which is up considerably from an average of 4 million barrels a day in 2015. The Asian country represented a whopping 30 percent of total global consumption growth in the first quarter. This makes it the world’s “star performer” growth market, a role occupied until recently by China. India is now poised to overtake Japan as the second largest oil consumer in Asia, if this hasn’t already happened.

Indias oil consumption poised to overtake Japan
click to enlarge

Contributing to India’s oil binge are policy changes that make its economy resemble China’s in the late 1990s, soon before its industrial boom. Compared to other major economies, India’s per capita consumption of oil is relatively low, as ownership of automobiles and motorcycles—many Indians’ preferred mode of personal transportation—is still developing, with penetration at merely 144 per 1,000 people. If we look just at passenger cars, the rate is closer to 17 per 1,000 people. (In the U.S., the figure is 850 per 1,000 people.)

Vehicle ownership in india has been steadily rising
click to enlarge

This is the exciting part, of course. A couple of months ago I shared with you a factoid from my friend Gianni Kovacevic’s book “My Electrician Drives a Porsche?”, that in 1979 there were only 60 privately-owned automobiles in China. Today, it’s the world’s largest auto market.

India’s rise appears to be similarly dramatic. In the chart above, courtesy of a March report from theOxford Institute for Energy Studies, you can see that the number of vehicles driving on Indian roads doubled between 2007 and 2014, thanks not only to an exploding population but also the rise of India’s “spending class,” as Gianni calls it. More than 600 million Indians are under the age of 25, based on 2014 data, and many in this cohort aspire to have social mobility and the American Dream. The country is now on track to become the third largest auto market by 2020, behind China and the U.S., and obviously this has huge implications for oil consumption.

Did you know India has 600 million people under 25

Oil at $60 by the End of Summer?

Despite OPEC’s failure to agree on a production cap, global oil markets are rebalancing faster than expected. U.S. producers, reacting to low prices, continue to trim exploration and production spending, leading to fewer active rigs and, consequently, less output over the past 12 months.

U.S. oil production down as number of active rigs continues to drop
click to enlarge

Meanwhile, demand remains strong, not only in India but around the world. The IEA, in fact, expects global demand to outpace supply in mid to late 2017. What’s more, analysts with Bank of America Merrill Lynch believe that oil demand will peak sometime after 2050, “as long as we remain in a relatively low oil price environment of $55-75 per barrel in real terms.”

Global oil demand expected to outpace supply in 2017

click to enlarge

Many prominent analysts, including British financials firm Standard Chartered’s chief economist, now see oil climbing above $60 by the end of the summer. Goldman Sachs also appears to have turned bullish, noting that global storage levels are heading into a deficit “much earlier than we expected.” 

Helping to turn sentiment around is the arrival of the busy summer travel season, as I told CNBC’s Pauline Chiou last week. This year in particular is expected to be one for the history books—not just on roads but also by air. With fares down throughout 2015 and the first half of 2016, industry trade groupAirlines for America estimates 231.1 million passengers will fly on U.S. airlines during the months of June, July and August. This would mark a record high, up from the 222.3 million that flew over the same period last year.

All Eyes on Gold

Frank Holmes CNBC Fear Trade sees gold as store of value

I’d like to thank Verizon union members for the strong pop in gold prices on Friday last week. As you might already know, thousands of Verizon workers were on strike during the month of May and consequently were counted as unemployed. This contributed to the weakest jobs report since 2010—only 38,000 new jobs were created in May, a dramatic dive from March’s 180,000—adding to speculation that an interest rate hike this month will once again be delayed. This bodes well for gold, which had its strongest daily gain since March Friday, soaring up more than $33 an ounce.

More than that, though, gold is up on Fear Trade worries, with negative interest rates draining yield around the world.

With this in mind, I want to remind everyone to register for our next webcast, “All Eyes on Gold: What’s Attracting Investors to the Yellow Metal,” scheduled for this Wednesday at 4:15 P.M. Eastern time. I’m thrilled to be joined by World Gold Council CEO Aram Shishmanian, and you won’t want to miss his deep insights into the yellow metal.

Register now by clicking below!

All Eyes on Gold: What's Attracting Investors to the Yellow Metal - webcast

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

The 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 Caixin China General Manufacturing PMI is a composite indicator designed to provide an overall view of activity in the manufacturing sector and acts as an leading indicator for the whole economy. When the PMI is below 50.0 this indicates that the manufacturing economy is declining and a value above 50.0 indicates an expansion of the manufacturing economy.

Holdings may change daily. Holdings are reported as of the most recent quarter-end. None of the securities mentioned in the article were held by any accounts managed by U.S. Global Investors as of 3/31/2016.

Share “Is India the New China?”

Can the TPP Save the Global Economy?
May 31, 2016

TPP Trans-Pacific Partnership

Last week, President Barack Obama was in Vietnam and Japan drumming up additional support for the Trans-Pacific Partnership (TPP), and meanwhile I was in the U.K., where Brexit drama is dominating headlines and airwaves. Only a month remains before voters decide whether the country will stay in or leave the European Union. As I said before, an exit could trigger a currency crisis with both the euro and pound, in which case owning gold might be a good idea.

Speaking of the yellow metal, I had the opportunity to meet with the World Gold Council (WGC) while I was in London. It’s a pleasure to share with you that the group’s CEO, Aram Shishmanian, has agreed to join me as a special guest during our next webcast, scheduled for Wednesday, June 8. We’ll be discussing gold, specifically the reasons behind its rally this year and the pullback we’re seeing this month. I highly urge you to register for the webcast because you won’t want to miss Aram’s rich insights into gold.

Aram Shishmanian, CEO of the world council

As Oil Hits $50 a Barrel, Americans Hit the Road

I was disappointed to see that U.S. manufacturing activity showed more signs of slowing growth, according to preliminary purchasing managers’ index (PMI) data. The PMI posted a 50.8, just above the neutral 50.0 threshold separating expansion and deterioration. What’s more, the index fell below its three-month moving average, which we’ve found to be a headwind for commodities and energy three to six months out.

Markit Flash US Composite PMI Falls below Three-Month Moving Average

click to enlarge

This could threaten additional recovery in the oil and gas industry. For the first time this year, West Texas Intermediate crude briefly touched $50 a barrel on Thursday last week. Prices between $50 and $60 are widely seen as a “goldilocks” scenario: high enough for oil companies to stay profitable yet low enough for consumers.

Gas prices, in fact, were expected to be the lowest in 10 years this Memorial Day weekend, according to the American Automobile Association (AAA). The motor club estimated prices would average around $2.26 a gallon, or 45 cents less than last year. More than 38 million Americans were expected to travel this past weekend, AAA says, the second-highest volume on record. If you’re one of them, I wish you happy, safe travels! But however you plan on spending the weekend, remember to honor those who bravely served the U.S. and gave the ultimate sacrifice.

The U.S. Can Now Export Weapons to Vietnam

Last Monday, Obama lifted the 40-year-old weapons embargo against Vietnam, ending what many see as the last vestige of the U.S. and Southeast Asian country’s former animosity. It was also part of his administration’s “pivot” to Asia to deepen relations with countries in the fastest growing region of the world.

Indeed, Vietnam is in an exciting position right now. In the fourth quarter of 2015, its gross domestic product (GDP) growth rate expanded an impressive 7.01 percent, and Goldman Sachs predicts its economy will become the 17th largest by 2025, up from 55th today. The most populous city, Ho Chi Minh City, commonly known as Saigon, has blossomed into one of the world’s premier manufacturing and tech startup hubs, with huge investments flowing in from companies such as Samsung and Intel.

Vietnam’s defense spending has also been growing rapidly in recent years, and today a lot of business is up for grabs. Between 2011 and 2015, the country was the world’s eighth largest arms importer, just one rung above the U.S., according to the Stockholm International Peace Research Institute (SIPRI). This year it’s expected to spend $5 billion, a dramatic increase from the estimated $1 billion it spent in 2005.

With the embargo out of the way, American aerospace and defense contractors such as Lockheed Martin and Raytheon have the opportunity to move into this new Asian market. Boosted by recent geopolitical fears and terrorist activity, both companies are trending near their all-time highs.

Lockheed Martin Raytheon Trending Near All Time Highs

click to enlarge

They also provide attractive dividends, which are increasingly sought-after in a world that’s seen a third of all government bond yields around the world turn negative.

Read how negative interest rates are also pushing foreign investors into American muni bonds!

Selling the TPP

One of Obama’s main objectives in visiting Vietnam and Japan was to shore up support for the TPP, the historic trade agreement that, if ratified by all 12 participating countries, is designed to eliminate as many as 18,000 tariffs. Sixteen to 30 years after ratification, 99 percent of all goods trade among these countries will be entirely liberalized.

In the map below, you can see the massive scale of who’s involved. TPP countries have a combined GDP of $28 trillion, close to 40 percent of world GDP, and they account for almost a quarter of total world exports.

The United States Total Trade with TPP Countries

click to enlarge

Vietnam has the most to gain from the TPP Eliminating thousands of tariffs should allow its important apparel and textile industry to export even more goods to the U.S. In turn, the U.S. would have the opportunity to sell more vehicles in the Asian country. The World Bank estimates a 10 percent bump in Vietnam’s economy over a decade as a result of the deal.

Among the TPP countries, the U.S. runs the largest trade deficit, which widened to $57.5 billion in April. As you can see, the U.S. has an unfavorable (and worsening) trade gap with Vietnam (-$2.7 billion in March) and Japan (-$6.7 billion). The TPP could help rebalance this.

Americas Ever Widening Trade Deficit with Vietnam

click to enlarge

Americas Ever Widening Trade Deficit with Vietnam

click to enlarge

According to the Peterson Institute for International Economics (PIIE), the TPP “will increase annual real incomes in the United States by $131 billion, or 0.5 percent of GDP, and annual exports by $357 billion, or 9.1 percent of exports, by 2030.” For all member nations, the deal is expected to add $492 billion in real income.

Challenges Ahead

Of course, none of this will come to pass if the TPP can’t be ratified. The PIIE warns that delaying the TPP’s launch by even a year could lead to a permanent opportunity loss of between $77 billion and $123 billion for the U.S. Obama has repeatedly said he wants to see it passed by the end of 2016.

But a delay at this point appears highly possible, with both major U.S. presidential candidates opposing it. Support in Congress is muted. Of the 12 TPP countries, only Malaysia has ratified it.

There’s still strong support for the deal. The U.S. Conference of Mayors, responding to recent positive findings by the International Trade Commission, wrote an open letter asserting its support, stating that passage of the TPP is critical for the U.S. to remain a leader in the global marketplace.

I agree. The deal is far from perfect, but it’s what we need now to help reignite global growth.

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

The 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. Composite PMIs are published monthly by Markit Economics in conjunction with sponsors, and are based on surveys of over 400 executives in private sector service companies. The surveys cover transport and communication, financial intermediaries, business and personal services, computing & IT and hotels and restaurants.

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.

Holdings may change daily. Holdings are reported as of the most recent quarter-end. The following securities mentioned in the article were held by one or more accounts managed by U.S. Global Investors as of 3/31/2016: Lockheed Martin Corp., Raytheon Co.

Share “Can the TPP Save the Global Economy?”

Net Asset Value
as of 06/15/2018

Global Resources Fund PSPFX $5.83 -0.08 Gold and Precious Metals Fund USERX $7.61 -0.07 World Precious Minerals Fund UNWPX $3.89 -0.06 China Region Fund USCOX $11.80 -0.04 Emerging Europe Fund EUROX $6.72 -0.10 All American Equity Fund GBTFX $25.97 0.05 Holmes Macro Trends Fund MEGAX $20.22 No Change Near-Term Tax Free Fund NEARX $2.20 No Change U.S. Government Securities Ultra-Short Bond Fund UGSDX $2.00 No Change