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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.

Africa Could Mine Its Way to Prosperity if It Addressed Instability
February 17, 2015

Last week I attended the Investing in African Mining Indaba in Cape Town, South Africa, as both a presenter and a student seeking opportunities. One of the highlights of the conference was former Prime Minister Tony Blair’s keynote address, during which he offered some crucial advice to African governments: To attract and foster a robust mining sector, a commitment to fiscal stability must be made.

Goods Trade with Africa in 2013

Since 2009, Blair has run the Africa Governance Initiative, which counsels leaders in countries such as Rwanda, Sierra Leone, Liberia, Guinea and others.

Simply put, without fiscal stability and predictability in taxation, capital will be unwilling to flow into any country—African or otherwise—for exploration and production. If a government changes its tax policy every three years or so, that instability discourages the inflow of financing. This is bad for Africa.

“The mining sector remains absolutely vital for Africa’s future,” Blair said, “and even with the sharp declines in [commodity] prices, there are tremendous opportunities and there will be, no doubt, an adjustment and reshaping of the face of mining within Africa over these next few years.”

I shared the following map last week, but it’s worth showing again, as it supports Blair’s point. Central and Southern Africa, especially, are extremely commodity-rich and maintain a large global share of important metals and minerals such as platinum, diamonds and gold.

In 2014, China Channeled Over $100 Billion into 156 Countries and Regions Around the Globe
click to enlarge

Fiscal instability is also bad for investors in Africa. If foreign investment is not respected by a government, if it is punitively taxed or arbitrarily confiscated, further investment will not flow into that country. Politically, African nations need to recognize that seemingly faceless investment institutions represent real people’s hard earned dollars.

In Zambia, for example, a huge 12 percent of the country’s GDP comes from mining, an industry that employs 10 percent of all Zambians. Yet its government has increased, rather than cut or at least eased, restrictive royalty taxes on mines. In the case of open pit mines, royalties were raised from 6 percent to a crippling 20 percent.

Speaking to Reuters, a mining industry spokesperson speculated: “Mining companies are not going to put another dollar in [Zambia]” if the government continues to be unreliable.

Less Friction, Fewer Disruptions

This is proof positive of what I frequently say: Government policy is a precursor to change. In the example above, the tax policy is leading to change that could very well hurt Zambia’s economy. With mining being such a strong contributor to its GDP, it seems the government would want to make it easier, not more challenging and costly, for international producers to conduct business there.

The less friction and fewer disruptions there are, the easier it is for money to flow.

But Zambia’s isn’t the only African government that’s placing roadblocks in front of miners. The Democratic Republic of Congo is in the early stages of hiking royalties on mines and revising its mining code. And in his recent State of the Nation Address, South African President Jacob Zuma announced that foreigners could no longer own land in the country, which raises the question of what implications, if any, this might have on U.S. and Canadian companies that own and operate South African mines. Zuma’s announcement comes at a time when persistent electricity shortages have stymied mining activity and rumblings of a miners’ strike similar to the one last year that brought platinum and palladium production to a five-month halt are intensifying.    

At the same time, many governments in Africa are waking up to see that they’re going to have to provide the sort of stability and consistency Prime Minister Blair outlined if they hope to attract the capital necessary to fund and develop their mining opportunities.

Miners Giving Back

A strong mining sector doesn’t just benefit the native country, either. It’s a global good that benefits all. In another presentation at the African Mining Indaba, Terry Heymann of the World Gold Council convincingly showed that the economic output of the global gold mining sector far exceeds the collective aid budget of world governments. Gold mining, he said, created and moved as much as $47.3 billion to suppliers, businesses and communities in 2013, compared to governments’ $37.4 billion.

Many gold mining companies take a more direct approach to helping the communities in the countries they operate in, including Randgold Resources, which works primarily in Mali. In an interview during the African Mining Indaba, CEO Mark Bristow detailed his company’s involvement in the fight against Ebola and other epidemics that have hit the West African country:

Our doctors, the Randgold doctors, run a technical committee meeting every day where we coordinate with the [Malian] health authorities, and we help manage the deployment of energy. Now that we’ve eradicated the second [Ebola] outbreak, our big focus is on prevention and education.
Goods Trade with Africa in 2013

Bristow explained that the company had sponsored the development of an educational film about Ebola, before highlighting other company achievements:

We were part of the Neglected Tropical Disease Initiative rollout… We’re very big on the AIDS programs around the country. We brought the malaria incident rate around our mines down by more than four times.

Because Randgold is the largest employer in Mali, Bristow suggested, he feels a moral obligation to partner with his host country and make it a healthier, safer place to live and work.

During the same interview, he insisted that Randgold, which we hold in our Gold and Precious Metals Fund (USERX) and World Precious Minerals Fund (UNWPX), has a “solid five years ahead of us,” citing the fact that the company holds no debt and managed to replace all the ounces it mined in 2014 at $1,000 long-term gold price. It also increased its dividend 20 percent.

Despite bullion’s price hovering just above the relatively low $1,230 range, Randgold has delivered 16 percent year-to-date.

This is in line with gold mining stocks in both the NYSE Arca Gold Miners Index and FTSE Gold Mines Index, which are outperforming the return on bullion.

Gold-Mining-Stocks-Outperforming-Bullion-Year-to-Date
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As I mentioned back in July, when mining stocks do well, bullion has tended to follow suit. This also shows that producers are successfully adjusting to a $1,200-per-ounce environment by scaling back on capital spending, selling off assets, putting exploration on hold and engaging in mergers and acquisitions—which in the past has signaled that a bottom in spot prices might be reached. B2Gold Corp. closed on its deal to buy Papillon Resources in October; we learned in November that Osisko Gold Royalties is taking over Virginia Mines; and last month it was announced that Goldcorp would be purchasing Probe Mines.

Weak Currencies, Low Fuel Prices

Speaking with Kitco News’s Daniela Cambone during last Monday’s Gold Game Film, I commented on some of the macro events aiding gold mining companies such as Randgold:

Mark Bristow has just hit the ball out of the park. He benefits from a weak Mali currency and he benefits from a weak euro because everything is priced in euros. He’s also benefited from weak oil prices.

Indeed, many miners not operating in the U.S. are the beneficiaries of a weak local currency. The West African CFA franc, Mali’s currency, is off 20 percent; the South African rand, 40 percent; the Canadian dollar, 15 percent.

Low energy prices are also helping gold producers, just as they’re helping companies in other industries, airlines especially. In most cases, fuel accounts for between 20 and 30 percent of gold miners’ total operating costs. Because Brent oil is currently priced around $60 per barrel, gold producers are seeing significant savings.

The Gold Demand

This Thursday marks the Chinese New Year, a traditional occasion for gold gift-giving. Chinese demand for the yellow metal was strong in 2014, as 800 tonnes flowed into the country. Over half of the global gold demand, in fact, was driven by the world’s two largest markets, China and India.

Chinese-and-Indian-Growth-Has-Spurred-Market-Infrastructure-Development
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Historically low real interest rates are also driving investors into gold and gold stocks. As I told Daniela:

When you look at real interest rates out of the G7 and G10 countries, the only one with a modest increase is the U.S. dollar. Any time you get this negative real interest rate scenario, gold starts to rally in those countries’ currencies. Now what’s really dynamite is the gold mining companies like Goldcorp, which pays a dividend higher than a 5-year government bond.

Emerging Markets Webcast

Make sure to join us during our webcast tomorrow, February 18. USGI Director of Research John Derrick, portfolio manager of our China Region Fund (USCOX) Xian Liang and I will be discussing reflationary measures in China and emerging Europe. Don’t miss it!

Time-Tested History of No Drama - Near-Term Tax Free Fund - U.S. Global Investors

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.

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

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 NYSE Arca Gold Miners Index is a modified market capitalization weighted index comprised of publicly traded companies involved primarily in the mining for gold and silver. The index benchmark value was 500.0 at the close of trading on December 20, 2002.

The FTSE Gold Mines Index Series encompasses all gold mining companies that have a sustainable and attributable gold production of at least 300,000 ounces a year, and that derive 75% or more of their revenue from mined gold.

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. Note that stocks and Treasury bonds differ in investment objectives, costs and expenses, liquidity, safety, guarantees or insurance, fluctuation of principal or return, and tax features. A fund’s yield may differ from the average yield of dividend-paying stocks held by the fund.

Fund portfolios are actively managed, and holdings may change daily. Holdings are reported as of the most recent quarter-end. Holdings in the Gold and Precious Metals Fund, World Precious Minerals Fund and China Region Fund as a percentage of net assets as of 12/31/2014: B2Gold Corp. 0.28% World Precious Minerals Fund; Goldcorp, Inc. 1.03% Gold and Precious Metals Fund; Osisko Gold Royalties 0.00%; Papillion Resources 0.00%; Probe Mines 0.00%; Randgold Resources Ltd. 2.30% Gold and Precious Metals Fund, 1.43% World Precious Minerals Fund; Virginia Mines, Inc. 1.14% Gold and Precious Metals Fund, 10.35% World Precious Minerals Fund.

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15 Charts to Keep Your Eyes on for ‘15
January 8, 2015

In anticipation of the new year ahead, I’ve pulled together 15 charts that we’ll be watching and might help guide our expectations for what 2015 has in store for us. After looking them over, be sure to share some of your own via Facebook, Twitter or Instagram.

A Not-So-Crude Trend

Crude oil has recently dipped below $50 per barrel for the first time since 2009, one of the reasons for which is the rise of oil production in the United States. The glut has already prompted many U.S. companies to halt or limit projects, especially those that make use of hydraulic fracturing, or fracking. With oil prices as low as they are, it’s possible even more companies will join them.

1.

The Rise of Oil Production in the United States
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The bright side, however, is that a bottom and subsequent rally might emerge as early as next month, if the 5-, 15- and 30-year trend stays in place.

2.

West Texas Crude Oil Historical Pattern
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Airline Stocks Taking Off

Low oil prices have certainly hurt companies involved in the exploration and production of oil, but cheap fuel has benefited many companies that consume barrelsful of the stuff, airlines included. Despite some turbulence, such as the October pullback and pre-election Ebola scares, airline stocks have continued to ascend.

3.

Airline Stocks at a 12 Year High
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PMI: The Economic Soothsayer

Gross domestic product (GDP) tells you where you’ve been. Only the global manufacturing purchasing manager’s index (PMI) can tell you where you’re headed. Our research shows that when the one-month PMI reading crosses above the three-month moving average, gains have been made in select areas six months afterward:

4.

Commodities and Commodity Stocks Historically Rose Six Months After PMI "Cross-Over"
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Since September of last year, the global one-month reading has remained below the three-month moving average.

5.

Global Manufacturing PMI's One-Month Moving Avergae Remains Below the Three-Month Moving Average
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We’ll be eyeing the global PMI closely this year because when the “cross-above” occurs, it’ll be time to act!

End of One Secular Cycle, Start of Another?

We might be nearing the end of another 30-year-or-so secular market cycle, which is both exciting and a signal for caution. Adjusted for inflation, each of the three cycles—1921-1949, 1949-1982 and 1982-2015—have risen successively in performance.

6.

Three S&P 500 Secular Market Cycles from the Last 100 Years
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This raises more than a few questions, two of which immediately spring to mind: When will this current cycle end? And will the next one follow the trend of even better inflation-adjusted returns?

Ruble Rubble

We all know Russia’s going through tough times. International sanctions, sliding oil prices and a collapsing currency have all contributed to dire economic straits.

7.

Russian Ruble Volatility Looks SImilar to Moves During 2008 Financial Crisis
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The Federation’s economy is expected to contract by almost 5 percent, and Standard & Poor’s recently announced that it could very well downgrade Russian debt to junk status within the next three months.

Whatever your opinion on Russia is, it’s important to acknowledge that ours is a global economy. It would be in our country and company’s best interest for Russia to transform itself into a more attractive place to conduct business.

BRICS of Gold

Many investors are aware that gold is often used as a safe-haven currency. We’re witnessing this fear trade unfold right now in most of the BRICS countries—Brazil, Russia, India, China and South Africa.

By year’s end, Russia had snapped up 130 tons of the precious metal, a 73-percent increase from 2013. Since India eliminated its 80:20 rule in November, which mandated that 20 percent of all imported gold must be exported before any new shipments could be brought in, gold demand has exploded. In South Africa, gold producers are currently leading a stock market rally.

And in China, wholesale gold demand has remained steady as its economy has slowed. Total withdrawals from the Shanghai Gold Exchange came in just shy of the record set in 2013.

8.

China's Wholesale Gold Demand in 2014 Was Just Shy of 2013 Record
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We’ll see if China can sustain its robust demand throughout the next 12 months.

Year of the Bull Market

Speaking of China, its A-Shares have rallied strongly since the summer despite the country’s slowdown. They continue to be undervalued and offer a favorable risk-reward profile.

9.

Undervaluation of Chinese Stocks Indicates Favorable Risk-Reward
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The rally in Chinese equities cannot be overstated. Over the past six months, China’s market capitalization has surpassed that of other BRIC countries combined.

10.

China's Market Value vs. Other BRIC Countries
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Brightest of the Bunch

Although gold had another down year in 2014, losing 1.7 percent, it still smoked all other major world currencies except for the U.S. dollar, whose mounting strength has put pressure on the yellow metal.

11.

Gold is Second Best PErforming Currency of 2014
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With the global downturn in effect, gold appears likely to remain an attractive investment.

Borrowing for Free

Bad news is often good news for gold: For the first time ever, the German 5-year and 10-year bond yields have fallen below zero, indicating unambiguous deflation in the eurozone.

12.

German Five-Year Breakeven Rate Gauges Inflation Outlook
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This means that German bondholders are effectively paying the government to hold on to its debt. As a result, international investors might look elsewhere for better performance—gold, for instance, or the U.S. municipal bond market, which was valued at $3.6 trillion by year’s end.

The S&P 500 Index Paying Dividends

Nearly 85 percent of companies in the S&P 500 currently pay a dividend, with dividends per share (DPS) having grown 11.3 percent in the past 12 months.

13.

More BLue Stocks Paying Dividends
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What’s more, FactSet analysts expect DPS to increase over 8 percent in the next 12 months, with the financial and consumer discretionary sectors to report double-digit growth.

Watch the Big Apple

As the U.S.’s largest company by net capitalization, Apple has had mixed results after launching its flagship devices. When it released the first iPhone back in June 2007, its stock surged 16 percent within the next month. More recently, however, Apple stock tumbled following reports that the iPhone 6 was prone to bending.

Will the Apple Watch, to be released sometime early this year, lead company stock higher? Or will it take a bite out of gains? We’ll have to wait and see, but for now, analysts are already making their product shipment forecasts for 2015.

14.

Estimated 2015 Apple Watch Shipments
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Don’t Fear Rising Rates

15.

Historically, Rising Interest Rates Have Helped Boost Stocks on Average

This one remains filed under “considerable time,” as we have no idea when or to what extent the Federal Reserve will decide to raise rates this year. I’ve previously written about how rate increases might affect Treasuries. But what about stocks? Historical precedent, going back to 1971, shows that stocks have on average increased by nearly 4 percent six months following a rate hike.

What other charts do you think are important to keep in mind as we embark on a new year? Again, you’re invited to share them via Facebook, Twitter or Instagram.

Past performance does not guarantee future results.

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

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 NYSE Arca Airline Index is an equal dollar weighted index designed to measure the performance of highly capitalized companies in the airline industry. The XAL Index tracks the price performance of major U.S. and overseas airlines.

Shanghai Gold Exchange is a non-profit self-regulatory organization, approved by the State Council, organized by the People's Bank of China, and registered with the State Administration for Industry & Commerce, for the purpose of trading gold, silver, platinum and other precious metals.

BRIC refers to the emerging market countries Brazil, Russia, India and China.

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.

Fund portfolios are actively managed, and 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 of U.S. Global Investors Funds as of 9/30/2014: Apple, Facebook.

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

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UPDATE: China Wants to Conduct the World’s High-Speed Rail Market
December 15, 2014

The construction of the American transcontinental railroad in the 1860s, which cost upwards of $136 million and covered 1,800 miles over arduous terrain, could not have been as easily accomplished without the major influx of Chinese immigrants into California. Tens of thousands of Chinese laborers worked grueling 12-hour days, six days a week, often at paltry wages and with little or no accommodations. They gained a reputation as indefatigable and resilient workers because they rarely became ill, a result of boiling their drinking water and pasteurizing their food.

In the 1860s Central Pacific Railroad Employed Over 12000 Chinese LaborersNow, close to a century and a half later, the Chinese want to return to the railroad business. This time, however, they strive to become the world’s leading go-to provider of high-speed rail and exporter of mass transit technology.

They certainly have the credentials and experience to back up their ambitions. By the end of last year alone, more than 6,800 miles of high-speed rail spanned the fourth-largest country, with another 7,500 miles currently under construction. UBS’s research reports that “China has the largest high-speed rail network in the world, with a total of more than 20,000+ kilometers [12,400+ miles] high-speed passenger-dedicated lines scheduled to be operational by end-2015.”

ost-Cities-Network-Connected-Next-Five-Years
click to enlarge

A lot has changed with Chinese rail since I previously wrote about it in March 2012. Back then, the country was struggling to get new projects off the ground, one of the catalysts of which was a bullet train crash in 2011. At the time, out of five countries, including Australia, the U.S., Russia and China, the Asian giant came in last place for the total length of railway per capita.

Then, in August 2013, BCA Research highlighted the massive surge in the country’s urban subway systems, as the “length of light rail and metro will be extended by 40 percent in the next two years, and tripled by 2020.”

The Closer: Chinese Premier Li KeqiangWe’re currently seeing the boom of this Chinese railway Renaissance.

As I told Wall St for Main St a couple of days ago: “The [Chinese] government is promoting light rail train everywhere in the world, and it’s only accelerating.”

China Courting Buyers

In recent months, Chinese Premier Li Keqiang has emerged as the nation’s top salesman for what he calls the “New Silk Road”—miles upon miles of high-speed transportation connecting all corners of the world. His plan might very well become one of China’s most lucrative exports and culturally significant contributions to the world: fast, efficient and reliable railways.

Which many areas of the world sorely need.  

In numerous countries, including here in the U.S., rail systems are outmoded and deteriorating. Five years ago, the U.S. Department of Transportation’s Federal Transit Administration concluded that “more than one-third of [rail] agencies’ assets are either in marginal or poor condition, indicating that these assets are near or have already exceeded their expected useful life.” A whopping 92 percent of railroad ties in the U.S. are still made of wood and, in many cases, fall within a range of 15 to even 100 years old. A few lines, such as the one that connects Los Angeles and Las Vegas, no longer receive regular service.

In India, where thousands of citizens rely on mass transportation, railroads have been combating a years-long rash of onboard fires relating to aging equipment and poor electrical maintenance. Last month, the state-owned India Railways chalked out plans with China to improve its lines and begin construction on a $33 billion, 1,090-mile high-speed rail connecting Delhi and the southern coastal city of Chennai.

remier-Li-Keqlang-to-Indian-commuters-here-let-us-give-you-a-hand

In November, China Railway Construction Corp. (CRCC), which we own in our China Region Fund (USCOX), signed a contract with Nigeria to construct a $12 billion, 870-mile rail system from Lagos, the nation’s second-most populous city, to the seaport town of Calabar. In an effort to shed China’s reputation for using only Chinese workers in foreign projects, CRCC Chairman Meng Fengchao “pledged to hire at least several thousand workers from Nigeria,” according to Bloomberg Businessweek.

China at the starting gates

But China’s most ambitious plan to date comes in the form of a proposed $230 billion high-speed rail system linking Beijing and Moscow, which will largely replace the storied 100-year-old Trans-Siberian Railway. Whereas the Trans-Siberian takes about six days one-way, the new high-speed line will cut travel time down to only two days. The estimated distance is 4,350 miles, “more than three times the world’s current longest high-speed line, from the Chinese capital to the southern city of Guangzhou,” according to Business Insider.

Following the announcement, the market handsomely rewarded CRCC. Since the end of October, its stock has gained 16 percent, beating for the first time this year the Hang Seng Composite Index, the benchmark for USCOX.

China-Railway-Construction-Corporation-CRCC-LEaps-Ahead-of-Hang-Seng-Index
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Just as significant as the proposed line itself is what it symbolizes: a strengthening relationship between Beijing and Moscow. Already Russia has signed a multibillion-dollar gas and oil export deal with its southern neighbor, a clear snub at the European market.

In any case, China’s goal is to do for other countries what it has done for its own. In only ten years’ time, China has amassed an impressive network of rails that helps citizens from all corners of the nation—from the rural to urban—stay connected. Modern rail makes the nation more energy- and time-efficient, and concentrates real estate development.

Emerging-High-Speed-Rail-Hub-Cities
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Unfathomable Amounts of Resources Will Be Needed

As impressive as the Beijing-Moscow project is, it only begins to touch on the large host of jobs China has lined up, which will require untold amounts of raw materials.

In the map below, each shaded country denotes the location of current or pending Chinese projects, with many more possibly to come. UBS reports that 64 new projects have been signed in 2014 alone, with the months of October and November seeing a huge spike in approvals.

Countries-That-Have-Either-Already-Signed-Contracts-or-Are-Negotiating-with-Chinese-Infrastructure-Complex
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A few highlights are worth mentioning. Last March, CNR Dalian Locomotive and Rolling Stock Company signed a $17.6 million contract with Ethiopia to provide 41 modern tramcars. Around the same time, South Africa ordered 232 diesel locomotives from CNR, a job worth $930 million. In July, China, Peru and Brazil agreed to cooperate on the construction of a railway that would connect the Peruvian Pacific coast to the Brazilian Atlantic coast. And in October, the Massachusetts Department of Transportation awarded a $567 million contract to CNR to build 284 train cars for Boston’s subway system.

Frank Holmes - High-Speed Train, ChinaThese projects will require astronomical amounts of resources and raw materials, including heavy-duty steel, carbon fiber, aircraft-grade aluminum, copper and concrete—all of which should bode well for our Global Resources Fund (PSPFX).

As for concrete, would it surprise you to learn that China has used more of it in the last three years than the U.S. used during the entire 20th century? “Where there’s cement consumption, there’s growth,” reports Business Insider, “and there’s never been anything like what’s happening in China.”

Missing in action in the map above is California, but perhaps not for long. Next year, the California High Speed Railroad Authority will begin accepting bids on what will eventually be the U.S.’s first high-speed rail system. Right now a bidding war for the estimated $566 million contract is brewing between China’s CSR Corporation Limited and China CNR Corporation.

Also missing is Mexico. Early last month, CSR won the bid to manufacture train cars while CRCC arranged to build the Latin American country’s first-ever high-speed railroad. Costing $4.3 billion, the line would have spanned 130 miles, from Mexico City to Queretaro. But just days after the contract was signed, Mexico canceled the deal “amid new reports that one of the bid partners built a home for [Mexican] first lady Angelica Rivera,” according to Bloomberg. CRCC has since threatened legal action.

Still, there are numerous investment opportunities in Premier Li’s “New Silk Road” initiative, as you can see below.

Chinese-Railway-Infrastructure-Investment
click to enlarge

And the opportunities don’t stop there. Along with a greater number of domestic Chinese rail lines comes an explosion in service industries catering to weary travelers, including restaurants, hotels, car rentals, discretionary goods, property and more.

Many of these companies, in fact, hail from the U.S. Fast food restaurants such as McDonald’s, KFC, Pizza Hut and Starbucks—which we own in both our All American Equity Fund (GBTFX) and Holmes Macro Trends Fund (MEGAX)—have lately taken aggressive positions in and around China’s growing number of depots.

American hotels have also seized on the opportunity to service Chinese travelers making overnight stays along the way, with massive growth down the road.

Hotel-Operators-Current-Market-Share-Pipeline
click to enlarge

In a recent Barron’s piece, emerging markets analyst Shuli Ren highlighted the attractiveness of investing in China rail stocks, especially in light of the People’s Bank of China’s (PBoC’s) recent interest rate cut, which will help railroad companies deleverage:

While China Railway Construction Corp. [which we own in USCOX] and China Railway Group both are major winners, given their 40 to 45 percent market share each in railway construction in China, CRCC currently has only a small exposure overseas, which means more upside. About 25 percent of CRCC’s new contracts come from overseas markets, the highest among its peers. CRCC is also less indebted, with “only” 94 percent net gearing.

Chinese banks’ recent decision to lower financing costs and increase lending has helped railroad companies, both state-owned and listed, gain a market advantage throughout the world.

Mcdonalds-presence-in-ChinaBCA Research has additionally cited the PBoC’s rate cuts and the Chinese leadership’s efforts to lower the cost of borrowing as further enticing reasons to consider Chinese rail: “interest rate sensitive sectors such as… ‘asset-heavy’ industries such as materials, industrials and energy” all benefit. As these industries are directly and indirectly related to the construction and maintenance of railroads, they are also clear beneficiaries.

Expressing positivity in “Chinese growth, especially on stocks, going into the New Year,” BCA encourages readers “to be invested in Chinese shares and overweight Chinese equities in managed global and EM [emerging market] portfolios.”

One such EM portfolio that investors can take advantage of to catch opportunity is our very own China Region Fund (USCOX).

On Our A-Game

One final note I want to leave you with is the strong performance of Chinese A-shares lately. Even though they tend to be volatile, they’ve been climbing pretty steeply since the summer.

Shanghai Composite Index
click to enlarge

The financial sector has been the clear winner, which USCOX maintains significant exposure to. And as I’ve previously said, materials, utilities and industrials all have residual benefits to the railway industry.

Rally-Leaders-China-Domestic-A-Shares-6-Month-Return
click to enlarge

As I told CNBC Asia’s Squawk Box regarding China A-shares:

I think people finally woke up to the breakout that took place in the summer. You saw that reversal, those long-term moving averages and it was defying all the negativity. We went long A-shares starting in September and being overweighted in our China opportunity fund.

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 Hang Seng Composite Index is a market-cap weighted index that covers about 95% of the total market capitalization of companies listed on the Main Board of the Hong Kong Stock Exchange.

The Shanghai Composite Index (SSE) is an index of all stocks that trade on the Shanghai Stock Exchange.

The Shanghai A-Share Stock Price Index is a capitalization-weighted index.  The index tracks the daily price performance of all A-shares listed on the Shanghai Stock Exchange that are restricted to local investors and qualified institutional foreign investors.  The index was developed with a base value of 100 on December 19, 1990.

Fund portfolios are actively managed, and holdings may change daily. Holdings are reported as of the most recent quarter-end. Holdings in the funds mentioned as a percentage of net assets as of 9/30/2014: Accor 0.00%, China CNR Corporation 0.00%, China Railway Construction Corp. in China Region Fund 1.05%, CNR Dalian Locomotive and Rolling Stock Company 0.00%, CSR Corp. Ltd. 0.00%, China Railway Group 0.00%, Hilton Worldwide 0.00% Hyatt Hotels Corp. 0.00%, InterContinental Hotels Group 0.00%, Marriott International Inc. 0.00%, McDonald’s 0.00%, Shangri-La Asia 0.00%, Starbucks Corp. 0.00%, Starwood Hotels and Resorts Worldwide 0.00%, Wyndham Worldwide 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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600 Million Reasons to Keep Your Eyes on India
October 6, 2014

Prime Minister Narendra Modi tells America's top Businesses: "Come, make in India."In the wake of his rock star reception at Madison Square Garden last Sunday, Prime Minister Narendra Modi has emphatically announced to our nation’s top corporate and political leaders that India is now open for business. Between September 26 and 30, he met with not only President Barack Obama and other high-profile politicians but also the CEOs of some of our nation’s largest and most successful companies: Google—which we own in both our All American Equity Fund (GBTFX) and Holmes Macro Trends Fund (MEGAX)—Boeing, PepsiCo and General Electric, among others.

The only thing missing was a ribbon cutting ceremony. 

Although U.S. Global Investors typically doesn’t invest in India, the country has recently found itself in the driver’s seat of global resources demand and production. This is a tailwind for our Global Resources Fund (PSPFX), which maintains heavy exposure in the industries that India will increasingly need to support its more than 1.25 billion (and counting) citizens: oil and gas, chemicals, energy services and infrastructure, precious metals and food.

India’s culture is ancient, dating back more than five millennia, but it has a disproportionately young population. As the world’s second-most populous country, India is home to roughly 600 million people under the age of 25. That’s close to half of its own population and a little less than twice the entire U.S. population. Over the next few years, this one generation will largely be responsible for charting the country’s trajectory into its next stage of economic development.  

As old as India’s culture is, millions of its citizens seek the contemporary American dream of opportunity and prosperity. They rely on their new leader, former tea merchant Narendra Modi, as their ambassador of “hope for change,” as he put it in his September 25 Wall Street Journal op-ed.

India Opening Its Wallet to International Sellers

At its current rate of population growth, the South Asian country will in the coming years be in need of biblical amounts of natural resources to meet the ambitious economic and social plans the newly-elected prime minister has laid out.

Among other goals, Modi envisions “affordable health care within everyone’s reach; sanitation for all by 2019; a roof over every head by 2022; electricity for every household; and connectivity to every village.”

The energy infrastructure alone will require staggering amounts of copper conductors, iron, electrical steel and oil. As I wrote back in May, Modi has a proven track record for bringing electricity to Indians who previously never had it.

The prime minister also asserts: “The number of cell phones in India has gone up from about 40 million to more than 900 million in a decade; our country is already the second-largest market for smartphones, with sales growing ever faster.”

China is currently the world’s largest smartphone market.

Most smartphones require a combination of many precious metals, minerals and other materials, including gold, aluminum, glass, steel, lithium and various rare earth elements you might never have heard of such as yttrium, praseodymium and dysprosium.

Since Modi’s election in late May, the consumer outlook index in India has risen nearly 8 percent. At 45.2, however, it’s still about five points shy of 50, the pivotal threshold that indicates, on balance, that more consumers perceive the economy to be improving.

India's COnsumer COnfidence for September Reaches a Two-and-a-half Year High
click to enlarge

Planes, Trains and Automobiles

As population mounts and business and manufacturing activity increases, India’s need for additional cars and trucks has accelerated this year. Vehicle production uses not only many of the materials already mentioned but also palladium, lead, zinc and others.

Indian Domestic Car and Truck Sales Are on the Rise
click to enlarge

India, the world’s largest importer of weapons, also has its eyes on American-made military aircraft—more than $3 billion worth. The Asian country is already the U.S.’s leading defense market, and companies such as Boeing, Lockheed Martin and Sikorsky are no doubt pleased to hear that Modi’s government is committed to ramping up its defense spending.

According to the Wall Street Journal,among the possible purchases Prime Minister Modi discussed during his visit to the U.S. were 22 Apache attack helicopters, 15 Chinook heavy-lift helicopters and 24 Harpoon anti-ship missiles.

Below is a video courtesy of National Geographic that illustrates just how many metals, chemicals and other materials go into the assembly of a single Apache helicopter.

Going Long in India

Many economists and pundits have already likened Prime Minister Modi’s transformative pro-business position to that of Ronald Reagan and Margaret Thatcher—and his media darling status to that of Barack Obama circa 2008.

Even before Modi’s election, India was drawing the attention of global investors seeking growth and opportunity. Last month the portfolio manager of our China Region Fund (USCOX), Xian Liang, had the pleasure to attend a presentation in Hong Kong by CLSA’s Chris Wood, recognized as the one of the best strategists in Asian markets. During his speech, Wood maintained that India has been and continues to be his favorite market in the region, now more than ever since Modi’s ascent:

CLSA's Chris Wood is extremely bullish on India, deeming it the most attractive BRIC for investors.

I have, in fact, allocated 41 percent of my long only portfolio to India… I am not going to pull out because I am viewing India as a five-year story given the fact that Modi has been elected for five years. Modi is the most pro-business, pro-investment political leader in the world today.

Wood went on to argue that among the four BRIC countries—Brazil, Russia and China included—India is the best place for investors to be right now.

But with Brazil’s economy limping along at less than a 1-percent growth rate and Russia’s wounded by international sanctions, it’s hardly an intellectual feat to declare India the BRIC country with the greatest potential.

The chart below places India in context with other emerging Asian countries. As you can see, whereas the economies of China, Indonesia and the Philippines are flat or slowing, India’s is growing rapidly and projected to have a 7.2-percent growth rate by 2016, a 60-percent jump since 2012.

India's Economic Growth Forecast Leads Other Asian Emerging Economies by 2016
click to enlarge

With Modi actively seeking partnerships with some of America’s largest companies, it appears more and more likely that India can realize this optimistic growth rate.

The Challenges Ahead  

Despite all of the good news, India has many economic and political challenges to overcome before it can truly take off and achieve legitimate powerhouse status. According to the World Bank Group, the country ranks 134 in its Ease of Doing Business 2014 Rank, just below Yemen and Uganda. And out of 144 countries, India ranks 71 in the World Economic Forum’s recently-released Global Competitiveness Report 2014-2015, scoring 4.21 out of 7.

Tortuous trade barriers, which Modi has expressed his resolve to liberalize, still hinder constructive international business dealings. Gold import duties remain in effect, which has allegedly led to an increase in smuggling.

Also, although India’s manufacturing sector in September showed modest growth for the eleventh consecutive month, the pace at which it grew is the slowest we’ve seen since December 2013. For the first time since March, the one-month moving average for the country’s purchasing managers’ index (PMI) crossed below the three-month. This move contributed to the J.P. Morgan Global Manufacturing PMI’s recent cross below the three-month, which, as I discussed recently, could be a headwind for commodities and commodity stocks.

India's Manufacturing Sector Continues to Expand, But as Slower Pace
click to enlarge

But such challenges don’t appear to daunt the new prime minister.

“India is going to march ahead at a very fast pace,” Modi told his nearly 20,000 attendees at Madison Square Garden on Sunday. “The 21st century will be that of India. By 2020, only India will be in a position to provide workforce to the world.”

We at U.S. Global Investors wish Prime Minister Modi, his new government and the 1.25 billion Indians all the best.

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. Stock markets can be volatile and can fluctuate in response to sector-related or foreign-market developments. For details about these and other risks the Holmes Macro Trends Fund may face, please refer to the fund’s prospectus. 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. 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 HSBC India Manufacturing PMI is based on data compiled from monthly replies to questionnaires sent to purchasing executives in over 500 manufacturing companies. The panel is stratified geographically and by Standard Industrial Classification (SIC) group, based on industry contribution to Indian GDP. 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.

ZyFin Research’s Consumer Outlook Index is India’s monthly barometer of consumer sentiment. The index is based on a monthly survey of 4,000 consumers across 18 cities. The Index reflects consumers’ current and future spending plans, employment and inflation outlook. 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.

Fund portfolios are actively managed, and holdings may change daily. Holdings are reported as of the most recent quarter-end. Holdings in the funds mentioned as a percentage of net assets as of 6/31/2014: Google (1.98% in All American Equity Fund, 2.25% in Holmes Macros Trends Fund); Boeing (0.00%); PepsiCo (0.00%); General Electric (0.94% in All American Equity Fund); Lockheed Martin (0.00%); Sikorsky (0.00%); Raytheon Co. (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. This news release may include certain “forward-looking statements” including statements relating to revenues, expenses, and expectations regarding market conditions. These statements involve certain risks and uncertainties. There can be no assurance that such statements will prove accurate and actual results and future events could differ materially from those anticipated in such statements.

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Turkey Is the Big Winner Following the Crisis in Ukraine
June 19, 2014

Turkey Is the Big Winner Following the Crisis in Ukraine

Russia’s annexation of the Crimean Peninsula and the possibility of further action taken in Ukraine and other former Soviet Bloc nations have led many investors to wonder, understandably so, what impact the crisis has had on investment opportunities in Eastern Europe. To unravel these concerns and more, U.S. Global’s Director of Research John Derrick caught up with Gavin Graham of VoiceAmerica’s “Emerging and Frontier Markets Investing” program.

Below you can read some of the interview highlights, in which John speculates on who were the winners and losers in the aftermath of the Russia-Ukraine conflict. He also touches briefly on the violence that has recently erupted in Iraqi Kurdistan and what effect it might have on neighboring Turkey.

Which European countries have the greatest potential and have benefited the most from what’s been happening?

I think Poland’s been a beneficiary. It’s used as a safe haven in the region: stable economy, stable political environment. It’s benefited from the European recovery and doesn’t have that much trade with Russia.

I think Turkey has benefited, more from a money flow standpoint. If you were worried about what was going on in Russia and some of the longer-term implications, I think money flowed into places like Turkey. Money also flowed into places like Greece because a lot of the international investors tend to be regional investors, and within that region, there are shift allocations into places like Turkey, which has been a very strong performer this year. Part of that money is coming out of Russia.

That’s a very fair point because, as you say, if you’re running a dedicated Eastern European fund, Russia’s been overwhelmingly the largest weight within it, though a fair number of people were underweight even before Crimea because of concerns about governance and the like. Nonetheless, where are you going to go? Turkey is obviously a major market. Some of the reasons you like it include the demographics as well as the government’s pro-business attitude.

Exactly. If you just take a step back and look at the long-term secular growth, the demographics are very positive. There’s an entrepreneurial culture in Turkey: good government policies generally speaking toward business development, toward foreign investors. Basically business can get done, businesses can be created, and all those kinds of things that most Americans can relate to.

It’s still an emerging market country, and they’ll do things that you’ll look at and scratch your head, like banning Twitter or Facebook. But the political situation has definitely calmed down, and so I think the long-term secular story for Turkey is probably the best long-term secular story in the region. That’s what you want to hitch your wagon to over the long run.

Now I know that maybe one or two eyebrows will have been raised by you mentioning that Greece has been seen as a safe haven, but you are very right and very early in picking Greece as a market that had some very positive changes taking place. Do you want to just briefly recap where we are now?

Six years into a recession, Greece is finally starting to see the light at the end of the tunnel. They’ve made some significant structural changes. Essentially the banking system has been consolidated down. There are now four major players there. All in the last month, they actually have recapitalized, raised money. That put some pressure on the Greek market and banks over the last month or so, and it puts them on a much firmer footing. The banking system can function more properly, and you can actually start seeing real growth.

The European Central Bank (ECB) has been very supportive. The ECB announced a TARP-like program where you can get long-term funding—essentially a four-year repo currently at 25 basis points. That’s going to be positive for peripheral banks in general whether it’s Greece or Spain or Italy.

They’ve also talked about doing a securitization program where you get some kind of quantitative easing. All those kinds of incremental things are very positive for Greece. After six years of recession, they’re finally starting to come out of it. It’s just like a natural cycle. It doesn’t stay bad forever. That’s going to continue for the next 12 to 18 months.

Which is about as long as one can look ahead, especially with exciting things like the Ukrainian crisis happening. Briefly, in terms of those countries, which don’t look as attractive? Presumably the Baltic republics, which are seen as being more vulnerable, given what happened with Crimea and Ukraine?

Definitely. There’s concern there that Russian expansionism is going to continue. Will NATO really defend those countries if Russia tries to re-exert its influence in those regions? I think those have been areas that have been hurt by the crisis because they’re viewed as the next dominoes, if you will. Obviously those are not big markets and have limited investment opportunities, but definitely I think they’ve been negatively impacted. People aren’t really sure what the Russians’ ultimate goals are here, what they’re really trying to accomplish: are they done, or are they trying to recreate the Soviet Union?

Just to finish up, in terms of talking about military action, you were mentioning earlier about what’s been happening in Iraq where an al-Qaeda-linked group has taken over the second major city, Mosul, in Iraq and led to hundreds of its inhabitants fleeing. Maybe that’s going to have some effect on next-door neighbor Turkey?

The Turkish market is down about 3 percent today, and currency’s down 1 percent or so. Obviously it sounds like the situation in Iraq is deteriorating pretty rapidly. That’s a pretty significant development. It just raises a lot of questions about what’s happening there and what’s going to be the impact for Turkey. There’s a fair amount of trade that goes across there—oil pipelines that they’ve finally got up and running, particularly in the north in the Kurdistan region, sending oil to Turkey. There’s still some controversy about who’s going to buy it because they don’t have an agreement with the central government.

Nevertheless, there’s oil and gas and all those kinds of things that are good for Turkey in the long run. I look at today’s developments as probably likely a buying opportunity in Turkey.

Indeed, having reduced our exposure in Russia following the events in Ukraine, our Emerging Europe Fund (EUROX) now invests the largest percentage of its assets in Turkey (24.29 percent), followed by Poland (14.75 percent) and Greece (11.80 percent).

You can listen to John’s entire interview below, starting 18 minutes into the program.

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.

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.

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.

BRIC refers to the emerging market countries Brazil, Russia, India and China.

 

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Net Asset Value
as of 09/25/2017

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