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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.

Trump: We’re Getting Railed by High Taxes and Regulations
February 16, 2016

Donald Trump: High taxes are stunting job growth and economic developmentDuring this month’s Republican presidential primary debate in New Hampshire, businessman Donald Trump took high taxes to task for stunting job growth in the U.S., claiming that “we’re the highest taxed country in the world.”

Several critics and pundits were quick to find fault with The Donald’s comment, pointing out that many other countries have a higher tax rate than the U.S. If you look at tax revenue as a percentage of GDP, the U.S. actually ranks 27 among 34 developed countries, according to the Organization for Economic Cooperation and Development (OECD). (Denmark tops the list, followed by France, Belgium, Finland and Italy.)

The U.S. Corporate Statutory Tax Rate is the Highest in the Developed World

It’s not the first time Trump has made a wild claim, but in this case he’s right, by one very important measure—the corporate statutory tax rate. Since 1990, this rate has hovered around 39 percent, making it the highest among OECD nations, and for the largest GDP in the world.

Even when compared to 162 other countries, the U.S. still has the third highest corporate tax rate, following the United Arab Emirates (55 percent) and Chad (40 percent), where collecting taxes formally is very difficult.

To his larger point, Trump is right again. High taxes—both in the U.S. and abroad—stand in the way of global growth and create economic friction. But these taxes aren’t the only hurdle, and lowering them would be just the first step in a series of steps to lighten the burden placed on businesses.

The other hurdle is what the Competitive Enterprise Institute (CEI) calls the “hidden” tax—regulation. Complaining about income taxes is an American pastime in its own right, but regulatory costs run much higher, eating up 11 percent of the country’s $17.4 billion GDP.

The $2 Trillion Hidden Pathogen, with No End in Sight

The CEI calculates that in 2014, the annual cost of federal regulation and intervention amounted to a jaw-dropping $1.8 trillion, a figure that exceeds the $1.3 trillion collected in federal income taxes that year. Nearly $400 billion had to be spent on economic regulation alone, $316 billion on tax compliance.

Because these numbers are so large, they can be hard to conceptualize. It isn’t until you look at cost per employee that you realize just how burdensome these hidden taxes really are. In 2012, the last year such data is available, companies in every industry paid an average $9,991 per employee per year. That means if you run a business with 100 employees, you pay close to $1 million every year just to comply with federal laws and regulations. That’s $1 million you could be putting instead toward salaries and benefits and new business growth.

This has helped fuel runaway legal and compliance costs. The Wall Street Journal reported last week that fees at some of the nation’s largest corporate law firms have climbed to an unbelievable $1,500 per hour. That’s 200 times the minimum wage of $7.25, and includes only salaries, not benefits or options.

And the rules keep piling up. The chart below shows the number of proposed regulations that cost more than $100 million per year. In 2000, for instance, there were 87 new regulations costing upwards of $100 million, to say nothing of those costing less.

Major Regulations Soaring
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Following the 2008-2009 financial crisis, regulations in the banking sector spiked exponentially, as you can see in the Deutsche Bank chart below. The increase in regulations, not to mention legal costs associated with them, has caused fiscal drag and prevented the formation of capital.

More and More Banking Sector Regulation
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In a 2014 survey conducted by the Centre for the Study of Financial Innovation, global financial leaders cited regulatory pressure as the number one impediment to financial growth right now. We have excessive anti-money laundering laws mandating that every transaction be scrutinized and accompanied by supporting documentation. It’s currently easier to buy marijuana in Colorado than it is to open an investment account. If government can streamline the purchase of weed, why can’t it do the same for investing? The regulators seem to be saying there’s more risk in investing than in smoking dope.

But this is a global phenomenon, a contagion that knows no borders. The countries that place the heaviest burden of regulation on businesses, according to the World Economic Forum, include many in Europe (Serbia, Croatia, Italy) and South America (Argentina, Brazil, Venezuela). As money managers, we see fiscal drag all over the globe as a direct result of taxation through regulation, which tends to favor government work and compliance, not innovation. Private businesses end up paying the price.

The U.S. should be a leader in this area and commit itself to reducing the blockades that impede growth and innovation. A good model for such a task is Canada’s “One-for-One Rule,” introduced in April 2012 during former Prime Minister Stephen Harper’s administration. The rule requires that when a new or amended regulation is introduced, another must be removed.

However it’s accomplished, the time has come to reverse this economy-dragging trend. We also remain encouraged by the Trans-Pacific Partnership (TPP), which promises to eliminate 18,000 tariffs around the globe and unleash trade.

Gold Fear Trade Crackles as Recessionary Worries Hit Market

In times of economic uncertainty and market turmoil, investors have tended to reposition into so-called “safe haven” assets, including gold and municipal bonds. Today is no exception. With talk of a global recession rattling markets around the world, gold had its best start to the year since 1980, putting to rest last year’s speculation that the yellow metal has lost its haven appeal.

Gold is currently up 20 percent year-to-date, compared to a loss of 10 percent for the S&P 500 Index, which adds weight to the belief that the metal works well as a diversification instrument.

Stocks Tank, Gold Soars
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Fears of negative interest rates have also spurred record gold investing and retail buying, as the metal acts as a better store of value in an environment where it costs interest to have the government hold your money. Negative rates seem to be the new favorite trick of central banks, from Sweden to Switzerland to Japan, and during her Congressional testimony last Thursday, Federal Reserve Chair Janet Yellen commented that negative rates in the U.S. “aren’t off the table.” Gold shot up $50 by the end of the day.

Demand was robust in 2015, with investment up 8 percent from the previous year, according to the World Gold Council (WGC). Central banks continued to add to their reserves, resulting in the second highest annual demand in the WGC’s records. In the fourth quarter, central bank purchases, led by China and Russia, were up an impressive 25 percent over the same quarter in 2014.

Mark Cuban just bet big on gold.

The smart money seems to think this gold rally isn’t over. As of February 2, money managers’ net long positions surged to a three-month high while short bets declined dramatically, according to data from the Commodity Futures Trading Commission (CFTC). And last week billionaire Mark Cuban, owner of the Dallas Mavericks and “Shark Tank” investor, told CNBC that he had just bought “a lot” of call options in gold, saying: “When traders don’t know what to do, they go where everybody is. And I thought that would be gold.”

Many investors, sensing additional risk in stocks, are likewise seeking shelter and tax-free income in muni bonds. Munis also come equipped with attractive tax advantages, shielding investors from taxes at the federal level and often at the state and local levels too. That means they can help “Obamacare-proof” your interest from the 3.8 percent Affordable Care Act (ACA) tax on investment income (applicable to those who make more than $200,000 in taxable income per year).

In 2015, munis, as represented by the Barclays Municipal Bond Index, were actually the top fixed-income asset class, beating both Treasuries and corporate debt. But they also outperformed S&P 500 stocks, gaining more than double what equities delivered.

Muni Bonds Outperformed Other Major Bond Categories in 2015
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Billions of dollars fled domestic equity funds on a near-weekly basis in 2015 as investors anticipated a rate hike, which the Fed finally implemented in December. Meanwhile, muni fund inflows have been positive since October, according to Morningstar, with no signs of slowing in the near-term.

 

Learn more about this $3.7 trillion market!

 

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 S&P 500 Stock Index is a widely recognized capitalization-weighted index of 500 common stock prices in U.S. companies. The Barclays Municipal Bond Index is an unmanaged index representative of the tax-exempt bond market.

Diversification does not protect an investor from market risks and does not assure a profit.

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10 Numbers to Know for the Chinese New Year
February 8, 2016

Happy Chinese New Year! 2016: Year of the Fire Monkey

For decades now, China has been the leading driver of global growth, consuming unfathomable amounts of raw materials and commodities.

Today, the Asian giant is undergoing dramatic changes, as its government deepens reforms and opens the country’s economy up to foreign investment. The size of its middle class is rapidly expanding in size, giving a huge boost to domestic consumption. And with the creation of the Asian Infrastructure Investment Bank (AIIB) and the renminbi’s inclusion in the International Monetary Fund’s (IMF) reserve currency, China’s role in global financial markets is growing in importance.

No one can deny that challenges lie ahead, but opportunities are still abundant.

With this in mind, I’ve put together 10 figures to know as China enters a new year.

9th

As the ninth animal in China’s 12-zodiac cycle, the monkey is considered confident, curious and a great problem-solver. But 2016 is also the year of the Fire Monkey, which adds a layer of strength and resilience.

2.9 Billion

It’s been called the world’s largest annual human migration. “Chunyun,” or the Spring Festival, refers to the period around the Chinese New Year when people travel by plane, train and automobile to visit friends and family. Between January 21 and March 3, nearly 3 billion trips will be made, exceeding the number of Chinese citizens. Close to 55 million of these trips are expected to be made by air.

Chinese Tourists will take 2.9 billion domestic trips during this year's spring festival - U.S. Global Investors

For the third straight year in 2015, China topped the list of international outbound travelers, with 120 million people heading abroad. Collectively, they spent $194 billion across the world.

6 Million

Not all destinations are within China’s borders, however. According to CTrip, a Chinese online travel service, Spring Festival tourists have booked a record 6 million outbound trips. As many as 100 different countries will be visited, with the farthest region being Antarctica.   

180 Tonnes

A shaky stock market, depreciating renminbi and low global prices have spurred many Chinese consumers to turn to gold. Imports of the yellow metal are way up. Last month I wrote that 2015 was a blowout year, with China consuming more than 90 percent of the total annual global output of gold. In December, the country imported 180 tonnes from Switzerland alone, representing an 86 percent increase over December 2014. This news supports the trend we’ve been seeing of gold moving West to East.

The Great Tectonic Shift of Physical Gold From West to East

The precious metal is currently trading at a three-month high.

49.4

For the month of January, the Chinese government purchasing managers’ index (PMI) eased down from 49.7 in December to 49.4 in January, indicating further contraction in the country’s manufacturing sector. The reading remains below its three-month moving average. More easing from China’s central bank, not to mention liberalization of capital controls, could be forthcoming this year to stimulate growth and prop up commodities demand.

Chinese Manufacturing Sector Continues to Shrink
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$6.5 Trillion

Although manufacturing has cooled, domestic consumption in China is following a staggering upward trajectory. In 2015, total retail sales touched a record, surpassing 30 trillion renminbi, or about $4.2 trillion. By 2020, sales are expected to climb to $6.5 trillion, representing 50 percent growth in as little as five years. This growth will “roughly equal a market 1.3 times the size of Germany or the United Kingdom,” according to the World Economic Forum.

By 2020, Chinese Private Consumption Will have Grown $2.3 Trillion
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109 Million

One of the main reasons for this surge in consumption is the staggering expansion of the country’s middle class. In October, Credit Suisse reported that, for the first time, the size of China’s middle class had exceeded that of America’s middle class, 109 million to 92 million. As incomes rise, so too does demand for durable and luxury goods, vehicles, air travel, energy and more.

109 Million for the first time, the size of China's middle class has overtake the U.S., 109 million compared to 92 million.

But middle-income families aren’t the only ones growing in number. The World Economic Forum estimates that by 2020, upper-middle-income and affluent households will account for 30 percent of China’s urban households, up from only 7 percent in 2010.  

$1.6 Trillion

China's e-commerce consumption Set to Grow Over 160% Between 2015 and 2020

Consumption has also benefited from the emergence of e-commerce. Not only are younger Chinese citizens spending more than ever before, they’re doing it more frequently, as e-commerce allows for convenient around-the-clock spending. Such sales could grow from $0.6 trillion today to a massive $1.6 trillion by 2020.

Mobile payments will continue to play a larger role as well. Purchases made on a smartphone or tablet are expected to make up three quarters of all e-commerce sales by 2020.

24.6 Million

With a population of more than 1.3 billion, China is the world’s largest automobile market. The country certainly retained the title last year, selling 24.6 million vehicles, an increase of 4.7 percent over 2014. The U.S., by comparison, sold 17.2 million. According to China’s Ministry of Public Security, the Asian country added a staggering 33.74 million new drivers last year, which is good news for auto sales going forward.  

6.5 Percent to 7 Percent

Many China bears point out that GDP growth in the Asian country has hit a snag. There’s no denying that its economy is in transition, evidenced by the government’s 2016 growth range of between 6.5 and 7 percent, a demotion from 2015’s target of 7 percent. But it’s important to acknowledge that China is still growing at an enviable rate.

Here’s one way to look at it, courtesy of Jim O’Neil, the commercial secretary to the British Treasury and the man who coined the acronym BRIC (Brazil, Russia, India, China). O’Neil calculates that even if China grows “only” 6.5 percent this year, the value is still equivalent to India growing 35 percent or the United Kingdom growing 22 percent.

For this reason and more, China remains a long-term growth story, and “there are many reasons to expect that in 10 or 15 years, China will be a greater, not a lesser, power than it is today,” says Stratfor Global Intelligence.

To all of my friends and readers both here and abroad, I wish you copious amounts of happiness, health and prosperity this Chinese New Year!

 

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

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.

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Franco-Nevada: Royalty of the Gold Industry
January 6, 2016

Standing next to Pierre at Mines and Money London in December 2015

In 1983, my friends and early mentors Seymour Schulich and Pierre Lassonde founded Franco-Nevada Mining, the world’s first gold royalty company.

The two uniquely gifted money managers were on to something big. It was originally Seymour—then an oil analyst at the Canadian investment firm Beutel, Goodman & Company, where he and Pierre met—who recognized that the royalty model used in the oil and gas industry had some of the highest returns on capital.

At the time, no one had applied this business strategy to the precious metals industry. Venture capital was challenging to secure. But with Seymour’s fastidious money management and Pierre’s vast mining expertise, the two raised $2 million. (That’s according to “Get Smarter,” Seymour’s 2011 memoir aimed at mentoring young Canadian professionals, which I highly recommend.)

Fast forward more than 30 years, and Franco-Nevada now has a market cap of over $8.2 billion, making it the world’s largest and most successful gold royalty company.

Franco-Nevada was my first initial public offering (IPO) to work on as a young analyst at Toronto-based, boutique investment firm Merit Investment Corp. Even then, I recognized the superiority of the business model. For the next 20 years, until it merged with Normandy Mining and Newmont Mining in 2002, I watched the company return an average 38 percent to shareholders annually.

Ever since its second IPO—Newmont spun it off in 2007—Franco-Nevada’s stock has outperformed both gold bullion and global gold miners.

Franco-Nevada Ahead of the Curve
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Today, I’m just as convinced of Franco-Nevada’s business model. Its uniqueness allows the company and its royalty peers to generate high gross margins and ever-expanding dividends.

Class Acts in Philanthropy

I feel extraordinarily blessed to be able to call Seymour and Pierre my friends. The two are certified superstars of the resource sector. Pierre’s “The Gold Book,” published in 1990, is a seminal masterpiece on the topic of gold investing.

But beyond that, they’re just exceptional human beings, both of them loving husbands and fathers. Their differing personalities complement each other well. Whereas the frugal Seymour prefers to drive the same Lincoln for decades, Pierre enjoys the engineering and sleek design of a Ferrari.

The colorful interior of the Pavillons Lassonde de I'Ecole polytechnique MontrealBoth are among the most generous philanthropists alive today, responsible for donating hundreds of millions of dollars to various causes in Canada as well as abroad. Pierre is a benefactor of the Lassonde Entrepreneur Institute at the University of Utah, which pairs faculty members with business, engineering and science students and helps them write business plans. In 2011, he donated a massive $25 million to expand the School of Engineering at York University, where the Computer Science & Engineering Building was renamed the Lassonde Building in honor of his generosity over the years.

At the École Polytechnique de Montréal, Canada’s top engineering school—and where Pierre received one of his many degrees—a series of buildings named for Pierre and his late wife Claudette house the library and departments of computer and electrical engineering. In 2004, these buildings received the coveted Pilier d’or—Canada’s highest award for philanthropy in the French-Canadian community—for their “respect for the environment, efficiency objectives with a focus on sustainable development, technological innovation and innovative energy use,” according to the university.

In December 2015, Pierre received Mining Journal’s Lifetime Achievement Award at the Mines and Money conference in London.


Similarly, Seymour is a benefactor of several schools and organizations, including the Schulich School of Business at York University in Toronto, which offers the Kellogg-Schulich Executive MBA program—ranked #1 in the world by The Economist—as well as the Schulich School of Medicine and Dentistry at Western University. He’s also benefactor to the Schulich Heart Centre at Sunnybrook and Women’s College Health Sciences Centre in Toronto, the Library of Science and Engineering at McGill University and many others across Canada and the U.S. McGill, in fact, renamed its music program the Schulich School of Music in September 2005 in recognition of Seymour’s gift of $20 million, the largest such gift in the history of the university.

The schulich School of Business at York University, recognized as one of the world's most beautiful business schools.

“My main focus now is a $100 million project called the Schulich Leader Scholarships, which go to students pursuing science, technology, engineering and math studies,” Seymour told The Globe and Mail in January 2015. “The scholarships amount to $80,000 over four years. You can’t believe these kids. They are going to be the future of this country.”

Each year, the Schulich Leader Scholarships fund 50 undergraduates in the fields of engineering, science, technology and math. In 2000, Seymour was awarded the Order of Canada, the highest honor a Canadian citizen can receive. It’s comparable to being knighted (in the UK) or receiving the Presidential Medal of Freedom (in the U.S.).

I still remember being invited by Seymour to accompany him during one of his famous Sunday morning, two-hour walks. As we strode along, he shared with me the topic of a book he was reading, “Learned Optimism” by University of Pennsylvania professor Martin Seligman. He explained in detail that just as people can learn helplessness, so too can they cultivate optimism.

Similarly, many resource investors right now might feel discouraged by low commodity prices. But Franco-Nevada gives us reason to feel optimistic.

Blue Skies Ahead: Superior 14 Percent Dividend Growth Rate

As a refresher, royalty companies basically serve as specialized financiers that help fund cash-strapped producers’ exploration and production projects. In return, they receive either royalties on whatever the project produces or rights to a “stream,” a commitment to an agreed-upon amount of the commodity per year. 

Royalty companies have a history of rewarding their investors handsomely, even during economic downturns. Between 2007 and 2014, Franco-Nevada, Silver Wheaton and Royal Gold—the “Three Amigos”—had a combined dividend growth rate of 14 percent. Compare that to 5 percent growth for S&P 500 Index companies and between -3 and 3 percent for precious metals miners.

Royalty Companies Provided Better Dividend Growth than
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Since 2011, Franco-Nevada has raised its dividend incrementally from $0.04 per share to $0.21 per share—a phenomenal increase of 424 percent. What’s even more amazing is that it’s managed to do this even as spot gold has declined 38 percent.

Like other royalty companies, including the new kid on the block, Osisko Gold Royalties, Franco-Nevada has a much lower total cash cost than miners do. Dundee Capital Markets estimates that whereas gold miners produce at a breakeven cost of $1,087 per ounce, royalty companies get by with a materially lower cost of just $441 per ounce.

They’re just better allocators of capital and very aware of the risks of dilution and value factors on a per share basis. The mining companies, on the other hand, have diluted the value of their reserves and cash flow on a per share basis with poor acquisitions.

Take a look at how Franco-Nevada, Silver Wheaton and Royal Gold stack up against Newmont, the only gold company in the S&P 500 Index, and Goldman Sachs. When it comes to sales per employee, the royalty companies largely win out. Their balance sheets are also much less leveraged. Franco-Nevada, in fact, carries no outstanding debt. This helps eliminate many of the investment risks faced by operators such as Newmont, which typically have huge capital and operating costs. Franco-Nevada’s balance sheet and gross margins make it a much more attractive buying opportunity.

Royalty Companies vs. Newmont Mining & Goldman Sachs

It’s also worth pointing out that Franco-Nevada has a broader portfolio of royalties than its peers and pays its fair share of Canadian income taxes. One of the few risks involved with Silver Wheaton is its dispute with the Canada Revenue Agency, the “IRS” of Canada, which hopefully will be resolved sometime this year. Not all royalties companies are entirely risk-free, but their business model remains superior.

Another big value is the power of optionality. Royalty companies get an option on all future exploration and potential growth at no additional cost. In other words, mineral deposits are very often larger than what a royalty company pays for.

“The transaction price is largely determined by known reserves on the resource statement, as the royalty company is not going to pay a premium for undiscovered ounces,” explains USGI portfolio manager and precious metals expert Ralph Aldis. “However, the mining company is always incentivized to find more ounces, thus deferring the closing costs of the mine, which is beneficial to both parties.”

This is what’s known as “blue sky.” At the time of the deal, only the documented reserves and some portion of the defined resources are generally part of the valuation proposition. However, as time passes, the company will explore for new resources on the property. If anything is found, the royalty company will generally get paid for any future ounces, with some limitations.

Royalty Companies Dodge Many of the Risks Miners Face

Royalty companies avoid many of the industry’s most common challenges, including huge operating expenses, unions, liabilities and legal hurdles. They don’t build the mine’s infrastructure, experience capital cost inflation or have teams of miners and other personnel on their payrolls. (Franco-Nevada currently has fewer than 30 employees. Newmont, by comparison, has around 28,000.) They’re not responsible for cost overruns or maintenance.

Nor must they worry about mining in a country that operates under a completely different legal system. The U.S., Canada and Australia, home to some of the world’s largest mining companies, all follow common law. Yet many American, Canadian and Australian companies produce in civil law countries found mostly in Latin America and parts of Africa.

Common and Civil Law Countries

In civil law countries, the government has eminent domain over all mineral wealth of the country. Securing rights and permits is therefore much more bureacratic and arduous, and at any time, the government can attempt to revoke them. Surface rights and subsoil rights are often governed by entirely different sets of laws. And although they’ve improved since the 1980s, mining duties, income taxes and tax royalties still tend to be steep and unstable.

Is the “Smart Money” Telling Us that Gold Has Hit a Bottom?

When gold soared to $1,900 per ounce in 2011, many producers, expecting the good times to last, spent like crazy. The royalty companies, meanwhile, prudently kept their powder dry and built up their cash. Now that gold is hovering in the $1,085 range, down 38 percent since the all-time high, they’ve started deploying their massive reserves to buy streams from desperate sellers. Franco-Nevada recently agreed to pay $610 million for a portion of silver production from Teck Resources’ Antamina copper and zinc mine in Peru.

Many analysts call Franco-Nevada and the other two major royalty companies the “smart money” of the gold industry. I have to agree. They have huge intellectual capital and employ mining engineers, metallurgists, geologists and financial consultants. They’ve acted as bellwethers in the past, giving investors a good reading of where prices and sentiment could be headed.

Such is the case right now.

Investment dealer Paradigm Capital reports that the top three royalty companies have spent a collective $3.8 billion over the past half year of 2015.

“We doubt there has ever been such a spending period,” the investment group writes, noting that when you see this level of investing, it’s often a good sign of a bottom in prices.

For more on gold and other hard assets, be sure to follow our award-winning newsletter, the Investor Alert.

 

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Past performance does not guarantee future results.

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.

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.

The Philadelphia Gold and Silver Index (XAU) is a capitalization-weighted index that includes the leading companies involved in the mining of gold and silver. The S&P/TSX Global Gold Index is an international benchmark tracking the world's leading gold companies with the intent to provide an investable representative index of publicly-traded international gold companies. The S&P 500 Stock Index is a widely recognized capitalization-weighted index of 500 common stock prices in U.S. companies.

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 accounts managed by U.S. Global Investors Funds as of 9/30/2015: Franco-Nevada Corp., Newmont Mining Corp., Silver Wheaton Corp., Osisko Gold Royalties Ltd.

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Christmas Edition: 2015 in Review
December 28, 2015

Wishing you robust health, buckets of wealth, and tons of happiness

Christmas is my favorite holiday, as I’m sure it is for many of you reading this. We probably all agree that 2015 had more than its fair share of pain and tragedy around the world. But during Christmas, love and charity triumph—if only for a day—helping us recharge as we approach the new year.

I remember accompanying my mum, who was a social worker in downtown Toronto, as she delivered what we call “Star boxes” to needy children on Christmas Eve. Named after the Toronto Daily Star, which still operates the Santa Claus Fund that started in 1906, the purpose of the gift parcels remains the same:  to make sure that no child in Toronto under 13 is overlooked by Santa Claus.

Delivering these packages was more instructive than any textbook. It helped me keep my own family’s financial struggles in perspective and encouraged me to count my blessings. Although we didn’t have much, things could have been many times more challenging. I was grateful to have lots of love and plenty to eat when so many had neither during the cold, snowy Canadian winters.

The experience also showed me that love, family and friends should all be cherished much more highly than any material things. Having money is important, but real happiness can be found only in helping to spread happiness to others.

Merry Christmas: President Signs $680 Billion Business Investment Deal

President Obama signing the $1.1 trillion spending bill

Before we reach 2016, I want to reflect back on 2015. Everyone is talking about interest rates and monetary policy right now, but the role fiscal policy plays is just as important—if not more so. As I always say, government policy is a precursor to change, and very recently we saw this firsthand.

Only a day after President Barack Obama signed the spending deal Tuesday that lifted the oil export restriction that’s been in place since the mid-1970s, West Texas Intermediate (WTI) crude oil rallied $2 and is now trading higher than its European counterpart, Brent, oil for the first time since 2010.

WTI Crude Oil Cross Above Brent Crude
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Time and again, when regulations are rolled back and markets are allowed to act freely, we see constructive moves such as the WTI rally. It’s much more significant than a 0.25 percent rate hike.

Speaker of the House Paul Ryan was Instrumental in Passing the Spending Bill

Along with $1.1 trillion, the bipartisan deal includes $680 billion in tax cuts over the next decade, which should help accelerate the velocity of money and lead to the creation of new jobs. This is a positive development that wouldn’t have happened without the much-needed leadership of the new Speaker of the House, Paul Ryan.

It’s important for investors to follow the money in this case, just as it was important in February 2009 when the $800 billion stimulus package was signed into law. House Speaker Ryan was able to negotiate a reasonable extension to government spending and usher in a substantive tax incentive program as we head into 2016, an election year.

Top 10 Frank Talk Posts of 2015

As we head into the final days of 2015, I want to share with you the 10 most popular Frank Talks of the year. Among other things, they tell the story that gold, despite being oversold, managed to hold its value better than many other investments deemed “safe.” I’m optimistic to see what 2016 has in store for the yellow metal.

10. Show Me the Stocks, Not the Cash, Say Optimistic CEOs (May 4)

A growing trend among chief executives of successful companies is to be compensated in company stock rather than cash. In May we learned that American Airlines CEO Doug Parker elected to do just that.
“This is the right way for my compensation to be set,” Parker wrote, “at risk, based entirely on the results achieved.”

9. How These 12 TPP Nations Could Forever Change Global Growth (October 12)

One of the most significant news stories to come out of 2015 was the signing of the Trans-Pacific Partnership (TPP) by 12 participating Pacific Rim nations, the United States among them. Many analysts believe that Vietnam is poised to see the biggest upside potential, as precipitously high tariffs on its important textiles, apparel and footwear exports will vanish.  

Vietnam Poised to Benefit Most From Trans-Pacific Partnership Agreement
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8. China to Take Reins in Funding Regional Infrastructure Projects (March 31)

A similar development that’s likely to have huge global consequences is the establishment of the China-led Asian Infrastructure Investment Bank (AIIB), designed as a competitor to the U.S.-led International Monetary Fund (IMF), World Bank and Asian Development Bank (ADB).

Part of the reasoning behind China’s creation of the bank was to firm up the renminbi as a preferred global reserve currency on par with the U.S. dollar. And indeed, in late November the IMF voted to include the renminbi, also known as the yuan, in its Special Drawing Rights (SDR) currency basket.

7. Gold Holds Its Own Against These Media Darlings (August 10)

July 2015 was the seventh-worst-performing month for commodities going back to January 1970. Gold in particular was hit hard. But then in the week ended August 7, U.S. media companies took a huge dive, losing $60 billion for shareholders. Compared to that amount, gold managed to hold up well.

Media Stocks Collapse, Gold Hold Its Own
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6. Currency Wars Heat up as Central Banks Race to Cut Rates (February 2)

After Switzerland unexpectedly unpegged its currency from the euro in mid-January, it became clear that 2015 would be the year of the central banks. In that month alone, 14 countries cut interest rates and loosened borrowing standards. The U.S. stands as the only major economy, in fact, that has started to tighten its monetary policy.

5. Why We Invest in Royalty Companies (February 26)

One reason gold royalty companies have outperformed over the years is because, simply put, they’re not the ones getting their hands dirty. Their only obligation is to lend capital to the producers. Since its initial public offering (IPO) in 2007, Franco-Nevada, the world’s largest gold royalty company, has torn past both spot gold and most gold equity benchmarks.

Gold is Second Best Performing Currency of 2014
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4. Gold on Sale, Says the Rational Investor (August 3)

In late July, gold experienced its first “flash crash” in 18 months after five tonnes of the metal appeared on the Shanghai market. In what many called a “bear raid,” gold fell through its key support of around $1,150 and began to look extremely oversold.

Gold Price Falls Through Key Support Level
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3. Will Gold Finish 2015 with a Gain? (October 19)

In October, two events occurred almost simultaneously: The U.S. dollar signaled a “death cross”—meaning its 50-day moving average fell below its 200-day moving average—while gold broke above its 200-day moving average. At the time, it appeared as if gold might have a chance at doing something it hasn’t done since 2012—end the year in positive territory.

2. A Tale of Two Economies: Singapore and Cuba (March 28)

It’s almost impossible to believe now, but Cuba was once a wealthier nation than Singapore. But in 1959, Fidel Castro and Lee Kuan Yew both assumed power and took their countries in very different ideological and economic directions.

Yew, who passed away in March 2015, emphasizes free trade and competitive tax rates, which helped transform Singapore from an impoverished third world country into a bustling metropolis and leading global financial hub.

Lee Kuan Yew's Singapore Flourished while Fidel CAstro's Cuba Floundered
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1. Gold in the Age of Soaring Debt (June 18)

The world now sits beneath a mountain of debt worth an astonishing $200 trillion. That’s greater than twice the global GDP, which is currently $75 trillion. If we were to distribute this amount equally to every man, woman and child on the face of the earth, we would each owe around $28,000.

More surprising is that if gold—at its June 2015 price level—backed total global debt 100 percent, it would be valued at $33,900 per ounce.

Make sure to check out our most popular interactive favorites from 2015:

To all of our readers around the world, to our investors and shareholders, and to our friends and family, I wish you happiness and good health in the new year!

 

Some links above may be directed to third-party websites. U.S. Global Investors does not endorse all information supplied by these websites and is not responsible for their content. All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor.

Past performance does not guarantee future results.

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 09/30/2015: American Airlines Group Inc., Franco-Nevada Corp, Time Warner Cable Inc.

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This Chinese Sector Continues to Score
December 2, 2015

Over the summer the Chinese market experienced a major hiccup, causing concern that many Asian industries would be slow, or unable to recover. Since the June collapse, however, there is one sector that continues to score with investors, both here and overseas – sportswear.

The sportswear industry in China continues to look positive.

The Great Soccer Revival

Back in March the Chinese government announced its plan to improve the country’s outlook on sports, beginning with soccer.  The soccer reform plan issued by the State Council separated the Chinese Football Association from the General Administration of Sports of China, according to China Daily.

Hopes for the reform include decreased corruption and increased professionalism within the sport of soccer, or “football” as it’s called in China. Perhaps too, Chinese sports enthusiasts would be able to witness their men’s soccer team regain ground, having only competed in one FIFA World Cup back in 2002.

The Chinese education ministry has also played a role in this “soccer revival.” The ministry signed a three-year deal with sportswear brand Adidas to help promote soccer in schools, “with the hope of creating interest in the sport,” according to Barclays luxury goods analyst Julian Easthope.

Anta Sports, the world’s fourth-largest sportswear brand (that just launched its soccer line in November), is one of the direct beneficiaries of such reforms, in addition to better-known names like Adidas, Nike and Puma. Anta has seen steady growth since the beginning of this year – keeping pace even throughout the rough summer downfall.

Argentina Presidential Election Drove Investor Confidence
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Follow the Leaders

Perhaps another reason the people of China are paying more attention to soccer now is current leader Xi Jinping’s love for the sport. Average Chinese citizens look up to their leaders, and often will follow or play their leaders’ sport, explains portfolio manager Xian Liang who grew up in Shanghai.

Mao Zedong, for example, was best known for his passion for swimming. “In the 1950s and 60s public swimming pools were built all over Shanghai, just because Mao Zedong was a devoted swimmer and swam across the Yangtze at the age of 73,” says Xian.

Similarly, Deng Xiaoping, paramount leader of China from 1978 to 1992, was remembered for playing bridge, a card game also enjoyed by Warren Buffett and that Deng learned in France as a young student and revolutionary.

Mao and Deng enjoyed soccer, too. Mao played goalie in high school and Deng collateralized his clothes to pay for a soccer game ticket in Paris in his earlier years.

China’s Catching Up to America’s Love for Sports

Past game preferences aside, it’s clear that Xi’s ongoing spirit for soccer, paired with the opportunities presented by recent reform, is transforming China’s outlook on sports as well as consumer habits.

Although America still beats China when it comes to sportswear spending per capita, China is catching up. Spending per capita in China is U.S. $17 per year, compared to U.S. $285 per year spent by Americans, according to Barron's. Nevertheless, Deutsche Bank highlights Chinese sportswear sales at 16 percent, surpassing that of the broader retail market.

As a more health-conscious, sports-oriented society continues to emerge, Chinese luxury shoppers could also find new interest in sportswear brands that fit their active lifestyles a bit differently than say, Louis Vuitton and Gucci would.

No matter how you look at it, the industry is changing and sportswear brands continue to score, while other sectors have come up short.

 

Past performance does not guarantee future results.

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 links above, you will be directed to third-party websites. U.S. Global Investors does not endorse all information supplied by these websites and is not responsible for their content.

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 09/30/2015:  ANTA Sports Products Ltd, NIKE Inc.

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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