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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.

Exclusive Interview: How Alex Green Beat the Market 16 Years Straight
August 21, 2017

Alex Green Cheif Investment Strategist of The Oxford Club and Investment U

For more than a decade and a half, my friend Alexander Green has been educating and entertaining investors as editor of numerous popular newsletters, many of which I’ve cited in my own writing.

For those of you subscribed to one or more of his services through the Oxford Club or Investment U, I’m sure you’ll agree that Alex is among the finest financial writers working today. His articles are brimming with intelligence, wisdom, humor and candor—all of which he brings to his public appearances at investment conferences.

Last week it was my pleasure to speak one-on-one with Alex, and together we touched on subjects ranging from our favorite books on investing to the secret lives of millionaires to business moats.

Below are highlights from the interview, but this is only the first of two parts. I’ll conclude it next week in a Frank Talk, which you can subscribe to here.

Enjoy!

You didn’t go into politics or medicine or law. What triggered you to go into the investment world?

At the time, I was living in Orlando. I got a copy of the Orlando Sentinel, and on the front page of the business section was a headline that read: “The average stockbroker in the U.S. makes $187,000 a year.” This was in 1985. Thirty years later, that’s still a substantial amount of money. I remember thinking: “If the average stockbroker makes $187,000, what do the good ones make?”

I crammed the article into my wallet and started telling everyone that I was going to become a stockbroker. Someone then told me that he had just sold a phone system to a broker in Winter Park, Florida, and he was looking to hire someone.

I went out and talked to him and got my first job in the money management business. At the small firm where I started, I was writing research reports and client communications. I discovered I enjoyed research and writing even more than dealing with clients, so when the opportunity arose to become a time financial writer, I took it. That was about 17 years ago.

You’ve published four books so far—The Gone Fishin’ Portfolio, The Secret of Shelter Island, Beyond Wealth and An Embarrassment of Riches. Tell us about the genesis of one or two of them.

I was speaking at a conference in Phoenix about 10 or 12 years ago, and when I came off stage, this older gentleman was waiting for me. He poked his finger at me and said: “Money, money, money. You’ve made a lot of money over the years, but I have to ask, do you ever think about anything else?”

At first I thought he was kidding, but come to find out, he really felt that I thought about nothing but money all day long. I realized then that I write hundreds of columns a year, and virtually every single one is about stocks or bonds, currencies or commodities, interest rates or economic growth. This guy figured I thought about nothing except money and how it’s made.

Beyond wealth

Of course, we all have our outside interests, and we hope for some kind of balance in our lives. And so when I went back home to Baltimore, I came up with the idea to write something expressing the idea that life isn’t just about making money. I wanted to talk about living a rich life, not just about getting richer.

This led to a column I initially called “Spiritual Wealth.” That name, though, became a problem since the word “spiritual” is one of the most nebulous words in the English language. It can mean  any number of different things to different people.

I eventually changed the name to “Beyond Wealth,” which is probably more accurate anyway. It turned into a series of reflections on things that I thought were important—things I’d read or done that I felt were of interest. All of it had very little to do with money. Those articles became one of the most popular things we do, and the eventual book turned out to be a bestseller. I was glad to have found a wider audience out there.

At this year’s FreedomFest conference in Las Vegas, you debated with The New York Times’ Robert Frank about meritocracy and luck. Robert argued that our success in life is mostly due to luck, and you disagreed. Could you talk about that?

A good book to read on this subject is Thomas Stanley’s The Millionaire Next Door. Dr. Stanley spent a lifetime researching the habits and characteristics of the nation’s wealthiest individuals. I might add here that the Spectrum Group revealed that, as of the end of 2016, one out of every nine households in the U.S. had a net worth of $1 million or more. What Dr. Stanley found is that these millionaires have many characteristics in common. Primarily, they do everything in their power to maximize their income and minimize their expenses. They religiously save and invest the difference, then leave the money alone to let it compound for years, if not decades.

That’s how most people become millionaires, regardless of their color, sex or orientation—not by establishing a software company in their garage or making a hit record or playing third base for the Yankees. Most people just work hard, save, invest and compound.

How does that thinking apply to the market?

A few years ago, a guy named Burton Malkiel wrote a book called A Random Walk Down Wall Street. He said that it’s very difficult to beat the market, and even those who do beat it do so because of luck, not skill. So you can see we’re coming to the same sort of argument as Robert Frank.

The independent Hulbert Financial Digest has ranked our Oxford Communiqué in the top 10 investment newsletters in the nation for 16 years now. We beat the market for one year, two years, five years, 10 years, 16 years now. People would say: “Well, you’re just lucky.” It’s a tough thing to argue against. But when enough time goes on, and you continue to beat the market, it should clue someone in that there’s more than luck at play.

Would you say that Warren Buffett is just simply lucky? No, he’s a financial genius who’s taken actions that others haven’t, and he’s reaped the rewards. When Roger Federer won his 19th singles major title recently, nobody said: “Wow, he’s really lucky.”

I admit, everyone has certain amounts of good and bad luck in their personal and professional lives. But to say that luck is the only determining factor is dispiriting to people who have come the furthest. It’s demeaning to say that it’s all luck, not education or hard work or persistence.

Similarly, the people who consistently beat their benchmarks are not just lucky. If you do it long enough, it’s clearly evidence of skill.

Tell us about your “Gone Fishin’” portfolio. How do you look for investment opportunities?

The gone fishin portfolio

The  Gone Fishin’ portfolio is based on the idea that, since nobody knows with any certainty what the economy or market is going to do, it’s sensible to make the foundation of your portfolio a diversified, asset-allocated basket of index funds. You want to make sure your expenses are low and that you have high tax-efficiency and your asset classes are properly represented. Simple and straightforward.

The idea is that there are 10 different asset classes in the portfolio, and you invest according to various percentages: 30 percent in U.S. stocks, 30 percent in foreign stocks, 10 percent each in high-grade bonds, high-yield bonds and Treasuries, and 5 percent each in real estate investment trusts (REITs) and gold shares.

Then, at the end of every year—or on your birthday or anniversary—rebalance the portfolio to bring all the target percentages back into alignment. That reduces your risk because you’re cutting back on what’s depreciated the most and adding to what’s depreciated the least. Over time, this adds to your return while reducing the portfolio’s volatility.

What would you say to someone right now who’s nearing retirement age or who has just retired?

I don’t think enough people think about this, to be honest, Frank. Like you, I’ve been invested in the market for over 30 years, and when I was in my 20s, 30s and 40s, we had horrific selloffs like the stock market crash of ’87, the financial bust that happened when the internet media ended, and then of course the financial crisis. When you’re younger, you realize you’ve still got decades ahead of you, and you can take actions that allow you to be comfortable with whatever your long-term scenario might be.

But as you get older, after you reach the age of 50 or so, it becomes necessary to reevaluate your goals. There’s a bus out there waiting for us as we cross the street. The thing about getting older is, you have to reduce your risk. You’re not going to be working that much longer—or maybe you’re in retirement already—and you just don’t have the time to make it back should there be a market crash. I always say to make your portfolio as conservative as you can live with once you reach this stage of your life. It might crimp your returns, but it’s also going to save your butt if we go into another financial crisis like we did in 2008.

Are there any books on investing you’d like to recommend? How did they help you?

How to make money in stocks

One book I would recommend is How to Make Money in Stocks by William O’Neil, the founder of Investor’s Business Daily. It’s probably 30 years old and has gone through some updates since then. O’Neil is looking for companies that have high sales growth, 25 percent or better compounds in earnings, higher returns on equity, great product innovation, good management and sustainable profit margins.

But to be honest, I think there’s only so much you can learn from books. I say that because you have to learn the hard way and actually feel the terror of a down draft, or fight the instinct to be greedy when you go through a long, full market as we’re in now.

So who do you look to? Where do you get your wisdom and insight?

In the mid-80s, there were three legendary investors: Warren Buffett, Peter Lynch and John Templeton. I started reading and listening to everything I could—all the Berkshire-Hathaway reports, but also tapes of Templeton and Lynch speaking at conferences.

No one knows what the economy or stock market is going to do, but Buffett, Lynch and Templeton knew to identify a business that was selling for a lot less than what it was worth and hold it until the market recognized that value. That sort of became the mantra for me from then on.

It was then that I realized I was not going to play this guessing game about what GDP growth is going to look like, what inflation’s going to be, what the Fed or stock market is going to do. That’s all a distraction. What really matters is individual businesses beating Wall Street expectations. That’s what drives stocks higher in the long term.

I often tell investors at conferences that, if you look back through history, you’d be hard-pressed to find a single example of a company that increased its earnings, quarter over quarter, year after year, and not see its stock tag along. It doesn’t matter what kind of market we’re going through or what kind of economy we’re in, those stocks tend to appreciate really strongly.

One of the publications you edit is the Momentum Alert. Can you tell us what that is?

Speaking of beating Wall Street expectations, this is exactly what we focus on in the Momentum Alert.

These companies tend to be superbly managed, but most important, they have a moat around the business. Let me give you three examples. Blockbuster, Radio Shack and Borders all went bust. There was no way for those companies to protect their margins, whether they were renting video tapes, selling electronic equipment or selling books and CDs. They had nothing to protect them from competition coming in and doing it on a bigger scale or doing it online.

Winning businesses tend to have something that protects margins. That could be a copyright or trademark or patent. Profits attract competition just as honey attracts bears. You’re not going to come across a really profitable niche and find that other people don’t want to exploit it also. You need something to keep them at arm’s length.

Think of the difference between IBM and Apple. IBM made its systems compatible, so other companies—Dell and Compac, for example—came in and made IBM-compatible machines.

No one makes an Apple-compatible machine because Apple never leased its patents to another company. All of those profits for the iMacs, iPhones, iPods and so on all go straight to Apple. That’s the kind of magic that can really help propel a stock up for longer periods of time.

My interview with Alex will conclude in this week’s Frank Talk. I don’t want you to miss it, so make sure you’re subscribed to receive the email alert!

 

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.

Return on equity (ROE) is the amount of net income returned as a percentage of shareholders equity. 

Holdings may change daily. Holdings are reported as of the most recent quarter-end. The following securities mentioned in the article were held by one or more accounts managed by U.S. Global Investors as of 6/30/2017: Apple Inc.

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Hedge Fund Managers Pour SALT on U.S. Stocks, Look to Europe
May 22, 2017

Hedge Fund Managers Pour SALT on U.S. Stocks, Look to Europe

Europe is back on the map. That was one of the main takeaways last week from the SkyBridge Alternatives (SALT) hedge fund conference in Las Vegas, where $3 trillion in assets was represented. Speaker after speaker touted European equities for their attractive valuations and as a means to diversify away from the volatile American market in light of rising U.S. geopolitical risk. France’s election of centrist Emmanuel Macron over far-right nationalist Marine Le Pen this month has especially eased investors’ fears that antiestablishment forces would challenge the integrity of the European Union (EU).

Economic growth is finally picking up in Europe—“solid and broad,” as European Central Bank (ECB) president Mario Draghi recently put it—and many countries’ purchasing managers’ indexes (PMIs) are at five- and six-year highs. Export orders and hiring have accelerated. Labor participation is improving. European commodity sectors, including energy and metals, look cheap and oversold, meaning it might be time to start accumulating.

Trading at around 17 times earnings, European companies are priced to move compared to American firms, which are trading at 22 times earnings.

European Stocks Have an Attractive Dividend Yield

Dividend yields also look attractive relative to U.S. stocks. The MSCI Emerging Europe Index, which is most heavily weighted in Russian, Polish and Turkish stocks, currently yields 3.2 percent. The S&P 500 Index, by comparison, yields 2 percent.

A recent Barron’s article, “Europe on Sale: Time to Buy Foreign Stocks,” makes the same bullish case as many of the SALT presenters. Its author, Vito J. Racanelli, suggests that the eight-year bull run in the U.S. could be coming to an end, and that the baton is being passed to Europe. Overseas markets have already attracted more fund flows so far this year than the U.S. market, with a whopping $6.1 billion being plowed into European equity funds in the week ended May 10.

“Given attractive valuations, diminished political risk, low interest rates and a pickup in global growth, international markets, and Europe in particular, could finally start to outperform,” Racanelli writes.

 

 

Talking Geopolitics

Before moving on, I want to share a few other takeaways from SALT. One of the highlights was hearing billionaire investor Dan Loeb, who manages the $16 billion hedge fund firm Third Point. Loeb said that serious investors should closely monitor geopolitics as a backdrop or overlay when making investment decisions because government policy can have the fastest and most significant impact on your portfolio.

Daniel S. Loeb

That was flattering to hear. Not only do I spend a lot of time discussing and analyzing geopolitics, both here in the weekly commentary and my CEO blog Frank Talk, but it’s baked right into U.S. Global Investors’ methodology: Our investment process clearly asserts that “government policy is a precursor to change.” Loeb’s comments, I felt, validated our emphasis on geopolitics.

Many conferences I attend can often get bogged down in partisan politics, but SALT was refreshingly balanced. Joe Biden was as welcome on-stage as Jeb Bush. No one came out entirely in favor of or against President Donald Trump or his policies. Instead, presenters discussed the inherent risks and opportunities in an intelligent, even-handed manner. I aspire to do the same.

One of the speakers was John Brennan, the former CIA director, who’s scheduled to testify before the House Intelligence Committee later this month as part of its investigation into Russia’s alleged involvement with the 2016 election. Brennan, who told lawmakers as far back ago as August that the agency had information pointing to possible collusion between Russia and the Trump campaign, shed some much-needed light on allegations that Trump shared sensitive intelligence with Russian officials this month—a “serious mistake,” he said—explaining that such leaks to the media are potentially just as damaging to national security as the president’s actions.

Also notable was former Federal Reserve Chair Ben Bernanke’s thoughts on Washington’s little-known power dynamics. He said there are really three parties jockeying for control in the capital—Republicans, Democrats… and the “beltway party.” It’s this last group, composed of deeply entrenched lobbyists and career bureaucrats, that gives Washington outsiders such as Trump the hardest time and actively tries to sabotage agendas that shake up the status quo.

Trump's young presidency closely resembles Jimmy Carter's

In this regard, Bernanke said, the presidency Trump’s tenure so far resembles the most is not Richard Nixon’s, as some have suggested. It’s not even Andrew Jackson’s, which Trump himself expressly would like to emulate. Instead, it’s Jimmy Carter’s.

This might seem counterintuitive, but think about it: Both men were Washington outsiders. Both men arrived in the beltway with aspirations to transform the capital’s insular culture and “drain the swamp.” Both men had the great fortune of working with a party majority in both chambers of Congress. But because they exuded an “I alone” attitude and often picked fights with members of their own party, both men faced unusual difficulties in getting key components of their agendas passed. And just as Carter had little success in his first 100 days—in his entire four-year term, in fact—Trump’s young presidency has similarly been unable to make significant strides so far in getting much accomplished.

A White House in Crisis?

This is precisely what markets were reacting to last Wednesday, the worst week for major U.S. indices in months. Investors, fearing Trump’s pro-growth agenda could be threatened by troubling news and allegations coming out of the White House, punished small-cap stocks in particular, sending the Russell 2000 Index down 2.62 percent, its sharpest one-day loss since March. Recall that it was small caps that saw the strongest surge following the election, as investors bet on domestic growth stemming from the then-president-elect’s “American first” proposals.

the importance of diversification
click to enlarge

Now, however, some are wondering if Trump, embroiled in numerous scandals, will finish out his term. A few SALT presenters even uttered the “i” word. Jim Chanos, founder and investment manager of Kynikos Associates in New York, told the packed auditorium that he believes the market hopes Vice President Mike Pence will become president. Investors are seeking deregulation and tax cuts, plain and simple, Chanos said, and the “more stable” Pence is seen as having a better shot at delivering. This squares with reports from British gambling and betting company Ladbrokes, which announced last week that Trump is now odds-on, or highly likely, to face impeachment by the end of his first term, with bookies having to cut the price from 11/10 to 4/5.   

Banks, which stand to benefit from Trump’s plan to loosen financial regulations, were Wednesday’s biggest losers. JPMorgan was down 3.81 percent, or $3.34 a share. Goldman Sachs fell 5.27 percent, or $11.88 a share.

Apple finished the day down 3.36 percent, wiping away some $20 billion in market value. The smartphone giant, which recently became the first company ever to be worth more than $800 billion, could also benefit from Treasury Secretary Steven Mnuchin’s efforts to make it easier for multinationals to repatriate cash that’s held overseas. And if that describes any company today, it would be Apple: The iPhone-maker holds nearly $250 billion in cash and securities in offshore accounts.  

 

Dollar Weakness Gives a Boost to Gold

More so than equities, the U.S. dollar is highly sensitive to geopolitical drama. Last week, the greenback tumbled to its lowest level since the November election compared to other major currencies.

U.S. Dollar Gives up its post-election gains
click to enlarge

This helped gold, miners and commodities end the week in positive territory. Gold gained 2 percent, gold miners 0.57 percent and commodities 1.36 percent. The S&P 500, meanwhile, finished the week down 0.8 percent.

For diversification benefits, I always recommend around a 10 percent weighting in gold and gold stocks, and last week proved yet again that this strategy could help mitigate the losses in risk assets.

Unsure what else drives the price of gold? Find out!

 

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. Holdings may change daily.

The MSCI Emerging Markets Europe Index captures large and mid-cap representation across 6 Emerging Markets (EM) countries in Europe. With 83 constituents, the index covers approximately 85% of the free float-adjusted market capitalization in each country. The Dow Jones Industrial Average is a price-weighted average of 30 blue chip stocks that are generally leaders in their industry.

The S&P 500 Stock Index is a widely recognized capitalization-weighted index of 500 common stock prices in U.S. companies. The Russell 2000 Index is a U.S. equity index measuring the performance of the 2,000 smallest companies in the Russell 3000, a widely recognized small-cap index. 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 Bloomberg Commodity Index is made up of 22 exchange-traded futures on physical commodities. The index represents 20 commodities, which are weighted to account for economic significance and market liquidity.

Dividend yield is a financial ratio that indicates how much a company pays out in dividends each year relative to its share price. 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 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.

Holdings may change daily. Holdings are reported as of the most recent quarter-end. None of the securities mentioned in the article were held by any accounts managed by U.S. Global Investors as of 3/31/2017.

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The 5 Costliest Financial Regulations of the Past 20 Years: A Timeline
May 18, 2017

The 5 Costliest Financial Regulations of the Past 20 Years: A Timeline

Last year, the Federal Register—the U.S. government’s depository of rules and regulations—hit an all-time high of 81,640 pages. Among the industries that bear the greatest regulatory oversight is financials, which has seen a disproportionate amount of scrutiny in recent years, especially following the 9/11 attacks and subprime mortgage crisis.

Although I agree with the need to have and play by the rules, financial regulations have become so onerous that they render all but the largest firms noncompetitive. It’s a game whose rules are continually shifting, and there often seems to be more referees than players. A recent Thomson Reuters survey found that more than a third of all financial firms spend at least a whole work day every week tracking and analyzing regulatory changes. This is an obligation most companies simply can’t afford in the long term.

It serves no one, least of all investors and borrowers, to have fewer options in the capital markets. But this is precisely what the most recent regulations have contributed to. In the last 20 years, the number of listed companies has been cut in half, and since 2008, one in four regional banks has disappeared.

President Donald Trump and the Republican-controlled Congress are actively working to alleviate any additional regulatory pressure. In January, the House passed a bill requiring securities officials to conduct a cost-benefit analysis of any new rule—something that should have been done in the first place—and in February the president signed an executive order requiring the elimination of two federal regulations for every new one that’s adopted.

As for when those that are already in place can be lifted, in whole or in part, is a different matter.

Having said that, I want to share with you a timeline of the five costliest financial regulations of the past 20 years. Please note that when I say “costly,” I’m referring not only to dollar figures but also additional workload and compliance hours.

October 2001: International Money Laundering Abatement and Financial Anti-Terrorism Act of 2001

Passed in October 2001 as part of the USA PATRIOT Act, this particular act aims to prevent black money from being used to finance terrorist activities. It actually reforms two previous anti-money laundering (AML) laws, the Bank Secrecy Act of 1970 and the Money Laundering Control Act of 1986.

Although I think most of us would agree that catching terrorists is an admirable mission, the AML rules come at a very high cost to financial institutions. According to a 2016 study conducted by the Heritage Foundation, the current rules cost the U.S. economy between $4.8 billion and $8 billion annually. And with so few money laundering cases opened and investigated every year, each conviction since the law went into effect carries an estimated $7 million price tag.

Consequently, many banks, facing strict penalties and compliance costs, have cancelled thousands of “high-risk” accounts, including those belonging to money-transfer firms and humanitarian organizations.

July 2002: Sarbanes-Oxley Act of 2002 (SOX)

Enacted in July 2002, Sarbanes-Oxley, or SOX, was intended to prevent large-scale corporate and accounting fraud that led to the demise of Enron, WorldCom and others. It set in place new requirements for public companies.

The most burdensome of these is Section 404, which requires external auditors to report on the adequacy of a firm’s “internal controls.” Since such auditing is so complex and costly—sometimes quadruple the normal amount—many smaller companies have found it prohibitively difficult to raise capital in the public markets. Before SOX, there were an average 528 initial public offerings (IPOs) a year, according to Dealogic data. Since it was enacted, that number has fallen to 135, a decline of nearly 75 percent.

This has resulted in the rise of private capital and has locked retail investors out of high-growth investment opportunities.

Speaking to the Detroit Economic Club in 2013, Home Depot founder and former CEO Bernie Marcus said that, had SOX existed when he helped conceive the company in the late 1970s, he wouldn’t have been able to get it off the ground, let alone take it public. This would have been a shame, as Home Depot is now one of the largest employers in the U.S. and has among the highest market caps, standing at nearly $188 billion. A $5,000 investment in the company when it first IPOed in September 1981 would today be worth well over $27 million. In its current form, SOX threatens to put an end to such high-growth opportunities.

March 2010: Foreign Account Tax Compliance Act (FATCA)

March 2010: Foreign Account Tax Compliance Act (FATCA)

Signed by then-President Barack Obama, the Foreign Account Tax Compliance Act (FATCA) allegedly aims to clamp down on tax evasion by requiring participating foreign financial institutions (FFIs) to provide the Internal Revenue Service (IRS) with names, addresses and account details of all American accountholders living abroad with assets over $50,000.

As I wrote back in 2014, the law’s mandates would be felt hardest “not by wealthy ‘fat cat’ tax dodgers but hardworking Americans who have no intentions of cheating the U.S. tax system.”

I’m not alone here. The IRS, of all groups, has come out on the side of taxpayers, writing in 2015 that “the IRS’s approach to FATCA implementation has created significant compliance burdens and risk exposures to a variety of impacted parties.” The rule’s underlying assumption, it says, is that “all such taxpayers should be suspected of fraudulent activity, unless proven otherwise.”

Until the law is reformed, the IRS adds, its efforts “will continue to be unsystematic, unjustified and unsuccessful.”

Many others apparently agree—especially those FATCA targets. The number of overseas individuals renouncing their U.S. citizenship crossed above 5,000 in 2016, an all-time high, with 2,300 expatriating in the final quarter alone.

Crude Oil Historical Patterns
click to enlarge

July 2010: Dodd-Frank Wall Street Reform and Consumer Protection Act

The most sweeping reform of the U.S. financial services industry since the Great Depression, the Dodd-Frank Act was signed into law July 2010, creating some 400 new rules and mandates as well as several new councils, bureaus and agencies. Standing at more than 22,000 pages, Dodd-Frank is such a behemoth piece of legislation that it’s impossible to discuss it comprehensively in such a short space.

Suffice it to say, though, that since it went into effect, a startling number of community banks have gone under, giving borrowers fewer options. Lower-income customers are disproportionately at a loss, as many banks have done away with free checking.

Both former Federal Reserve Chair Alan Greenspan and billionaire investor Warren Buffett have suggested Dodd-Frank needs to go, with Greenspan saying he’d love to see the 2010 law “disappear.” Buffett, meanwhile, commented that the U.S. is “less well equipped to handle a financial crisis today than we were in 2008. Dodd-Frank has taken away the Federal Reserve’s ability to act in a crisis.”

Reforming Dodd-Frank is supposedly near the top of President Trump’s priorities, and a 600-page replacement called the Financial Choice Act 2.0 has already been drafted. If passed, the legislation would relax some of Dodd-Frank’s more restrictive rules and limit the powers of the Consumer Financial Protection Bureau (CFPB) and Securities and Exchange Commission (SEC). It would also roll back the so-called Volcker Rule, named for former Federal Reserve Chair Paul Volcker, which effectively bans banks from making speculative investments that don’t directly benefit their customers.

April 2016: Department of Labor (DOL) Fiduciary Rule

On its surface, the Department of Labor’s Fiduciary Rule sounds like something everyone can get behind. It mandates that all who serve as fiduciaries—broker-dealers, investment advisors, insurance agents and the like—must act in the best interest of their clients. Fine. But how the rule will be interpreted and applied could have negative consequences in the securities markets.

What’s naturally going to happen is financial professionals, in an effort to remain compliant with the rule, will recommend only the least expensive products, regardless of whether they’re a good fit for their clients. Many mutual funds—which might be better performing but have higher expenses than other investment vehicles—will fall off brokerage firms’ platforms.

It would be like the DOL telling consumers they can only shop at Walmart and buy their coffee from Dunkin’ Donuts because anything more expensive—Target or Starbucks, say—is “riskier,” even though it’s of higher quality.

Issued in April 2016, the rule was delayed for 60 days by the Trump administration and is now scheduled to go into effect early next month. It’s already had disruptive consequences. Investment Company Institute (ICI) President and CEO Paul Schott Stevens, speaking this month to ICI members, stated the rule was “causing great harm,” adding that brokers are “simply resigning from small accounts en masse” to avoid legal and regulatory risk.

It might be difficult for Trump and Congress to provide relief from these and other financial regulations—especially now that the multiple investigations into the Trump campaign threaten to sideline such efforts—but I still have faith.

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

Holdings may change daily. Holdings are reported as of the most recent quarter-end. None of the securities mentioned in the article were held by any accounts managed by U.S. Global Investors as of 3/31/2017.

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Frank Talk Just Turned 10 Years Old
April 27, 2017

Ten years ago, U.S. Global Investors embarked on an experiment in digital communications.

Let me set the stage. It was April 2007, when the financial crisis was not yet a blip in the capital markets. The Dow Jones Industrial Average was holding steady above 13,000, while gold averaged $680 an ounce. The gross national debt stood at a little over $11 trillion. The very first iPhone wouldn’t be available for at least another two months. Facebook, then only three years old, had about 20 million active users, versus 2 billion today.

How times have changed.

My vision then was to author a blog that would speak directly to investors on topics ranging from behavioral finance to gold investing to government policy. Blogging had been around for a few years already, but no one I knew of had applied it to the mutual fund business. It was uncharted territory, fraught with all sorts of obstacles and other “unknown unknowns” such as regulatory compliance concerns and time constraints.

Like all risky propositions, success was not guaranteed.

Nevertheless, we forged ahead, and Frank Talk was born. Since then, this labor of love has attracted thousands of readers from all over the world and is regularly republished in a number of major financial news sources. It’s also been the recipient of several awards.

Today I want to extend my deepest gratitude to all my readers, from those who’ve been around since the very beginning (I know you’re out there!) to those who just stumbled on the blog last week. During my travels, it’s always humbling to meet loyal Frank Talk readers who generously compliment its quality of research, compelling visuals and balanced approach. Such readers truly make all the hard work that goes into producing Frank Talk worth it.

In celebration of Frank Talk’s 10th anniversary, the U.S. Global marketing team put together a video, embedded below, highlighting 10 facts you might not know about the blog. I invite you to enjoy it, share it widely—and stick around for the next 10 years. Cheers!

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

The Dow Jones Industrial Average is a price-weighted average of 30 blue chip stocks that are generally leaders in their industry.

Holdings may change daily. Holdings are reported as of the most recent quarter-end. None of the securities mentioned in the article were held by any accounts managed by U.S. Global Investors as of 3/31/2017.

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Get Ready for Inflation! Lumber Logs a 12-Year High
April 17, 2017

There a lot construction Zurich now

As if you need more proof that inflation is finally starting to pick up, lumber prices rose to a 12-year high last week, supported mainly by expectations that steep duties will soon be levied on cheap softwood imports from Canada. Lumber futures rose to nearly $415 per thousand board feet last Monday, a level unseen since March 2005, soon after homeownership peaked here in the U.S.

lumber logs a 12 year high
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At issue is a mini-trade war between U.S. and Canadian loggers. For some time now, the American lumber industry has blamed its Canadian counterpart of unfairly dumping lumber in the U.S. that’s far below market value. Now, several factors are pushing timber prices higher. Chief among them are the likelihood of duties being raised at the Canadian border, possibly as early as next month; President Donald Trump’s calls to renegotiate NAFTA; and growing demand for new homes following the housing crisis as consumer optimism improves and millennial buyers finally seem eager to enter the market.

Shares of Canfor Corporation and Western Forest Products, Canada’s number two and number five lumber producers by annual output, have had a good three months, advancing 25.5 percent and 16.8 percent respectively as of April 12. Timberland-owner Weyerhaeuser has also impressed lately.

canadian loggers surge on higher lumber prices
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Gold Glimmers Brightly

As I told Daniela Cambone during last week’s edition of Gold Game Film, this is all very constructive for the price of gold, which has historically been used as a hedge during periods of rising inflation. The yellow metal closed above $1,270 an ounce last week for the first time since soon after the November presidential election. A “golden cross” has not yet occurred, with the 50-day moving average still below the 200-day, but such a move appears likely in the next few trading sessions if upward momentum can be sustained.

gold surges to a five month high on inflation and geopolitical risk
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Fueled also by geopolitical tensions associated with Syria, Russia and North Korea, gold demand is on the rise, with last Tuesday’s trading volumes on gold calls surging 10 times Monday’s amount on the New York Mercantile Exchange. As I already shared with you, investor sentiment of gold during the recent European Gold Forum was particularly strong. A poll taken during the conference showed that 85 percent of attendees were bullish on the metal, with a forecast of $1,495 by year’s end.

With the U.S. ramping up military action overseas, including its dropping of a devastating bomb in Afghanistan on Thursday, many investors are lightening their risk assets in favor of “safe haven” instruments such as gold and Treasuries. The S&P 500 Index dropped below its 50-day moving average last week, signaling a slowdown in blue chip stocks.

Stock Market Tumbles 50 Day Moving Average
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Financials were among the biggest laggards as investors have begun to question President Trump’s ability to deregulate the banking sector. After several disappointments and setbacks, including a failure to repeal and replace Obamacare, renewed military involvement in Syria and Afghanistan might provide a welcome boost to Trump’s sluggish job approval rating.

Gold also responded positively to recent comments by Trump on U.S. dollar strength and monetary policy. Specifically, he said the dollar is “getting too strong” and later supported a low interest rate policy, suggesting he might keep Janet Yellen as the Federal Reserve chair.

 

Millennial Homebuyers Finally Entering the Housing Market

April is New Homes Month, and to celebrate, the National Association of Home Builders (NAHB) shared some of the significant contributions housing provides to the U.S. economy. According to the Washington, D.C.-based group, “building 100 single-family homes in a typical metro area creates 297 full-time jobs and generates $28 million in wage and business income and $11.1 million in federal, state and local tax revenue.” The sector currently accounts for 15.6 percent of U.S. gross national product (GNP).

Indeed, housing has a phenomenal multiplier effect on the economy, as I’ve pointed out before, and I’m pleased to see its recovery after nearly a decade.

Not only is consumer confidence up, but homebuilder confidence, as measured by the NAHB, hit a 12-year high in March, supported by an improving economy and President Trump’s pledge to roll back strict regulations. In February, new housing starts hit 1.29 million units, beating market expectations of 1.26 million units.

Rising mortgage rates and home prices are also likely encouraging buyers to enter the market. With the 30-year rate having recently fallen to a fresh 2017 low, we might see an even stronger surge in mortgage applications.

us home prices and mortgages headed higher
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Declines in homeownership among lower-income, nonwhite and young adults were especially dramatic following the housing crisis, as subprime lending, which many homeowners had previously relied on, all but dried up. Homeownership rates in the U.S. steadily fell to a 50-year low, which only lengthened the recovery time of the Great Recession. According to Rosen Consulting, a real estate consulting group, the U.S. economy would have been $300 billion larger in 2016 had the housing market fully returned to its long-term level of construction and homebuying.

did us homeownership just bottom
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Millennials, or those generally born between 1981 and 1998, have been the biggest holdouts, but we’re finally starting to see that change. The cohort—the largest group of homebuyers in the U.S. right now—represented around 45 percent of all new home loans in January of this year. It’s likely we’ll see this figure rise as more millennials become better established in their careers and tire of renting.

 

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 invest.

Holdings may change daily. Holdings are reported as of the most recent quarter-end. The following securities mentioned in the article were held by one or more accounts managed by U.S. Global Investors as of 3/31/17: Canfor Corp., Western Forest Products.

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/Case–Shiller U.S. National Home Price Index is a composite of single-family home price indices for the nine U.S. Census divisions. It is calculated monthly, using a three-month moving average.

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Net Asset Value
as of 11/24/2017

Global Resources Fund PSPFX $6.07 0.10 Gold and Precious Metals Fund USERX $7.39 0.03 World Precious Minerals Fund UNWPX $5.78 0.02 China Region Fund USCOX $11.95 -0.23 Emerging Europe Fund EUROX $7.07 -0.02 All American Equity Fund GBTFX $24.08 0.02 Holmes Macro Trends Fund MEGAX $21.36 No Change Near-Term Tax Free Fund NEARX $2.21 No Change U.S. Government Securities Ultra-Short Bond Fund UGSDX $2.00 No Change