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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.

Industries Showing Great Resilience This Earnings Season
October 16, 2020

Industries Show Great Resilience This Earnings Season

“Resilience” was this week’s theme as better-than-expected market data came to light. Earnings season has begun, and so far reports have proven the doomsayers wrong. Even industries that have been hardest hit by the economic downturn, including air travel, are expressing optimism that we’re at the “end of the beginning” in terms of recovering from the worst health crisis in 100 years.

That was the opinion of United Airlines CEO Scott Kirby, who quoted Winston Churchill this week during the company’s third-quarter earnings call. Dino Michael, global head of Hilton Worldwide, is likewise optimistic, believing yearend to be the start of travel’s turnaround.

For their part, retail sales in the U.S. have shown great resilience, increasing for five months straight. In September, sales grew at a forecast-busting 1.9 percent over the previous month, the fastest such rate since June.

US retail sales jumped the most in three months in September 2020
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All but one of 13 categories improved, with clothing, sporting goods and automobiles leading the way. Sales at home improvement stores such as Home Depot and Lowe’s were also strong.

If you participated during this year’s Amazon Prime Day, this probably doesn’t come as a shock. The two-day sales event, which concluded on Wednesday, was the biggest ever for small and medium-size businesses, according to the retail giant. “Sellers saw record-breaking sales, surpassing $3.5 billion in total across 19 countries,” Amazon said in a press release.

Significant Improvement in Luxury Sales

The luxury industry has demonstrated impressive resilience. Luxury goods leader LVMH Moet Hennessy Louis Vuitton reported better-than-expected results this week. Third-quarter revenues rose 63 percent from the second quarter to nearly $14 billion, its strongest showing so far in 2020. The conglomerate, an industry bellwether that owns as many as 75 global brands, has ambitious forward estimates of $17.4 billion in sales for the fourth quarter. If achieved, that would be a record amount for any quarter in LVMH history.     

luxury sales recover LVMH Q3 2020 revenue was highest of 2020
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Although revenue was down some 7 percent from the same period last year, LVMH saw double-digit growth in demand for fashion and leather goods, climbing 12 percent. Highly profitable Louis Vuitton (LV) displayed “exceptional momentum and creativity,” while Christian Dior showed “remarkable momentum,” the company said in a press release.

Did you know Louis Vuitton is the world’s most valuable luxury brand? Find out which brands round out the top 10 by clicking here.

Not surprisingly, Asia was responsible for the largest share of sales recorded by LVMH in the first nine months of this year. One out of every three dollars spent on LVMH luxury goods was spent in Asia. The U.S. represented 24 percent of all sales.

Sales in mainland China “remained extremely strong,” according to U.S. jeweler Tiffany, which also reported positive preliminary sales results for August and September this week. Operating earnings increased 25 percent compared to the same two-month period in 2019, with positive sales trends continuing into this month. Tiffany is locked in a legal feud with LVMH over the conditions of its acquisition.

As I’ve pointed out before, Chinese consumers are now the world’s biggest spenders on luxury items, with three quarters of all purchases made while traveling abroad. “China’s appetite seems insatiable for big brands” like LV, Dior and Moet Hennessy, writes Bloomberg consumer products analyst Deborah Aitken in a note dated October 15.

Obviously the pandemic has disrupted international air travel, which has also impacted luxury retail—particularly duty-free retail in airports. Before the health crisis, airports were the second-fastest growing luxury retail channel following online, according to Vogue Business. Many retailers have expanded their presence in airports, filled with middle to high-income travelers waiting for their flights, and in recent years some have even seen higher revenues being generated at international hubs than at traditional department stores.

The good news is that domestic air travel in China appears to have recovered to pre-pandemic levels.

Chinese Domestic Passenger Traffic Recovering Ahead of International Traffic

That’s according to the International Civil Aviation Organization (ICAO). In an October 8 presentation, the agency shows that domestic passenger traffic in China, having already bottomed in mid-February, is now above 2019 levels in terms of capacity. The number of seats on domestic commercial flights climbed safely above 2 million per day in the first week of October, ahead of airlines’ offerings a year ago.

domestic chinese airline capacity has now exceeded 2019 levels
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Some areas of Chinese tourism are not just surviving but “booming,” according to McKinsey & Company. That includes high-end travel. By the end of August, occupancy rates at luxury and high-end hotels were back to around 90 percent capacity from a year earlier, and they’ve only continued to climb since then.

Shares of China Southern Airlines, the largest carrier in Asia by passengers served, and China Eastern Airlines are down 20.4 percent and 23.7 percent year-to-date. That’s about half as much as the decline in the Bloomberg World Airlines Index, down 40 percent over the same period.

Again: Resilience.

chinese carriers have been more resilient than global peers
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Risk of Getting COVID-19 on Commercial Flights Low, According to Study

Here in the U.S., where coronavirus cases are rising, fliers are largely avoiding stepping onto airplanes for fear of being exposed to the virus. A new study by the Department of Defense, however, says the risk is “very low.”

According to the Department of Defense (DoD), which researched the spread of particles in airline cabins over a six-month period, mask-wearing passengers are at very low risk of being infected with the coronavirus, even on a packed flight. That’s thanks not only to the mask but also modern aircrafts’ superior air filtration system.

Flying isn’t completely risk-free, of course, but this is excellent news for travelers and carriers alike. A recent survey by Travel Leaders Group found that 70 percent of Americans and Canadians were planning on taking a vacation next year, and of those, nearly half said they would be flying. The DoD’s study should help alleviate any lingering concerns they still might have.

the number of people flying commercial in the US hit a post-pandemic high
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Air traffic in the U.S. continues to improve from its April low. On October 11, the number of passengers boarding flights in the U.S. hit a post-pandemic high of more than 984,000, exceeding Labor Day travel. That’s a 61 percent decrease from a year ago, but it’s a step in the right direction.

Congratulations to Thunderbird Entertainment!

thunderbird entertainment emmy statue

On a final note, I’d like to extend my congratulations to Thunderbird Entertainment (TBRD:CA) on its Emmy Award win for the apocalyptic zombie animated children’s series, The Last Kids on Earth, which streams on Netflix. Well deserved!

Many of you may not know that U.S. Global Investors is an investor in Thunderbird, and I sit on its Board of Directors.

With theaters still closed and people working from home, streaming services are in need of new content like never before. This week the Walt Disney Company announced a “strategic reorganization” of its entertainment business, putting its digital Disney+ service at the top of its list of priorities.

This is a tailwind for innovative content creators such as Thunderbird. 

The Vancouver-based entertainment company appeared on Canadian Business’s list of fastest growing companies in Canada, based on revenue growth over the last five year. Thunderbird reported revenue of $81.3 million for the fiscal year ended June 30, an incredible 41 percent increase from the same period a year earlier.

Mark Your Calendars

Weeks ago, you may recall me saying that I would be taking part in a webcast with Mr. Wonderful himself, Kevin O’Leary, of Shark Tank fame. After some calendar adjustments, we now have a firm date set: Thursday, October 29.

We’ll be discussing internet and e-commerce companies and airlines.

If you’re interested in listening in, please email me with the subject line “Oct. Webcast” at info@usfunds.com, and I’ll send you the link. I hope you’ll join us!

October 29 kevin oleary and frank holmes oshares webcast

Gold Market

This week spot gold closed at $1,899.29, down $31.11 per ounce, or 1.61 percent. Gold stocks, as measured by the NYSE Arca Gold Miners Index, ended the week lower by 1.63 percent. The S&P/TSX Venture Index came in off just 0.95 percent. The U.S. Trade-Weighted Dollar bounced back 0.71 percent.

Date Event Survey Actual Prior
Oct-13 Germany CPI YoY -0.2% -0.2% -0.2%
Oct-13 Germany ZEW Survey Expectations 72.0 56.1 77.4
Oct-13 Germany ZEW Survey Current Situation -60.0 -59.5 -66.2
Oct-13 CPI YoY 1.4% 1.4% 1.3%
Oct-14 PPI Final Demand YoY 0.2% 0.4% -0.2%
Oct-15 Initial Jobless Claims 825k 898k 845k
Oct-16 Eurozone CPI Core YoY 0.2% 0.2% 0.2%
Oct-18 China Retail Sales YoY 1.6% -- 0.5%
Oct-20 Housing Starts 1457k -- 1416k
Oct-22 Initial Jobless Claims 860k -- 898k

Strengths

  • The best performing precious metal for the week was gold, but still down 1.61 percent. Gold rose on Thursday, breaking a two-day loss streak, as the U.S. dollar fell and halted stimulus negotiations sent equities lower. Bloomberg notes that spot gold rose to $1,903 after falling 2 percent on Tuesday and Wednesday. Silver and palladium also rose with gold.

gold edges up as traders look to dollar for direction
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  • In the first nine months of 2020, inflows into silver-backed ETFs nearly tripled the amount from the same period a year ago. Silver holdings rose by 297 million ounces, up from 103 million ounces in the first three quarters of 2019. Silver bullion coin demand is also strong – up 65 percent from the same period last year.
  • De Beers said it sold $467 million worth of diamonds in September – the most since January before the pandemic hit. Bloomberg notes that De Beers lowered prices of smaller diamonds that coincided with an uptick in demand from trader buyers to restock low inventories and returning jewelry customers in China

Weaknesses

  • The worst performing precious metal for the week was palladium, down 4.33 percent leading hedge funds to push their net-long position to a 7-month high. Gold fell on Monday as investors weighed the uncertainty around a fiscal stimulus package in the U.S. Although the metal recovered slightly later in the week, it still saw a weekly decline – the first in three weeks.
  • India, which polishes nearly 90 percent of the world’s rough diamonds, says exports will fall by as much as a quarter in 2020. The Gem & Jewellery Export Promotion Council says supply disruptions and lower demand from the coronavirus could push exports down as much as 25 percent and that the current slump is worse than that in 2008-2009.
  • Reuters reports that at least 16 artisanal miners drowned in a flooded gold mining field in Mozambique. The miners drowned after heavy rain waters surged down a normally dry riverbed.

Opportunities

  • B2Gold reported third-quarter figures and announced quarterly revenue hit a record high of $487 million. The company is on track to meet its yearly guidance of 1 million ounces. Equinox Gold announced the company has poured first gold from its Castle Mountain Gold Mine in California. Argonaut Gold said it is moving forward with the development of its Magino project in Ontario and expects construction to begin in January 2021.
  • Should a “blue wave” sweep the U.S. election – where Democrats win the presidency and both chambers of Congress – it could be a boost for gold. Bloomberg’s Jake Lloyd-Smith says that a blue wave would likely lead to a massive stimulus package, which would hurt the dollar and could trigger a rally in bullion and stocks. Gold has been bouncing between its 50-day moving average and 100-day moving average for the past several weeks and the election results could be a catalyst for its next move.
  • TD Securities commodity strategists say gold could move to a new record high after the new U.S. administration is established, reports Kitco News. Strategists wrote in a note on Wednesday: “Pre-election mayhem notwithstanding, it should be remembered that this instability is unlikely to prevail after a new administration is eventually established and the policies of the winners are implemented. With investors overweight cash, there is plenty of room to tilt portfolios toward commodities, other risk assets and gold.”

Threats

  • Barrick Gold ended its battle with Papua New Guinea and will give the nation a “major share” of its Progera mine. In exchange, Barrick can re-open and continue operating the facility that had been suspended since April after the government failed to extend the mining lease. Barrick suffered another blow after agreeing to pay Tanzania $40 million to settle a tax dispute. The miner paid the first installment of $100 million in May. Lastly, Barrick reported an 11 percent drop in gold production in the third quarter from a year ago.
  • The World Gold Council (WGC) found that 48 percent of potential buyers don’t trust the gold industry. Goldex CEO Sylvia Carrasco told Kitco News that this is a significant impediment when it comes to expanding gold’s customer base. The WGC introduced the Retail Gold Investment Principles (RGIP) to try and build trust.
  • Rick Rule, president of Sprott U.S., says the days of “easy money” for junior miners may be over. In a Kitco News interview, Rule said “the space itself, I think it is substantially overbought.” 2020 says miners access capital with enormous ease, a trend that might “dampen” the sector. Rule added that “out of 1,500 junior listings worldwide, probably only 200 or 300 are viable.”

The 5 M's of mining for picking Gold Stocks - Click to watch the video!

Index Summary

  • The major market indices finished mostly up this week. The Dow Jones Industrial Average gained 0.07 percent. The S&P 500 Stock Index rose 0.43 percent, while the Nasdaq Composite climbed 0.79 percent. The Russell 2000 small capitalization index lost 0.23 percent this week.
  • The Hang Seng Composite gained 0.86 percent this week; while Taiwan was down 1.06 percent and the KOSPI fell 2.11 percent.
  • The 10-year Treasury bond yield fell 3 basis points to 0.745 percent.

Domestic Equity Market

SP 500 Economic Sectors weekly performance
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Strengths

  • Industrials was the best performing sector of the week, increasing by 1.10 percent versus an overall increase of 0.43 percent for the S&P 500.
  • Autodesk was the best performing S&P 500 stock for the week, increasing 9.46 percent.
  • Motley Fool recommended Autodesk citing “accelerating revenue and even faster rising profit” with the company’s transition to a software-as-a-service model. The company is attracting new users with its Fusion 360 product, which combines the functionality of many tools into a single package and has a flexible pricing model.

Weaknesses

  • Real Estate was the worst performing sector for the week, decreasing by 2.31 percent versus an overall increase of 0.43 percent for the S&P 500.
  • Vertex Pharmaceuticals was the worst performing S&P 500 stock for the week, falling 19.21 percent.
  • Nikola shares sank as much as 16 percent in Friday trading after the electric-truck startup’s CEO said he sees a path for his company even if it can’t come to terms with General Motors on a proposed partnership.

Opportunities

  • Zoom will enable users to charge for online events. The new OnZoom platform includes the ability to charge for tickets, as well as a directory of public event listings.
  • Stocks will continue to rise regardless of who wins the election as corporate earnings stage a recovery, according to a note from UBS Chief Investment Officer Mark Haefele.
  • TikTok challenger Triller is reportedly exploring an IPO as questions swirl over its user numbers. Reuters reported Sunday that Triller was in talks with investment bank Farvahar Partners about a potential merger and IPO.

Threats

  • Billionaire investor Howard Marks warned investors in his latest memo to expect the lowest returns in history and said that the market is vulnerable to "negative surprises."
  • Stock markets are currently pricing in the chance of any COVID-19 vaccine approved this year to only be 50 percent to 60 percent effective, Bloomberg reported Balyasny Asset Management's Dmitry Balyasny saying.
  • Investors are moving into riskier assets they wouldn't have previously considered as low rates make yield scarce. Low interest rates are causing investors to buy riskier assets than they normally would seek out, according to BlackRock's Isabelle Mateos y Lago.

The Economy and Bond Market

 

Strengths

  • Retail sales rose strongly in September, the fifth consecutive month of growth, as Americans spent more on clothing, cars and sporting goods. The U.S. Commerce Department said retail sales jumped 1.9 percent in September. Much of last month’s growth came from clothing stores, where sales rose 11 percent. At auto dealerships and auto part shops, sales were up 3.6 percent. And those looking to go camping or buy exercise equipment for their homes sent sales at sporting goods stores up 5.7 percent.
  • With an improvement in consumer expectations more than offsetting concerns about current conditions, the University of Michigan released a report on Friday showing an increase in U.S. consumer sentiment in the month of October. The preliminary report said the consumer sentiment index rose to 81.2 in October, up from the final September reading of 80.4.
  • The NFIB Optimism Index rose 3.8 points to 104.0 in September, a historically high reading. Nine of the 10 index components improved and one declined.   

Weaknesses

  • The U.S. labor market recovery is stalling. Initial jobless claims increased by 53,000 to 898,000 in the week ended October 10. Continuing claims, which lag initial and measure the overall pool of recipients in state programs, fell to 10 million.

filings for US jobless benefits unexpectedly climbed in week ended october 2 2020
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  • U.S. industrial production fell in September, snapping four months of growth, in another sign of a slowing recovery. The Federal Reserve said its index of industrial production—a measure of output at factories, mines and utilities—fell a seasonally adjusted 0.6 percent in September, following an unrevised 0.4 percent rise in August. Output remains 7.1 percent below where it was in February.
  • Real estate sales in New York City are plummeting, and so is tax revenue. Sales of commercial and residential properties are down 45 percent this year through September, according to the Real Estate Board of New York. That’s resulted in $755 million less in city and state tax revenue compared with the first nine months of last year.

Opportunities

  • State and local government lobbying groups are pressing the Fed’s Jerome Powell and Treasury Secretary Steven Mnuchin to expand the scope of the central bank’s $500 billion municipal credit line and create a program to purchase bonds in the secondary market. The group, which includes the Government Finance Officers Association, said the Fed should create a secondary market purchasing program for municipal securities that is similar to the Secondary Market Corporate Credit Facility.
  • In the coming week, anecdotes from business and community contacts compiled in the Fed’s Beige Book will shed light on how the economy is coping with the increasing number of virus cases. The Beige Book may also provide useful information on the state of the labor market ahead of the October payrolls report.
  • Building permits and housing starts are out on Tuesday, to be followed by existing home sales on Thursday. The housing market has been a standout during the pandemic and with other parts of the economy still struggling, investors are paying close attention to the sustainability of housing strength.

Threats

  • The opinion polls will be watched much more closely by the markets in the run up to the November 3 vote as it’s looking increasingly likely that the fate of the fiscal stimulus bill is tied to the outcome of the election. Many investors are betting on a ‘blue sweep’ where Democrats would take over the White House and both chambers of Congress, making it potentially possible to pass large stimulus packages. But should the polls start to point to another term of a split Congress, equities could find themselves facing increased volatility.
  • The flash PMIs for October will wrap up the week next Friday. With industrial and manufacturing data weaker this week, investors will be bracing for an update on the outlook for manufacturing activity.
  • U.S. colleges are seeing sharp declines in enrollment of new students this semester. The number of first-year undergraduate students enrolled fell 16 percent, the National Student Clearinghouse Research Center said in a report Thursday. Total undergraduate enrollment slid 4 percent from last year at this time, led by international students.

Energy and Natural Resources Market

 

Strengths

  • The best performing commodity for the week was wheat, up 5.52 percent as global dry weather is withering crops from the U.S. to Ukraine, pushing prices to a six-year high. China’s wind majors soared after the industry announced an installation plan to boost capacity 14-fold through 2060 – part of the country’s goal to become carbon neutral. Xinjiang Goldwind Science & Technology Co. rose 22 percent in Hong Kong on Wednesday, while Shandong Shuangyi rallied 20 percent to a record high and Titan Wind Energy Suzhou was up 10 percent.
  • Jera Inc., the world’s largest LNG buyer and Japan’s largest fossil fuel fleet operator, announced this week it plans to release zero carbon dioxide emissions by 2050. This could create a watershed for hydrogen as Jera plans to use ammonia and hydrogen by 2030 to eliminate thermal power emissions. Bloomberg reports the energy giant is also investigating hydrogen co-firing at gas-fired plants.
  • Residential energy demand is set to increase heading into winter as millions of people globally spend more time working from home. Bloomberg notes that a so-called “double-heating effect” could occur where commercial use remains steady and residential use increases. This could lead to more use of kerosene, natural gas and propane. U.S. spot propane prices rose to the highest level this year last week and natural gas prices in Asia and Europe rose to the highest since before the virus.

Weaknesses

  • The worst performing commodity for the week was uranium, down 6.77 percent, reversing all of last week’s gains and appears to be back on a downward price path since mid-summer. Oil fell below $40 a barrel after operations in the Gulf of Mexico resumed following hurricanes and as Libya took another major step toward reopening its biggest oil field. Crude did pare its losses on Friday after signs of stronger consumer sentiment in the U.S.
  • Copper and aluminum fell on Thursday, giving up gains, as the U.K. and France imposed tight restrictions to curb rising coronavirus cases. Iron saw a weekly loss after Rio Tinto Group said inventories of the raw material in China were expected to grow as steel consumption eases from record highs.
  • The Federal Reserve Bank of Kansas City survey of energy executives found that almost 60 percent of respondents don’t see oil demand rebounding until 2022 or 2023 and 55 percent foresee an increase of debt defaults and bankruptcies, reports Bloomberg. American drillers say they need a crude price of at least $49 a barrel to see a profit.

Opportunities

  • ConocoPhillips is in talks to acquire rival Concho Resources – the latest sign that long-expected consolidation in shale is finally here. Bloomberg notes that Conoco is one of America’s largest independent oil explorers and would be making a “bold bet” on Concho especially during the historic industry downturn.
  • De Beers said it sold $467 million worth of diamonds in September – the most since January before the pandemic hit. Bloomberg notes that De Beers lowered prices of smaller diamonds that coincided with an uptick in demand from trader buyers to restock low inventories and returning jewelry customers in China. This could be a sign that the diamond industry is recovering from the bottom.
  • Longi Green Energy, the world’s largest solar power company, has seen its market value climb higher than Cnooc Ltd, which is China’s largest offshore oil and gas producer, reports Bloomberg. This is a massive shift showing the dominance green energy has gained over traditional fossil fuels in China, one of the world’s top consumers.

solar panel maker longi has passed oil major cnooc in market value
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Threats

  • China has suspended purchases of Australian coal in an escalation of political tensions. Australia is the dominant supplier of high-quality coking coal that China’s steel giants use – and will have to find a new source as China produces dominantly lower-quality thermal coal. China is Australia’s top buyer of the fossil fuel, which could spell trouble for its energy industry if the ban on imports persists.
  • Occidental Petroleum Corp said that America’s oil production will never again reach the record 13 million barrels a day set earlier this year before the pandemic devasted global demand, reports Bloomberg. CEO Vicki Hollub said at the Energy Intelligence Forum that “it’s going to be too difficult to replace the 2 million barrels a day of production that we’ve lost.” Hollub added that “over the next three to four years there’s going to be moderate restoration of production, but not at high growth.”
  • The Philippines is investigating coronavirus outbreaks on ships that changed crews in Manila to try and avoid a ban on Filipino seafarers, reports Bloomberg. Infections were recorded among crew on Australia-bound bulk carriers. The Philippines supplies a massive 25 percent of the world’s merchant marine workforce and a ban on workers would like cause massive shipping delays due to lack of crews.

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Emerging Europe

 

Strengths

  • Turkey was the best performing country this week, gaining 2.3 percent. Equites outperformed despite the lira’s continued depreciation against the U.S. dollar. Industrial production in August grew by 10.4 percent on a year-over-year basis, higher than the expected 7.1 percent. Turkey and Ukraine signed a military cooperation deal in Istanbul on Friday. Tourism services provider Net Holding As was the best equity trading on the Istanbul Stock Exchange, gaining 34 percent in the past five days. Shares gained after Turkish banks announced support for a loan package for tourism companies.
  • The Turkish lira was the best relative performing currency this week, losing 74 basis points. The currency outperformed its peers but continued its downtrend against the U.S. dollar. Turkey’s central bank meeting will take place next week and Bloomberg Economists predict more than a 100-basis point rate increase.
  • Consumer staples was the best performing sector among eastern European markets this week.

Weaknesses

  • Poland was the worst performing country this week, losing 1.9 percent. Poland reported a new daily record of 132 coronavirus-related deaths and counted 7,705 new confirmed cases on Friday. Authorities imposed new restrictions, including closing all gyms and pools and placing limits on the size of gatherings. Refinery Groupa Lotus was the worst equity trading on the Warsaw Stock Exchange, losing 10.7 percent in the past five days. A pending merger with PKN Orlen and weak second quarter profitability due to the unfavorable lockdown conditions pushed the stock price lower.
  • The Hungarian forint was the worst performing currency in the region this week, losing 3.1 percent. Despite its weakening currency, the central bank left its main rate unchanged at 0.75 percent for a third week.
  • Consumer discretionary was the worst performing sector among eastern European markets this week.

Opportunities

  • Earlier this year, Russia’s government approved the so called ‘IT-tax manoeuvre’, which reduces the corporate income tax from 20 percent to 3 percent and the payroll tax from 14 percent to 7.6 percent for those Russian IT companies that generate 90 percent of their revenues from software exports. Members of the Russian Association of Electrotechnical Companies, including Yandex and Mail.ru, asked the government to expand the list of eligible companies beyond ‘exporters’, to cover also those focused on e-commerce, internet search, social communications and online cinemas.
  • Turkey’s ruling party is planning to lower the corporate tax rate to support smaller companies hit by falling demand during the COVID-19 pandemic. Firms with annual sales of less than 10 million lira ($1.3 million) will be liable for a tax rate of less than 20 percent, down from the current level of 22 percent. A similar incentive is being considered for larger companies in “strategic” industries.
  • Midas Menkul Degeler AS is planning to open Turkey’s first commission-free trading platform next year. The company will test its software with a limited group of customers over the coming months before its full launch of a service comparable to U.S. no-fee brokerage app Robinhood.

Threats

  • Russian oil producers have reduced oil drilling by as much as one-third so far this year and may be cut by a further 20 percent next year, according to Vitaly Dokunikhin, chief executive officer of Eriell Russia. Oilfield spending in Russia is expected to tumble by more than 30 percent this year, making Russia the third-hardest hit by the crude crash, behind North America and Africa. OPEC production cuts and weak demand due to the pandemic does not bode well for Russia’s most important industry.
  • European governments have been forced to take more restrictive action on social interaction to contain the surge in coronavirus infections. However, governments are still seeking to avoid a second round of national lockdowns. The NY Times argued that to some extent, Europe's setback is hardly a surprise as public health experts have long warned the virus could roar back when the days grew colder, driving people indoors, where the risk of transmission is far greater.

virus spread covid 19 cases per 100,000 people in Europe
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  • Once again Brexit trade negotiations passed Thursday’s deadline set by UK Prime Minister Boris Johnson and most likely will continue into next month. France is viewed, especially by Britain, as one of the nations most unwilling to compromise, especially on the issue of French boats’ access to British fishing waters. During the global pandemic it seems that the Brexit worries are no longer the most important.

China Region

 

Strengths

  • Vietnam was the best performing country this week, gaining 2.1 percent. The IMF announced that Vietnam’s GDP is estimated to reach $340.6 billion this year, making it the fourth-largest economy in Southeast Asia. The IMF further predicts Vietnam will be the only country in Southeast Asia to see positive growth in 2020 of 1.6 percent. Diversified private sector group Masan Corporation was the best performing equity among stocks in the VanEck Vietnam ETF (VNM), gaining 17.5 percent in the past five days.
  • The Pakistani rupee was the best performing currency this week, gaining 22 basis points. The currency was supported by strong remittances and its current account turning into a surplus.
  • Electronic technology stocks were the best performing among stocks trading on the Hong Kong Stock Exchange.

Weaknesses

  • Thailand was the worst performing market this week, losing 2.6 percent. Political concerns put pressure on the stock market. TQM, am insurance company, was the worst performing equity among stocks trading in the iShares MSCI Thailand ETF (THD), losing 10 percent in the past five days.
  • The Philippine peso was the worst performing currency this week, losing 57 basis points. The currency depreciated after a central bank report showed remittances unexpectedly fell in August.
  • Commercial services stocks were the worst performing among stocks trading on the Hong Kong Stock Exchange.

Opportunites

  • The total value of all company shares listed on the Shanghai and Shenzen markets hit $10.08 trillion on Wednesday – a new record high. This demonstrates how China has seen a rapid economic recovery from the impact of coronavirus. The prior record high for market capitalization was seen in June 2015 of $10.05 trillion.
  • Indonesia announced that two of the world’s top electric vehicle battery producers, Contemporary Amperex Technology and LG Chem, may join projects that could result in $20 billion more invested in supply chains in the country. Bloomberg notes that Indonesia holds nearly a quarter of global reserves of nickel, a key component for electric vehicles.

CATL and LG Chem rank among top shippers of lithium-ion batteries
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  • Asia’s richest banker, Uday Kotak, said that overseas investors should look to invest in the Indian digital to consumer sector companies. Bloomberg reports that Kotak said at the Bloomberg India Economic Summit on Thursday that he has “always believed you have to invest in India when things look more challenging.” Kotak says valuations of Indian businesses are attractive right now due to the economic slump from the coronavirus.

Threats

  • Reuters reports the Trump administration is considering adding China’s Ant Group to the trade blacklist just before the financial technology firm is set to go public.
  • The U.S. State Department warned international financial institutions form doing business with individuals deemed responsible for China’s crackdown on Hong Kong and they could soon face hard sanctions.
  • Thailand’s Prime Minister Prayuth Chan-Ocha declared a state of emergency to quell growing demonstrations in support of monarchy reform and greater democracy. Bloomberg reports that thousands of anti-government protesters staged a rally for a second straight day on Thursday shouting “Prayuth get out”.

Blockchain and Digital Currencies

 

Strengths

  • Of the cryptocurrencies tracked by CoinMarketCap, the best performing for the week ended October 16 was Bitsonic, up 4,479.60 percent.
  • A report from PwC estimates that blockchain technology will make up 1.4 percent of the global economy, writes CoinTelegraph. Through its wide range of use cases, the technology could potentially add $1.76 trillion to GDP in the next 10 years. As the report outlines, the increasing interest in blockchain technology is primarily due to the need for a more efficient system that can integrate trust in processes that depend on intermediaries.
  • Bitcoin holdings at public companies topped $6.8 billion this year as newcomers catch up with industry heavyweight Grayscale, writes CoinTelegraph. Monitoring resource Coin98 Analytics reports that a total of 13 public companies have now invested in bitcoin.

Weaknesses

  • Of the cryptocurrencies tracked by CoinMarketCap, the worst performing for the week ended October 16 was Flowchain, down 83.61 percent.
  • As reported by Bloomberg, bitcoin faces a “modest headwind” in the short term based on an analysis of bets in the futures market and an estimate of the cryptocurrency’s intrinsic value, according to JPMorgan Chase. Strategists including Nikolaos Panigirtzoglou wrote in a note on Tuesday that a positioning indicator derived from futures shoes that “there still appears to be an overhang of net long positions.”

what could move bitcoin to $12,000
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  • Mt. Gox, the now-defunct Japanese cryptocurrency exchange, obtained yet another approval to extend the deadline for submitting a rehabilitation plan, writes CoinTelegraph. The new announcement specifies that the rehabilitation trustee is still formulating the plan, but “there are matters that require closer examination,” so “it has become necessary to extend the submission deadline.”

Opportunities

  • According to a report from the Group of Twenty (G20), it is working with the International Monetary Fund (IMF), the World Bank and the Bank for International Settlements (BIS) to formalize the use of central bank digital currencies (CBDC) in banking systems, writes CoinDesk. The report claims that by the end of 2022 these groups will have completed regulatory stablecoin frameworks and research and selection of CBDC designs, technologies and experiments.
  • Global cryptocurrency exchange Binance announced funding for six projects building on the firm’s smart chain, writes CoinTelegraph. More than 180 projects have applied for grants since the fund was announced in September, and it chose six using criteria examining teams, products and contribution to the blockchain ecosystem.
  • A new report by Bloomberg predicts that Tether could surpass Ether’s market cap by the end of next year, writes CoinTelegraph, paving the way to mainstream adoption of stablecoins and central bank digital currencies. Senior Commodity Strategist at Bloomberg Mike McGlone says that Tether is likely to take the number two position by market capitalization in 2021, noting the “stagnant market cap” of Ether, which currently stands at $43.2 billion but remained under $30 billion for most of 2019 and 2020.

Threats

  • On Tuesday, G7 leaders sounded the alarm about the global surge in ransomware attacks, reports CoinDesk, calling the hacking technique a threat against the critical infrastructure of the world’s top economies. These attacks, primarily against schools, hospitals and companies “have intensified in the last two years,” and post a particular threat during the COVID-19 pandemic, the article continues.
  • G7 leaders also made it clear they continue to oppose the launch of Libra, the stablecoin spearheaded by Facebook, until proper regulations can be applied. “The G7 continues to maintain that no global stablecoin project should begin operation until it adequately addresses relevant legal, regulatory and oversight requirements,” the group said in a joint statement.
  • More than half of all Ethereum hasn’t moved in 12 months, Cointelegraph reports, suggesting traders are awaiting a possible catalyst.

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Leaders and Laggards

Weekly Performance
Index Close Weekly
Change($)
Weekly
Change(%)
10-Yr Treasury Bond 0.75 -0.03 -3.99%
Oil Futures 40.76 +0.16 +0.39%
Hang Seng Composite Index 3,856.00 +32.86 +0.86%
S&P Basic Materials 416.43 -1.59 -0.38%
Korean KOSPI Index 2,341.53 -50.43 -2.11%
S&P Energy 228.78 -4.90 -2.10%
Nasdaq 11,671.56 +91.62 +0.79%
DJIA 28,606.31 +19.41 +0.07%
Russell 2000 1,633.81 -3.74 -0.23%
S&P 500 3,483.81 +6.68 +0.19%
Gold Futures 1,902.80 -23.40 -1.21%
XAU 147.09 -2.93 -1.95%
S&P/TSX VENTURE COMP IDX 725.31 -6.94 -0.95%
S&P/TSX Global Gold Index 364.72 -4.49 -1.22%
Natural Gas Futures 2.71 -0.04 -1.31%
 
Monthly Performance
Index Close Monthly
Change($)
Monthly
Change(%)
Korean KOSPI Index 2,341.53 -94.39 -3.87%
10-Yr Treasury Bond 0.75 +0.05 +6.58%
Gold Futures 1,902.80 -67.70 -3.44%
S&P Basic Materials 416.43 +0.42 +0.10%
S&P 500 3,483.81 +98.32 +2.90%
DJIA 28,606.31 +573.93 +2.05%
Nasdaq 11,671.56 +621.09 +5.62%
Oil Futures 40.76 +0.60 +1.49%
Hang Seng Composite Index 3,856.00 -8.75 -0.23%
S&P/TSX Global Gold Index 364.72 -25.87 -6.62%
XAU 147.09 -8.97 -5.75%
Russell 2000 1,633.81 +81.48 +5.25%
S&P Energy 228.78 -24.28 -9.59%
S&P/TSX VENTURE COMP IDX 725.31 -22.04 -2.95%
Natural Gas Futures 2.71 +0.44 +19.32%
 
Quarterly Performance
Index Close Quarterly
Change($)
Quarterly
Change(%)
XAU 147.09 +11.17 +8.22%
S&P/TSX Global Gold Index 364.72 +8.47 +2.38%
Gold Futures 1,902.80 +76.30 +4.18%
DJIA 28,606.31 +1,871.60 +7.00%
S&P 500 3,483.81 +268.24 +8.34%
Nasdaq 11,671.56 +1,197.73 +11.44%
Korean KOSPI Index 2,341.53 +157.77 +7.22%
Natural Gas Futures 2.71 +0.98 +56.99%
S&P Basic Materials 416.43 +34.74 +9.10%
Russell 2000 1,633.81 +166.24 +11.33%
Oil Futures 40.76 +0.01 +0.02%
Hang Seng Composite Index 3,856.00 +159.88 +4.33%
S&P/TSX VENTURE COMP IDX 725.31 +63.73 +9.63%
S&P Energy 228.78 -53.79 -19.04%
10-Yr Treasury Bond 0.75 +0.13 +20.55%

 

U.S. Global Investors, Inc. is an investment adviser registered with the Securities and Exchange Commission ("SEC"). This does not mean that we are sponsored, recommended, or approved by the SEC, or that our abilities or qualifications in any respect have been passed upon by the SEC or any officer of the SEC.

This commentary should not be considered a solicitation or offering of any investment product.

Certain materials in this commentary may contain dated information. The information provided was current at the time of publication.

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.

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 (09/30/2020):

B2Gold Corp
Argonaut Gold Inc
Equinox Gold Corp
Barrick Gold Corp
ConocoPhillips
Yandex NV
United Airlines Holdings Inc
The Home Depot Inc
Lowe’s Co Inc
Amazon.com Inc
LVMH Moet Hennessy Louis Vuitton SA
China Southern Airlines Co Inc
China Eastern Airlines Corp Ltd
 

*The above-mentioned indices are not total returns. These returns reflect simple appreciation only and do not reflect dividend reinvestment. 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 Nasdaq Composite Index is a capitalization-weighted index of all Nasdaq National Market and SmallCap stocks. 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 Hang Seng Composite Index is a market capitalization-weighted index that comprises the top 200 companies listed on Stock Exchange of Hong Kong, based on average market cap for the 12 months. The Taiwan Stock Exchange Index is a capitalization-weighted index of all listed common shares traded on the Taiwan Stock Exchange. The Korea Stock Price Index is a capitalization-weighted index of all common shares and preferred shares on the Korean Stock Exchanges. The Philadelphia Stock Exchange Gold and Silver Index (XAU) is a capitalization-weighted index that includes the leading companies involved in the mining of gold and silver. The U.S. Trade Weighted Dollar Index provides a general indication of the international value of the U.S. dollar. The S&P/TSX Canadian Gold Capped Sector Index is a modified capitalization-weighted index, whose equity weights are capped 25 percent and index constituents are derived from a subset stock pool of S&P/TSX Composite Index stocks. The S&P 500 Energy Index is a capitalization-weighted index that tracks the companies in the energy sector as a subset of the S&P 500. The S&P 500 Materials Index is a capitalization-weighted index that tracks the companies in the material sector as a subset of the S&P 500. The S&P 500 Financials Index is a capitalization-weighted index. The index was developed with a base level of 10 for the 1941-43 base period. The S&P 500 Industrials Index is a Materials Index is a capitalization-weighted index that tracks the companies in the industrial sector as a subset of the S&P 500. The S&P 500 Consumer Discretionary Index is a capitalization-weighted index that tracks the companies in the consumer discretionary sector as a subset of the S&P 500. The S&P 500 Information Technology Index is a capitalization-weighted index that tracks the companies in the information technology sector as a subset of the S&P 500. The S&P 500 Consumer Staples Index is a Materials Index is a capitalization-weighted index that tracks the companies in the consumer staples sector as a subset of the S&P 500. The S&P 500 Utilities Index is a capitalization-weighted index that tracks the companies in the utilities sector as a subset of the S&P 500. The S&P 500 Healthcare Index is a capitalization-weighted index that tracks the companies in the healthcare sector as a subset of the S&P 500. The S&P 500 Telecom Index is a Materials Index is a capitalization-weighted index that tracks the companies in the telecom sector as a subset of the S&P 500. 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 Consumer Price Index (CPI) is one of the most widely recognized price measures for tracking the price of a market basket of goods and services purchased by individuals. The weights of components are based on consumer spending patterns. The Purchasing Manager’s Index is an indicator of the economic health of the manufacturing sector. The PMI index is based on five major indicators: new orders, inventory levels, production, supplier deliveries and the employment environment. The S&P/TSX Venture Composite Index is a broad market indicator for the Canadian venture capital market. The index is market capitalization weighted and, at its inception, included 531 companies. A quarterly revision process is used to remove companies that comprise less than 0.05% of the weight of the index, and add companies whose weight, when included, will be greater than 0.05% of the index. Gross domestic product (GDP) is the monetary value of all the finished goods and services produced within a country's borders in a specific time period, though GDP is usually calculated on an annual basis. It includes all of private and public consumption, government outlays, investments and exports less imports that occur within a defined territory.

The National Federation of Independent Business (NFIB) Small Business Optimism Index is a composite of ten seasonally adjusted components. It provides an indication of the health of small businesses in the U.S., which account of roughly 50% of the nation's private workforce. The University of Michigan Consumer Sentiment Index is a consumer confidence index published monthly by the University of Michigan. The index is normalized to have a value of 100 in December 1966. The Bloomberg World Airlines Index is a capitalization-weighted index of the leading airlines stocks in the World.

Share “Industries Showing Great Resilience This Earnings Season”

Net Asset Value
as of 11/25/2020

Global Resources Fund PSPFX $5.33 0.05 Gold and Precious Metals Fund USERX $12.23 0.25 World Precious Minerals Fund UNWPX $4.72 0.10 China Region Fund USCOX $9.40 -0.27 Emerging Europe Fund EUROX $6.01 0.04 All American Equity Fund GBTFX $24.38 0.09 Global Luxury Goods Fund USLUX $19.42 0.04 Near-Term Tax Free Fund NEARX $2.25 No Change U.S. Government Securities Ultra-Short Bond Fund UGSDX $2.00 No Change