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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.

The Retirement Crisis Is Much Worse Than You Think
March 20, 2019

Are you sitting down for this? According to a recent survey, one in five American adults have nothing saved for retirement or emergencies. A further 20 percent have squirreled away only 5 percent or less of their annual income to meet certain financial goals. Less than a third of all Americans have saved at least 11 percent or more.

One in five working Americans arent saving any money for retirement
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The survey, conducted by Bankrate in late February and early March, is just the latest indication that the U.S. faces a major retirement crisis. Every day, some 10,000 baby boomers turn 65, and they’re reaching retirement in worse financial shape than the previous generation for the first time since Harry Truman was president, according to a report by the Wall Street Journal.

The survey also raises the question of why some working-age adults haven’t been able to take full advantage of a booming U.S. economy and historic bull market to build wealth. Unemployment is near a 50-year low, and wage gains were at their highest level in a decade last month.

According to Bankrate, the number one reason (40 percent) why Americans aren’t saving is that they have too many other expenses. Sixteen percent said they “haven’t gotten around to it,” while the same percentage blamed the low quality of their job.

Indeed, not every employer provides access to a retirement plan such as a 401(k). A recent study by the National Institute on Retirement Security (NIRS) found that a little over half of working American adults have access to an employer-sponsored 401(k)-type plan. Only 40 percent actually participate.

As such, the median retirement account balance among all working-age Americans is—again, are you sitting down?—$0.00. That’s the median balance, remember, so half of all Americans have more than that. The other half, meanwhile, have even less than $0.00 to their name.

A Record $4 Trillion in Consumer Debt

That brings me to my next point. Interestingly, only 13 percent of those surveyed by Bankrate cited debt as the reason why they’re not saving as much as they should. I say “interesting” because total U.S. consumer debt, including revolving and non-revolving debt, now stands at more than $4 trillion, the most ever.

gold mining stocks still greatly undervalued relative to the market
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Debt affects us all, but it can seriously hinder workers’ ability to retire on time. The more you’re on the hook to pay lenders, the less you have to pay yourself.

Revolving debt, such as credit card debt, is now valued at more than $1 trillion, which exceeds the all-time high right before the financial crisis. And according to the Federal Reserve Bank of New York, people age 60 and older owe about a third of this total.

Non-revolving debt—auto loans, student loans, mortgages—is even worse. Student loan debt alone stands at an astronomical $1.5 trillion. It doesn’t help that, since the 1980s, the cost of college tuition has increased almost eight times faster than wages.

But if you think this burden belongs only to young people, you’re sorely mistaken. As many as 2.8 million Americans over the age of 60 are saddled with student debt, according to CNBC. Those over 50 owed more than $260 billion last year, up dramatically from $46 billion in 2006.

Confidence Lacking in Retirement Preparedness

All combined, it’s little wonder that a significant number of Americans feel some anxiety when it comes to their financial stability and retirement preparedness, despite a strong U.S. economy. A CFP Board survey conducted on Election Day 2018 found that less than a quarter of voting-age Americans were “completely confident” about their ability to navigate through economic ups and downs. Even less, 22 percent, felt the same about their ability to retire on time.

Large percentage of voting Americans lack financial confidence
click to enlarge

So what’s the solution?

Fund Your Financial Goals Affordably

I’ve heard from a number of people over the age of 50 who say they worry they haven’t adequately prepared for retirement, and yet are at a loss as to where to start. They want to build wealth fast but might have second thoughts about investing in the market.

I want to reassure those people that they need not put a significant amount in the market all at once, which for most people is impractical and risky. The truth is that they have options. One of the best, I think, is dollar cost averaging, which allows investors to fund their financial goals affordably.

In short, dollar cost averaging is an investing technique that lets investors add to an initial investment incrementally over time, usually once a month. That way, investors don’t break the bank, and as an added bonus, they don’t need to worry about market timing.

It’s a technique that has worked well for investors in the past. Take a look at the chart below. It shows a hypothetical initial investment of $1,000 in an S&P 500 Index in March 2009. Ten years later, after regular monthly contributions of only $100, the value of that initial investment grew at an annualized 12.96 percent to more than $26,385.  

The power of dollar cost averaging
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This is just an illustration. The past 10 years have been an exceptionally profitable time to invest, and there’s no guarantee that the good times will last.

Also, $26,000 won’t sustain anyone through retirement, but remember, we were using only a hypothetical $1,000. All else being equal, an initial investment of $10,000 in March 2009 would today be worth more than $64,766, for an impressive annualized return of 14.81 percent.

Sound enticing? The good news is that U.S. Global Investors provides investors the opportunity to invest with dollar cost averaging! We call it the ABC Investment Plan, and I’m very proud to give investors this option. Investment minimums are just $1,000 initially and then $100 a month. With the ABC Investment Plan, you get to choose the day of the month your investment is transferred from your checking or savings account to your investment account.

That way, some of the worry is eliminated from your retirement preparations or other financial goals.

Interested in the ABC Investment Plan? Get started today! Download the application by clicking here!

 

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.

You cannot invest directly in an index.

A program of regular investing doesn’t assure a profit or protect against loss in a declining market. You should evaluate your ability to continue in such a program in view of the possibility that you may have to redeem fund shares in periods of declining share prices as well as in periods of rising prices.

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

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Gold Glimmers as the Pool of Negative-Yielding Debt Surges
March 18, 2019

Gold Glimmers as the Pool of Negative-Yielding Debt Surges

It was a tragic week, to say the least. It began with a fluke Ethiopian Airlines crash, which led to the grounding of all Boeing 737 MAX 8 jets worldwide, and ended with a hateful terrorist attack in Christchurch, New Zealand. On behalf of everyone at U.S. Global Investors, I want to extend my deepest sympathies to all those who were affected.

I’ll have more to say on airlines in a moment.

For now, I want to share with you a tweet by Lisa Abramowicz, a reporter for Bloomberg Radio and TV who often comments on the “fear” market.

“The pool of negative yielding debt has risen to a new post-2017 high of $9.2 trillion,” she writes. “Mind boggling at a time when the global economy is supposedly still recovering.”

Since Lisa tweeted this last Wednesday, the value of negative-yielding bonds has ticked up even more, to $9.32 trillion. This is still below the 2016 high of $12.2 trillion, but, as Lisa said, mind-boggling nonetheless. It also indicates that investors fear global economic growth is slowing.

The Pool of Negative-Yielding Bonds Has Climbed to a New High
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The yield on Japan’s 10-year government bond is back in negative territory, trading at negative 3 basis points (bps) today, while Germany’s was trading at a low, low 8 bps.

As I’ve explained to you before, low to negative-yielding debt has historically been constructive for gold prices. The yellow metal doesn’t have a yield, but in the past it’s been a tried-and-true store of value when other safe haven assets, such as government bonds, stopped paying you anything. In the case of Japanese bonds right now, investors are actually paying the government—and that’s before you factor in inflation.

This is just one of many reasons why I recommend a 10 percent weighting in gold, with 5 percent in physical bullion and jewelry, the other 5 percent in high-quality gold stocks and funds. Remember to rebalance at least once a year.

For more on gold, watch my interview last week with Daniela Cambone, live from Kitco’s New York studio! Click here!  

Aircraft Are Safer, Easier to Fly

Back to the Ethiopian flight. I’m confident we’ll soon learn what malfunctioned in the 737 MAX—both last week and in October during Indonesia’s Lion Air flight—so that accidents like this may never happen again.

Having said that, I think it’s important to keep in mind that commercial air travel today has never been safer in its approximately 100-year history. In 2017, the safest year for aviation on record, not a single life was lost in a commercial plane crash, despite more than 4 billion people around the world taking to the skies on scheduled passenger flights. You would be hard-pressed to find another major global industry, one that operates 24/7, with such an impressive safety track record.

Commercial Air Travel Has Never Been Safer
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This is all largely thanks to continuous improvements in aviation technology. Over the decades, aircraft have progressively gotten safer and easier to fly, according to one aeronautics professor at MIT.

“The automation systems that we have on airplanes have demonstrably made airplanes safer,” R. John Hansman, director of MIT’s International Center for Air Transportation, told Boston’s WBUR radio station last week.

And the technological advancements continue today, with artificial intelligence (AI) and the internet of things (IoT) already starting to change the way we fly.

Consider Aireon. Founded in 2011, the aerospace tech firm is responsible for developing a next-generation airline tracking and surveillance system that has the capacity to measure every aircraft’s speed, heading, altitude and position—all in real-time. Using as many as 66 satellites, Aireon’s team gathers data broadcast by tiny transponders, which all U.S. and European planes will be required to carry by next year.

Aireon diagram

It was the company’s data, in fact, that ultimately convinced the Federal Aviation Administration (FAA) to join the rest of the world in temporarily grounding the 737 MAX.

“Take a Ride on the Airline Stocks,” Writes the National Bank of Canada

In light of the accident, a number of research houses and brokerage firms released notes to investors reassuring them that Boeing’s troubles should have only minimal impact on the airline industry as a whole.

Shares of Boeing, the largest company in the Dow Jones Industrial Average by market cap, surged as much as 2.5 percent on Friday after it was announced that the jet manufacturer plans to roll out a software update for the MAX 8 and 9 within the next 10 days—much sooner than initially expected.

Analysts at Raymond James point out that the “737 MAX 8/9 aircraft are still a small part of overall fleet for most U.S. airlines, which in off-peak travel season can likely be covered by higher utilization of existing fleet or delays in certain aircraft retirements.”

Vertical Research’s Darryl Genovesi, an expert in airline revenue, says that he believes the 737 MAX grounding will have an “immaterial” effect on U.S. airlines’ first-quarter earnings per share (EPS). And if the grounding is extended into the second quarter, or into the second half of the year, we may even see higher EPS due to a supply demand imbalance.

Genovesi writes that Vertical’s models indicate that, in the event of an extended grounding, “system RASM [revenue per available seat mile] would increase by ~200 bps… This would be ~3 percent accretive to second-quarter EPS, on average, across the group including a ~9 percent EPS boost for Alaska Airlines, JetBlue and Spirit Airlines and low-single-digit boost for American Airlines, Delta Air Lines, United Continental and Allegiant Air, partially offset by a low-single-digit EPS reduction for Southwest Airlines.”

Southwest has the largest number of 737 MAX 8s in the world, with a reported 34 planes in its fleet.

Air Canada the Leading Carrier in the Country
click to enlarge

Finally, looking at the Canadian market, the National Bank of Canada says that both Air Canada and WestJet Airlines “remain constructive despite the recent turbulence.”

“The negative news has not changed the overall positive trend in [Air Canada’s] stock,” analyst Dennis Mark writes.

Like what you read? Get even more award-winning market analysis by subscribing to our Investor Alert. Click here!

 

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

The Bloomberg Barclays Global Aggregate Negative Yielding Debt Market Value Index measures the stock of debt with yields below zero issued by governments, companies and mortgage providers around the world which are members of the Bloomberg Barclays Global Aggregate Bond Index.

Earnings per share (EPS) is the portion of a company's profit allocated to each share of common stock. Earnings per share serve as an indicator of a company's profitability.

A basis point one hundredth of one percent, used chiefly in expressing differences of interest rates.

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 (12/31/2018): The Boeing Co., Alaska Air Group Inc., American Airlines Group Inc., Delta Air Lines Inc., United Continental Holdings Inc., Southwest Airlines Co., Spirit Airlines Inc., Allegiant Travel Co., JetBlue Airways Corp., Air Canada.

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Gold Miners Are Finally Making Some Interesting Capital Investments
March 14, 2019

Last week I was pleased to attend the Prospectors & Developers Association of Canada (PDAC) conference in Toronto. PDAC is one of the largest mining conferences in the world. More than 25,000 people turned out this year, many of them selling equipment services, exhibiting securities and investments, making presentations and much more.  

As was the case at the BMO Global Metals & Mining Conference a week earlier, one of the dominant thoughts on everyone’s minds was Barrick Gold’s $17.8 billion hostile takeover of its longtime rival Newmont Mining.

This Monday we learned that, after both parties spoke with top shareholders, the bid fell through. But rather than continuing to duke it out in the capital markets, the two mining giants will instead be entering into a joint venture (JV) in Nevada. The JV will combine significant deposits and mines, processing facilities and infrastructure to unlock significant synergies.

As a standalone company, the Nevada complex will be the world’s single-largest gold producing operations, according to equity research firm GMP Securities.

Nevada, by the way, is the top gold producing state in the U.S., responsible for nearly three quarters of annual output. If it were its own country, Nevada would be the fourth largest gold producer in the world, thanks to its prolific Carlin Trend deposits.

Nevada would be the fourth largest gold producer in the world
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It’s within these monumental goldfields that the Barrick-Newmont JV will be operating, with control over as many as three Tier 1 mines, or those that typically produce 500,000 ounces of gold or more annually. That is significant.

The JV ownership will be 61.5 percent Barrick and 38.5 percent Newmont, with Barrick acting as the main operator. The board will consist of three Barrick representatives and two Newmont representatives.

The “Walmart” of the Mining World

What’s really exciting, I think, is that the synergies are projected to come partly from optimized mining and processing and partly from supply chain and indirect costs. The company is expected to become the “Walmart” of the mining world, with the muscle to negotiate better prices on tractors, haulers and other equipment. The synergies are estimated to help save as much as $500 million in the first five years alone, according to GMP, but I believe it could be much more than that.

It’s hard not to see this as positive for the capital markets. The Barrick-Newmont JV is about trying to drive down costs in order to sustain the overall production profiles of these two mega gold miners.

Gold Accounted for Half of World Exploration Budgets

The Barrick-Newmont deal is just the latest in what I believe is an ongoing trend of industry consolidation as well as rising exploration budgets. Barrick purchased London-based Randgold Resources back in September, while Newmont is working on a merger with Goldcorp. Australia’s Newcrest Mining just bought a majority interest in Imperial Metals’ Red Chris copper and gold mine, located in British Columbia, Canada, and is now in the process of inking a $65 million JV deal with Greatland Gold.

I see these deals as a sign that miners anticipate a bull run in gold prices. Better to spend the money now when valuations are attractive rather than later when companies could be much more expensive. During the last bull market in gold prices, many mining executives ended up losing their jobs because they entered deals when valuations were overextended.

gold mining stocks still greatly undervalued relative to the market
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Exploration budgets are also finally starting to climb, another sign of increased confidence in future prices. According to S&P Global Market Intelligence’s just-released “World Exploration Trends 2018,” budgets increased for the second straight year in 2018 to $10.1 billion. Roughly half of that, or $4.85 billion, was spent on gold exploration.

global mineral exploration budgets up for second straight year in 2018
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Ready to Invest?

What all of this means is that now might be the time to consider investing in gold miners. In the years since the price of gold peaked in 2011, producers and explorers slashed budgets to keep their powder dry. We’re finally starting to see them deploy some of that capital. It’s not hard to make the case that they seem to be acting on the knowledge, or at least a strong hunch, that metal prices are set to head higher.

If you think additional mining mergers and acquisitions (M&As) are in the works, one of the best investment vehicles, I believe, is our World Precious Minerals Fund (UNWPX). The reason I say that is because UNWPX, unlike a lot of other precious metal mining funds, has significant exposure to smaller junior and intermediate companies, which appear attractive right now as takeover targets. High-quality, well managed companies such as Wesdome Gold Mines, Cardinal Resources and TriStar Gold.

The portfolio management team has over 60 combined years of experience working in the capital markets, and includes precious metal and mineral expert Ralph Aldis.

Curious to learn more? Explore and discover the World Precious Minerals Fund (UNWPX)! Then be sure to request an investment kit by clicking here!

 

Please consider carefully a fund’s investment objectives, risks, charges and expenses. For this and other important information, obtain a fund prospectus by visiting www.usfunds.com or by calling 1-800-US-FUNDS (1-800-873-8637). Read it carefully before investing. Foreside Fund Services, LLC, Distributor. U.S. Global Investors is the investment adviser.

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

The NYSE Arca Gold Miners Index is a modified market capitalization weighted index comprised of publicly traded companies involved primarily in the mining for gold and silver.  The index benchmark value was 500.0 at the close of trading on December 20, 2002. The S&P 500 Stock Index is a widely recognized capitalization-weighted index of 500 common stock prices in U.S. companies.

Fund portfolios are actively managed, and holdings may change daily. Holdings are reported as of the most recent quarter-end. Holdings in the World Precious Minerals Fund as a percentage of net assets as of 12/31/2018: Barrick Gold Corp. 0.00%, Randgold Resources Ltd. 0.00%, Newmont Mining Corp. 0.00%, Newcrest Mining Ltd. 0.00%, Goldcorp Inc. 0.00%, Walmart Inc. 0.00%, S&P Global Inc. 0.00%, Imperial Metals Corp. 0.00%, Greatland Gold plc 0.00%, Wesdome Gold Mines Ltd. 6.87%, Cardinal Resources Ltd. 5.41%, TriStar Gold Inc. 4.99%.

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Don't Be Fooled by the Politics of Envy
March 11, 2019

AI Will Add $15 Trillion to the Global Economy by 2030

Here at U.S. Global Investors, we’re politically agnostic. We believe there’s money to be made no matter which party is calling the shots. That’s why we focus on government policy instead of partisan politics.

Having said that, I think most of you would agree that there’s lately been a change in some American voters’ appetite for socialist-leaning policies.

the rise of millennial socialism

Need proof? A Gallup poll from August of last year found that, for the first time in modern memory, Americans aged 18 to 29 are more positive about socialism than they are about capitalism. Fifty-one percent preferred the former compared to 45 percent for the latter.

I don’t need to remind you that socialist policies are naturally anti-business and anti-private property, and they create all sorts of friction in the formation of new capital. A “threat to U.S. equity valuations is emerging in the form of left-wing populism in America,” writes Christopher Wood in his widely read GREED & fear newsletter.

Again, we believe extremism at either end can raise huge obstacles for business and investors. The difference, though, is that hard-left legislation seeks to punish wealth and prosperity through politics of envy. Amazon, one of the world’s most valuable companies, was driven out of New York as if it were the plague. The online retail company came under additional fire last week when Massachusetts senator Elizabeth Warren said she would break up giant tech firms if she were elected president.

At their worst, socialist policies can destroy entire economies. Just look at Venezuela. It’s hard to believe now that the beleaguered country was once the wealthiest in South America.

“There is the dark side of it,” Canadian psychologist Jordan Peterson once said of socialism, “which means everyone who has more than you got it by stealing it from you… ‘Everyone who has more than me got it in a manner that was corrupt, and that justifies not only my envy but my actions to level the field,’ so to speak... There is a tremendous philosophy of resentment that I think is driven now by a very pathological anti-human ethos.”

Still Strong Pushback Against Socialism in the U.S.

“America will never be a socialist country,” President Donald Trump proclaimed during last month’s State of the Union address. The remark appeared to have been directed squarely at the raft of newly elected lawmakers who seem to be cut from the same cloth as “democratic socialist” Bernie Sanders.
The 77-year-old Vermont senator, by the way, just announced that he would be seeking the White House for a second time—and raised a whopping $6 million within the first 24 hours.

Despite his success in 2016, Sanders’ candidacy might be a hard sell for most Americans this year, as a recent NBC News/Wall Street Journal Survey showed that a majority of voters wouldn’t be too keen on having a socialist president or one who was over the age of 75. Close to three quarters of respondents either had “total reservations” or were “very uncomfortable” about the idea of voting for someone who self-identified as a socialist, as Sanders does. 

a socialist or someone over 75 are least desirable for a presidential candidate
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At the same time, Sanders’ highly publicized bid for the White House during the last cycle appears to have galvanized some lawmakers and encouraged them to creep even further left. The Green New Deal (GND) is one such example.

The $93 Trillion Green New Deal

The GND resolution, if passed and signed into law, would radically transform day-to-day life here in the U.S. Reforms include “zero-emission” transportation, universal health care, guaranteed jobs and guaranteed “green” housing.

the rise of millennial socialism
Photo: Dimitri Rodriguez /flickr | Creative Commons Attribution 2.0 Generic (CC by 2.0)

These goodies might sound appealing to some, but they won’t come cheap. Universal health care alone would cost the U.S. government as much as $36 trillion between 2020 and 2029, according to calculations made by the American Action Forum (AAF). That amounts to $260,000 per household.
And the price tag for the entire package? An unfathomable, eye-watering $93 trillion.

Many of you are no doubt aware that the GND is co-sponsored by Alexandria Ocasio-Cortez, the 29-year-old freshman representative from New York’s 14th district who was among the most vocal critics of Amazon moving into her neighborhood.

Like Sanders, she identifies as a democratic socialist.

As some people have pointed out, “AOC,” as she’s often called, has no financial licenses or MBA. She’s not a fiduciary. And yet if she and other socialist-minded lawmakers get their way, the American taxpayer could be saddled with the single largest spending package the world has ever seen.

Further, did you know that AOC recently won a seat on the powerful House Financial Services Committee? The committee, chaired by Representative from California Maxine Waters, has oversight over all things Wall Street—from banks to insurance, from money to credit, from securities to exchanges.

Private Equity Has Grown Twice as Fast as Public Markets

According to the AAF, the regulatory cost of the GND would be at least $1 trillion. And that’s on top of the trillions that already-in-place rules and regulations sap from American companies every year.

It’s little wonder, then, that more and more companies are choosing not to list on public markets. I’ve written about this a number of times before. Simply put, tougher and costlier regulations have largely contributed to the boom in private equity (PE)—not just in the U.S. but across the globe. According to a recent McKinsey report, private markets have grown 7.5 times so far this century, or twice as fast as public market capitalization.

Global private equity value has dramatically outpaced that of public markets
click to enlarge

Here in the U.S. and Canada, the number of companies that publicly listed rose to an 11-year high in 2018, thanks to more business-friendly policies. The initial public offering (IPO) market looks as if it might do just as well this year, if not better, with huge tech unicorns such as Uber, Lyft, Airbnb and Pinterest expected to list.

number of initial public offerings (IPOs) was highest since 2007 last year
click to enlarge

But the overall trend has been down, and that’s really hurt small investors who don’t generally have access to private equity. 

Is Gold the Solution?

10% golden rule

All of this is ample reason to ensure that you have some gold in your portfolio. I always advocate the 10 percent Golden Rule. That means I think you should have half of that 10 percent in gold coins, bars and 24-karat jewelry. The other half should be in high-quality gold mining stocks and funds. Make sure you rebalance at least once a year.

One of the biggest proponents of gold is the Austrian school of economics, which emphasizes self-reliance and individualism. Because fiat currencies are solely based on the faith and credit of the economy, they have no intrinsic value and are prone to huge swings, according to Austrian economic thought.

Gold, on the other hand, is nobody’s liability. As destructive as socialist policies can be to business and capital, they can’t reduce the value of your gold. In fact, the inverse is true. Historically, the more debt that the government accrues, and the higher inflation gets, the more valuable the yellow metal has become.

Did you miss it? Last week I spoke with Small Cap Power’s Jim Gordan on a range of topics, from newcomer GoldSpot Discoveries to the U.S.-China trade war. Watch it now by clicking here!

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 12/31/2018.

Frank Holmes was appointed chairman of the Board of Directors of GoldSpot Discoveries. Both Mr. Holmes and U.S. Global Investors own shares of GoldSpot.

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Can the Bull Market Run for Another 10 Years?
March 6, 2019

Would You Do This to Pay Zero Income Taxes for Life?

The current stock bull market, already the longest in U.S. history, turns 10 years old this month. It’s been a phenomenally profitable time to participate, especially if you’ve stuck to an investment strategy that favors dividend-paying stocks.

As you can see in the chart below, the amount of cash that S&P 500 Index companies have returned to shareholders has grown each year since 2009. In the final three months of 2018 alone, S&P companies paid out $119.8 billion, a quarterly record. Total dividends for the full year stood at $456.3 billion, up 9 percent from the previous year—another new record.

Stock buybacks topped capital expenditures for first time since 2008
click to enlarge

Thanks to corporate tax reform, stock buybacks also shot up to an all-time high of more than $800 billion in 2018. For the first time since 2008, this amount topped what S&P companies spent to replace or upgrade offices and equipment.

While I’m on this topic, a lot of noise has been made lately about how much companies spent last year repurchasing shares of their own stock. Many critics of President Donald Trump’s tax overhaul suggest that buybacks have been made at the expense of investing and giving workers raises. This is misleading to say the least. Capital expenditures grew substantially from 2017 to 2018—at their fastest pace since 2011, in fact—and often, the same companies that were buying back their stock also increased their investments in their own business and workers.

Moving on…

Buffett Says He’d Buy the S&P Today

For a while now, some financial analysts and pundits have been predicting the end of the business cycle, and the bull market’s 10-year anniversary is only likely to intensify those calls.

The truth is that business cycles do not die from old age alone. In the past, they’ve unraveled as a result of economic shocks, debt crises, wars, changes in monetary policy—but never simply because investors believed they overstayed their welcome.

In other words, I don’t think there’s any reason why this bull run can’t last another 10 years.

Legendary investor Warren Buffett told CNBC just last week that he thinks the aging bull still looks attractive, and if given the choice right now between investing in S&P 500 Index companies and a 10-year bond, he’d go with the former.

“If I had a choice today for a 10-year purchase of a 10-year bond… or buying the S&P 500 and holding it for 10 years, I’d buy the S&P in a second,” Buffett said.

A couple of caveats here: One, you can’t invest directly in an index. And two, Buffett is a billionaire many times over, and so his threshold for risk, even at 88 years old, is probably somewhere in the upper stratosphere.

Be that as it may, there’s research available to support Buffett’s rosy 10-year outlook. Below is a brief excerpt from Oxford Club Chief Income Strategist Marc Lichtenfeld’s 2012 bestseller “Get Rich With Dividends”:

Investing in the stock market works. Since 1937, if you invested in the broad market index, you made money in 69 out of 76 rolling 10-year periods, for a 91 percent win rate. That includes reinvesting dividends.

Past performance does not guarantee future results.

A 91 percent win rate. Put another way, it’s historically been very rare for a portfolio of S&P stocks not to have generated positive returns on a rolling 10-year basis.

10-Year Rolling Returns
S&P 500 Total Return Index
2018 259.63% 2008 -13.09%
2017 122.59% 2007 79.48%
2016 95.72% 2006 122.45%
2015 100.16% 2005 140.55%
2014 110.06% 2004 210.94%
2013 104.53% 2003 176.88%
2012 92.78% 2002 149.02%
2011 31.74% 2001 260.37%
2010 12.48% 2000 404.60%
2009 -7.03% 1999 422.84%
Past performance deos not guarantee future results. Source: DQYDJ.com, U.S. Global Investors

According to Marc, only two out of the past 20 years—2008 and 2009—were losers for the 10-year period with dividends reinvested, thanks to the financial crisis. And that’s only if you had cashed out at the worst possible time. Even the tech bubble of the late 1990s and early 2000s wasn’t enough to prevent most investors from losing their principal investments made a decade earlier.

What does all of this mean? It means investors have historically been rewarded when they’ve taken a longer-term outlook and stayed disciplined—and, I might add, focused on companies that were raising their dividends and then reinvested those dividends.

Expecting a Recession? It Might Pay to Stay Invested

If you believe that a recession or bear market will strike later this year or next, it still might not be time to get out of stocks altogether. That’s because returns have tended to be strongest 12 months or so before the start of a recession, as opposed to two or three years before.

Take a look at the chart below. Based on Morningstar data compiled by Wells Fargo, average returns for large-cap stocks have been highest at almost 25 percent for investors who sold 12 months before an economic downturn. Small-cap stock returns have been even higher at 36.4 percent. In both cases, profits have been much smaller for investors who got out two or three years prior to a recession. As I’ve noted already, past performance is no guarantee of future results.

Some of the best returns have come before a bear market
click to enlarge

Also note the returns for intermediate-term government bonds. As you might expect, they were much smaller than those of large-cap or small-cap stocks, no matter when you cashed out. But don’t let that deter you. There’s a place in most people’s portfolios for fixed income, as it can help counter potential equity volatility that has tended to arise late in the business cycle.

Active Management Late in the Cycle

Ten years is a long time, but again, I don’t necessarily think investors should rotate completely out of stocks just yet. I do, however, believe that if you’re going to stay invested, you might want to consider an actively managed fund. Passive ETFs are inexpensive and can give you broad exposure to the U.S. market, but they’re generally not as nimble as a fund managed by an investment professional.

And nimbleness is what you should be seeking if you’re worried about a downturn. Most ETFs rebalance on a quarterly or sometimes monthly basis. That’s perfectly fine for many investors, but if you’re interested in a fund that can respond more quickly to unexpected market hiccups or rallies, an actively managed mutual fund might be a better fit.   

I believe our All American Equity Fund (GBTFX) is an excellent way to stay invested in domestic stocks. The fund uses a number of factors to select companies that we believe have not just the biggest market caps but the potential for superior growth, profitability and quality relative to other companies in the same industry.

GBTFX emphasizes companies that have a history of growing dividends and announced stock repurchase programs. Its management team has over 60 combined years’ worth of experience in the capital markets.

Interested in learning more about the All American Equity Fund (GBTFX)? Watch our brief intro video by clicking here!

 

Please consider carefully a fund’s investment objectives, risks, charges and expenses. For this and other important information, obtain a fund prospectus by visiting www.usfunds.com or by calling 1-800-US-FUNDS (1-800-873-8637). Read it carefully before investing. Foreside Fund Services, LLC, Distributor. U.S. Global Investors is the investment adviser.

Past performance does not guarantee future results.

Stock markets can be volatile and share prices can fluctuate in response to sector-related and other risks as described in the fund prospectus.

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

The S&P 500 index is a basket of 500 of the largest U.S. stocks, weighted by market capitalization. The index is widely considered to be the best indicator of how large U.S. stocks are performing on a day-to-day basis. The Total Return Index calculates the results when cash payouts are automatically reinvested. The S&P Municipal Bond Intermediate Index consists of bonds in the S&P Municipal Bond Index with a minimum maturity of 3 years and a maximum maturity of 15 years. The Dow Jones U.S. Large-Cap Total Stock Market Index is a subset of the Dow Jones U.S. Total Stock Market Index, which measures all U.S. equity securities with readily available prices. The index represents the largest 750stocks and is float-adjusted market cap weighted. The Dow Jones U.S. Small-Cap Total Stock Market Index is a subset of the Dow Jones U.S. Total Stock Market Index, which measures all U.S. equity securities with readily available prices. The index represents the stocks ranked 751-2,500 by full market capitalization and is float-adjusted market cap weighted.

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.

Share “Can the Bull Market Run for Another 10 Years?”

Net Asset Value
as of 03/22/2019

Global Resources Fund PSPFX $4.51 -0.07 Gold and Precious Metals Fund USERX $7.38 -0.14 World Precious Minerals Fund UNWPX $2.79 -0.04 China Region Fund USCOX $8.50 -0.19 Emerging Europe Fund EUROX $6.59 -0.16 All American Equity Fund GBTFX $23.42 -0.49 Holmes Macro Trends Fund MEGAX $16.70 -0.31 Near-Term Tax Free Fund NEARX $2.21 0.01 U.S. Government Securities Ultra-Short Bond Fund UGSDX $2.00 No Change