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Home of the Free, Land of the Entrepreneur
July 6, 2015

 

Jan Koum, founder of WhatsApp

At 16, Jan Koum immigrated to the U.S. from his native Ukraine, then still under communist control. He and his single mother rented a small two-bedroom apartment on government assistance and relied on food stamps. Even though he didn’t own a computer at the time, Koum devoured computer networking manuals and became proficient at hacking, a skill that helped him land a job at Yahoo! in 1997.

But after nine years at the Internet company, Koum grew restless. He had other ideas and ambitions. Within a year of leaving Yahoo!, he developed a new instant messaging app for smartphones that he named WhatsApp. Its popularity took off, and Koum watched the valuation of his startup soar from $250,000 in 2009 to $1.5 billion in July 2013.

The following year—only five years after its launch—WhatsApp was acquired by social media titan Facebook for $16 billion plus $3 billion for the company’s founders. In a symbolic gesture, Koum signed the paperwork at the building that had once served as the welfare office where he received his food stamps. With the stroke of a pen, he became $6.8 billion richer. Today, WhatsApp is the top messaging app in the world, with 800 million monthly users, and Koum is number 208 on the Forbes 400 list of wealthiest Americans.

Jan Koum, founder of WhatsApp

Koum’s story might sound like a plotline from the mind of Horatio Alger, the nineteenth-century American novelist whose works dramatize the rise of an impoverished young man to financial prominence. But American history is replete with such stories, starting with that of Benjamin Franklin. One of the Founders of the United States, Franklin helped guarantee that this country would be a place where people can freely pursue their dreams, innovate and capitalize on their achievements.

Much has changed since Franklin signed the Declaration of Independence nearly 240 years ago, but America still stands as a land of opportunity for U.S.-born citizens and immigrants alike.

Where else but in America can a startup such as Uber be valued at $50 billion, higher than 80 percent of the companies in the S&P 500 Index, only six years after its founding? Where else but in America can someone reach billionaire status by inventing a new type of hosiery, as Sara Blakely did with Spanx? Before her now-ubiquitous undergarments were worn by women—and now men—all over the globe, Blakely was so broke that she had to write her own patent without the help of an attorney.

As I pointed out in a Frank Talk early last month, nearly 70 percent of billionaires who show up in the Forbes 400 list are self-made. In fact, the percentage of those who have a self-made score of 10, meaning they created their wealth from nothing (think Jan Koum, Oprah Winfrey and George Soros), now exceeds the percentage of those with a score of 1, indicating they inherited every cent (Laurene Powell Jobs, widow of Apple-founder Steve Jobs). 

Under Pressure: U.S. dollar Continues to Weigh on Copper
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Regarding Apple, the tech giant represents just one of numerous American companies that were founded by either an immigrant or the child of an immigrant (Jobs’ biological father, still living, is Syrian). Recent examples include Sergey Brin, co-founder of Google, who emigrated from the U.S.S.R.; Elon Musk, CEO of Tesla Motors, originally from South Africa; and Yahoo! founder Jerry Yang, a Taiwanese émigré. According to the entrepreneurial research firm Kauffman Foundation, a quarter of all technology and engineering companies created in the U.S. between 2006 and 2010 were founded by foreign-born entrepreneurs. Amazingly, more than 40 percent of Fortune 500 companies were at least co-founded by immigrants or their children: AT&T, Budweiser, General Electric and IBM, among many more.

It’s doubtful that Jan Koum would have found the same level of success had he and his mother stayed in Ukraine. Fortunately for him, as well as the millions who regularly enjoy and benefit from his innovative service, the U.S. welcomed him in and allowed his talents to flourish.

We asked some of our team members why they came to the U.S.

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

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

Fund portfolios are actively managed, and holdings may change daily. Holdings are reported as of the most recent quarter-end. The following securities mentioned in the article were held by one or more of U.S. Global Investors Funds as of 3/31/2015: Apple Inc., AT&T Inc., Facebook Inc., IBM.

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Investors Take Shelter as Greek Referendum Nears
July 1, 2015

American industrialist J. Paul Getty once said: “If you owe the bank $100, that’s your problem. If you owe the bank $100 million, that’s the bank’s problem.”

And when the amount is $1.73 billion, it’s everyone’s problem. Greece is officially in arrears for missing its scheduled payment Tuesday to the International Monetary Fund (IMF). Expecting this, American stocks had their largest one-day drop of 2015 on Monday. Market volatility, as measured by the VIX, spiked sharply.

Volatility Spikes on Greek Fears
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Investors responded by seeking safe-haven investments such as Treasuries, gold and municipal bonds.

This Sunday, Greece plans to vote on whether to comply with their creditors’ present conditions or to reject the terms, a choice some think could lead to a so-called Grexit from the eurozone. Currently, there’s no such exit clause written into the legal fabric of the currency system other than leaving the entire European Union, an extreme “solution.” No matter how this particular act plays out, there are still more (and even larger) loan payments waiting in the wings, the next one owed to the European Central Bank (ECB) and totaling nearly $4 billion.

German Chancellor Angela Merkel, whose country holds the greatest total amount of Greek debt, officially refused to renegotiate the bailout terms until after the referendum.

Which Countries Would Suffer the Most If Greece Defaulted on Its Debt
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In many ways, the unfolding Greek drama is playing out like a sequel to the Cyprus banking crisis two years ago, which also had far-reaching ripple effects in world markets. But the present situation could potentially have much larger ramifications.

How Cyprus Prevented Capital Flight and Saved Its Economy

Cyprus has climbed most of the way out of its financial hole after making bad loans to—wouldn’t you know it?—Greece, following the 2008 crisis. One of the ways the Cypriot government managed to do this was by implementing capital controls. Cyprus imposed restrictions on how many euros could be withdrawn per day or taken out of the country, and ATMs rationed cash.

Can Greece hold up its economy?Similar capital controls are now in place in Greece. Banks are closed until at least next Monday—the day after the referendum—and no more than 60 euros may be withdrawn from ATMs per day, per account. Greeks traveling abroad also face restrictions. Even parents who have children studying abroad will need to apply for permission to send them money. These inconveniences are forcing citizens to realize the possible, and potentially very unpleasant, consequences of a no vote in the upcoming referendum.

One opinion poll right now shows that a slim majority of Greek respondents are in favor of working out a deal with the IMF and other lenders. Former Cypriot Minister of Finance Michael Sarris—who’s had plenty of experience with debt negotiations—agrees. He urges Greece to vote yes, stating that to do so “takes [them] back to the negotiating table with the chance of a better outcome.”

Among the Greek voters, of course, are pensioners and low-income Greeks who receive government benefits. Fed up with austerity, such voters seem much more likely to vote no. But this way of thinking is precisely what landed Greece in its current situation to begin with. For years the country has been financing its ever-expanding budget with loans from European banks and the IMF, with no plan in place on how to repay them. In fact, Greece has spent 90 of the last 192 years in one financial crisis or another, according to Bank of America Merrill Lynch.

Greece Has Spent 90 of the Past 192 Years in Financial Crisis
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For this reason and more, MSCI, global index provider, is seriously considering demoting Greece from the emerging market category to the solitary, windswept “standalone” category, which includes Venezuela, Ghana, Zimbabwe and other outliers.

Greek Stocks Trail Europe
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This past April, Cyprus lifted the last of its capital controls. Although it was a painful process, things are moving in a positive direction. Let’s hope the people of Greece make the right decision so that their country can likewise begin the recovery process.

Greece Unlikely to Leave the Eurozone

Obviously this topic is of interest to our investors, so I’ll be sure to update you on how our investment team is handling the situation. For now, it’s important to know that a Grexit is unlikely to happen. Such a move would be a huge, symbolic blow not only to Greece, one of the earliest members of the fledgling European Community, but also the monetary experiment known as the euro. Even Greek Prime Minister Alexis Tsipras admits that the cost to the EU for kicking Greece out of the eurozone would be too immense.

The uncertainty has sent shockwaves through world markets, prompting investors to seek safety in core investment assets, including municipal bonds.

Our Near-Term Tax Free Fund (NEARX) invests heavily in quality, short-term munis. Having provided investors with over 20 straight years of positive returns, NEARX holds five stars overall from Morningstar, among 185 Municipal National Short-Term funds as of 5/31/2015, based on risk-adjusted return.

Explore NEARX!

 

Please consider carefully a fund’s investment objectives, risks, charges and expenses. For this and other important information, obtain a fund prospectus by visiting www.usfunds.com or by calling 1-800-US-FUNDS (1-800-873-8637). Read it carefully before investing. Distributed by U.S. Global Brokerage, Inc.

Total Annualized Returns as of 3/31/2015:
Fund One-Year Five-Year Ten-Year Gross Expense Ratio Expense Cap
Near-Term Tax Free Fund 2.38% 2.59% 3.10% 1.08% 0.45%

Expense ratio as stated in the most recent prospectus.The expense cap is a contractual limit through April 30, 2016, for the Near-Term Tax Free Fund, on total fund operating expenses (exclusive of acquired fund fees and expenses, extraordinary expenses, taxes, brokerage commissions and interest).Performance data quoted above is historical. Past performance is no guarantee of future results. Results reflect the reinvestment of dividends and other earnings. For a portion of periods, the fund had expense limitations, without which returns would have been lower. Current performance may be higher or lower than the performance data quoted. The principal value and investment return of an investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. Performance does not include the effect of any direct fees described in the fund’s prospectus which, if applicable, would lower your total returns. Performance quoted for periods of one year or less is cumulative and not annualized. Obtain performance data current to the most recent month-end at www.usfunds.com or 1-800-US-FUNDS.

Morningstar Rating

Overall/185
3-Year/185
5-Year/161
10-Year/111

Morningstar ratings based on risk-adjusted return and number of funds
Category: Municipal National Short-term funds
Through: 5/31/2015

Morningstar Ratings are based on risk-adjusted return. The Morningstar Rating for a fund is derived from a weighted-average of the performance figures associated with its three-, five- and ten-year Morningstar Rating metrics. Past performance does not guarantee future results. For each fund with at least a three-year history, Morningstar calculates a Morningstar Rating based on a Morningstar Risk-Adjusted Return measure that accounts for variation in a fund’s monthly performance (including the effects of sales charges, loads, and redemption fees), placing more emphasis on downward variations and rewarding consistent performance. The top 10% of funds in each category receive 5 stars, the next 22.5% receive 4 stars, the next 35% receive 3 stars, the next 22.5% receive 2 stars and the bottom 10% receive 1 star. (Each share class is counted as a fraction of one fund within this scale and rated separately, which may cause slight variations in the distribution percentages.)

Bond funds are subject to interest-rate risk; their value declines as interest rates rise. Though the Near-Term Tax Free Fund seeks minimal fluctuations in share price, it is subject to the risk that the credit quality of a portfolio holding could decline, as well as risk related to changes in the economic conditions of a state, region or issuer. These risks could cause the fund’s share price to decline. Tax-exempt income is federal income tax free. A portion of this income may be subject to state and local taxes and at times the alternative minimum tax. The Near-Term Tax Free Fund may invest up to 20% of its assets in securities that pay taxable interest. Income or fund distributions attributable to capital gains are usually subject to both state and federal income taxes.

The Chicago Board Options Exchange (CBOE) Volatility Index (VIX) shows the market's expectation of 30-day volatility.

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

The EURO STOXX 50 Index provides a Blue-chip representation of supersector leaders in the eurozone. The index covers 50 stocks from 12 eurozone countries: Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain.

Fund portfolios are actively managed, and holdings may change daily. Holdings are reported as of the most recent quarter-end. Holdings in the Near-Term Tax Free Fund as a percentage of net assets as of 3/31/2015: Global X FTSE Greece 20 ETF 0.00%.

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

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$8 Trillion Alternative Energy Boom Is a Win for Copper
June 29, 2015

Here’s a bit of energizing news: In 2014, for the first time in four decades, the global economy grew along with energy demand without an increase in global carbon emissions.

That’s according to energy policy group REN21’s just-released Renewables 2015 Global Status Report, which attributes this stabilization to “increased penetration of renewable energy and to improvements in energy efficiency.”

What this means is that as the world’s population continues to grow, and as more people in developing and emerging countries gain access to electricity, the role alternative energy sources such as wind, solar and geothermal play should skyrocket. Between now and 2040, a massive $8 trillion will be spent globally on renewables, about two thirds of all energy spending, according to Bloomberg New Energy Finance. Solar power alone is expected to draw $3.7 trillion.

$8 Trillion in Renewable Energy Spending by 2040. A Boon for Copper.

This is good news indeed for copper, necessary for the conduction of electricity in all energy technologies, whether they be traditional or alternative. The use of some carbon-emitting fossil fuels—coal, for instance—will likely drop off over the years, but copper will remain an irreplaceable component in our ever-expanding energy needs.

Global copper consumption is poised to increase not just because electricity demand is growing. New energy technologies typically require more of the red metal than traditional sources. Each megawatt of wind power capacity, for instance, uses an average of 3.6 tonnes of copper. Electric trolleys, buses and subway cars use about 2,300 pounds of copper apiece. Where we’ll see the most significant growth, though, is in the production of hybrid and electric cars, which use two to three times more copper than internal combustion engines.

Each NEw Generation of Car Needs More Copper Wiring
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Leading the way in electric vehicle technologies, of course, is billionaire entrepreneur Elon Musk’s Tesla Motors, whose $5-billion Gigafactory is currently under construction in Reno, Nevada. When production begins on its lithium-ion batteries, it will consume biblical amounts of base metals and other raw materials—so much, in fact, that some analysts question whether world supply can meet demand. Besides needing a constant stream of lithium and nickel, the factory will consume a staggering 17 million tonnes of copper, 7,000 tonnes of cobalt (today, worldwide supply is 110,000 tonnes), 25,000 tonnes of lithium (about a fifth of worldwide supply), and 126,000 tonnes of raw graphite (a little over a third of global supply). To keep up with such demand, nine new graphite mines will reportedly need to be opened.

This should come as welcome news for industry-leading base metals mining companies Freeport-McMoRan, Rio Tinto, Lundin Mining and Glencore, the last one of which we own in our Global Resources Fund (PSPFX).

Airlines Stocks Could Climb as High as 50 Percent

Solar Impusle 2

Automobiles aren’t the only types of transportation that are looking to renewables. The world’s first circumnavigation of the globe by an aircraft powered entirely by the sun is in its third month. The wings of Solar Impulse 2, whose span comes slightly under that of an Airbus A380, is covered by over 11,600 photovoltaic cells. Next year, Alaska Airlines plans to demonstrate a flight using only renewable jet fuel made from forest residues.

As for the entire airline industry, a recent Barron’s article announces that within 12 months, shares of the nation’s top four carriers could rise as much as 50 percent. Among the changes that “have left the industry in the best financial shape in decades,” according to Barron’s, are “consolidation, cost cuts and fee hikes,” not to mention cheaper fuel.

Manufacturing in China Declining, but Eurozone Could Pick Up the Slack

To be sure, copper and other base metals face some strong headwinds right now, not least of which is the strong U.S. dollar. As you can see, the red metal and the greenback have an inverse relationship.

Under Pressure: U.S. dollar Continues to Weigh on Copper
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The Thomson Reuters GFMS Survey estimates that the incentive price for new copper production is $3.50 per pound, a level unseen since March 2013. Although global copper mine production increased around 1.5 percent year-over-year in the first quarter of 2015, we might see a copper supply deficit in the next 10 years.

Many base metals, copper especially, rely heavily on orders from China, the top purchaser of the red metal. The world’s second biggest economy accounts for 40 percent of all copper consumption, but this figure might be threatened the longer its manufacturing sector remains at lukewarm levels. Although the preliminary purchasing manager’s index (PMI) reading rose slightly in June to 49.6, it’s still below the important expansion threshold of 50.

China's Manufacturing Output Stabalizes as New Order Improves SLightly
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About 60 percent of the copper China purchases goes toward the property sector, an area that’s finally starting to show signs of life after almost a year of falling prices.

A bright spot for copper demand, however, is the eurozone, whose own flash PMI hit a 49-month high of 54.1. The expansion was led by Germany and France, which saw output rising at its sharpest rate since August 2011.

Flash Eurozone Purchasing Managers' Index (PMI) Hits Four-Year High in June
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Copper Keeping It Cool for Billions Around the World

In the coming years, more and more people all over the globe will gain access to electricity, a growing percentage of which we will derive from renewable sources. In an interview with The Gold Report, my friend Gianni Kovacevic—whose 2014 book, My Electrician Drives a Porsche?, is an indispensable and entertaining resource on this topic—reminds us that by 2035, nearly two billion people will have an electricity bill for the first time.

Think about the impact that will have on all of our resources. Many of these people live close to the equator. When they begin to have more wealth, they live in more comfort. One of the first things they acquire is an air conditioning unit, or a refrigerator as they eat a protein-based diet. However, whether it’s a need or a want, the backbone of their future consumption footprint is energy, and, more specifically, electricity.

And along for the ride, whether in fossil-fuel power plants or wind turbines, will be copper.

Please consider carefully a fund’s investment objectives, risks, charges and expenses. For this and other important information, obtain a fund prospectus by visiting www.usfunds.com or by calling 1-800-US-FUNDS (1-800-873-8637). Read it carefully before investing. Distributed by U.S. Global Brokerage, Inc.

Foreign and emerging market investing involves special risks such as currency fluctuation and less public disclosure, as well as economic and political risk. Because the Global Resources Fund concentrates its investments in specific industries, the fund may be subject to greater risks and fluctuations than a portfolio representing a broader range of industries.

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 HSBC Flash China Manufacturing PMI is published a week ahead of the final HSBC China PMI every month. It analyzes 85-90 percent of the responses to the Final PMI from purchasing executives in more than 400 small, medium and large manufacturers, both state-owned and private enterprises. The Markit Flash Eurozone PMI is typically based on approximately 85%–90% of total PMI survey responses each month and is designed to provide an accurate advance indication of the final PMI data.

Fund portfolios are actively managed, and holdings may change daily. Holdings are reported as of the most recent quarter-end. Holdings in the Global Resources Fund as a percentage of net assets as of3/31/2015: Tesla Motors Inc. 0.00%, Freeport-McMoRan Inc. 0.00%, Rio Tinto plc 0.00%, Lundin Gold Inc. 0.00%, Glencore plc 2.96%, Airbus Group SE 0.00%, Alaska Air Group Inc. 0.21%.

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

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There’s a Huge Disparity Between How Regulators Deal with Gold and Stock Market Manipulation
June 26, 2015

Gold futures were going bonkers in the fall of 2013 and early 2014.

On a weekly and sometimes daily basis, unbelievably massive gold contracts were coming on the market at non-peak trading hours, only to be withdrawn almost instantaneously. In one particularly alarming instance in January 2014, the yellow metal plummeted $30, from $1,245 an ounce to below $1,215, in as little as 100 milliseconds.

The GOld Futures "Flash Crash" of January 6, 2014
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Whatever the cause of this behavior—“fat finger” errors, as some people suggested, or “quote stuffing,” as others suspected—markets were effectively shaken.

From the very beginning, we reported on these anomalies in a series of commentaries that read now like notes from a foxhole. In the September 13, 2013 edition of our Investor Alert, the USGI investments team wrote:

The bullion plunge this week sent the yellow metal breaking below the 100- and 50-day moving averages. Strange dealing patterns are adversely affecting the gold price. These dealings revolve around the “flashing” of massive gold contracts for sale to traders, at a time of day that there is normally little or no activity in the markets, and no news story being released.

Then, on October 25:

You can see massive trading volumes every day of over 5,000 contracts, all around the same time. On the first of October, as well as on October 10, there were massive trades of over 20,000 contracts. This amount represents well over two million ounces, or around $2.6 billion. It’s safe to say nobody has that amount of physical gold, apart from the big central banks, so these trades are being done by entities trading gold they do not have in a manner designed primarily to trigger stop loss orders.

Unusual Gold Trades Triggering Sharp Swings in Gold Price
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And again, on December 20, 2013:

In recent weeks, there have been concerns among market participants and regulators that the process for establishing the price of gold may lend itself to insider trading and other forms of unfair dealing. The spot price of gold tends to drop sharply around the London evening fixing, or 10:00 a.m. Eastern. A similar, if less pronounced, drop in price occurs around the London morning fixing. For both commodities, there were, on average, no comparable price changes at any other time of the day. These patterns appear to be consistent with manipulation in both markets.

Although these “strange dealing patterns” eventually tapered off, it remained a mystery who or what was behind them.

Until now.

Last week, the CME Group officially accused Mirus Futures, a now-defunct brokerage firm, of failing to “adequately monitor the operation of its trading platform,” which resulted in “unusually large and atypical trading activity by several of the Firm’s customers.” This is what allegedly led to the disruption in price discovery in the gold futures market.

The Partyallegedly behind the gold "flash crashes" in 2013 and 2014 has been identified.

What’s unclear is how culpable Mirus Futures really was in all of this. At the very least, it acted carelessly. Did its trading platform have a glitch, and if so, when did Mirus become aware of it? Was it deliberately trying to manipulate the gold markets? There’s no way we can know the answers to these questions. That Mirus has since been acquired by another brokerage firm would make any investigation into its intentions—if there were any to begin with—even more challenging for authorities.

What I find especially notable, though, is that the firm settled with the CME by paying a fine of only $200,000.

This is already a pretty paltry amount, considering how far-reaching its actions (or inactions) were. But when you compare the $200,000 penalty to what Navinder Sing Sarao faces, a huge disparity in the enforcement of such white collar crimes emerges.

Flashing the Stock Market

You might not be familiar with the name Navinder “Nav” Sarao, but it’s likely you’ve heard of the event he’s accused of orchestrating, thanks largely to Michael Lewis’s bestselling book Flash Boys. On May 6, 2010, Sarao, a 36-year-old British day trader, allegedly spoofed American markets using a familiar technique: mammoth-size orders were placed, only to be withdrawn right before execution. Price discovery broke down. In the brief timespan of five minutes, the Dow Jones Industrial Average was taken on a wild 1,000-point ride. Shares of Procter & Gamble fell to as little as a penny. Altogether, nearly $1 trillion in value vanished from U.S. stocks.

Down Jones Industrial Average on May 6, 2010
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Two months after being arrested by Scotland Yard, Sarao now sits in a British prison on bail set at $7.5 million, his assets completely frozen. He awaits extradition to the U.S., where he will face multiple charges, including several counts of market manipulation, commodity fraud, wire fraud and more. According to the Department of Justice, “Sarao’s alleged manipulation earned him significant profits and contributed to a major drop in the U.S. stock market.”

The maximum sentence for all charges is 380 years in jail. Next to that, a $200,000 fine seems more reward than punishment.

You could argue that the upheaval that Sarao contributed to, if not singlehandedly caused, is more significant than the series of gold flashes that occurred in 2013 and 2014. Or that Sarao demonstrated nefarious intentions more unambiguously than Mirus Futures did. Still, the discrepancy is colossal and hard to ignore.

“Apparently regulators care much more about manipulation of the stock market than gold,” commented Ralph Aldis, portfolio manager of our Gold and Precious Metals Fund (USERX) and World Precious Minerals Fund (UNWPX).

This could be a problem. As long as rogue traders are convinced that their actions will go unchecked, the gold market could continue to be a target and the metal’s fair value remain under pressure. As I wrote last year in my whitepaper Managing Expectations: “We welcome the regulators to explore ways to manage these issues better and create both a fairer playing field and more transparent trading arena.”

But until gold is allowed to find its true, fundamental value, now might be a good time to accumulate. As always, I recommend that investors allocate 10 percent of their portfolios to gold—5 percent in bullion, 5 percent in gold stocks, then rebalance every year.

Tell us what you think!

Please consider carefully a fund’s investment objectives, risks, charges and expenses. For this and other important information, obtain a fund prospectus by visiting www.usfunds.com or by calling 1-800-US-FUNDS (1-800-873-8637). Read it carefully before investing. Distributed by U.S. Global Brokerage, Inc.

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

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

Fund portfolios are actively managed, and holdings may change daily. Holdings are reported as of the most recent quarter-end. Holdings in the Gold and Precious Metals Fund and World Precious Minerals Fund as a percentage of net assets as of 3/31/2015: CME Group Inc. 0.00%, Procter & Gamble Co. 0.00%.

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

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Gold and Health Care Stocks Get a Clean Bill of Health
June 22, 2015
June 2006: Shakira's hips didn't lie and rates rose for the last time

Even though the Federal Reserve announced last week that it would wait a little longer to raise rates, spooked investors fled to gold bullion, helping to drive prices above $1,200 an ounce. It was the greatest single-session surge by percentage in nearly a month and a half for the yellow metal, widely seen as a safe-haven investment. As I told MarketWatch, $1,200 is an important threshold for gold miners because it helps increase profitability and spur production.

The market move can be attributed not only to the Fear Trade—interest rate jitters and the Greek financial crisis—but also to the Love Trade. Heading into late June, the yellow metal has historically hit a trough and then rebounded on account of the approaching Indian festival and wedding seasons, a traditional time for gold gift-giving. I mentioned in a recent Frank Talk that in all but two of the past 27 years, gold and gold equities enjoyed a late summer rally, and that between 2001 and 2014, the metal posted an average 14.9-percent gain between midsummer and mid-autumn.

At the same time, it’s important for investors to keep in mind that gold has its own DNA of volatility. For the 12-month period over the last 10 years, gold’s volatility has been plus or minus 19 percent.

Other factors that could be influencing gold markets right now are China and, believe it or not, the State of Texas. The Asian giant is buying massive amounts of the metal to back the renminbi, which it purportedly wants to elevate to a world-class reserve currency. Similarly, Texas will be bringing home between $650 million and $1 billion worth of bullion from the Federal Reserve, as it’s in the early stages of creating the first state-run gold depository.

Global Pharmaceutical Spending Could Reach $1.3 Trillion by 2018

Besides gold, we’re also finding strength in health care, the best-performing S&P 500 Index sector for not only the week but also the one-, three-, five- and 10-year periods.

It’s easy to see why. According to health care information and technology company IMS Health, total pharmaceutical spending around the globe is expected to reach $1.3 trillion in just three years’ time. Although the U.S. remains the largest market in the world, China is set to experience the largest spending growth as its population continues to swell and incomes rise.

Pharmaceutica-spending-per-capita-is-expected-to-grow
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Indeed, in many parts of the world, the fastest-growing demographic is those aged 65 and older, a cohort that is much more likely to be prescribed medicines and require other health care treatments and services. Because of rising life expectancy, the number of centenarians—those over 100—is projected to grow 10-fold between 2010 and 2050, according to the National Institute on Aging.

Percent-Change-in-the-Worlds-Population-by-Age-2010-2050
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As a result, the number of people over 65 will, for the first time ever, make up a larger percentage of the world’s population than those under five. This bifurcation should continue to widen as even more people live longer and reach advanced ages.

Young-Children-and-Older-People-as-a-Percentage-of-Global-Population
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2015 Health Care M&As Expected to Top 2014’s Record $114 Billion

Last year, health care companies benefited from a series of business deals, all of which totalled a record $114 billion. We’re only halfway through the year, and already we’ve seen close to $100 billion worth of mergers, acquisitions and other deals, one of the biggest being CVS’s takeover of Target’s pharmaceutical business for $2 billion.

Below, you can see how some of the growthier health care companies we hold in our Holmes Macro Trends Fund (MEGAX)—Canadian drug-maker Valeant,  insurance company Cigna and hospital-operator HCA Holdings—have outperformed the S&P 500 Health Care Index year-to-date. All three companies recently hit all-time highs.

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Valeant, maker of a wide range of best-selling drugs, has managed to expand over the years through a host of strategic acquisitions, including eyecare company Bausch + Lomb and specialty pharma company Salix Pharmaceuticals. It’s reported that a Valeant insider has recently purchased $1.8 million in company stock, usually a good sign of future growth. Meanwhile, Cigna shares had a boost when the market learned that rival insurers Anthem and Aetna expressed interest in buying the Connecticut-based company.

Because of a growing (and aging) population and the emergence of a truly global middle class, we see health care as a strong performer for the long-term. Along with information technology and consumer discretionary, we are overweight health care right now, which has helped MEGAX beat its benchmark, the S&P Composite 1500 Index, year-to-date. 

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This Asset Class Could Earn You More Income Than Treasuries, and It's Tax-Advantaged

In a recent Barron’s article, investors are reassured that even though the municipal bond market has contracted for the last three months largely because of interest rate concerns, now might be a great time to get into shorter-term munis. In fact, according to Bloomberg, households are increasingly moving away from individual muni bonds and into actively-managed muni mutual funds.

Seekers of fixed income, Barron’s says, can earn more “from a triple-A rated muni maturing in 15 years than they can from a Treasury—roughly 2.8 percent versus 2.6 percent.”

The muni, moreover, is tax-free at the federal level and, in many cases, the state level.

Our Near-Term Tax Free Fund (NEARX) invests mostly in quality, short-term municipal bonds. Having provided investors with over 20 straight years of positive returns, NEARX holds five stars overall from Morningstar, among 185 Municipal National Short-Term funds as of 5/31/2015, based on risk-adjusted return.

Explore NEARX today!

Please consider carefully a fund’s investment objectives, risks, charges and expenses. For this and other important information, obtain a fund prospectus by visiting www.usfunds.com or by calling 1-800-US-FUNDS (1-800-873-8637). Read it carefully before investing. Distributed by U.S. Global Brokerage, Inc.

Past performance does not guarantee future results.

Total Annualized Returns as of 3/31/2015:
Fund One-Year Five-Year Ten-Year Gross Expense Ratio Expense Cap
Holmes Mega Trends Fund -2.45% 9.16% 5.10% 1.94% N/A
Near-Term Tax Free Fund 2.38% 2.59% 3.10% 1.08% 0.45%
S&P 1500 Composite Index 12.54% 14.64% 8.26% N/A N/A

Expense ratio as stated in the most recent prospectus. The expense cap is a contractual limit through April 30, 2016, for the Near-Term Tax Free Fund, on total fund operating expenses (exclusive of acquired fund fees and expenses, extraordinary expenses, taxes, brokerage commissions and interest). Performance data quoted above is historical. Past performance is no guarantee of future results. Results reflect the reinvestment of dividends and other earnings. For a portion of periods, the fund had expense limitations, without which returns would have been lower. Current performance may be higher or lower than the performance data quoted. The principal value and investment return of an investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. Performance does not include the effect of any direct fees described in the fund’s prospectus which, if applicable, would lower your total returns. Performance quoted for periods of one year or less is cumulative and not annualized. Obtain performance data current to the most recent month-end at www.usfunds.com or 1-800-US-FUNDS.

Morningstar Rating

Overall/185
3-Year/185
5-Year/161
10-Year/111

Morningstar ratings based on risk-adjusted return and number of funds
Category: Municipal National Short-term funds
Through: 5/31/2015

Morningstar Ratings are based on risk-adjusted return. The Morningstar Rating for a fund is derived from a weighted-average of the performance figures associated with its three-, five- and ten-year Morningstar Rating metrics. Past performance does not guarantee future results. For each fund with at least a three-year history, Morningstar calculates a Morningstar Rating based on a Morningstar Risk-Adjusted Return measure that accounts for variation in a fund’s monthly performance (including the effects of sales charges, loads, and redemption fees), placing more emphasis on downward variations and rewarding consistent performance. The top 10% of funds in each category receive 5 stars, the next 22.5% receive 4 stars, the next 35% receive 3 stars, the next 22.5% receive 2 stars and the bottom 10% receive 1 star. (Each share class is counted as a fraction of one fund within this scale and rated separately, which may cause slight variations in the distribution percentages.)

Bond funds are subject to interest-rate risk; their value declines as interest rates rise. Though the Near-Term Tax Free Fund seeks minimal fluctuations in share price, it is subject to the risk that the credit quality of a portfolio holding could decline, as well as risk related to changes in the economic conditions of a state, region or issuer. These risks could cause the fund’s share price to decline. Tax-exempt income is federal income tax free. A portion of this income may be subject to state and local taxes and at times the alternative minimum tax. The Near-Term Tax Free Fund may invest up to 20% of its assets in securities that pay taxable interest. Income or fund distributions attributable to capital gains are usually subject to both state and federal income taxes.

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

The S&P 500 Stock Index is a widely recognized capitalization-weighted index of 500 common stock prices in U.S. companies. The S&P 1500 Composite is a broad-based capitalization-weighted index of 1500 U.S. companies and is comprised of the S&P 400, S&P 500, and the S&P 600. The index was developed with a base value of 100 as of December 30, 1994. The S&P 500 Healthcare Index is a capitalization-weighted index.

Fund portfolios are actively managed, and holdings may change daily. Holdings are reported as of the most recent quarter-end. Holdings in the Holmes Macro Trends Fund and Near-Term Tax Free Fund as a percentage of net assets as of 3/31/2015: IMS Health Holdings Inc. 0.00%, CVS Health Corp. 0.00%, Target Corp. 0.00%, Cigna Corp. 0.00%, Valeant Pharmaceuticals International Inc. 0.00%, HCA Holdings Inc. 0.00%, Bausch & Lomb Inc. 0.00%, Salix Pharmaceuticals Inc. 0.00%, Athem Inc. 0.00%, Aetna Inc. 1.14%.

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.

Share “Gold and Health Care Stocks Get a Clean Bill of Health”

Net Asset Value
as of 07/07/2015

Global Resources Fund PSPFX $5.38 0.02 Gold and Precious Metals Fund USERX $5.25 -0.20 World Precious Minerals Fund UNWPX $4.34 -0.18 China Region Fund USCOX $8.34 -0.31 Emerging Europe Fund EUROX $5.92 -0.04 All American Equity Fund GBTFX $27.82 0.12 Holmes Macro Trends Fund MEGAX $21.22 -0.02 Near-Term Tax Free Fund NEARX $2.24 No Change U.S. Government Securities Ultra-Short Bond Fund UGSDX $2.01 No Change