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April 21, 2014
Why Energy is Catching the Market’s Eye

Over the last month the energy sector has outperformed the market, and as you can see in the chart below, has done so by 6.5 percent. Year-to-date the sector is beating the S&P 500 Index by over 3 percent.

In a spectacularly performing market during 2013, energy lacked some of the incredible performance seen throughout the other sectors, but recently it has turned up, catching the attention of the market yet again.

Greek 10-Year Government Bond Yields Back to Pre-Crisis Levels
click to enlarge

What’s causing this sudden shift in relative strength?

As our Director of Research John Derrick describes in our recent video on the Periodic Table of Sector Returns, it is not unusual to see sectors move from top to bottom from one year to the next. For example, energy ranked as one of the top-performing sectors from 2004 through 2007, but quickly lost momentum in 2008 when it was hit the hardest after the financial crisis. In 2012 and 2013 energy turned in some solid numbers, but lagged in comparison to the other sectors.

Greek 10-Year Government Bond Yields Back to Pre-Crisis Levels
click to enlarge

In looking at an overview of market performance, it’s important to recognize what caused the moves. For example, one reason the energy sector is climbing back up, could be due to the broader market rotation that we’ve noticed recently, from growth stocks to value stocks.

Growth stocks are generally successful companies that are expected to continue growing their earnings, usually at a rate that outpaces the market, causing investors to pay more for them. Value stocks rarely outpace the market as much as growth stocks do. Investors see potential in buying these cheaper names, ones that trade at lower price-to-earnings (P/E) ratios than the S&P average, because they still have the potential to significantly outperform over time.

As I mentioned, in the past few weeks high-growth names have pulled back, while value names are steadily gaining momentum. One of the main reasons for this rotation is that some investors view the valuations of growth names as too high, especially in comparison to the value companies.

What’s significant is that many of these value names happen to be in the energy sector. We’ve taken advantage of this shift to value in our Global Resources Fund (PSPFX) through names like Pacific Rubiales and Valero Energy.

Although this rotation is important to the recent moves in energy, it is not the only factor driving the sector up. Take a look at the price of oil and natural gas.

Currently natural gas prices are starting to stabilize while the price of West Texas Intermediate (WTI) crude oil is up by 4 percent year-to-date, reaching $104 a barrel just last week. This price increase in WTI is linked to concerns over future supply, but nevertheless higher oil prices bode well for stocks within the energy sector.

According to the Energy Information Administration (EIA), short-term projections for the price of WTI remain relatively high. Additionally, the group commented that, “Aside from seasonal issues, the EIA expects strong crude oil production growth, primarily concentrated in the Bakken, Eagle Ford, and Permian regions, continuing through 2015. Forecast production increases from an estimated 7.4 million barrels per day in 2013 to 8.4 million barrels per day in 2014 and 9.1 million barrels per day in 2015.” This projection is good for North American producers and service companies.

So how can you gain entry into this energy opportunity?

The portfolio managers and I continue to stay focused on companies that show robust fundamentals and are located in sectors showing strength. Currently, within our Global Resources Fund (PSPFX), we are capturing the latest takeoff in the energy sector through our exposure to companies that are reasonably valued. In addition to the two I mentioned previously, if you look at the fund's top 10 holdings you will also see our investments in large-cap names like Schlumberger Ltd, EOG Resources and Halliburton Co.

Are you ready to energize your portfolio? I believe a well-diversified portfolio includes exposure to natural resources. In fact, I was just in Tirana, the capital city of Albania, where I have had the opportunity to expand my tacit knowledge by visiting several resource companies.

I am excited to share my journey with you this week when I return home!

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.

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 a specific industry, the fund may be subject to greater risks and fluctuations than a portfolio representing a broader range of industries.

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 as a percentage of net assets as of 03/31/14: EOG Resources 2.37%, Halliburton Co 1.87%, Pacific Rubiales Energy Corp  0.25%, Schlumberger Ltd 3.46%, Valero Energy Corp 0.29%.

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

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April 15, 2014
Tick, Tock, Tax Time

How Much Are We Paying in Taxes?In 2014, Americans will pay $3 trillion in federal taxes and $1.5 trillion in state taxes. Believe it or not, according to the Tax Foundation, that means more of your income is being spent on taxes than on food, clothing and housing combined!

Ever wonder where that money goes? My friend Terry Savage points out this interesting graphic of just how the federal government spent your tax dollars.

Time to Pay Up
In fact, today marks the official deadline for taxpayers to file their 2013 returns to the Internal Revenue Service (IRS) without penalty, lending a sigh of relief to many that the process is over, but leaving others still in panic mode.

Changes in the IRS tax brackets from 2013 to 2014 were minimal for the most part, with many Americans remaining in their same income bracket.

As I wrote about earlier this year, what’s interesting is to see exactly how much the different income brackets are paying in taxes. Did you know the top 1 percent of American income earners pay increasingly more in taxes than the bottom 90 percent? In 1980 the bottom 90 percent paid about half, compared to less than a third in 2011.

Our Tax Table Handout details the 2014 tax rates and brackets, along with information about savings and retirement plans. If you are unsure where you fall, I encourage you to take a look, especially at deferral limits.

Tax Freedom Day
Whether or not you are celebrating the completion of your tax filings today, there is yet another tax-related date to mark on your April calendar. April 21, known as Tax Freedom Day, is only six days away.

This day signifies when the United States, as a whole, has earned enough money to pay its tax bill for that specific year, says the Tax Foundation. According to the group, the determination of whether the taxes are paid, and thus what day Tax Freedom Day lands on, is based on a formula that divides federal, state and local taxes by U.S. income.

Although April 21 marks the Tax Freedom Day of the entire United States, each and every state has its own Tax Freedom Day as well. To simplify this, your state’s Tax Freedom Day is the day when residents of your state have worked long enough to pay all tax obligations at the federal, state and local level.

This depends on a variety of factors, but mainly relates back to the individual state’s tax policies as well as income brackets.

For example, in Texas, we have already reached our Tax Freedom Day which landed on April 13. Has your state reached its Tax Freedom Day yet? Check out the Tax Foundation website to learn where your state falls on the calendar.

The later your state’s Tax Freedom Day, the more money income earners are paying in taxes. Unfortunately this also means that the later the date, the less money taxpayers are able to save and reinvest in their communities.

Alleviating the Tax Burden
Understandably, “tax talk” isn’t the most popular conversation around the dinner table, but understanding the rules and knowing where your money goes, is important.

Don’t be overwhelmed by the big picture. One way to alleviate the tax burden is through investing in municipal bonds. At U.S. Global Investors, our Near-Term Tax Free Fund (NEARX) invests in municipal bonds with relatively short maturities.

In addition to monthly dividend income exempt from federal taxes, the fund has a track record of growth over time and is highly rated by Morningstar.

Remaining educated and curious about federal and local taxes, and knowing your options when it comes to investing, can help you prepare each time April rolls, especially when the clock starts ticking towards tax time.

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.

Bond funds are subject to interest-rate risk; their value declines as interest rates rise. Tax-exempt income is federal income tax free. A portion of this income may be subject to state and local income taxes, and if applicable, may subject certain investors to the Alternative Minimum Tax as well. 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 Near-Term Tax Free Fund may be exposed to risks related to a concentration of investments in a particular state or geographic area. These investments present risks resulting from changes in economic conditions of the region or issuer.

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 above, you will be directed to a third-party website. U.S. Global Investors does not endorse all information supplied by this website and is not responsible for its content. The information in this post does not constitute tax advice and is provided for informational purposes only.

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April 14, 2014
We’re Shuffling the Cards on Our European Play

Did you know that over the last year the Greek stock market is up roughly 45 percent? The country that many believed would never recover from a six-year recession is now making astounding strides, recently being added to the MSCI Emerging Markets Index at the end of 2013.

As I’ve witnessed new strength from this “comeback country,” along with a rise in foreign investment into emerging markets as a whole, our investment team is currently strategizing to adapt our game to new European plays. Here are the game changers we see:

We're looking to play our cards right to capture opportunity in the European recovery.Greece Wants Back in the Game
Last week, Greece returned to the international markets with a five-year bond sale, quickly topping $4 billion according to Bloomberg. The yield on these bonds is a little under 5 percent, an attractive number in comparison to other countries’ currency bonds. Greece has been shut out of the bond market for roughly four years now, but I believe the country’s reentry last week is an imminent sign of recovery. 

In the Investor Alert on March 28, we highlighted another indicator of Greece’s recovery. The Greek 10-year bond yields are back down to 2010 levels and the country’s economy is expected to grow by 1.1 percent this year. These conditions have boosted consumer confidence and allowed Greek banks to recapitalize, changing the lending landscape in a credit-starved nation.

Greek 10-Year Government Bond Yields Back to Pre-Crisis Levels
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A recent Reuters’ article discussed the Greek bond sale stating that, “It would not only raise confidence in Greece’s ability to fund itself and aid its recovery, but it also offers Europe the chance to claim its widely-criticized crisis medicine of tough cuts and austerity was necessary, and ultimately successful.”

In fact, last October our Director of Research John Derrick expressed his confidence in the country during a time when most investors wouldn’t offer Greece a second look. He said the country’s current account situation could move from a deficit to a surplus in 2014. As it stands now, several strong economic signs are pointing to John’s positivity on the country, including the fact that Greece hit a surplus before 2014 even began, as you can see in the chart below.

Greece Posts Current Account Surplus in 2013
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One way we are playing these powerful signs within our Emerging Europe Fund (EUROX), is through Greek banks such as Alpha and Piraeus. These banks recently recapitalized, and with the Greek banking industry now consolidated to only four major banks, these names are poised to benefit from the economic recovery.

The Cards Are Stacked Against the Russian Investment Case
I have always believed that government policies are a precursor to change, and witnessing the drama with Putin in the Russian corner of the globe, I think now is a perfect time to shuffle our investment deck and underweight our portfolio to the country. We noticed economic growth in Russia beginning to slow in 2013, with few identifiable, positive catalysts, but the recent geopolitical tension with Ukraine was the final indication of an undesirable shift.

Since the breakout of conflict between Russia and Ukraine, investor confidence has dwindled in the area, and as you can see in the chart below, the two countries directly involved in the clash are the ones showing the highest market-risk impact.

Dramatic Increase in Market Risk in Ukraine
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Towards the end of 2013 I wrote that European equities had seen the longest streak of inflows in over 11 years, as investors began noticing this area of the globe as a spectacular investment opportunity. In addition to many strong areas in developed and emerging Europe, several of these equities were in Russia, and continue to be in Russia. Despite the disorder and our decreased exposure to Russia, we still see resilient stocks with growth opportunities. Two examples of strong Russian names include Norilsk Nickel, a nickel and palladium mining company, along with an Internet company, Mail.Ru.

When it comes to actively managing a portfolio, it’s all about playing your cards right, and at U.S. Global Investors we seek to manage risk while pursuing opportunity for our shareholders.

Turkey’s Turnaround
Greece isn’t the only country returning to the Eurobond market. Last Wednesday, Turkey sold 1 billion euros of nine-year bonds for the first time this year. The bonds, which will mature in 2023, should help the country with financing needs for the remainder of 2014.

Investors showed particular interest in Turkey’s bond issue, but have also started looking to the country as a prime tourist destination. Istanbul, the largest city in Turkey, recently jumped 11 spots to take this year’s No. 1 position on TripAdvisor’s Traveler’s Choice list of global destinations, according to CNN.

Passenger growth in Turkish airports is taking off, seeing year-over-year growth of 15 percent in both international and domestic passengers. Additionally, Turkish Airlines flies to more countries around the world than any other airline! No wonder people love to visit this country. One way we capture this strength for our European fund is through a Turkish airport operator, TAV Airports.

Join me for an investment adventure in Turkey, May 4-17, 2014In fact, I too will be participating in this outstanding growth when I travel to Turkey next month. U.S. Global is inviting all curious investors to take part in this exciting trip as well! I encourage you to read about the opportunities we will be exploring in Turkey straight from the experts.

So inspite of Turkey’s underperformance last year, the country is up 10 percent year-to-date, and over the past decade Turkey’s economy has more than tripled. Consumer confidence is back on track and the long-term, secular growth story remains intact.

Follow the Money
I believe the European recovery is a story worth telling, and within our Emerging Europe Fund (EUROX) we use our investment model to lead us not only to the strong and stable countries in this emerging market, but also to the strong sectors within each country. As Western Europe continues to recover, we believe companies with robust fundamentals in emerging Europe provide leverage to this growth. Explore this opportunity to invest in companies we believe are playing their cards right.

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.

Fund portfolios are actively managed, and holdings may change daily. Holdings are reported as of the most recent quarter-end. Holdings in the Emerging Europe Fund as a percentage of net assets as of 03/31/14: Alpha Bank AE 1.98%, Mail.Ru 0.00%, Norilsk Nickel 0.00%, Piraeus Bank SA 2.34%, TAV Havalimanlari Holdings Inc. 0.75%.

Foreign and emerging market investing involves special risks such as currency fluctuation and less public disclosure, as well as economic and political risk. By investing in a specific geographic region, a regional fund’s returns and share price may be more volatile than those of a less concentrated portfolio. The Emerging Europe Fund invests more than 25% of its investments in companies principally engaged in the oil & gas or banking industries.  The risk of concentrating investments in this group of industries will make the fund more susceptible to risk in these industries than funds which do not concentrate their investments in an industry and may make the fund’s performance more volatile.

All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor. The MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market performance in the global emerging markets.

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April 10, 2014
What India’s 815 Million Voters Have on Their Minds

India has kicked off the world’s largest election this week, with its national elections that will run from April 7 through May 12. The second-most populous country, India is home to 1.2 billion people. The size of the voting population is a staggering 815 million.

The election will decide the parliament and ultimately determine the next Prime Minister of the country.

India is a fascinating country that I have written about many times in relation to gold’s Love Trade. The love for gold is a cultural phenomenon that is shown in gifts given for weddings and festivals, and the idea that one’s wealth is defined by ownership of physical gold jewelry and coins.

In my travels I have seen this love for gold first-hand, and witnessed the vast population that makes up the energy of India. Did you know that half of India’s population is under the age of 25? This youthful group makes up 600 million people, equating to twice the population of the U.S.!

India’s young population cares about jobs and economic opportunities. This will likely be the focus on their minds when they go to the voting polls. The candidate who seems favored to win the office of prime minister is Narendra Modi, of the Bharatiya Janata Party (BJP).  Modi has a complicated past, with connections to violent, sectarian events. But as The Economist describes him, he is also known as “a man who, by his own efforts, rose from humble beginnings as a tea-seller.”   This boot-straps tale resonates with the voters who are reaching to improve their own economic situations.

Modi is known as a business-friendly candidate. In his home state, he has a history of being open to foreign investment, and has pursued economic relationships with Europe and the U.S.

Over the past decade, a great shift has taken place in India. Urbanization trends show that about half of the population lives in urban areas. Although official government definitions of rural and urban areas don’t quite match what we think of in the West, the trend shows that the number of urban dwellers could double in the next 25 years.

Urban dwelling usually is paired with an increase in wealth as city residents have more regular incomes. We’ve seen this increase in wealth with the rise in cell phone usage in India and television ownership. Now, 65 percent of Indian households own a TV set. With Internet-enabled phones and televisions, the people are connected and share ideas across the country.

These people are striving for the American Dream. As I’ve mentioned, every American born will need whopping 2.9 million pounds of minerals, metals and fuels in their lifetime. When you think about babies born in India, aspiring to the American lifestyle, you can begin to recognize the implications for resources demand in this part of the world.

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

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April 7, 2014
What’s Abuzz About Gold?

Recently I visited the breathtaking city of Hong Kong to speak at the seventh-annual Mines and Money conference, Asia-Pacific’s premier event for mining investment deal-making and capital-raising. During my time in Asia I had the additional privilege of addressing the audience of the Asia Mining Club, alongside my good friend Robert Friedland, Executive Chairman and Founder of Ivanhoe Mines.

Tesla Motors Showing Strong Performance

Asia Still Wants Physical Gold
The mission of the Asia Mining Club is to promote education among its members, and one way to achieve this is by hearing from experts in the financial markets, notably those focused on resources and commodities. During the club’s sell-out event, I too, confirmed a great deal about the commodity “buzz” on that side of the world, especially on gold.

The demand for the precious metal in Asia is truly phenomenal! In smaller countries like Indonesia, Thailand and Vietnam, consumption of gold totaled 300 tonnes in 2013, and according to Bloomberg, in 2014 mainland Chinese buyers purchased a total of 125 tonnes in February (including scrap). This number tops the 102.6 tonnes purchased in January and 97.1 tonnes purchased a year ago.

As I wrote about in February, Switzerland plays a role in the movement of physical gold into Asia as well. Home to many of the big gold refiners, Switzerland released monthly gold trade data this year for the first time in over 30 years, with the report showing that 80 percent of shipments went straight into Asia. If we continue to see these large movements of the physical metal, especially from the West to the East, it’s only a matter of time until these supply-and-demand factors lift the gold price.

Is Janet Yellen Yelling?
I often say there are two sides to the gold equation: the Love Trade and the Fear Trade. While Asia’s cultural affinity for gold continues to feed the Love Trade, concern over government policies which increase inflation and devalue currencies, fuel the Fear Trade. The Fear Trade demanded attention again on the back of Janet Yellen’s talk of the Federal Reserve raising interest rates in the next six months.

While low interest rates make it less expensive to borrow money, measures to keep rates low also chip away the value of the dollar and cause concern of accelerating inflation.  Once real rates start rising, gold isn’t as attractive to those who trade on fear.

As I’ve written about recently, a key driver in gold prices is the real interest rate environment—the real rate of return taking into account the level of inflation. When real interest rates are negative to low, gold prices historically turn positive because there is no opportunity cost to hold the metal. The lower the real rates, the better gold tends to do. So, Yellen’s initial hint of rising rates sent gold prices falling.

On Friday the March U.S. jobs number came in at 192,000. While the number is in line with expectations and clearly shows that hiring in the U.S. is rising, it fell a bit short of the 200,000 jobs projected.  The number was just enough of a miss to disturb investor confidence and drive some to seek refuge in hard assets, spurring the price of gold again. 

Tesla Motors Showing Strong Performance
click to enlarge

BCA Research believes that after Friday’s report, the current pace of employment will be sustained.  Although the movement is gradual, hiring is going up.

BCA continued by commenting that,“The data will underscore the Fed's view: that the need for quantitative easing or other non-conventional tools is waning, but that there is no rush to normalize interest rates.”

In my opinion, even with job numbers in line with expectations, the Fed is still going to focus on long-term job creation and keeping interest rates low, or at least not rushing to normalize them as BCA research stated. If inflation starts to rise while these rates are low, we could see a higher movement in the price of gold.

The Osisko Deal is Sweet and Sour
Another headline-maker for gold last week was Yamana Gold’s purchase of 50 percent of Osisko’s mining assets. I think our Portfolio Manager Ralph Aldis said it best in a recent BNN interview with Howard Green regarding the takeover; “This deal is both sweet and sour.”

The sour part is that by our models, which look at relative value of assets, it appears that both Osisko and Yamana are paying too much on this deal. On the flip side, the sweet part is that this bid caused companies like Mirasol, Pretium and SEMAFO to immediately rise. The structure of the entire deal is a complicated one, but witnessing these stocks finally waking up, is a change in the sentiment for the gold sector that, in my opinion, needed to be seen.

At U.S. Global Investors we are always watching for opportunity, while concurrently managing risk. Along with the “sweetness” of the Osisko deal, I find additional encouragement for the broader commodities space, as well as for gold, from Stifel Nicolaus’ Barry Banister. His strategy for the second quarter of the year is that we may see a one-year rally in commodity-related stocks.

Based on the breakout of the Continuous Commodities Futures (CRB) Index, along with the movement in the U.S. dollar, he forecasts that commodities could rise 15 percent year-over-year in 2014.

Tesla Motors Showing Strong Performance
click to enlarge

HFT: The new buzz word
High Frequency Trading became a household word overnight when bestselling author Michael Lewis gave an interview to 60 Minutes in advance of his new book, “Flash Boys.”  Lewis’ allegations of high frequency trading practices that result in a rigged stock market have prompted a firestorm of support from Charles Schwab to Mark Cuban.

He dunks, he scores!I agree with Schwab, chairman of Charles Schwab Corp., who said “high frequency trading has run amok and is corrupting our capital market system by creating an unleveled playing field for individual investors and driving the wrong incentives for our commodity and equity exchanges.” I’m glad to see this issue getting the attention it deserves.

From short selling to overreaching regulation, over the years I’ve shared my opinions on practices that harm individual investors and create unjust advantages in our free market system. I believe that investing is key to long-term wealth creation and that investor confidence in the system is key to capitalism.

The first quarter of the year has certainly provided surprises for the gold market, but remember that every coin has two sides. Every downward data point has an upside opportunity. Follow the smart money, stay diversified and remain a curious investor.  

p.s. Don’t miss my new show on Kitco. Each week I’ll talk about the strengths, weaknesses, opportunities and threats in the gold market on Gold Game Film.

All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor. Past performance does not guarantee future results. The Continuous Commodity Index (CCI) is a broad grouping of 17 different commodity futures, which is a benchmark of performance for commodities as an investment.

The following securities mentioned in the article were held by one or more of U.S. Global Investors Funds as of 12/31/13:  Goldcorp, Mirasol Resources Ltd, Osisko Mining Corp., Pretium, Resources, Inc., SEMAFO, Inc., Yamana Gold, Inc.

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

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Net Asset Value
as of 04/22/2014

Global Resources Fund PSPFX $9.82 0.06 Gold and Precious Metals Fund USERX $6.59 0.08 World Precious Minerals Fund UNWPX $6.32 0.06 China Region Fund USCOX $8.05 0.02 Emerging Europe Fund EUROX $8.13 0.02 All American Equity Fund GBTFX $32.40 0.30 Holmes Macro Trends Fund MEGAX $23.74 0.34 Near-Term Tax Free Fund NEARX $2.25 No Change U.S. Government Securities Ultra-Short Bond Fund UGSDX $2.00 No Change