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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.

Take a Peek at What the Top 1 Percent Have in Savings
October 17, 2018

take a peek at what the top 1 percent in savings

You’ve likely seen the reports: A whopping 44 percent of Americans wouldn’t be able to afford a $400 emergency expense without borrowing it or selling something. That’s according to the Federal Reserve’s findings in 2017. And earlier this year, financial services firm Bankrate reported that only 39 percent of Americans would be able to pay off an unexpected expense of $1,000 from their savings alone.

These figures have long-term implications. When someone doesn’t have enough in their savings account to cover an unexpected $400 to $1,000 emergency, it raises questions about how prepared they are for retirement.

So how does your savings account stack up to the average American’s? How about the top 1 percent’s? And just as a reminder, the entry point to the highest of earnings brackets is “only” $480,930 a year, according to 2015 income tax data.

How Does Your Savings Account Stack Up?

Personal finance firm MagnifyMoney recently looked at how much Americans have in savings, based on income level. As of June 2018, the average U.S. household has $175,510 in savings, including bank and retirement accounts. Compare that to the average household in the top 1 percent, which has close to $2.5 million in savings.

These are averages, remember. If we look at medians, or the middle values of savings accounts, these numbers change dramatically. According to MagnifyMoney, the median American household has only $11,700 in the bank. This means that half of the approximately 126 million U.S. households have more than this, while the other half has less. The median top 1 percent savings account, by comparison, holds just under $1.2 million.

It’s clear that too few working-age Americans are preparing for retirement adequately, and many who are retired worry that they won’t be able to maintain the lifestyle they desire. According to the most recent Employee Benefit Research Institute (EBRI) survey on retirement confidence, only 32 percent of retirees—nearly a third—said they felt “very confident” in their ability to live comfortably during their years outside the workforce.

Not Your Father’s CDs

Besides not having enough in savings, many Americans aren’t doing enough to grow their wealth. Back when interest rates were close to 20 percent, thanks to former Federal Reserve Chairman Paul Volcker, yields on certificates of deposit (CDs) were attractive enough that many households favored them over riskier assets such as stocks.

Today, however, CDs—though protected by the Federal Deposit Insurance Corporation (FDIC)—just don’t yield enough to justify locking your money up for any period of time.

certificates of deposit rates have been slow to recover
click to enlarge

Now let’s take a look at the stock market. The S&P 500 Index is up almost 200 percent from 10 years ago. The compound annual growth rate (CAGR), then, is 11.6 percent. With dividends reinvested, the CAGR becomes 13.9 percent.

There’s a reason why Albert Einstein allegedly called compound interest the greatest invention in human history.

Too Few People Are Participating

The problem is that too few Americans have participated in this bull market. Of the bottom half of U.S. earners, only about a third own stocks, according to Fed estimates. Perhaps not surprisingly, the more a household earns, the more likely it is to invest in the stock market.

percent of US households owning $10,000 or more in stock by wealth class
click to enlarge

Take a look at the chart above, based on data produced by American economist Edward Wolff. Of U.S. households that rank in the top 1 percent, nearly 94 percent own $10,000 or more in equities. From there, the ownership rate drops off. Less than 5 percent of the bottom 20 percent of earners have $10,000 or more invested in the stock market, either directly or indirectly. Only 35 percent of all American households do.

If you ask someone why they’re not invested, chances are they’ll say that it’s too risky. It’s easy to see why they might feel this way, especially after the huge selloff last week.

Stocks Have Been Up for the 10-Year Period

But when you have a long-term view—10 years or more, for instance—investing in the stock market looks very attractive. As my friend Marc Lichtenfeld put it during an interview back in August, stocks have historically been up for the 10-year period.

In fact, the only two times when stocks weren’t up for the 10-year period, according to Marc, were “the middle of the Great Depression and in 2008-2009 during the Great Recession. You would literally need to cash out in the middle of historic downturn not to make money over 10 years, and that’s if you sold right at the bottom. If you had waited another year or two, you might have come out at least breaking even, if not better.”

Cost is another reason some people aren’t invested—but it doesn’t have to be a barrier. With the ABC Investment Plan, investors can invest a fixed amount in a specific investment at regular intervals. The minimum investment with the ABC Investment Plan is just $1,000 initially and then $100 per month.

Learn more about the ABC Investment Plan 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.

The CD interest rate is typically fixed and payable on a set maturity date. The CD rate and principal are typically insured up to $250K.

The Retirement Confidence Survey (RCS) is the longest-running survey of its kind, measuring worker and retiree confidence about retirement, and is conducted by the Employee Benefit Research Institute (EBRI) and independent research firm Greenwald & Associates.

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

The ABC Investment Plan 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.

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October Doesn't Disappoint: Volatility Is Back After a Tranquil Third Quarter
October 15, 2018

october doesn't disappoint volatility is back after a tranquil third quarter

According to the 2018 edition of the Stock Trader’s Almanac, October has been a “great” time to buy. Once ranked last in terms of stock performance, the 10th month has delivered relatively average returns since 1950. What makes it so attractive is that it’s followed by November and December, historically among the very best months for stocks. We’re also entering the three most bullish quarters of the four-year presidential cycle, based on 120 years of stock market data.

average monthly s and p 500 index returns
click to enlarge

At the same time, October is sometimes known as the “jinx month” because an inordinate number of huge selloffs have occurred in the month, including those in 1929 and 1987. The worst month of the global financial meltdown was October 2008, when stocks gave up close to 17 percent.

There have been only six trading days in S&P 500 Index history in which stocks sold off by eight or more standard deviations, according to a report last week by Goldman Sachs. Last Wednesday was one of those six days, the fifth largest in history, following trading days in September 1955, October 1989, October 1987 and February 2007. The selloff in 1955, interestingly enough, was prompted by news that President Dwight Eisenhower had suffered a heart attack.

If you’ve read my whitepaper “Managing Expectations,” you should know that eight standard deviations (or more) represents a massive, exceedingly rare variance from the mean. Days like last Wednesday remind us of the importance of diversification into assets that have little to no correlation with stocks—assets such as municipal bonds and gold.

Gold Helped Investors Stanch the Losses

I was impressed with how well gold did last week. The yellow metal behaved exactly as you would expect it to, edging up slightly on safe haven demand Wednesday as stocks—large and small, domestic and foreign—tumbled.

gold price stood up against the rout
click to enlarge

On Thursday, the spread between gold and equities was even more pronounced, with gold closing almost 3 percent higher and the S&P 500 ending down more than 2 percent, below its 200-day moving average.

Wednesday’s laggards included big-name tech firms such as Apple, Amazon and Netflix. Combined, these three companies lost nearly $120 billion in market value on that day alone.

technology stocks had their worst day since august 2011
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As I shared with you last month, e-commerce is the second largest equity bubble of the last four decades following housing. E-commerce is also vastly overpresented in indexes, meaning extraordinary amounts of money have flowed into a very small number of stocks by way of passive index funds that track them.

Apple alone is featured in almost 210 indexes. Consequentially, when the iPhone-maker’s stock plummets 4.5 percent or more, as it did last Wednesday, a huge percentage of investors are affected.

Again, this is one of the reasons why I advocate the Golden Rule—a 10 percent weighting in the yellow metal, with 5 percent in bullion and gold jewelry, the other 5 percent in high-quality gold stocks, mutual funds and ETFs.

The Return of Volatility

Last week the CBOE Volatiliy Index (VIX), sometimes called the “fear gauge,” had its biggest one-day surge since February. But after such a tranquil third quarter, a substantial move in either direction might have been anticipated. LPL Financial Research reports that this year was the first time since 1963 that the normally volatile third quarter didn’t  have a single one-day jump of more than 1 percent, up or down.

“Volatility is back and it may require more active strategies on the part of investors to pursue their long-term goals,” LPL Financial’s chief investment strategist, John Lynch, said.

Higher Rates Reflective of a Strong Economy

In response to the selloff, President Donald Trump put the blame squarely at the feet of the Federal Reserve, saying it’s “ridiculous what they’re doing” and calling monetary policy “too tight.”

The Fed is indeed tightening, and I’ve pointed out before that rate hike cycles in the past have preceded market downturns. But calling policy “too tight” at the moment might be a stretch. After being hiked yet again last month, the federal funds rate stands at 2.25 percent. That’s up considerably from near-zero—which is where it remained during much of Barack Obama’s two terms as president—but it’s still historically low, not yet having reached the long-term average of 4.82 percent.

Fed funds rate still at an historically low level
click to enlarge

It must also be said that higher rates are reflective of a strong economy—something Trump has fought hard for. In the second quarter, U.S. gross domestic product (GDP) grew 4.2 percent, its fastest pace since 2014, and the Atlanta Fed is now forecasting the same for the third quarter. Unemployment is currently at a multi-decade low, wage growth hit a nine-year high of 2.9 percent in August and median household income in 2017 climbed to $61,372, the most on record. U.S. consumer confidence, as measured by the Conference Board, reached an 18-year high in September.

The private sector is also seeing healthy expansion. S&P 500 companies are expected to report earnings growth above 20 percent for the third straight quarter, according to FactSet. Stocks rebounded Friday morning after a number of companies reported earnings that surprised to the upside. Delta Air Lines, for example, beat expectations, with net income in the third quarter coming in at $1.31 billion, or $1.91 a share, up from $1.16 billion, or $1.61 a share, in the same three months last year.

Although stocks appear to be stabilizing somewhat, I think the two-day selloff last week should be enough to convince investors to make sure they have a 10 percent weighting in gold and gold stocks, with allocations to municipal bonds and ultrashort government bonds.

Find out why so many investors are flocking to U.S. Treasuries. Watch the video by clicking here!

 

The S&P 500 is a stock market index that tracks the stocks of 500 large-cap U.S. companies. The Russell 2000 Index is a small-cap stock market index of the bottom 2,000 stocks in the Russell 3000 Index. The Bloomberg Commodity Index (BCOM) is a highly liquid and diversified benchmark for commodity investments. The MSCI Emerging Markets Index captures large and mid-cap representation across 24 Emerging Markets (EM) countries. The U.S. Dollar Index is an index of the value of the United States dollar relative to a basket of foreign currencies, often referred to as a basket of U.S. trade partners' currencies. The Dow Jones U.S. Technology Index measures the performance of the technology sector of the U.S. equity market. The CBOE Volatility Index, known by its ticker symbol lVIX, is a popular measure of the stock market's expectation of volatility implied by S&P 500 index options, calculated and published by the Chicago Board Options Exchange (CBOE). The Consumer Confidence Index (CCI) Survey is an index by The Conference Board that measures how optimistic or pessimistic consumers are with respect to the economy in the near future.

Standard deviation is a measure of the dispersion of a set of data from its mean. The more spread apart the data, the higher the deviation. Standard deviation is also known as historical volatility.

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

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 9/30/2018: Delta Air Lines Inc.

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

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5 Charts That Show Why Gold Belongs in Your Portfolio Now
October 9, 2018

5 charts that show why gold belongs in your profile in gold we trust report 2018

The annual “In Gold We Trust” report by Liechtenstein-based investment firm Incrementum is a must-read account of the gold market, and its just-released chartbook for the 2018 edition is no exception.

The strengthening U.S. dollar has lately dented the price of gold, and rising interest rates are making some yield-bearing financial assets more attractive as a safe haven. But as Incrementum shows, there are many risks right now that favor owning gold in your portfolio.

Below I’ve selected five of the most compelling charts that highlight why I think you need gold in your portfolio now.

1. The End of Easy Money

To offset the effects of the global financial crisis a decade ago, central banks increased liquidity by slashing interest rates and buying trillions of dollars’ worth of government securities. Now, however, it looks as though banks are ready to start tightening, and no one is really quite sure what the consequences will be. The Federal Reserve was the first, in late 2015, to begin hiking rates, and it’s been steadily shrinking its balance sheet for about a year now. Other banks are set to follow suit. According to Incrementum, the tide will turn sometime next year, with global liquidity finally set to turn negative. In the past, recessions and bear markets were preceded by central bank tightening cycles, so it might be a good idea to consider adding gold and gold stocks, which have historically done well in times of economic and financial turmoil.    

central banks to withdraw liquidity from financial markets for the first time since crisis
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2. Banks on a Gold-Buying Spree

While I’m on this subject, central banks have been net purchasers of gold since 2010, with China, Russia, Turkey and India responsible for much of the activity. Just this week, I shared with you the news that Poland added as much as nine metric tons to its reserves this past summer. If gold is such a “barbarous relic,” why are they doing this? As Incrementum writes, “The increase in gold reserves should be seen as strong evidence of growing distrust in the dominance of the U.S. dollar and the global monetary system associated with it.” Having a 10 percent weighting in gold and gold stocks could likewise help you diversify away from fiat currencies and monetary policy.

change in gold reserves held by emerging countries from 2007 to 2017
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3. Too Much Debt

Everywhere you look, debt is rising to historic highs, whether it’s emerging market debt, student loan debt or U.S. government debt. Meanwhile, higher rates are making it more expensive to service all this debt. As you can see below, interest payments will hit a record $500 billion this year. It’s forecast that the federal deficit will not only reach but exceed $1 trillion in 2019. How will this end? Earlier this year, I called this risk the “global ticking debt bomb,” and I still believe it’s one of the most compelling reasons to maintain some exposure to gold.   

US government debt outstanding continues to rise rapidly
click to enlarge

4. An Exceptional Store of Value

In U.S. dollar-denominated terms, the price of gold is down right now. But in Turkey, Venezuela, Argentina and other countries whose currencies have weakened substantially in recent months, the precious metal is soaring. This alone should be reason enough to have part of your wealth stored in gold. Need further proof? According to a recent Bloomberg article, the cost of a black-market passport in Venezuela right now is around $2,000. That’s more than 125,000 bolivars, or 68 times the monthly minimum wage. A Venezuelan family that had the prudence to own gold would be in a much better position today to survive or escape President Nicolas Maduro’s corrupt regime. In extraordinary circumstances such as this, the yellow metal can literally help save your life.

gold does exactly what it is supposed to do protect purchasing power gold price increases in turkish lira and venezuelan bolivar
click to enlarge

5. A Sterling Time to Buy Gold?

Finally, a word about timing. According to Incrementum, some of the best gold buying opportunities have been when the gold/silver ratio crossed above 80—that is, when it took 80 or more ounces of silver to buy one ounce of gold. If you look at the chart below, you’ll see that such instances occurred in 2003, 2009 and late 2015/early 2016—all ideal times to accumulate. We see a similar buying opportunity today, with the gold/silver ratio at a high of 83 as of October 8. What’s more, gold stocks are the cheapest they’ve been in more than 20 years relative to the S&P 500 Index.

highs in the gold silver ratio were great buying opportunities for gold
click to enlarge

Curious to learn more? Download my popular whitepaper on gold’s love trade 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.

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

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

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We Could See $100 Oil Again Soon, But Not for the Reason You Think
October 8, 2018

We could see 100 dollar oil again soon but not for the reason you think

According to a recent Cornerstone Macro report, the three most influential macro trends this year have been 1) the strengthening U.S. dollar, 2) the flattening yield curve and 3) slowing global manufacturing expansion. I’ve written about all three topics numerous times this year, but the one I’ve watched the most closely has been global manufacturing, as measured by the purchasing manager’s index (PMI). Since its 12-month high of 54.5 in December 2017, the PMI has declined in eight of the past nine months. September marked the fifth straight month of slower manufacturing growth.

Global manufacturing growth slowed for fifth straight month in September
click to enlarge

This matters because the PMI is a useful, forward-looking indicator of the economic health of the manufacturing sector, which accounted for around 15.6 percent of global gross domestic product (GDP) in 2016. Our research has shown that the index can be used to forecast world demand for materials and energy one, three and six months out, with a reasonable measure of accuracy.

Take a look below. The chart shows that, based on 10 years’ worth of data, copper and West Texas Intermediate (WTI) crude, as well as energy and materials equities, all benefited in the three months after the PMI crossed above its three-month moving average. WTI saw the biggest jump; 64 percent of the time, it gained 5 percent on average.

Conversely, in the three months after the PMI crossed below its three-month moving average, those same assets either fell or were effectively flat. Seventy-one percent of the time, copper lost a little over 1.5 percent on average when manufacturing growth began to slow.

Shares of Ivanhoe Mines jump on new high grade copper discovery
click to enlarge

Energy Up, Materials Down

how to manage your risk

So how accurate has the PMI been so far this year? The index crossed below its moving average in February, and since then, materials have predictably failed to gain traction. The S&P 500 Materials Index is down about 6 percent, while copper prices are off 13 percent on fears that demand in China, the world’s largest consumer of the metal, is shrinking. (Australian miner BHP Billiton reported last week, however, that it believes Chinese copper consumption is actually set to increase substantially, by as much as 1.6 million metric tons, between now and 2023, thanks to its ambitious Belt and Road Initiative (BRI)).

Crude oil and energy stocks, on the other hand, have fared very well on tightening supply in Venezuela and Iran, the latter of which is scheduled to face a new round of U.S. sanctions effective November 4. Since February, WTI prices have surged 13.6 percent and are now at four-year highs, while the S&P 500 Energy Index is up 2.7 percent. Oil traders are now betting that crude could rise to as high as $100 a barrel by next year, Reuters reports.

Does oil’s outperformance, despite a steadily cooling PMI, mean our research is flawed? Hardly. The index, remember, only tells us the probability that a price change will occur. Extraordinary government policies, such as the U.S. reimposing sanctions on Iran, must also be taken into consideration. If the PMI alone were 100 percent accurate 100 percent of the time, we would all be multibillionaires from betting on the winners every time. Sadly, that’s not the case.

Could We Reach “Peak Oil” Sooner Than Anticipated?

But back to $100-per-barrel oil. Not only are traders betting on a return to these prices, but banks are also baking it into their forecasts. In a note last week, HSBC said it sees “real risks of this happening” by 2020, adding that “there are clear signs of falling exports and builds in Iranian exports. We would expect to see much more tangible signs of falling exports ahead of the November cut-off.”

So how will this affect the global economy? It shouldn’t come as a surprise that net import countries would be most impacted by higher fuel costs. Among the emerging markets Bloomberg Economics estimates would feel the greatest pain are Thailand, South Korea, South Africa and India. Conversely, the economies that stand to benefit the most from rising oil prices are Mexico, Russia and Saudi Arabia.

Emerging markets vulnerability to higher oil prices
click to enlarge

Even higher prices could become a reality as soon as the next decade if world supply continues to tighten. Energy and mining research firm Wood Mackenzie (WoodMac) recently issued a warning that not enough oil discoveries are being made to replace capacity. “We need more Guyanas, a lot more, and we need them soon,” WoodMac chairman and chief analysts Simon Flowers urged, referring to the massive find made in the South American country early last year.

Spending on exploration collapsed following the price crash in 2014, which has propelled the world closer to “peak oil” much sooner than anticipated.

“The oil market could be running short of oil capacity by the late-2020s at the current low discovery rate,” Flowers said. “That’s worryingly near at hand given it takes the best part of 10 years for the average new discovery to build to peak production.”

The supply gap, according to WoodMac, could reach 3 million barrels per day (b/d) by 2030, 9 million b/d by 2035 and a “formidable” 15 million b/d by 2040.

A Promising New Copper Discovery

Speaking of new discoveries, I want to congratulate my friend Robert Friedland, founder and executive chairman of Ivanhoe Mines. The Canadian copper mining company announced last week the “important new discovery” of the metal on its 100 percent owned Western Foreland property in the Democratic Republic of Congo (DRC). Makoko, as it’s called, is Ivanhoe’s third major find in the DRC, following Kamoa-Kakula, which WoodMac has called the world’s largest, undeveloped, high-grade copper discovery.

After last Monday’s announcement, shares of Ivanhoe popped 9 percent on the Toronto Stock Exchange.

Shares of Ivanhoe Mines jump on new high grade copper discovery
click to enlarge

In the press release, Robert chalked the find up to “the accumulation of in-depth, proprietary geological insights gained by Ivanhoe’s exploration team during nearly two decades of exploring in the region.”

“Given the early drilling success at Makoko,” he added, “we are highly confident that we have the secret blueprint for additional exploration successes in the Western Foreland area in 2019 and beyond.”

Earlier this year, Robert visited our office and said that by 2021, “you’re going to need a telescope to see copper prices.” China’s BRI, as I mentioned earlier, is expected to boost demand dramatically as scores of new power plants and electrical grids come online. The Asian giant has also joined several other countries in requiring that electric vehicles (EVs) replace gas-powered ones over time. EVs need three to four times as much copper as traditional vehicles do.

With copper prices down close to 16 percent for the year, now might be an ideal buying opportunity.

 

Poland Adds to Its Gold Reserves. Should You?

Stocks sold off more sharply late last week than we’ve seen since late June, with the S&P 500 Index sliding below its 50-day moving average. The unemployment rate fell to 3.7 percent, its lowest level in nearly half a century, convincing many investors that the Federal Reserve will now begin to raise rates more aggressively in an effort to prevent the economy from overheating.

As I’ve shared with you before, all but three recessions of the past 100 years were preceded by a rate hike cycle.

Meanwhile, the trade dispute between the world’s two largest economies doesn’t appear to be abating anytime soon. Now that President Donald Trump has succeeded in rebooting NAFTA—provided it gets ratified by Congress—he’s likely to turn up the heat on Beijing. Some analysts predict the U.S. will eventually max out tariffs on all Chinese imports. J.P. Morgan now forecasts a “full-blown trade war” as its “new base case scenario for 2019.”

The U.S. economy is humming along robustly, but it’s better to prepare for the next downturn while the bull is still running than after it’s crashed into a wall. Last week I spoke with Daniela Cambone of Kitco News and explained the reasons why I’m bullish on gold, including Vanguard’s decision to slash its exposure to metals and mining, and the recent Barrick Gold-Randgold Resources merger deal.

A seismic shift in gold

During the interview, I also discussed the news that Poland purchased gold this pastsummer at a pace not seen in 20 years. The Eastern European country, which was just upgraded to a developed market, added nine metric tons to its gold reserves in July and August, the most since 1998, and the most by any European Union country in the past two decades. Speaking with Bloomberg, mBank senior economist Marcin Mazurek said the Polish central bank’s decision was likely based on diversification, “combined with the expectation for higher global inflation.”

You can watch my full interview with Daniela Cambone by clicking here.

 

Holdings may change daily. Holdings are reported as of the most recent quarter-end. The following securities mentioned in the article were held by one or more accounts managed by U.S. Global Investors as of (09/30/2018): BHP Billiton Ltd., Ivanhoe Mines Ltd.

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 S&P 500 Index is a widely recognized capitalization-weighted index of 500 common stock prices in U.S. companies. The S&P 500 Energy Index comprises those companies included in the S&P 500 that are classified as members of the GICS energy sector. The S&P 500 Materials Index comprises those companies included in the S&P 500 that are classified as members of the GICS materials sector.

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.

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Minute with the Analyst: Meet Joanna Sawicka
October 3, 2018

Meet Joanna Sawicka – an emerging Europe research analyst at U.S. Global Investors. Prior to joining our team in 2007, Joanna was part of Soros Fund Management in New York and JP Morgan in San Antonio. Since 2015, she has worked on the Investment team and currently is primarily responsible for analyzing companies in emerging European countries.

In this brief Q&A, I invite you to learn more about Joanna’s path to becoming an emerging Europe analyst and read what she sees on the horizon for this region as we head into year end.

What made you want to become an investment analyst?

I always knew that I wanted to pursue a career in finance. However, I didn’t know which section of the industry would suit me best until I visited the New York Stock Exchange (NYSE) for one of my classes at Baruch College. During this visit, we went to the floor of the exchange and toured a huge vault full of gold. Watching the trading and experiencing the atmosphere firsthand left a huge impression on me. It was after this trip that I moved steadily over to investments.

While working on my investment specialization in school, I especially enjoyed my simulation class. In it, we were given half a million dollars to grow. If I remember correctly, I invested in oil futures and bought Disney stock. I actually made a lot of money!

What was the most memorable trip you’ve taken for your job?

While I have traveled to many fascinating places, like the Warsaw Stock Exchange, to me, the most interesting trip was to the Wood & Company CEE Investor Days Conference in New York earlier this year. I was very surprised by how many people at the conference wanted to learn more about eastern Europe. The number of attendees speaking Polish also caught me off guard, though it makes sense since Wood & Company has a big presence in Poland.

You took a trip to Poland this summer. Did you notice any changes in the country since your last time there?

For the past three years, I have made an annual trip to Poland. Being there so frequently makes it a bit harder to see changes. Having said that, I did notice quite a bit of construction, in particular highway construction. Two years ago, when my flight landed in Warsaw, it took three or four hours to drive to my hometown, Bialystock, because the highway was not complete. This year, the drive only took two hours. There is still a lot of construction, especially on the east side, but the improvements are very apparent.

Many new businesses, small and large, began to appear starting 10 years ago, resulting in new construction projects like shopping centers. People are actually spending a lot of money. That is the most notable change to me in the last decade or so.  

Poland was recently upgraded to a developed market by FTSE Russell. What is on the horizon for Poland? Do you believe its growth is sustainable?

The upgrade to a developed market is very positive for Poland. The next step would be updating the country on the MSCI Emerging Markets Index. It’s my understanding that Poland is only missing one factor – gross domestic product (GDP) per capita. That isn’t quite strong enough yet. Once that happens, there will be more inflows into Polish equities.

Joanna Sawicka emerging europe research analyst U.S. Global Investors

It is important to mention that Poland is very strong in central emerging Europe and has the largest stock markets. There are more than 350 stocks trading on the Warsaw Stock Exchange, compared to only a handful in other central emerging European markets. Most of the stocks in other geographically similar markets, like Hungary and the Czech Republic, are not very liquid. The large equity market in Poland makes it much more accessible for larger investors.

Additionally, Poland is growing at around 5 percent, has stable inflation, low unemployment and solid consumer spending. Given these facts, I believe Poland’s growth is sustainable.

Do you see growing nationalism as a risk?

In central emerging Europe, nationalism has always had a presence, such as the Law and Justice in Poland (PiS) and Fidesz in Hungary. However, this trend is not specific to the region. In fact, it has spread into Western Europe. A far right government came into power in Austria last year. The elections in Italy, Germany and Sweden saw similar movements. I do not currently believe this is a threat, but we will have to see how it develops.

The recent emerging market sell-off has captured a lot of headlines. What is your outlook on emerging markets for the rest of 2018?

Emerging markets peaked around mid-January this year and, since then, stocks are down about 20 percent. Emerging markets were suppressed by dramatic currency depreciation in Turkey and Argentina.  At one point, we saw the lira drop about 25 percent in a couple days. Argentina experienced a huge drop as well, though the central bank of Argentina was a little more supportive with its rate hikes.

I think we are at a turning point now and emerging Europe will rebound. The Turkish bank just recently hiked rates by 625 basis points, which is very supportive of the lira. Additionally, when the price crosses above the 50-day moving average, we expect inflows. I noticed a cross in emerging markets and emerging Europe, so I think this uptrend will continue towards the end of the year.

With oil on the rise, Turkey looks even more vulnerable. Should investors be concerned?

Brent moving higher is certainly negative for Turkey, since it’s a major importer of crude oil, but a bigger concern is the weakening lira. Year-to-date, the lira has depreciated around 40 percent. So there is more to it than just higher oil prices, especially considering Turkey’s geopolitical situation.

U.S. sanctions are weighing heavily on Russia’s economy. What is Russia doing to counteract the slowdown?

U.S. sanctions have a significant impact, not only on Russia’s economy, but all of Europe’s growth, as these countries’ economies are interrelated. The latest set of sanctions was the most severe, disallowing American investors to own certain Russian equities which resulted in a sharp sell-off. There may be additional sanctions on the horizon, though no one is sure yet.

In the interim, Russia is taking measures to protect its economy. For example, the government is essentially supporting the ruble by hiking rates and discontinuing weekly forex buying. In March, Vladimir Putin won another presidential term and announced infrastructure reform, which may be supportive for the economy.

Russia is also trying to develop a better relationship with Asia. There is discussion about potentially building a pipeline through North Korea since the situation there has improved somewhat. Acquiring new “friends” could be positive for the Russian economy. 

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

A basis point, or bp, is a common unit of measure for interest rates and other percentages in finance. One basis point is equal to 1/100th of 1%, or 0.01% (0.0001).

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.

Gross domestic product (GDP) is the monetary value of all the finished goods and services produced within a country's borders in a specific time period, though GDP is usually calculated on an annual basis. It includes all of private and public consumption, government outlays, investments and exports less imports that occur within a defined territory.

None of the U.S. Global Investors funds held any of the securities mentioned in this article as of 6/30/18.

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Net Asset Value
as of 12/12/2018

Global Resources Fund PSPFX $4.59 0.03 Gold and Precious Metals Fund USERX $6.46 -0.01 World Precious Minerals Fund UNWPX $3.03 -0.02 China Region Fund USCOX $7.97 0.06 Emerging Europe Fund EUROX $6.18 -0.01 All American Equity Fund GBTFX $24.18 0.06 Holmes Macro Trends Fund MEGAX $18.17 0.13 Near-Term Tax Free Fund NEARX $2.19 No Change U.S. Government Securities Ultra-Short Bond Fund UGSDX $2.00 No Change