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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.

Investing for the Long Term: A Conversation with Marc Lichtenfeld
August 20, 2018

the oxford club's marc lichtenfeld One of Marc Lichtenfeld’s proudest moments was getting to ring announce a world title boxing fight promoted by Mr. “Only in America” himself, Don King.

“He was one of my main clients for many years,” Marc tells me, adding that the boxing impresario “is always the smartest guy in the room. He’s three steps ahead of everyone else.”

You could say the same thing about Marc. As the Oxford Club’s chief income strategist—his day job when he’s not announcing boxing matches—Marc has spent much of his career educating investors on how best to stay “three steps ahead” of the market.

That means, among other things, taking a long-term investment approach and focusing on what he calls “Perpetual Dividend Raisers”—high-quality companies that consistently raise their payouts, preferably by a significant amount.

“The longer you can stay invested the better, as your dividends will grow and so should your capital,” he writes in his most recent book, You Don’t Have to Drive an Uber in Retirement.

Staying disciplined and sticking to this strategy go a long way in helping investors roll with whatever punches the market might throw.

Read on for more highlights from my recent conversation with Marc Lichtenfeld.

What inspired you to get into the financial world?

When I was in college, I had no interest in the stock market or finance. I wanted to be a sportscaster. It wasn’t until after I graduated that I started to invest for myself, and I became kind of obsessed with it. This was before the internet, so I would spend Saturday afternoons in the library researching companies and learning everything I could.

I eventually decided to make my hobby my profession, but nobody was interested in hiring a 20-something kid with no relevant experience.

I decided to visit a trading firm right down the street from my house that I knew was looking for a trading assistant. When I walked in and handed them my resume, I got the impression that I wouldn’t be getting a call back. I could see, though, that they desperately needed help entering orders and balancing their books, so I made the guy an offer he couldn’t refuse. I told him I’d work for free for a week, and if he wasn’t happy with what he saw, he could tell me no thanks. But by the end of the week, he told me to come back on Monday and that he’d start paying me.

That was my entry into the world of finance. From there, I had a couple of other positions, including as a sell-side analyst at Avalon Research Group, and then in 2007 I joined the Oxford Club, where I’ve been ever since.

Tell us about your start with Oxford Club and how the group has contributed to your professional development.

One of the things I admire most about the Oxford Club is its emphasis on individual investors. It really tries to teach investors how to grow their wealth the right way by managing risk and investing in quality companies.

get rich with dividends. how to build a portfolio with double digit returns I began there by writing about biotech, which even now I believe is an industry of the future. A few years later, I spoke with Julia Guth, our CEO and publisher, about taking over the dividend newsletter, and in 2013 I launched my own dividend newsletter, the Oxford Income Letter.

My main focus since then has been on dividend growth companies. Around the same time that we launched the Oxford Income Letter, I wrote a book called Get Rich with Dividends. The strategy I describe is one that’s worked for many years. When you invest in companies that are raising their dividends 5 percent, 8 percent, 10 percent a year, you vastly improve your odds of generating some impressive returns and beating the market year after year. If you’re still in the wealth-building phase, it’s also important to reinvest the dividends because then the compounding machine just goes into overdrive.

This can really make a significant difference in the size of your portfolio and change your life down the road. It’s one of the many reasons why I started my kids investing in dividend growth companies. If they started as children, they could be in a very good position 30 years from now when they’re looking to buy a house or send their own kids to college.

Sticking with that strategy sometimes requires a lot of discipline.

I was actually having a conversation with my brother recently because he’s looking to put some money to work and wanted to get my thoughts. He’s a bit of a worrier, though, so I reminded him that if he’s going to invest, he really needs to be disciplined and not freak out if the market takes a downturn in, say, three years. What’s far more important is where the market will be 10 years from now. Historically, the market is up 10 years down the road—it’s very rare that it’s not—but you need to have the discipline to stay with it.

The important takeaway here is to know your tolerance for risk and adjust your investments accordingly. My brother’s very cautious, so he probably shouldn’t put every dollar in the market if he’s going to lose sleep over a correction and sell at the wrong time.

It’s easier for those who’ve seen the data and know that the market has historically been up in 10 years, even if we’re at the top of the business cycle. In Get Rich with Dividends, I talk about the only times when markets have been down over a 10-year period, and those are in 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 a 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.

Who were your mentors early on?

My biggest mentor was David Hines. David was my research director at Avalon, which had the reputation of being the most contrarian research firm on Wall Street. We initiated ratings on stocks only if that rating was going to be contrarian. If we were bullish on energy and so was the rest of the Street, there was no reason for us to publish our research. Why would anyone listen to us versus Goldman Sachs or Morgan Stanley?

In any case, I thought I was contrarian—until I met David. Any time I came to him with my research, he would just poke so many holes in it. It made me double and triple-check that all my i’s were dotted and t’s were crossed before presenting an argument to him.

What book do you think every investor should read?

I would say The Richest Man in Babylon, by George Clason. It’s 70 or 80 pages, so you could read it in an afternoon. The book, which is about 100 years old now, is filled with great life lessons on money management and saving and investing. I would recommend it especially to someone who has a teenager or young adult in their life, and they want to impart some important lessons.

On the more technical side, I would recommend David Dreman’s Contrarian Investment Strategies. He’s considered to be the father of contrarian investing. The book is pretty data-rich, but if you like that kind of thing, it really makes a strong argument for contrarian investing.

In one of your recent presentations, which I attended, you explained that cash flow is more important than earnings. Can you elaborate on that?

There’s no doubt earnings are important. Stock prices tend to follow earnings over the longer term, but they can easily be doctored and manipulated. Let’s say a company records a sale of $1 million on December 30. Even if it hasn’t been paid yet, it can still include that sale as part of its revenue for the  fiscal year, depending on the industry. The $1 million means nothing, then, in terms of its ability to pay bills and dividends and meet payroll.

Cash flow can tell a truer story because it excludes all the non-cash items and adjusts for accounts receivable. It represents only the cash that has come into a business during the year, and it gives you a better idea of a company’s ability to pay the bills. In the above example, cash flow would show you that the $1 million hasn’t come in yet. Also, if there’s fraud going on, oftentimes cash flow is where you’ll be able to detect it. If earnings are constantly going straight up and cash flow is not following it, this might raise some red flags.

Now, I want to caution, this doesn’t always mean fraud is taking place if earnings rise for a year or two and cash flow doesn’t follow. But if you see a trend of rising earnings but deteriorating cash flow, then you might want to start asking some questions.  

So what’s your outlook for the rest of 2018?

We don’t try to time the market at the Oxford Club. Rather, we focus on trying to find great opportunities—stocks that are undervalued or that we expect to go up because of momentum or fundamentals—and manage risk.

Having said that, I don’t see any reason to expect a market correction at this point. The market has so far shrugged everything off—trade wars, outrageous presidential tweets, higher interest rates and more. It seems the market wants to keep going higher, so we’re going to continue to try to ride it higher, too.

 

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.

There is no guarantee that the issuers of any securities will declare dividends in the future or that, if declared, will remain at current levels or increase over time.

Cash flow is the total amount of money being transferred into an out of a business, especially as affecting liquidity.

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It's Time for Contrarians to Get Bullish on Gold
August 14, 2018

It’s Time for Contrarians to Get Bullish on Gold

Gold can’t seem to catch a break. The yellow metal normally acts as a safe haven in times of political and economic strife, but in the face of Turkey’s lira meltdown, investors have taken cover instead in the U.S. dollar. On Monday, the stronger greenback pushed gold to end below $1,200 an ounce for the first time since January 2017.

The lira fell to its lowest level ever recorded against the dollar Monday, mainly in response to President Donald Trump’s call to sanction and double steel and aluminum tariffs on Turkey. This sent gold priced in Turkey’s currency to all-time highs. If you recall, we saw the same thing happen recently in Venezuela, where inflation is expected to hit 1 million percent by the end of the year.

Turkish lira down more than 45% for the year
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Turkey’s faith in gold was on full display this week as President Recep Erdogan urged his fellow Turks to convert their gold and hard currencies into lira in an effort to prop up the country’s hammered currency. The same strategy was used in December 2016, a month after Trump’s election sent the lira tumbling against the dollar.

The Love Trade Is Strong in Turkey

As I’ve discussed before, Turkey has a long and rich history with gold. Home to the world’s very first gold coins more than 2,500 years ago, Turkey still stands as one of the largest buyers of the yellow metal. In the June quarter, the Eurasian country was the fourth largest consumer of gold jewelry, following India, China and the U.S. Twelve and a half metric tons were purchased in the three-month period, up 13 percent from the same time a year ago.

Along with Russia and Kazakhstan, Turkey also continues to add to its official gold holdings. Its central bank’s net purchases in the first half of the year totaled 38.1 metric tons, up 82 percent from the same six-month period in 2017, according to the World Gold Council (WGC). This made it the second highest buyer, after Russia.

Time to Get Contrarian

Gold investors might be discouraged by its performance this year, compounded by news that hedge funds are shorting the metal in record numbers. A lot of this has to do with the fact that, so far this year, gold has had a very high negative correlation to the U.S. dollar—more precisely, a negative 0.95 correlation coefficient, according to gold research firm Murenbeeld & Co. What this means is that gold prices have been moving in nearly the exact opposite direction as the greenback.

I think it’s important to point out that, despite a stronger dollar, gold is still up for the 36-month period—and climbing even higher over the long term. The dollar has only recently broken even, whereas gold has continued to hit higher lows since its phenomenal breakout in December 2015.

despite a stronger u.s. dollar, gold is still up for 36-month period
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The dollar could be ready to peak, with the potential for even higher gold prices. The metal is currently down two standard deviations over the past 60 trading days, so the math is currently in our favor for gold to rally.

Vanguard Just Gave Precious Metal Investors the Short Shrift

There’s another sign that gold has found a bottom.

Last week, I spoke with Kitco’s Daniela Cambone about Vanguard’s decision to change its Precious Metals and Mining Fund. Starting next month, the fund’s exposure to metals and mining will be dropped from 80 percent today to only 25 percent—meaning the world’s largest fund company will no longer offer investors a way to participate, should gold and precious metals rally.

does vanguard's latest fund name change mean gold has found a bottom?
click to enlarge

This isn’t the first time Vanguard has done this to investors. Back in 2001, it removed the word “gold” from what was then the Gold and Precious Metals Fund. The change coincided with a decade-long precious metals bull run that saw gold rally from an average price of $271 an ounce in 2001 to an all-time high of more than $1,900 in September 2001. That’s more than a sevenfold increase.

And now it’s dropping the fund altogether—at a time when gold might be ready to break out.

So could this mean another bull run is in the works? No one can say for sure, of course, but the timing of Vanguard’s announcement is certainly interesting.

What I can say with certainty is that there are likely many investors in the Vanguard ecosystem who are in for a rude awakening when they find out their exposure to the metals and mining sector has inexplicably shrunk.

 

 

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 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.

Standard deviation is a quantity calculated to indicate the extent of deviation for a group as a whole.

Holdings may change daily. Holdings are reported as of the most recent quarter-end. None of the securities mentioned in the article were held by any accounts managed by U.S. Global Investors as of 6/30/2018.

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The Pool of Publicly Traded Stocks Is Shrinking. Here's What Investors Can Do
August 13, 2018

Many U.S. Tech Firms Have Delayed Going Public

Elon Musk is no stranger to making controversial and outlandish comments, and his tweet last week is no exception. As you probably know by now, the perennial entrepreneur announced to his more than 22 million Twitter followers that he is “considering taking Tesla private at $420.”

Despite the Herculean challenge—such a move would be the largest leveraged buyout in history—and despite Musk’s history of being a provocateur, Wall Street seemed to take his comment seriously. Tesla stock rose close to 11 percent last Tuesday to end at $379, a few bucks shy of its all-time high of $385, set in September 2017.

There are many reasons why investors should take note. For one, Musk and Tesla are now likely to face heightened scrutiny from securities regulators.

My reason for bringing it up is that, should Musk follow through and take the electric carmaker private, the already shrinking universe of investable U.S. stocks will lose yet another name.  

This is a trend that cannot continue indefinitely.

As I wrote in May 2017, the number of publicly listed companies in the U.S. has fallen steadily since 1997. More companies have delisted, in fact, than gone public in every year of the past 20 years except one, 2013.

Put another way, the pool is getting smaller even while the population and economy are expanding.

The number of publicly listed U.S. firms has been falling steadily since 1997
click to enlarge

The U.S. Has 5,000 Fewer Listed Companies Than It Should

In 1976, there were about 23 listed companies per 1 million U.S. citizens. Today, it’s closer to 11 per million.

That’s according to a new National Bureau of Economic Research (NBER) report by respected financial economist René Stulz, who adds that the U.S. has roughly 5,000 fewer companies listed on exchanges than you would normally expect, given the country’s size, population, economic and financial development and respect for shareholder rights.

Are we seeing the same phenomenon in other countries, developed or otherwise?

“There are other countries that have lost listings since 1997, but few have experienced a greater percentage decrease in listings,” Stulz writes. “Further, the U.S. is in bad company in terms of the percentage decrease in listings—just ahead of Venezuela.”

Given that Venezuela’s economy is in freefall, with inflation forecast to hit 1 million percent this year, I would call it bad company indeed.

So why is this happening?

A Record $2.5 Trillion in M&A Activity

One of the main causes of fewer listings is the explosion in mergers and acquisitions (M&As). When one company acquires another, or when two companies merge, that lowers the number of traded stocks—assuming they were available to be traded to begin with. So far this year, worldwide M&A activity has been very robust, with a record $2.5 trillion in deals announced in the first six months alone. That puts 2018 on track to surpass $5 trillion, which would be the most ever recorded.

the total value of global deals of $10 billion or more has surged in 2018
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What also makes 2018 different from past years is the high number of mega-deals that exceed $10 billion. Together, these deals total $950 billion, more than in any past first-six-month period.

Among the biggest deals is AT&T’s takeover of Time Warner, valued at $85 billion. Coincidentally, that’s about $80 billion less than the deal that merged Time Warner and America Online (AOL) back in 2000, still the largest in history.

There’s nothing wrong with M&As, of course. The problem arises when there aren’t enough initial public offerings (IPOs) to replenish the pool and give investors early access to new firms.

At the most basic level, fewer stocks means fewer options. It becomes more difficult to build a diversified portfolio when you don’t have a diversity of stocks to choose from.

Consider how many companies Warren Buffett’s Berkshire Hathaway has acquired over the years. It owns recognizable brands like Duracell, Dairy Queen, GEICO, Fruit of the Loom and more, not to mention is the majority owner of a number of other companies. There’s even talk that Buffett might buy a domestic airline outright, possibly Southwest.

But at more than $311,000 a share right now, Berkshire’s A stock is out of most Main Street investors’ price range. How long until they’re priced out of participating in the entire market?

What’s more, profits are being divided among fewer winners. This is contributing to inflated valuations and market frothiness. In many ways, Apple can thank its $1 trillion market cap largely on the fact that there’s less competition now among equities—specifically tech equities. Uber, Airbnb, Pinterest, Coinbase, and many other huge tech unicorns have delayed or put off getting listed altogether.

Many U.S. Tech Firms Have Delayed Going Public

Tougher Regulations Have Contributed to Private Equity Boom

So why would a company like Uber or Airbnb choose not to seek public funding? We can point to two related causes: stricter regulations on publicly traded firms, and the boom in private equity.

The most reported among these regulations is the Sarbanes-Oxley Act. More commonly known as SOX, the law was passed and signed in 2002 in response to major accounting scandals that brought down WorldCom and Enron.

In May 2017, I named SOX one of the five costliest financial regulations of the past 20 years. Its notorious Section 404, which requires external auditors to report on the adequacy of a firm’s internal controls, disproportionately hurts smaller companies, costing them six times as much in accounting fees in relation to larger firms, according to estimates by the Securities and Exchange Commission (SEC).

Because of these added costs, many smaller companies and startups are opting not to raise funds from public capital markets—or at least to delay it.

Nasdaq private market sets new record in deal flows in the first half of 2018In the meantime, firms are finding it easier to get adequate private financing—which Main Street investors don’t have access to. According to Reuters, the global private equity industry raised $453 billion from investors in 2017, a new record. And last week, Nasdaq Private Market (NPM), which helps companies facilitate shareholder liquidity, announced it conducted a record 33 company sponsored liquidity programs in the first half of 2018. Deal volume grew 74 percent compared to the same period last year and exceeded $10 billion for the first time.

You can see now why some companies like Uber are staying private for longer. Some prefer not to have added costs associated with compliance. Others might not want to answer to a board or share financial details publicly.

These are among the things Elon Musk apparently wants to avoid by taking Tesla private. He’s become more combative with analysts and shareholders, especially short sellers, going so far as to tell listeners during a May conference call to “sell [Tesla] stock and don’t buy it” if they’re concerned about volatility.

Before SOX, the average age of a company at the time of its IPO was 3.1 years. Today, it’s more like 13.3 years, according to S&P Global Market Intelligence.

This hurts Main Street investors. Because they’re generally not able to invest in private equity, they lack access to companies when they might be expanding at their fastest pace.

Check out the chart below. In the 10-year period through 2015, private equity and venture capital averaged 11 percent or more annually. They far outperformed stocks and bonds, sometimes by more than double.

investors are locked out of number 1 asset class
click to enlarge

What Investors Can Do

Ideally, regulations would be streamlined to lower the costs of going public. I believe this would encourage more firms to get list earlier in their existence.

Outside of that, investors should take the long-term view and diversify in domestic and emerging market stocks, municipal bonds and gold.

As for domestic stocks, I think it’s important to focus on companies that are consistently raising their dividends on an annual basis and buying back their own stock. We’ve found that companies that are growing their revenue streams, quarter after quarter, and that show strong free cash flow generation have tended to outperform over the long run. Our funds favor these metrics.

I’ll have more to say about dividends and free cash flow, so stayed tuned!

 

 

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.

There is no guarantee that the issuers of any securities will declare dividends in the future or that, if declared, will remain at current levels or increase over time.

Free cash flow (FCF) is a measure of how much cash a business generates after accounting for capital expenditures such as buildings or equipment. This cash can be used for expansion, dividends, reducing debt, or other purposes.

Holdings may change daily. Holdings are reported as of the most recent quarter-end. None of the securities mentioned in the article were held by any accounts managed by U.S. Global Investors as of 6/30/2018.

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Wait Until You See the Price of Gold in Venezuela Right Now
August 6, 2018

Paper Money eventually returns to its intrinsic value zero

Last month in Venezuela’s capital city of Caracas, a cup of coffee would have set you back 2 million bolivars. That’s up from only 2,300 bolivars 12 months ago, meaning the price of a cup of joe has jumped nearly 87,000 percent, according to Bloomberg’s Café Con Leche Index. And you thought Starbucks was expensive.

But that was July. Prices in Venezuela are doubling roughly every 18 days. The International Monetary Fund (IMF) now projects inflation to hit an astronomical 1 million percent by the end of this year. This puts the beleaguered Latin American country on the same slippery path as Zimbabwe a decade ago and Germany in the 1920s, when a wheelbarrow full of marks was barely enough to get you a loaf of bread.

Venezuela’s socialist president Nicolas Maduro—who only this past weekend survived an assassination attempt involving several explosive-laden drones—announced recently that the country plans to rein in hyperinflation by lopping off five zeroes from its currency. If you recall, Zimbabwe similarly tried to combat soaring prices of its own by issuing a cartoonish $100 trillion banknote—which in 2009 was still not enough to buy a bus ticket in the capital of Harare.

Without structural governmental reforms, a new bolivar is just as unlikely to steady Venezuela’s skyrocketing inflation or remedy its crumbling economy.

Gold Could Save Your Life

So where does this put gold? At some point, hyperinflation gets so ludicrously out of control that discussing exchange rates becomes pointless. But as of July 30, an ounce of the yellow metal would have gone for 211 million bolivars—an increase of more than 3.1 million percent from just the beginning of the year.

Gold priced in Venezuela Bolivars
click to enlarge

My point in bringing this up is to reinforce the importance of gold’s Fear Trade, which says that demand for the yellow metal rises when inflation threatens to destroy a nation’s currency—as it’s doing right now in Venezuela. A Venezuelan family that had the prudence to store some of its wealth in gold would be in a much better position today to survive or escape President Maduro’s corrupt, far-left regime.

In extreme cases like this, gold could literally help save lives.

Such was the case following the fall of Saigon in 1975. If not for gold, many South Vietnamese families might not have managed to escape the country. A seat on one of the thousands of fleeing boats reportedly went for eight or 10 taels of gold per adult, four or five taels per child. (A tael is slightly more than an ounce.) Gold was their passport. Thanks to the precious metal, tens of thousands of Vietnamese “boat people,” as they’re now known, were able to start new lives in the U.S., Canada, Australia and other developed countries.

Venezuela’s Once Prosperous Economy Destroyed by Corruption and Mismanagement

But back to Venezuela. Amid the corruption and mismanagement, the only thing helping the country pay its bills right now is gold. Two years ago, it had the world’s 16th largest gold reserves. Today it stands at number 26 as it’s sold off more than half its holdings since 2010. While countries such as China and Russia continue to add to their holdings, Venezuela has been the world’s largest seller of gold for the past two years.

Venezuela began liquidating its gold after oil prices declined
click to enlarge

It’s hard to remember now, but as recently as 2001, Venezuela was the most prosperous country in all of South America. Like Zimbabwe, the OPEC nation is rich in natural resources, home to the world’s largest oil reserves and what’s believed to be the fourth largest gold mine. Oil exports account for virtually all of its export revenue.

In 2016, Venezuela was the third largest exporter of crude to the U.S. following Canada and Saudi Arabia, but with output in freefall, this is changing rapidly. For the first time ever in February, Colombia sold more crude oil to the U.S. than its eastern neighbor did. And in June, Venezuela’s state-owned oil and gas company, Petróleos de Venezuela (PDVSA), informed at least eight foreign clients that it would be unable to meet supply commitments. According to GlobalData, production is on track to fall to only 1 million barrels per day by 2019, down from 3 million a day in 2011, meaning the petrostate might soon have nothing left to deliver.

President Maduro now has the ignoble distinction of reigning over an economic recession that rivals the very worst in modern history. Last month, the IMF forecast that the country’s real gross domestic product (GDP) would fall 18 percent this year—the third straight year of double-digit declines.

Venezuelas recession among the worst in recent history
click to enlarge

A mass exodus of young, working-age Venezuelans, many of them college-educated, is unlikely to help. Estimates of the number of people who have fled the country in the past two years alone range from 1.7 million to as high as 4 million.

Their escape is no easy task, as numerous international airlines, citing rampant crime and a lack of electricity, have canceled all flights in and out of Caracas. The only U.S. carrier still operating in the country is American Airlines, which offers a single daily flight from the nation’s capital to Miami. Just two years ago, there were as many as 40 nonstop American flights, not to mention those of rival carriers, between the two cities—a sign of just how dramatic and swift Maduro’s mismanagement has been in crippling Venezuela’s once-robust economy.

The Diversification Benefits of Gold

The gold bears were on top last week, with the metal trading as low as $1,205 on Thursday. That’s the closest it’s come to dipping below $1,200 since February 2017. Friday’s lower-than-expected jobs report gave gold a modest boost, but it wasn’t enough to prevent a fourth straight week of price declines.

Gold delped stem the rout

click to enlarge

In times like this, it’s important to remember that, according to gold’s DNA of volatility, it’s a non-event for the metal to close up or down 1 percent at the end of each session, 2 percent for the 10-day trading period. And guess what? The S&P 500 Index has the same level of volatility.

Ten days ago, gold was trading just under $1,230 an ounce, or 0.6 percent more than today. The math is sound.

It’s also worth remembering that gold has traditionally had a low to negative correlation with other assets such as equities. This is why many investors over the years have used it as a portfolio diversifier.

Case in point: On June 26, Facebook suffered its worst single-day decline since the company went public in 2012. Its stock plunged 19 percent, erasing some $120 billion in market capitalization—the most ever in history for a single trading session.

Gold, meanwhile, held relatively steady, slipping only 0.62 percent.

Curious about learning more? Explore the two main drivers of gold, the Fear Trade and 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.

The Bloomberg Café Con Leche Index tracks the price of a cup of coffee in the eastern portion of Venezuela’s capital city of Caracas.

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

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 6/30/2018: American Airlines Group Inc.

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What Does It Take to Be in the Top 1 Percent? Not As Much As You Think
August 1, 2018

what does it take to be in the top 1 percent not as much as you think

When you think of the top 1 percent of all income earners in American households, how much do you think this group rakes in? Millions? Tens of millions? What about the top 10 percent?

On the contrary, to be considered in the top 1 percent of taxpayers nationally, you’d need an annual income of $480,930. The top 10 percent of taxpayers make at least $138,031. These figures are based on 2015 income tax data, the most recent year available.

This income level varies widely by both state and city. In San Jose, California, the top 1 percent income threshold is close to $1.2 million, almost double the level for Los Angeles. As seen in the chart below, the spread is fairly wide between the top 10 most populous cities in the U.S. In San Antonio, Texas – home to U.S. Global Investors – you’d need to make $416,614 annually to be considered in the top 1 percent, slightly below the national threshold of top 1 percenters.

top 1 percent income level varies greatly by location 10 most populous US cities ranked by annual income required to be in top 1 percent
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Earning enough income to be in the top 1, 10 or even 20 percent is no small accomplishment, but chances are good that many people you know, and may not think of as wealthy, fall into the top 1, 10 or 20 percent.

Is the Top 1 Percent Paying Their Fair Share?

Contrast the above income statistics with the picture often painted in the media that the wealthiest Americans aren’t paying their fair share. According to the Tax Foundation, the top 1 percent of households collectively pay more in taxes than all of the tax-paying households in the bottom 90 percent.

Take a look at how much this has changed over the past few decades. In 1980, the bottom 90 percent of taxpayers paid about half of the taxes. The top 1 percent contributed about 20 percent.
Now, the top 1 percent pays more than the bottom 90 percent. Perhaps this is more than their fair share?

top 1 percent now pay omre than bottom 90 percent comparison of taxpayers' share from 1980 to 2015
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Below is the line chart from the Tax Foundation showing how the income tax share for each category has changed since 1980. For the majority of years, the share of the bottom 90 percent fell while the share of the top 1 percent rose.

income share of top earners has been rising percent of federal income paid by top 1 percent versus bottom 90 percent
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Individual Tax Rate Cuts Take Effect in 2018

Taxpayers in the highest bracket should see a noticeable change when filing for the 2018 tax year since the top rate fell from 39.6 percent to 37 percent. President Donald Trump’s administration passed the Tax Cuts and Jobs Act in late 2017, which included small reductions to income tax rates for most individual brackets plus changes to exemptions, deductions and more. The average top 1 percent taxpayer will get a tax break of over $50,000 in 2019, according to estimates.

The new tax bill, however, eliminates the ability of taxpayers to deduct more than $10,000 in state and local taxes from their federal tax returns. This could significantly increase the tax burden of top earners who itemize their deductions in high-income tax states such as California and New York. One possible solution for these investors could be to take advantage of municipal bonds, which are often exempt from local, state and federal taxes.

Maximize Tax-Advantaged Investment Vehicles

Although it can be discouraging to see how top earners pay the majority of income taxes, there are still tax advantages for hard-working Americans who make saving and investing a priority in their lives.

How can you help make sure less of your money is going to the government and more of it is working for you in your investments? One way is to maximize your contributions to tax-advantaged investment vehicles such as an individual retirement plan, a 401(k), individual retirement account (IRA) or simplified employee pension (SEP) for the self-employed, all of which offer tremendous tax benefits.

To make it easier to have the discipline to set money aside, try an automatic plan that invests a fixed amount at regular intervals, such as the U.S. Global Investors’ ABC Investment Plan.

Wealth Isn’t Just a Number

No matter how much you earn, wealth is determined by how much you keep. My friend, Alexander Green, chief investment strategist of the Oxford Club, is a great source of inspiration for me and for many investors with his uplifting, holistic articles that relate to both health and wealth. Alex says wealth isn’t necessarily determined by an income figure. Instead, real wealth is determined by looking at your balance sheet. Here’s his formula:

“Maximize your income (by upgrading your education or job skills). Minimize your outgo (by living beneath your means). Religiously save the difference. (Easier said than done.) And follow proven investment principles.”

What matters most is being grateful for what you have. I’m a big believer that wealth is not a number or an amount, it’s an attitude and the umbilical cord to attitude is gratitude.

Take a look at my 10 favorite wealth and prosperity affirmations in this slideshow!

 

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Share “What Does It Take to Be in the Top 1 Percent? Not As Much As You Think”

Net Asset Value
as of 10/16/2018

Global Resources Fund PSPFX $5.18 0.07 Gold and Precious Metals Fund USERX $6.97 0.01 World Precious Minerals Fund UNWPX $3.60 0.01 China Region Fund USCOX $8.21 0.14 Emerging Europe Fund EUROX $6.50 0.12 All American Equity Fund GBTFX $25.72 0.39 Holmes Macro Trends Fund MEGAX $18.50 0.39 Near-Term Tax Free Fund NEARX $2.19 No Change U.S. Government Securities Ultra-Short Bond Fund UGSDX $2.00 No Change