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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.

A New Wrinkle in the U.S.-China Trade Dispute
December 10, 2018

Frank in Washington at the Senate Press room

Last week I had the opportunity to attend the Young Presidents Organization (YPO) parliamentary intelligence forum in Washington, D.C. More than 200 members of parliaments from as many as 60 European countries joined us to hear from such dignitaries as Congressmen Robert Pittenger (R-NC) and Mike McCaul (R-TX), chairman of the Homeland Security Committee.

While in D.C., I was very honored to be invited into the epicenter of power and decision-making. That includes the Senate Press Office, pictured above, and the west front of the U.S. Capital facing the National Mall, where every president since Ronald Reagan in 1981 has been inaugurated.

It was there that George H.W. Bush took the oath of office, exactly 200 years after George Washington did. Newly arrived to Texas from Canada, I remember watching Bush’s inauguration on TV and being moved by his testament to freedom: “We know how to secure a more just and prosperous life for man on Earth,” he said, “through free markets, free speech, free elections and the exercise of free will unhampered by the state.”

The memory was made all the most poignant by the flags flying at half-staff, and the fact that I was standing in the same building where, just 24 hours earlier, the former president’s remains lied in state.

Remembering the 41st President

President George HW Bush 1924-2018

The life of George Bush, son of a U.S. senator and father of two governors and a president, stands as a case study in sacrifice and service. On the same day that he graduated from high school in 1942, he enlisted in the United States Navy. The country’s youngest Navy pilot at the time, Bush went on to receive the Distinguished Flying Cross after completing a bombing mission despite his plane being engulfed in flames from Japanese fire.

And from there it only gets more interesting.

Founder of a successful oil and gas company, congressman in the House of Representatives, ambassador to the United Nations, special envoy to the People’s Republic of China (before the U.S. had diplomatic relations with the Asian country), director of the Central Intelligence Agency (CIA), two-term vice president—Bush was and remains to this day perhaps the most qualified and well-equipped chief executive ever to set foot in the Oval Office.

As the 41st president, he oversaw the collapse of the Soviet Union and reunification of Germany, putting him at odds with U.K. Prime Minister Margaret Thatcher and French President Francois Mitterrand, who favored a divided Germany. His decision to push back Iraqi forces from Kuwait, arguably the greatest defining moment of his one-term presidency, was both a military and political success.  

American voters ultimately denied him a second term, however, once they felt his pledge to create “no new taxes” went unfulfilled. As part of a compromise with the Democratic-controlled Congress, Bush agreed to raise taxes to help reduce the national deficit. The episode is a reminder of a time when politicians’ duty to country trumped duty to party, even if it jeopardized reelection.

That deep sense of duty sustained him for the rest of his 94 years. Bush was involved in a number of charities and humanitarian efforts, most notably the Bush Clinton Coastal Recovery Fund. The fund— spearheaded in cooperation with his former political rival and, some might say, unlikely friend Bill Clinton—raised tens of millions of dollars for families impacted by 2005’s Hurricane Katrina.

On behalf of everyone at U.S. Global Investors, I extend my gratitude and sympathy to the Bush family. May George Herbert Walker rest in peace and remain firmly in our memory.

Stocks Hit on Renewed U.S.-China Trade Concerns

On a very different note, global stocks last week plunged on concerns that trade negotiations between the U.S. and China are not running as smoothly as initially thought. The S&P 500 Index is not only having one of its worst quarters in years, but it could also end up in the red for the year for the first time since 2008.

Adding to the uncertainty was news of the arrest in Canada of the chief financial officer (CFO) of Chinese tech giant Huawei. Although no charges have been filed yet, the company has long been investigated by U.S. authorities, and more recently it’s been suspected of violating economic sanctions against Iran. The CFO, Meng Wanzhou, faces extradition to the U.S.

A Huawei smartphone

The name might not be known to most Americans, but Huawei is the world’s second-largest manufacturer of smartphones following Samsung, and the largest supplier of telecommunications equipment. Meng is not only a top executive but also the daughter of the company’s founder, Ren Zhengfei, a former officer in the People’s Liberation Army who has close ties to the Communist Party of China.

Imagine a foreign power arresting the daughter of Steve Jobs, and you might get some idea of how big a deal this is.

President Donald Trump has levied much of his criticism on China for “unfair” trade practices and stealing intellectual property from the U.S. As I told you back in March, China’s J-31 stealth fighter jet is believed to be a knockoff of Lockheed Martin’s F-35. (A 2014 whitepaper on Huawei, in fact, states that the tech firm got its start in 1987 by “reverse-engineering foreign products and using that as the foundation to develop more complex technologies.”) But America’s beef with Huawei, and its Hong Kong-listed rival ZTE, go back further than the start of this administration and rest on suspicions their phones and other telecomm products might be used for espionage.

In 2012, after investigating Huawei and ZTE, the House Permanent Select Committee on Intelligence concluded that the two firms could be seeking to “undermine core U.S. national-security interest.” Committee members recommended that the U.S. block any mergers and acquisitions involving the companies and that all U.S. governmental agencies not use their equipment. Earlier this year, officials with the CIA, National Security Agency (NSA), Federal Bureau of Investigation (FBI) and Defense Intelligence Agency (DIA) testified before the Senate Intelligence Committee that Huawei and ZTE’s phones posed a security risk to American consumers.       

In any case, Meng’s arrest last week rattled investors, convincing many of them that U.S.-China trade talks are deteriorating rather than improving. We saw a knock-on effect among a number of Huawei’s suppliers, including lens-maker Sunny Optical (down almost 5.5 percent last Thursday), data networking firm Inphi (off 9.25 percent) and California-based NeoPhotonics (down more than 16 percent).

U.S. Trade Deficit Just Widened Even More

Speaking of trade, the U.S. deficit with the rest of the world tumbled to a 10-year low in October. According to Zero Hedge, the “trade deficit was $55.5 billion in October (worse than the $55.0 billion expected and well down from the $54.6 billion revised print for September)… underscoring continued fallout from the trade dispute with China.”

As for the U.S.-China trade deficit—the difference between exports and imports—that measure widened to a new all-time low of $43.1 billion in October, down from $40.2 billion a month earlier. The fall in net exports is expected to weigh heavily on fourth-quarter gross domestic product (GDP) growth.

US trade deficit with China fell to a record low in October
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The trade report comes at a time when additional tariffs on goods coming into the U.S. are increasingly to blame for stock volatility this year. A new analysis by Bank of America Merrill Lynch suggests that worries about tariffs have trimmed some 6 percent off domestic stocks in 2018 alone.

What’s more, tariffs could be costing American households more than most realize. Last month a study conducted by consulting firm ImpactECON and commissioned by Koch Industries—an opponent of Trump’s trade policies despite its billionaire chief executive brothers, Charles and David, being top Republican donors—estimated that tariffs would cost each U.S. household nearly $2,400 in 2019, or $915 per person. GDP growth could be reduced 1.78 percent next year, with losses close to $2.8 trillion between now and 2030, if current trade actions were allowed to stay in place, the study says. As many as 2.75 million American workers “are likely to become unemployed” in 2019 “if all trade actions are implemented concurrently.”

Gold Price Rises on Weaker-Than-Expected Jobs Report

Speaking of employment, the U.S. added 155,000 jobs in November, falling far short of expectations. The U.S. dollar pulled back slightly as a result, prompting gold to trade at a five-month high of more than $1,255 per ounce. Earlier in the week, the price of palladium briefly overtook gold’s on tightening supply and increased automobile demand. (The silvery white metal is used to manufacture catalytic converters). But if economic uncertainty continues to weigh on the dollar, we could see gold lift even higher and safely retain its spot as the most valuable precious metal.

Palladium briefly became most precious metal for first time in 16 years
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As I reminder, I recommend that investors maintain a 10 percent exposure to gold in their portfolio—half of that in gold coins, bars and jewelry; the other half in high-quality gold mining stocks, mutual funds and ETFs. Remember to rebalance at least once a year.

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. 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.

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: Sunny Optical Technology Group Co.

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The Yield Curve Just Inverted for the First Time in Years. Time to Reconsider Risk?
December 5, 2018

The Yield Curve Just Inverted for the First Time in Years. Time to Reconsider Risk?

One of the most reliable indicators of an economic slowdown just flashed a warning sign this week. On Monday, the yield curve between the five-year Treasury yield and three-year Treasury yield inverted, or turned negative, for the first time since 2007. What this means is the shorter-maturity bond now pays more than the longer-maturity bond, suggesting investors believe the government is less likely to service the debt it owes in three years than in five years. Such an inversion has historically portended a recession sometime in the next six to 24 months.

Spread Between 5-Year and 3-Year Treasury Yield Turned Negative for First Time Since 2007
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Meanwhile, the more closely watched spread between the 10-year yield and two-year yield, though positive, sat at a lowly 15 basis points on Monday, the flattest it’s been in more than 11 years. All nine recessions since 1955 have been preceded by an inversion of the 10-year and two-year Treasury yields.

I believe the flattening yield curve is just one among a number of signs that we’re entering a more risk-off investing environment (one in which investor appetite for riskier assets, such as stocks, decreases). The recent trade war ceasefire between the U.S. and China is encouraging, but challenges still persist, including rising U.S. interest rates, Brexit, skyrocketing debt and a purchasing manager’s index (PMI) that’s steadily weakened over the past eight months.

All things considered, I think it might be time for investors to consider getting more defensive as we proceed further into the later stages of this business cycle, one of the longest in U.S. history. That means making sure you have exposure to assets that have historically done well during slowdowns in the economy and capital markets. Among my favorite are precious metals, particularly gold, and short-term, tax-free municipal bonds.

Municipal Bonds Have Outperformed Higher-Risk Corporate Bonds

Municipal bonds might have a reputation for being “boring,” but personally I don’t find anything boring about potentially limiting losses in my portfolio. That’s precisely what munis managed to do lately as stocks tumbled, many of them entering correction and even bear market territory. Short-term state and local debt, as measured by the Barclays Capital 3-Year Municipal Bond Index, delivered 0.3 percent in the two months ended November 30, while high-yield and investment-grade corporate debt lost 0.2 percent and 0.4 percent, respectively. Even the riskiest munis gained, according to Bloomberg data, helping investors staunch some of the declines they might have felt in their equity allocation.

Muni Bonds Outperformed Corporate Debt on Stock Volatility
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Speaking of risk, munis have historically had a much lower rate of default than corporate bonds. Between 1986 and 2016, the muni default rate was only 0.04 percent, whereas corporates had one 50 times higher at 2.03 percent, according to Moody’s. On top of that, munis provide income that’s tax-free at the federal and often state levels, unlike corporate securities, which are subject to taxes.

Consider the Near-Term Tax Free Fund (NEARX)

Two months is admittedly a small sample size, so let’s take a longer view of munis’ performance using our Near-Term Tax Free Fund (NEARX). As you can see below, if you had invested $100,000 in NEARX and in an S&P 500 Index fund back in 1999, it would have taken more than 13 years for the S&P fund to catch up to and surpass NEARX.

U.S. Global Investors Near-Term Tax Free Fund vs. S and P 500 Index
click to enlarge

See standardized performance by clicking here.

While the market lost as much as 40 percent on two separate occasions, during the tech bubble and financial crisis, our short-term muni bond fund stayed relatively stable. That’s because munis, unlike stocks, favor safety and liquidity over growth—a strategy I believe investors should really consider now that there are signs of a looming equity slowdown.

I like to call this strategy “no drama” investing.

Even in a rising interest rate environment, I think NEARX can help investors avoid volatility in the stock market. And remember, this allocation should evolve as you age to contain a greater weighting toward bonds and lower weighting toward equities.

Learn more about NEARX and how you might diversify your portfolio with municipal bonds as we approach the late stages of the business cycle.

 

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

Past performance does not guarantee future results.

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

The chart illustrates the performance of a hypothetical $100,000 investment made in the fund during the depicted time frame. Figures include reinvestment of capital gains and dividends, but the perofrmnace does not include the effect of any direct fees described in the fund’s prospectus (e.g. short-term trading fees) which, if applicable, would lower your total returns.

The Barclay’s Capital 3-Year Municipal Bond Index consists of a broad selection of investment grade general obligation and revenue bonds of maturities ranging from one year to four years. The S&P U.S. High Yield Corporate Bond Index is designed to track the performance of U.S. dollar-denominated, high-yield corporate bonds issued by companies whose country of risk use official G-10 currencies, excluding those countries that are members of the United Nations Eastern European Group (EEG). The S&P 500 Investment Grade Corporate Bond Index seeks to measure the performance of U.S. corporate debt issued by constituents in the S&P 500 with an investment-grade rating. The S&P 500 Index is a market-capitalization-weighted index of the 500 largest U.S. publicly traded companies by market value.

The Purchasing Managers' Index (PMI) is an indicator of economic health for manufacturing and service sectors. The purpose of the PMI is to provide information about current business conditions to company decision makers, analysts and purchasing managers.

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

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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This Holiday Season, Make It Silver and Gold
December 3, 2018

 

Yesterday evening marked the beginning of Hanukkah. The Jewish festival of lights commemorates the reclamation of the Holy Temple in Jerusalem from the Syrian-Greeks in the second century BCE. According to accounts, after Judah and his forces liberated the temple, he found only one jar of oil, good for a single day’s lighting at the most. Miraculously, though, the oil lasted for an incredible eight days, which is why Hanukkah is celebrated for eight days and nights to this day. To all of my Jewish friends around the world, I wish you a Hanukkah Sameach!

Among many of the holiday’s well-known traditions, at least here in the U.S., is to give children chocolate coins. This arose from the centuries-old practice of parents giving real coins, or Hanukkah gelt, to their kids, who in turn were expected to give them to their teachers.

I believe this is a beautiful custom. Whether you observe Hanukkah, Christmas, Eid al-Fitr, Diwali or any number of other religious holidays around the world, gifting your children and grandchildren coins of precious metals such as gold or silver could be made into a tradition in your own family. I encourage you to see the unique gifts that Kitco Metals offers in both silver and gold.

Holiday Deals at Your Local Coin Dealer

Take a look at silver. The white metal is on sale right now, trading at a little more than $14 an ounce. That’s the most affordable it’s been in three years. Not only does a silver coin cost quite a bit less than, say, a video game, it lasts much, much longer. And unlike a video game, it has the potential to rise in value.   

Silver at Its Most Affordable in Three Years
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Gold is admittedly more expensive, trading just under $1,240 as of today. But there again, if you’re already planning to go all out on gift shopping this holiday season, you might as well make it something that’s truly memorable, holds it value and lasts forever.

It need not be a coin. Pure, 24-karat gold jewelry holds its value just as well as a coin, and it has the added bonus of being wearable. I’ve told you about Menë, the newcomer that aims to disrupt the fine jewelry industry. The Toronto-based company just announced that it surpassed 10,000 orders from customers in more than 50 countries, all less than a year since going public in January 2018. 

Speaking of holding its value, notice how the price of gold has held up well against stock market volatility this year. Gold sentiment among some investors is room temperature right now, but it’s important to put things in perspective. Compared to some popular internet stocks, the metal’s losses have not been nearly as sharp or deep. From its 2018 peak in early April to today, gold has declined around 10 percent. Facebook, meanwhile, has dropped close to 40 percent since its peak at the end of July; Netflix, as much as 36 percent since June.

Gold Has Outperformed FAANG Stocks
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Has the U.S. Dollar Peaked?

With less than a month left to go in 2018, gold is down around 6 percent. If it stays in this range, gold will log its first year of negative returns since 2015. This is largely thanks to the U.S. dollar, which has strengthened on additional interest rate hikes.

Although it’s probably too early to call a peak, there are some indications that the dollar might be set to cool in 2019. This would allow gold, silver and other metals not only to appreciate in price but also potentially outperform stocks.

Among the most compelling signs that the dollar is close to a top comes from Dutch financial services group ING. According to its analysts, the ballooning U.S. twin deficit—which combines the government budget balance and the current account balance—is projected to weaken the U.S. currency as it did in past cycles.

U.S. Dollar Projected to Weaken on Ballooning Deficit
click to enlarge

As I’ve shared with you before, the government is set to run trillion-dollar deficits for the next four years, and this will likely prove to be a heavy burden on the dollar. “Unlike the dollar rally seen in the late-1990s, when a productivity boom helped deliver a budget surplus, this year’s dollar rally has been built on unfunded tax cuts,” ING’s strategists write. The group adds that it “expects funding these deficits to become more difficult.”

ING isn’t alone in its view. Bloomberg Intelligence Commodity Strategist Mike McGlone believes that the “trade-weighted broad dollar is near a peak and silver a bottom… and the potential for mean reversion should outweigh continuing-the-trend risks. Silver, among the most negatively correlated to the dollar and positively to industrial metals, appears ready for a potential longer-term recovery.”

Not One Ivy League Endowment Beat a Simple 60-40 Portfolio Over 10 Years

On a final note, a study last week showed that eight Ivy League endowments were unable to beat the 10-year annualized returns of a simple 60-40 portfolio, with 60 percent in U.S. stocks, 40 percent in bonds.

Markov Processes International (MPI), a quantitative analytics research firm, has been assessing the performance of endowment funds managed by some of the top universities in the U.S. Although all eight funds beat the 60-40 benchmark in fiscal year 2017, none managed to beat it on an annualized basis over the past 10 years. In fact, the 60-40 portfolio—one of the most common asset allocation structures, available to retail investors through a simple S&P 500 Index fund and fixed-income fund—outperformed the bottom university fund, Harvard’s, by 360 basis points.

Ivy League Endowments Were Unable to Beat a Simple 60-40 Portfolio
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The “Ivies” not only lagged the benchmark but were also accompanied by much higher risk. Over the past 10 years, the 60-40 portfolio had a standard deviation of 9.1 percent, whereas the riskier endowment funds had one as high as 13.8 percent (in the case of Yale and Cornell) and 13.6 percent (in the case of Harvard).

The implication, I believe, is you don’t necessarily need access to the fanciest, most sophisticated tools and strategies to maximize your investments. MPI shows that a basic portfolio, composed of high-quality domestic equity funds and short-term Treasury and municipal bond funds—all of which we’re proud to provide, I might add—is suitable for most retail investors seeking attractive risk-adjusted returns.

Curious to learn more? Watch my comprehensive interview with Kitco News’ Daniela Cambone by clicking here!

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

Standard deviation is a quantity calculated to indicate the extent of deviation for a group as a whole. A trade-weighted dollar is a measurement of the foreign exchange value of the U.S. dollar compared against certain foreign currencies. A basis point is one hundredth of one percent, used chiefly in expressing different of interest rates.

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

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: Mene Inc.

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Talking Tech With Pulitzer Prize Nominee Michael Robinson
November 28, 2018

Michael Robinson, chief technology strategist of Money Map Press, is a lot of things: devoted son and father, technologist, avid skier and gun enthusiast, accomplished blues guitarist, Pulitzer Prize nominee.

Readers of his popular newsletters know him for his mantra, "The road to wealth is paved with tech.” As editor of Strategic Tech Investor, Nova-X Report and Radical Technology Profits, Michael has helped curious investors get in early on small-cap and micro-cap names involved in biotech, defense, cannabis research and more.

I got to see Michael’s presentation at the Black Diamond Investment Conference in October and was impressed by his energy, interesting life story and deep knowledge of niche markets.

Below are snippets from our recent discussion, which touches on topics ranging from trap shooting to cannabis legalization to blockchain technology.

Tell us about your start in military tech and biotech.

I grew up in a military household. My dad was a Marine Corps officer, and later he became the senior military editor at Aviation Week & Space Technology. He was among the earliest to write about the Strategic Defense Initiative (SDI), popularly known as Star Wars. So as a high schooler, I was exposed to all of these exotic defense technologies—materials, sensors, warheads and the like—which really gave me a leg up.

My dad and I ran a high-tech military newsletter in the 1980s. This put me in a position to visit Silicon Valley pretty regularly and talk with scientists and CEOs about cutting edge tech—materials that made battleships and submarines quieter, for example.

As a young auto analyst and reporter, I managed to break some big tech stories because I was willing to look away from the mainstream. The biggest story I did actually led to the firing of two executive vice presidents, which cost the bank close to $80 million. The New York Times and Wall Street Journal ended up having to cover the story, so that helped put me on the map.

I got involved in biotechnology later through my work at what was then the Oakland Tribune. The biotech sector was brand new in the mid-80s, and I was in California where it was all happening. While there, I did a five-part series on Betaseron, the first FDA-approved biotech drug to treat multiple sclerosis (MS).

How did you make the leap to the financial world?

That just felt like the natural next step. Every time I left a Silicon Valley presentation on some new tech, I would think: "That's really cool, but how can you make money off of it?" So even though I consider myself a technologist, I'm always looking at the financial angle.

What’s more, I served on the advisory board of a venture capital company. The experience gave me a different way of evaluating startups than a standard financial analyst, who might be trained only to do ratio analysis and things like that. There's nothing wrong with ratio analysis, but it's not going to give you the kinds of insights and instinct you need to figure out which companies really have it together and which don’t.

You’re known to have a strong interest in guns and shooting. Did that come out of your dad’s military background?

I never really thought of it that way. I just love shooting guns. Mostly these days I shoot trap and skeet. I joined the National Rifle Association (NRA) because I wanted to qualify as a Triple Distinguished Expert in pistols, rifles and shotguns. Shotgun was the most difficult, I thought.

The amount of concentration that's required to shoot at a high level really appeals to me. You have to block out all distractions. In that respect, shooting is a lot like investing. One of the things I remind readers and clients is to separate the signal from the noise. You can't become a good shot if you can't block out all the external distractions and things. Similarly, investors must learn to block out short-term market noise before they pull the trigger, so to speak.

Who would you say are your biggest influences?

Besides my dad, I would have to say the renowned economist Milton Friedman. I had the great pleasure to interview him once for the American Enterprise Institute (AEI). I remember he had a portrait of himself done, but his wife wouldn’t let him hang it up on the wall in their Nob Hill condo. It’s funny—here’s one of the world’s greatest economic thinkers, a Nobel Prize winner, and he had his portrait just sort of propped up in a corner somewhere.

In any case, Friedman was a huge influence on the way that I think about economics. In my freshman year when I was signing on to be an economics major, I remember reading about how iconoclastic he was, how out of step he was with the rest of the economics community, which was very Keynesian at the time. I learned the true value of contrarianism from studying him and looking at things like freedom to choose. Ayn Rand was another huge influence in that respect.

Michigan just voted to legalize recreational cannabis, making it the first Midwest state to do so. Is this a tipping point?

I think the tipping point probably occurred in 2016, when as many as nine states had cannabis legalization on their ballots. That year is also when we launched our investment report, the Roadmap to Marijuana Millions. All 30 of the stocks we recommended made money. The reason I say that is not to brag about our track record, but to point out that we saw large numbers of new investors coming in, willing to take the risk, wanting to be early and understand the industry.

Michigan, for me, was an affirmation of this critical mass. It’s also a reminder of what we need more of to attract institutional investors: initial public offerings (IPOs), mergers and acquisitions (M&As), up-listings to major exchanges.

Obviously the biggest catalyst would be something out of Washington—an effort to reclassify marijuana off of Schedule I, for instance. I would love to see that happen, as would my dad, the Marine Corps officer, but I don’t believe the support is there right now.

You recently argued that blockchain technology should not be used for voting, for reasons involving secrecy and anonymity. In what industries do you see its application making the most sense?

Literally everything. Supply chain management is a huge area that could benefit from blockchain. Look at the oil industry, which still uses this old paper-based system. Companies that have already shown interest in blockchain are British Petroleum (BP) and Royal Dutch Shell, among others.

Counterfeit goods is a problem that runs in the hundreds of billions of dollar every year. Blockchain can help with that. You can use it to tag and identify goods early on, and then they can be tracked with some kind of a distributed ledger.

Or look at financial services. Frank, you’ve pointed out a number of times before that JPMorgan Chase CEO Jamie Dimon has criticized cryptocurrencies, and yet the bank was quietly investing millions upon millions.

Speaking of cryptocurrencies, they’re down significantly this year. Do you think now is a good time to buy, or is more pain ahead?

I fear about jumping in right now. Are we at the bottom of bitcoin? I don't know. One thing I do know is that this crypto selloff may be healthy in the long-term. There’s been an insane number of initial coin offerings (ICOs), which have really hurt bitcoin and Ethereum. We need to sweep out some of the smaller coins because 2,000 cryptos is more than the world can possibly absorb. There has to be a shakeout.

Total currency market capitalization
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You work on several newsletters. Can you describe them for our readers and explain what value they bring?

The main value they bring is making our readers a lot of money. For starters, we have Strategic Tech Investor, which is our free service. The idea is to give investors the rules they need to succeed and not be so emotionally-driven. Because it's free and it's open format, we want to educate investors, and hopefully they'll develop an interest in my investing style and decide to subscribe to one of our paid services.

That brings us to the Nova-X Report and Radical Technology Profits.

Nova-X focuses on mid-cap stocks and the lower end of large-caps. We feel that's a good comfort zone for entry-level investors who are looking for big trends and ways to make money that aren't necessarily household names. We try to get to market early.

Radical Tech is our premium service. It’s designed for much more savvy, much more aggressive people. We swing for the fences more than we do with Nova-X. The focus is on any kind of cutting-edge technology—small-caps and even some micro-caps.

As long as my readers make money, I know I'll do well. I take breaks from time to time, but for the most part I'm up well before dawn screening charts and looking at articles—anything to make our readers as much money as I can.

I want to thank Michael for his time and enthusiasm. Be sure to check out his newsletters!

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

Holdings may change daily. Holdings are reported as of the most recent quarter-end. The following securities mentioned in the article were held by one or more accounts managed by U.S. Global Investors as of 9/30/2018: BP PLC, Royal Dutch Shell PLC.

 

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What Thanksgiving Cranberries and Bitcoin Have in Common
November 26, 2018

What Thanksgiving Cranberries and Bitcoin Have in Common

Football is as much a part of Thanksgiving as turkey and family are, and nearly as old as the holiday itself. It was President Abraham Lincoln who proclaimed Thanksgiving a national holiday in 1863, saying that he hoped all Americans would carve out some time to bless the “widows, orphans, mourners or sufferers in the lamentable civil strife in which we are unavoidably engaged.”

In 1876, a little more than a decade after the end of that “civil strife,” students from Yale and Princeton met in Hoboken, New Jersey, to play what is believed to be the first football game held on Thanksgiving Day. Yale ended up besting its fellow Ivy League competitor, two “goals” to zero.

At the time, “football” still more closely resembled rugby than the sport we enjoy today. But a tradition was born. On subsequent Thanksgivings, the Yale-Princeton matchups generated so much cash in ticket sales that they funded the two universities’ athletic programs for the rest of the year.

The model was such a success that the National Football League (NFL) made sure to carry on the tradition upon its founding in 1920. Professional football has been played on Turkey Day ever since, except for those in the years from 1941 to 1945.

Touchdown, Yale vs. Princeton, Thanksgiving Day, Nov. 27, 1890, Yale 32

The Cost of Thanksgiving Just Came Down for the Third Straight Year…

For most families, football comes second to the real Thanksgiving pastime—eating. But unlike ticket prices for an NFL game, which have gone up about 50 percent in the past 10 years, the cost of enjoying a Thanksgiving meal got slightly cheaper in 2018.

to support prices, U.S. cranberry growers withheld as much as 25 percent of their harvest this season

According to the American Farm Bureau Federation (AFBF), the cost of a typical Turkey Day feast for 10 people deflated about $0.22 from last year to $48.90. That’s the third straight year of declines, and the lowest level since 2010.

More affordable energy and an oversupply in the turkey market contributed to lower food prices, as did the trade dispute between the U.S. and China. You would think that tariffs on Chinese products would raise prices, but as the Wall Street Journal explains, “China’s retaliatory moves are having the opposite effect.”

“Tariffs on U.S. agricultural products have dampened Chinese demand, boosting supplies of some staples of the Thanksgiving table,” writes the WSJ’s Justin Lahart. Because of the supply glut, cranberry growers in particular have seen prices fall below the cost of production, estimated at $35 per barrel—which is bad for the farmers, obviously, but good for American consumers. As much as 25 percent of the U.S. supply of cranberries had to be dumped this season in order to support prices.

…But Christmas Continues to See Inflation

Cranberries are one thing, a partridge in a pear tree is another.

Every year for the past 35 years, PNC Financial Services has priced out all the items listed in the holiday song “The 12 Days of Christmas.” The cost of all 364 gifts, from turtle doves to pipers piping, rose 1.2 percent this year to $39,094.93. That’s almost double what the same items cost back in 1984.

cost of all items in the 12 days of christmas rose for 16th straight year
click to enlarge

Interestingly, just as the U.S. Bureau of Labor Statistics excludes food and energy from its “core” consumer price index (CPI) because they tend to be more volatile than the other items, PNC excludes the price of swans from its Christmas index for the very same reason.

The gift that rose the most from Christmas 2017 was the six geese a-laying. They’ll set you back $390 this year, 8.3 percent more than last year.

The gift that fell the most, meanwhile, was the five gold rings. They cost $750, down 9.1 percent from $825 in 2017. That’s good news for jewelers such as newcomer Menè, which prices its merchandise based on the gold and platinum weight value. 

Bitcoin Miners Await a Recovery in Prices

Like the cranberry growers, many bitcoin miners are choosing to limit supply as prices right now are lower than operating costs. Bitcoin fell below $5,000 last Saturday, then below $4,000 on Saturday. These are levels we haven’t seen in over a year. The average cost of mining a single bitcoin, meanwhile, is estimated to be between $6,000 and $7,000, meaning miners are operating at a loss.

The global bitcoin hash rate, therefore, is rolling over as smaller miners shut down rigs and await a recovery in prices. The hash rate, which measures how much power the bitcoin network is consuming, is now at August levels. It’s worth pointing out, though, that the rate is still up sharply this year, even as the world’s largest cryptocurrency has struggled to find the momentum that carried it to nearly $20,000 last December.

bitcoin hash rate is rolling over as smaller miners shut down operations
click to enlarge

This should be good news for the bigger players in the industry, most notably HIVE Blockchain Technologies, since they’ll control a larger share of the market.

HIVE blockchain technologies and leading cryptocurrencies are highlight correlated
click to enlarge

Vancouver-based HIVE, the first publicly listed blockchain infrastructure company, is a pure play blockchain and Ethereum investment for the capital markets. As such, many investors trade HIVE as an easy proxy for those digital coins. In the chart above, you can see that its share price shares a very strong correlation with both bitcoin and Ethereum. For 2018, HIVE had a correlation coefficient of 0.92 with those two coins. A correlation of 1.0 would mean that the two assets trade perfectly in sync. When cryptocurrencies begin to recovery, then, it seems logical to expect that HIVE would follow suit.

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The Consumer Price Index (CPI) is one of the most widely recognized price measures for tracking the price of a market basket of goods and services purchased by individuals. The weights of components are based on consumer spending patterns.

Frank Holmes has been appointed non-executive chairman of the Board of Directors of HIVE Blockchain Technologies. Effective 8/31/2018, Frank Holmes serves as interim executive chairman of HIVE. Both Mr. Holmes and U.S. Global Investors own shares of HIVE, directly and indirectly. Investing in crypto-coins or tokens is highly speculative and the market is largely unregulated.

The Christmas Price Index is a tongue-in-cheek economic indicator, maintained by the U.S. bank PNC Wealth Management, which tracks the cost of the items in the carol "The Twelve Days of Christmas."

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 9/30/2018: Mene Inc.

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

 

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Net Asset Value
as of 12/10/2018

Global Resources Fund PSPFX $4.57 -0.05 Gold and Precious Metals Fund USERX $6.47 -0.05 World Precious Minerals Fund UNWPX $3.04 -0.06 China Region Fund USCOX $7.93 0.02 Emerging Europe Fund EUROX $6.23 -0.07 All American Equity Fund GBTFX $24.09 -0.10 Holmes Macro Trends Fund MEGAX $17.97 0.08 Near-Term Tax Free Fund NEARX $2.19 No Change U.S. Government Securities Ultra-Short Bond Fund UGSDX $2.00 No Change