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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.

The Blockchain Could Potentially Be as Disruptive as Amazon Was in the 1990s
September 18, 2017

By Frank Holmes
CEO and Chief Investment Officer
U.S. Global Investors

Block chain map

A quote often attributed to St. Augustine, the early Christian theologian, is: “The world is a book, and those who do not travel read only a page.” I feel blessed to be able to travel as much as I do—not because I’m a big fan of 10-hour flights or living out of a hotel room. I feel blessed because travel allows me to meet and speak at length with some truly fascinating and successful people, from CEOs of firms both large and small, to deal lawyers, to audit partners.

Hearing varying opinions on global issues and politics has helped expand the scope and depth of my “book,” or understanding of the world. In turn, I enjoy sharing some of these thoughts with you, as regular readers of Investor Alert and Frank Talk know well.

Opinions come a dime a dozen, of course, and in today’s hyper-partisan world, it’s impossible to expect everyone to agree on all things all of the time.

Case in point: I recently polled readers on their approval of the way Donald Trump has handled his job as president so far. This isn’t a scientific poll by any stretch of the imagination, but for whatever it’s worth, a combined 56 percent of participants said they approve of the president. Amazingly, that’s roughly the percentage of Electoral College votes given to Trump in November. (The exact figure is 56.87 percent.)

Do you approve or disapprove of the way Donald Trump is handling his job as President
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Some could easily take from this poll that Frank Talk readers are huge Trump supporters—and many of them are—but that would be overlooking the fact that nearly 40 percent said they disapprove of the way he’s handled his job.

I share this because it serves as a relatively accurate cross section of the types of opinions and perspectives I come across during my travels. Some of those opinions end up informing my own thinking, some don’t—but all of them are added to my “book.”

Now with North Korea launching even more rockets over Japan, the market continues to make new highs. This is what I was asked most often last week on CNBC Asia, Bloomberg Radio and Fox Business. As I said then, I’m bullish because the purchasing manager’s index (PMI) is up and oil prices are down, thanks to the ingenuity of Texas fracking, which has created a global peace tax break. The weaker dollar is also favorable for exports and gold.

Block chain map

Bitcoin on Sale After the China-Dimon One-Two Punch

Someone whose opinion I greatly admire, even if I don’t always agree with it, is Jamie Dimon’s. The highly-respected JPMorgan Chase CEO was asked last week at a global financial services conference in New York to share his thoughts on bitcoin—which can be as polarizing as President Trump. Some people love the cryptocurrency, some people hate it.

JP Morgan CEO Jamie Dimon

Dimon, who’s decidedly in the latter camp, didn’t mince his words.

Although he likes blockchain technology, which bitcoin is built on top of, he began by saying he would fire any JPMorgan trader who was caught trading bitcoin, which he went on to call “stupid,” “dangerous” and “a fraud.”

“You can’t have a business where people can invent a currency out of thin air,” he said.

With all due respect to Dimon, some might point out that “inventing a currency out of thin air” is how we got Federal Reserve Notes and other forms of paper money in the first place. Even he admits this:

“The first thing a nation does when it forms itself—literally the first—is forming currency.”

Bitcoin—and any of the 800 other cryptocurrencies—takes this idea to the next level, the main difference being that no third party or monetary authority controls its issuances or transactions. It’s all peer-to-peer.

Governments tend to resist anything that disrupts the status quo, which is why we saw China restrict new initial coin offerings (ICOs) the week before last. I suspect we’ll see a few more countries attempt to regulate ICOs in other ways, and as long as these regulations are fair and reasonable, I welcome them.

The bitcoin price was knocked down following the one-two punch of China and Dimon, falling 39 percent from its peak of $4,919 on September 1. Last Thursday it lost more than $611 a unit, one of its worst days ever, but on Friday the cryptocurrency rallied strongly again.

With its ability to validate all transactions in an immutable electronic ledger, the blockchain has the potential to be as disruptive as Amazon was in the late 1990s. When the company went public in 1997, there were serious doubts whether people would willingly give up their credit card information just to buy a book. Since then, Amazon stock is up 8,000 percent, and founder Jeff Bezos briefly overtook Bill Gates in July to become the world’s wealthiest person.

If you’re curious to learn more about how blockchains work, I recommend that you watch this engaging two-minute video.

Gold Price Correlated to Money Supply Growth

In some ways, cryptocurrency more closely resembles gold. Just as there’s only so much gold that can be mined in the world, the number of bitcoins that can ever be mined is set at 21 billion. But the exact amount is irrelevant. It could have been set at 21 trillion—the point is that supply is limited and finite.

bicion

The same cannot be said of the U.S. dollar, or any fiat currency, which today is printed “out of thin air” with abandon. This has led to hyperinflation in some instances and destroyed the value of several countries’ currency, including the Zimbabwean dollar and, more recently, the Venezuelan bolivar.

I’m not suggesting we’ll see the same thing happen here in the U.S. Nevertheless, rampant money-printing has certainly contributed to many people’s dwindling trust in traditional monetary systems. A 2016 Gallup poll found that Americans’ confidence in banks is stuck below 30 percent, where it’s been since the beginning of the financial crisis nearly 10 years ago.

When more money is printed, gold has traditionally been a beneficiary, for two key reasons: 1) If the money-printing is accompanied by economic growth, greater access to capital might boost demand for luxury items, including gold (the Love Trade); and 2) If the money-printing isn’t accompanied by economic growth, inflationary pressures might prompt investors to increase their exposure to real assets, such as gold (the Fear Trade).

These were among the findings in a 2010 World Gold Council (WGC) study. Even after seven years, the findings still apply. As you can see below, the price of gold expanded over the years as more and more money was printed.

 

Gold price correlates with M2 money
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If we want to get really technical, the WGC estimates that for every  1 percent increase in U.S. money supply, the price of gold tends to rise 0.9 percent—nearly as much—within six months.  

According to the most recent Federal Reserve report (September 7), more than $13.67 trillion in M2, or broad money, are now in circulation. That’s up about 1 percent since the end of June, when M2 stood at $13.54 trillion.

So will the gold price climb 1 percent in response? That would amount to only $13 an ounce, but remember, there are other factors driving gold, including negative real interest rates and geopolitical uncertainty.

 

 

One final note: A former UBS metals trader was arrested and charged last week with fraud and conspiracy over his alleged role in placing “spoof” orders for precious metals futures contracts. Andre Flotron, a Swiss citizen, was arrested while visiting his girlfriend in New Jersey. Flotron began working for UBS in 1999 but was put on leave in 2014.

See Zero Hedge for more on conspiracies and convictions in court over price manipulation of precious metals. Many cryptocurrency advocates allege this is why Jamie Dimon is so aggressive in knocking down bitcoin. The enthusiasm for bitcoin has accelerated this year with South Korean and Japanese banks accepting them as a form of money.

 

 

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 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.

M2 Money Supply is a broad measure of money supply that includes M1 in addition to all time-related deposits, savings deposits, and non-institutional money-market funds.

Holdings may change daily. Holdings are reported as of the most recent quarter-end. None of the securities mentioned in the article was held by any accounts managed by U.S. Global Investors as of 6/30/2017.

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Natural Disasters Have Not Caused a Single Muni Default: Moody’s
September 13, 2017

For the first time since we’ve been keeping track, two separate Category 4 hurricanes struck the mainland U.S. in the same year. It should come as no surprise, then, that the combined recovery cost of Hurricanes Harvey and Irma is expected to set a new all-time high for natural disasters. AccuWeather estimates the total economic impact to top out at a whopping $290 billion, or 1.5 percent of national GDP.

With parts of Southeast Texas, Louisiana and Florida seeing significant damage, many fixed-income investors might be wondering about credit risk and local municipal bond issuers’ ability to pay interest on time. If school districts, hospitals, highway authorities and other issuers must pay for repairs, how can they afford to service their bondholders?

It’s a reasonable concern, one that nearly always arises in the days following a major catastrophe. But the concern might be unwarranted, if the past is any indication.

Lessons from Hurricane Katrina

According to credit ratings firm Moody’s Investors Service, natural disasters have not been the cause of a single default in U.S. muni bond history. Even Hurricane Katrina, responsible for a then-unprecedented $120 billion in damages, wasn’t enough to cause New Orleans to renege on its debt obligations.

The reason for this is that the affected areas normally receive substantial disaster relief from both the federal and state governments. Congress appropriated tens of billions of dollars in aid following Hurricanes Katrina and Sandy, and this year it’s already approved an initial payment of $7.85 billion. Combined with flood insurance proceeds, this has often been enough to keep municipalities solvent and day-to-day operations running.

“FEMA aid (often 75 percent or more of disaster-related costs) and flood insurance can go a long way in mitigating financial strain in the medium term,” wrote Lindsay Wilhelm, senior vice president of municipal credit research at Raymond James, in a note last week.

Texas and Florida Have Investment-Grade Credit Ratings

It’s also important to keep in mind the sheer size of Houston’s economy and its impeccable credit-worthiness. As I shared with you in a previous Frank Talk, the Texas city had a gross domestic product (GDP) of roughly $503 billion as of 2015, which is equivalent to the size of Sweden’s economy. This puts Houston, the fourth-largest city in the U.S., in a better position to handle a hurricane’s devastating aftermath than New Orleans, which had a GDP of between $69 billion and $72 billion at the time of Hurricane Katrina, according to the Federal Reserve Bank of Atlanta.

The 18 Texas counties that the Federal Emergency Management Agency (FEMA) declared a disaster all have strong, investment-grade credit ratings from Moody’s and/or Standard & Poor’s. Highest among them is Harris County, where Houston is located, which currently has the highest-possible ratings of Aaa from Moody’s and AAA from S&P. This allows it to issue debt relatively easily, which it will likely need to do more of in the years and possibly decades to come.

In addition, the State of Texas has the highest ratings possible from both firms, while Florida has a rating of Aa1 from Moody’s and AAA from S&P.

It’s too early to tell if we’ll see any credit downgrades in the wake of Harvey and Irma, but for now, I don’t expect any major changes.

Munis an Important Part of Your Portfolio

The $3.8 trillion muni market remains one of the most dependable ways U.S. cities, counties and states finance infrastructure development, and since 1913, muni investors have enjoyed tax-free income at the federal and often state level.

This becomes increasingly more desirable as you reach retirement-age and beyond. Munis might not be as sexy as tech stocks, but they have a long-standing history of performing well in volatile times, especially when those munis are investment-grade and shorter-duration. 

 

 

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.

A bond’s credit quality is determined by private independent rating agencies such as Standard & Poor’s, Moody’s and Fitch. Credit quality designations range from high (AAA to AA) to medium (A to BBB) to low (BB, B, CCC, CC to C).

 

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Gold and Bitcoin Surge on North Korea Fears
September 11, 2017

bicion

If you’re familiar with ABC’s popular reality show Shark Tank, you should already be familiar with the concept behind the San Antonio Angel Network (SAAN). Select entrepreneurs and innovators pitch their startup ideas to accredited investors, who can choose to make early-stage investments in a potentially successful company.

I attended an SAAN meeting last week at Ferrari of San Antonio, and what struck me the most was how fluid and seamless the whole thing is. Other professionals in attendance, including lawyers and CPAs, had a similar opinion, with some of them saying it was because there wasn’t any bureaucracy or red tape to hamstring the presenters.

This is unlike the world of mutual funds, which I believe has become excessively regulated.

As I’ve said numerous times before, regulation is essential, just as referees are essential to a basketball game. No one disputes that, because otherwise there would be chaos.

Similarly, the new and very unregulated world of cryptocurrencies has grown dramatically, beyond bitcoin and ethereum. Did you know there are over 800 cryptocurrencies? These new initial coin offerings, called ICOs, are like initial public offerings (IPOs) but with little regulation or accountability. As I’ve commented before, if the refs get too powerful or too numerous, and the rules too complex, the game becomes nearly unplayable.

Cryptocurrencies Still Draw Investor Attention Following China Crackdown

Bitcoin, ethereum and other cryptocurrencies have had a meteoric year, with more than $2 billion raised in ICOs so far in 2017, according to Bloomberg. Approximately $155 billion in cryptocurrencies are in circulation around the world right now. Bitcoin by itself is at $78 billion, which is close to the $90 billion invested in all gold ETFs.

Cryptocurrencies have made red hot moves this past year
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Like gold, cryptos are favored by those who have a deep distrust of fiat currency, or paper money. Money, after all, is built on trust, and the blockchain technology that bitcoin is built on top of automates trust through an electronic ledger that cannot be altered. Every transaction is anonymous and peer-to-peer. The system is entirely decentralized and democratic. No monetary authority can see who owns what and where money is flowing.

This, of course, is a huge reason why some world governments want to crack down on the Wild West of virtual currencies, especially with bitcoin surging close to $5,000 this month.

China did just that last week, putting a halt to new ICOs and crypto transactions. In response, ethereum tumbled as much as 15.8 percent last Monday, or $55 a unit. Bitcoin lost $394 a unit.

China’s decision comes a little more than a month after the SEC said cryptocurrencies are securities and therefore should probably be regulated as such. At this point, though, the implications are unclear.

What’s clear to me—after seeing firsthand how easily and quickly transactions are made—is that there’s no going back. It’s possible cryptocurrencies will one day be regulated. But I’m confident bitcoin, ethereum and some other virtual currencies offer enough value to weather such a potential roadblock.

I also believe there has to be a happy medium between the excessively regulated fund industry and the potential chaos of the cryptocurrency. This is what I witnessed at the SAAN event I mentioned, which allowed the professionals in attendance to gain information, ask questions and make informed decisions.

Gold Trading Above $1,350 an Ounce

Speaking on cryptocurrencies last week, Mark Mobius, executive chairman of Templeton Emerging Markets Group, said gold could be a beneficiary of China’s decision to clamp down on ICOs. As more governments and central banks turn their attention to virtual currencies, investors could move back into the yellow metal as a store of value.

That’s a possibility, but I think gold’s price action right now is being driven by negative real Treasury yields and fears over a potential conflict with North Korea. Adjusted for inflation, the two-year and five-year Treasuries are both currently yielding negative amounts, and the 10-year continues to fall closer to 0 percent.

Real treasury yeilds fall further
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As I’ve explained numerous times before, gold and real interest rates share an inverse relationship. It makes little sense to invest in an asset that’s guaranteed to cost you money—which is the case with the two-year and five-year government bond right now. Investors seeking a “safe haven” might therefore add to their weighting in gold, especially with North Korea’s Kim Jong-Un raising tensions.

The yellow metal closed above $1,350 an ounce, more than a one-year high.   

Gold price up more than 15 percent year to date
click to enlarge

Despite Efforts to Control Spending, National Debt Expected to Continue Growing: CBO

Similarly driving the gold Fear Trade are concerns over the national debt. Last week President Donald Trump sided with Congressional Democrats in raising the federal borrowing limit to allow Hurricane Harvey recovery aid to pass. An initial package of $7.85 billion for Harvey victims was agreed upon, but with total costs expected to be as high as $190 billion—more than the combined costs of Hurricanes Katrina and Sandy—and with Hurricane Irma yet to make landfall in Florida, the federal aid amount could eventually run even higher.

Trump partially ran on reigning in government spending, which I and many others would like to see. Even so, this might not be enough to control our runaway debt. According to an August report by the Congressional Budget Office (CBO), debt will likely continue to grow as spending for large federal benefit programs—Social Security, Medicare and the like—outpaces revenue. Interest payments on the debt will only continue to accelerate as well.

Below is a chart showing national debt as a percentage of GDP going back to the founding of the U.S. Although we’ve seen periodic spikes in response to national crises, the debt could soar to unprecedented levels within the next 10 years.

Federal debt expected to continue rising
click to enlarge

Financial writer Alex Green, the Oxford Club’s chief strategist, told me during my recent interview with him that he thought out-of-control spending posed a greater threat to our country than even North Korea.

I tend to agree with him, and that’s why I believe that investors should have a 10 percent allocation in gold, with 5 percent in bullion and 5 percent in gold stocks, mutual funds and ETFs.

I urge you to watch this brief video on investing opportunities in gold miners!

 

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.

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

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The (Investing) World According to Geoffrey Caveney
September 7, 2017

The best call financial writer Geoffrey Caveney ever made was in December 2015. Gold hit a multiyear low of $1,050 an ounce, and he was convinced that the metal had found a bottom. It was time to make a trade, he thought, not just in bullion but precious metal miners, specifically the juniors and some micro-cap names.

Readers who took Geoffrey’s recommendation were no doubt grateful they did. Responding to low to negative interest rates around the world, gold rose as much as 16.5 percent in the first quarter of 2016, its best three-month performance since 1986. By the end of June, it had surged 28 percent, its best first half of the year since 1974. Producers, as measured by the Philadelphia Gold and Silver Index, likewise took off.

gold price per ounce and precious metal miners, september 2015 - July 2016
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Geoffrey’s track record is nothing to sneeze at. In July 2016 he advised readers to take profits on Alexco Resource, which was up an amazing 430 percent for the six-month period. A trade on Fortuna Silver Mines a month earlier netted him a 445 percent profit. He has a number of similar successes under his belt.

“I’m in the habit of thinking for myself,” he told me recently during a chat over the phone.

To make such a contrarian call on gold—or any other asset—you have to think for yourself. If you remember, gold in 2015 hadn’t logged a positive year in three years, and investor sentiment toward the precious metal was down. Every gold conference I spoke at, attendance was unusually light. When an asset gets this beat up, it’s often easy just to fall in with the herd.

But as Warren Buffett himself once said, “The time to get interested is when no one else is.”

Stay in Control of the Decision-Making Process

Thinking for himself has served Geoffrey well in a number of other ways—most notably when he got laid off during the financial crisis. Instead of wasting time looking for work that wasn’t available, he decided to try his luck at freelance tutoring. Combining his interests from when he attended Yale University in the 1990s, he began to teach young people chess, English, math and SAT prep.

His best advice to those about to take the SAT? Focus on the process rather than the goal, and keep your emotions in check. Take deep breaths, in through the nose and out through the mouth.

As Geoffrey himself pointed out, this is sound investing advice as well. Greed and fear can be powerful allies, but it’s important to learn to harness them and stay in control of the decision-making process. This isn’t New Age, hippie-dippie stuff. Ray Dalio, founder of Bridgewater, the world’s largest hedge fund, has often attributed his extraordinary success to meditating, which he says keeps him calm and centered.

“If you don’t reset yourself mentally on occasion, you run the risk of making the same mistakes over and over again,” Geoffrey said.

Life Changes, and So Should Your Strategy

Aside from tutoring, Geoffrey grew his interest in investing, where he put his background in math and chess to good use. In his youth he took chess lessons from the distinguished Uzbek grand master Gregory Serper, and he learned to apply this highly strategic mode of thinking to his trades. As his instincts improved, he started writing about investing and finance on sites such as Seeking Alpha, focusing on gold, precious metal miners, emerging markets, tech, cryptocurrencies and other themes. He watched his readership grow.

both chess and investing require strategic thinking

“Gold always gets lots of attention as well as bitcoin or any cryptocurrency,” he said. “I see tremendous value in China, but I find that those articles get much less attention.”

As someone who also writes about gold and China, I can attest to the accuracy of his observation.

As for gold, Geoffrey believes you “don’t have to be a gold bug to invest 5 or 10 percent,” which is in alignment with what I’ve been saying for years. Gold, I believe, is for all seasons and economic climates—5 percent in bullion, 5 percent in quality gold stocks, mutual funds and ETFs. Rebalance every year.

A New Market Newsletter

Right now Geoffrey is focused on the next trade and increasing his readership. In June he launched a newsletter, the Stock & Gold Market Report, which can be found on Seeking Alpha. In it he shares his latest buy and sell recommendations, and he also offers a handy service on how to build a well-balanced portfolio from the ground up.

After reading his valuable insights and speaking one-on-one with him, I feel confident recommending a subscription to the Stock & Gold Market Report. I wish Geoffrey all the best in this new endeavor and look forward to hearing from him again!

 

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 Philadelphia Gold and Silver Index (XAU) is a capitalization-weighted index that includes the leading companies involved in the mining of gold and silver.

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

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 6/30/2017.

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We Looked into the Effects of Hurricane Harvey and Here’s What We Found
September 5, 2017

Hurricane Harvey named a 1000 year flood event

Unless you’ve been away from a TV, computer or smartphone for the past week, you’ve likely seen scores of pictures and videos of the unprecedented devastation that Hurricane Harvey has brought to South Texas and Louisiana. As a Texan by way of Canada, I’d like to take a moment to reflect on the human and economic impact of this storm, one of the worst natural disasters to strike the U.S. in recorded history.

Below are some key data points and estimates that help contextualize the severity of Harvey and its aftermath.

$503 Billion

In a previous Frank Talk, “11 Reasons Why Everyone Wants to Move to Texas,” I shared with you that the Lone Star State would be the 12th-largest economy in the world if it were its own country—which it initially was before joining the Union in 1845. Following California, it’s the second-largest economy in the U.S. A huge contributor to the state economy is the Houston-Woodlands-Sugar Land area, which had a gross domestic product (GDP) of $503 billion in 2015, according to the U.S. Bureau of Economic Analysis. Not only does this make it the fourth-largest metropolitan area by GDP in the U.S., but its economy is equivalent to that of Sweden, which had a GDP of $511 billion in 2016.

Hurricane Harvey

1-in-1,000 Years

The amount of rain that was dumped on parts of Southeast Texas set a new record of 51.88 inches, breaking the former record of 48 inches set in 1978. But now we believe it exceeds that of any other flood event in the continental U.S. of the past 1,000 years. That’s according to a new analysis by the Cooperative Institute for Meteorological Satellite Studies and Dr. Shane Hubbard, a researcher with the University of Wisconsin-Madison. Hubbard’s conclusion required the use of statistical metrics since rainfall and flood data go back only 100 years or so, but the visual below might help give you a better idea of just how rare and exceptional Harvey really is.

Hurricane Harvey named a 1000 year flood event

$190 Billion

According to one estimate, Hurricane Harvey could end up being the costliest natural disaster in U.S. history. Analysts with Risk Management Solutions (RMS) believe economic losses could run between $70 billion and $90 billion, with a majority of the losses due to uninsured property. This is a conservative estimate compared to AccuWeather, which sees costs running as high as $190 billion, or the combined dollar amounts of Hurricanes Katrina and Sandy. If so, this would represent a negative 1 percent impact on the nation’s economy.

500,000 Cars and Trucks

The wind and rains damaged more than just houses, schools, refineries and factories. According to Cox Automotive, which controls Kelley Blue Book, Autotrader.com and other automotive businesses, as many as half a million cars and trucks could have been rendered inoperable because of the flooding. That figure’s double the number of vehicles that were destroyed during Hurricane Sandy in 2012. What this means, of course, is that auto dealerships are going to have their work cut out for them once the waters recede and insurers start cutting some checks. Buyers can likely expect to see a huge premium on used cars.

24%

Most people know that Texas is oil country. What they might not know is that it’s also the nation’s number one gasoline-producing state, accounting for nearly a quarter of U.S. output, as of August. In addition, the Lone Star State leads the nation in wind-powered generation capacity, natural gas production and lignite coal production, according to the Energy Information Administration (EIA).

600,000 Barrels a Day

The largest oil refinery in the U.S. belongs to Motiva Enterprises, wholly controlled by Saudi Aramco, the biggest energy company in the world. Located in Port Arthur, about 110 miles east of Houston, Motiva is capable of refining up to 603,000 barrels of crude a day. As floodwaters gradually filled the facility, the decision was made last Wednesday to shut it down completely, and as of Friday morning, there was no official timetable as to when operations might begin again, according to the Houston Business Journal. The consequences will likely reverberate throughout the energy sector for some time.

5 largest oil refineries impacted by hurricane Harvey
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Motiva isn’t the only refinery that was affected, of course. As much as 31 percent of total U.S. refining capacity has either been taken offline or reduced dramatically because of Harvey, according to CNBC. The Houston area alone, known as the energy capital of the world, is capable of refining about 2.7 million barrels of crude a day, or 14 percent of the nation’s capacity.

$2.50 a Gallon

As of last Friday morning, gas prices in Texas had surged to $2.33 a gallon on average, more than a two-year high, according to GasBuddy.com. In the Dallas-Ft. Worth area, prices at some pumps are reportedly near $5 a gallon. By Monday, prices had spiked even more, to $2.50 a gallon.

US dollar tracks trumps favorability down
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With concerns that a gas shortage might hit the state, panicked Texas consumers lined up outside numerous stations, sometimes for miles, to drain them dry. By 5:00 on Thursday, the 7-Eleven next door to U.S. Global headquarters was serving diesel only.

54 Million Passengers

The Houston Airport System is one of the busiest in the world, with the total number of passengers enplaned and deplaned standing at roughly 54 million, as of April 2017. Flights at the city’s two largest airports, Bush Intercontinental and Hobby, were suspended Sunday, September 27, with more than 900 passengers stranded between the two. Commercial traffic resumed on Wednesday, though service was limited. According to Bloomberg, United Airlines, which has a major hub at Bush Intercontinental, was scheduling only three arrivals and three departures a day.

US dollar tracks trumps favorability down
click to enlarge

The International Business Times reports that several major airlines are offering frequent flyer miles in exchange for donations to Hurricane Harvey disaster relief. American Airlines, for example, will provide 10 miles for every dollar donated to the American Red Cross after a minimum $25 contribution. Other carriers have similar programs, including United, Delta Air Lines, Southwest Airlines and JetBlue Airways.

The Kindness of Strangers

For all the talk of economic impact and barrels of oil, it’s important we keep in mind that Hurricane Harvey has had real consequences on individuals, families and businesses. Many of them have lost everything.

I might not have been born in the U.S., but I’ve always been moved and inspired by how selflessly Americans rally together and rush to each other’s aid in times of dire need.

This, of course, is one of those times, and I urge everyone reading this to consider donating to a reputable charity of your choice. For our part, U.S. Global Investors will be donating money, food, clothing and other necessities to one of our favorite local charities, the San Antonio Food Bank.

Please keep the people of South Texas and Louisiana in your thoughts and prayers!

 

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 6/30/2017: American Airlines Group Inc., Delta Air Lines Inc., United Continental Holdings Inc., Southwest Airlines Co., JetBlue Airways Corp.

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Net Asset Value
as of 09/19/2017

Global Resources Fund PSPFX $5.83 0.02 Gold and Precious Metals Fund USERX $7.96 0.09 World Precious Minerals Fund UNWPX $6.75 0.07 China Region Fund USCOX $11.32 0.01 Emerging Europe Fund EUROX $7.02 -0.03 All American Equity Fund GBTFX $24.33 -0.04 Holmes Macro Trends Fund MEGAX $19.84 -0.13 Near-Term Tax Free Fund NEARX $2.23 No Change U.S. Government Securities Ultra-Short Bond Fund UGSDX $2.00 No Change