Share this page with your friends:

Print

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.

Coming Housing Boom Could Mean It's Time to Add Raw Materials
December 20, 2017

Another housing boom

In its November report, mortgage security firm Freddie Mac called 2017 the “best year in a decade” for the housing market by a variety of measures. These include low inflation, strong job growth and historically-low mortgage rates. This assessment is very encouraging, not just for homebuyers and builders and the U.S. economy in general, but also for commodities, resources and raw materials as we head into 2018.

Although past performance is no guarantee of future results, it’s still instructive to look back at how materials performed the last time the U.S. was ramping up housing starts and mortgages. The last housing boom, which peaked in 2006, was accompanied by elevated commodity prices. We could see a return to these valuations over the next couple of years on higher demand, a stronger macroeconomic backdrop and cyclical fundamentals, as shown in the following chart courtesy of DoubleLine Capital:

equities versus commodities
click here to enlarge

Speaking on CNBC’s “Halftime Report” last week, DoubleLine founder Jeffrey Gundlach said he thought "investors should add commodities to their portfolios” for 2018, pointing out that they are just as cheap relative to stocks as they were at historical turning points.

“We’re at that level where in the past you would have wanted commodities” in your portfolio, Gundlach said. “The repetition of this is almost eerie. And so if you look at that chart, the value in commodities is, historically, exactly where you want it to be a buy.”

A Wealth of Positive Housing Data

There’s more to support the commodities narrative than cyclicality. 

For one, home builders right now are more confident of the future than they’ve been in over 18 years. December’s National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) soared to 74, eight points up from the November reading and its highest report since July 1999.

US home builder confidence soared to 18 year high in december
click here to enlarge

NAHB Chairman Granger MacDonald chalks up the incredible improvement in optimism to “new policies aimed at providing regulatory relief to the business community.” Other contributing factors include low unemployment rates, favorable demographics and a tight supply of existing home inventory.

In addition, new housing starts in November rose to a seasonally adjusted annual rate of 1.3 million, up 3.3 percent from October and a strong 12.9 percent from a year ago.

This is all very constructive (no pun intended), as the market is still trying to recover nearly a decade following the subprime mortgage crisis.

Millennials, the Largest U.S. Generation, Finally Entering the Market

We’ve seen booms and busts in new housing starts over the past several decades, but homeownership rates in the U.S. took a huge blow as a result of the Great Recession. The rate dipped to a 51-year low of 62.9 percent in the second quarter of 2016, indicating buyers, especially first-time millennial buyers, are still struggling to save up for down payments.

a decade after the financial crisis US housing market still in recovery mode
click here to enlarge

Economists with the National Association of Realtors (NAR) note that student debt has played a massive role in delaying homeownership for young people, by as many as seven years on average. When asked how student loan debt has impacted their life decisions, more than seven in 10 millennials (those born roughly between 1980 and 1998) ranked “purchasing a home” as the most affected decision, followed by “taking a vacation.”

Since reaching its low last year, however, the homeownership rate has steadily improved, ending at 63.9 percent in the second quarter of 2017, a three-year high. This leads me to believe that the worst is behind us and that as the economy and labor market continue to improve, so too will demand for new homes. I also have high hopes that the tax cuts President Donald Trump signed into law today will encourage even more millennials, who have until now been sidelined, to join their older cohorts in owning a home.

Time to Add Commodities?

Indeed, all of the conditions appear ripe for another housing boom. Economic growth is on the upswing. The country is at near-full employment. Inflation and 30-year mortgage rates are also historically low.

When we factor in residential fixed investment and housing services, housing as a whole contributes between 15 and 18 percent to national gross domestic product (GDP). That’s a huge slice of the pie. And as I’ve pointed out before, housing has an extremely high multiplier effect. For every home that’s built, 2.97 full-time jobs and $162,080 in wages and salaries are created, according to a 2014 estimate by the NAHB. 

Beyond that, increased home demand is good news for resources and raw materials. According to home-construction services firm Happho, for every 1,000 square feet of new housing, nearly 8,820 pounds of steel are required, as well as 400 bags of cement, 1,800 cubic feet of sand and 1,350 cubic feet of gravel and other aggregate. This doesn’t begin to touch on finishers such as brick, paint and tiles, or fittings such as windows, doors, plumbing and electrical. You can see the full infographic by clicking here.

Interested in learning how you can participate in the growing housing market? Unsure how to gain exposure to raw materials and commodities?

 

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 GSCI (formerly the Goldman Sachs Commodity Index) serves as a benchmark for investment in the commodity markets and as a measure of commodity performance over time. It is a tradable index that is readily available to market participants of the Chicago Mercantile Exchange.

The Standard & Poor's 500, often abbreviated as the S&P 500, or just the S&P, is an American stock market index based on the market capitalizations of 500large companies having common stock listed on the NYSE or NASDAQ. The S&P 500 index components and their weightings are determined by S&P Dow Jones Indices.

The NAHB/Wells Fargo Housing Market Index gauges builder perceptions of current single-family home sales and sales expectations for the next six months as “good,” “fair” or “poor.” The survey also asks builders to rate traffic of prospective buyers as “high to very high,” “average” or “low to very low.” Scores for each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view conditions as good than poor.

Share “Coming Housing Boom Could Mean It's Time to Add Raw Materials”

5 Big Questions for 2018
December 18, 2017

bitcoin accepted everywhere

Today marks the seventh day of Hanukkah, and in only seven days, many families across the world will be celebrating Christmas. Not only is it the season of giving, but it’s also time to reflect back on the past 12 months and look ahead to 2018.

Below are five questions to help guide your thinking when making investment decisions in the new year.  

1. Will stocks follow the historical presidential cycle?


U.S. presidential cycles and stocks click to enlarge

Next month marks President Donald Trump’s first year in office and the beginning of his second. How have markets responded to his pro-growth policies, including pledges to lower taxes and slash regulations?

The answer: Overwhelmingly. As of my writing this, the S&P 500 Index is up 19 percent year-to-date, far outperforming the historical returns we’ve seen in the first year of a president’s four-year term.

In the second year, returns have traditionally been lower than the first. From 1928 to 2016, such years produced average market gains of just above 4 percent, making it the weakest year.

The reason for lower returns in the first two years, according to CLSA analysts this week, could be that “an administration looks to put as much bad news and painful actions into the first two years to form a good bias for getting reelected or paving the way for the predecessor of its own party.” Recall that President Bill Clinton didn’t hesitate to hike taxes after getting elected—he signed the Omnibus Budget Reconciliation Act just eight months into his first term.

But Trump has taken a different strategy. As CLSA puts it, “all the good news is being front loaded in the first half of this presidential cycle.” Right out of the gate, Trump placed major executive and legislative agenda items on the docket, from an Obamacare repeal to deregulation to sweeping tax cuts.

Not all of these efforts have borne fruit, of course. Even last week, his tax overhaul appeared to be imperiled after serious concerns were raised by moderate Republican senators such as Marco Rubio, Bob Corker and Jeff Flake.

I remain optimistic, though, and I see no reason at the moment to think that 2018 won’t be an encore of 2017. We’re nine years into the current equities bull market, the second-longest in U.S. history, but there could still be plenty of “gas in the tank,” according to a Bank of America Merrill Lynch report this week.

So with only a month remaining to Trump’s first term, it’s important to remember the words of Warren Buffett a day before the president was sworn in. Even though Buffett backed Hillary Clinton in the election, he said that “America works and I think it’ll work fine under Donald Trump.”

2. Will S&P 500 Index companies continue to post record-level earnings per share (EPS) in 2018?


s and p 500 index could report record-level earnings per share in 2018
click to enlarge

Earnings per share (EPS) growth is one of the most reliable and closely monitored indicators of market health. It’s one of the key metrics we use to find the most growth-driven and profitable companies.

As my good friend Alex Green said in an interview back in August, “if you look back through history, you’d be hard-pressed to find a single example of a company that increased its earnings, quarter over quarter, year after year, and not see its stock tag along.”

Except for a slight dip from 2014 to 2015, when EPS for the S&P 500 Index fell from $119.70 to $117.55, earnings have been rising steadily since 2009.

As of today, EPS for 2017 stands at $133.73, a new record and up nearly 13 percent from last year.

Next year we could see them climb even higher, if estimates prove to be accurate. In a report last week, FactSet analysts predict EPS by year-end in 2018 to reach $143.17, a 7 percent increase from 2017.

In other words, the American stock market is poised to continue its record-setting bull run in 2018.

 

3. Can small and mid-size businesses get any more pumped than they are now?


u.s. small cap stocks head higher as optimism hit a near record high in november
click to enlarge

The short answer here is: Yes, they can—but not by much before a new all-time record is reached.

For the past 44 years, the National Federation of Independent Business (NFIB) has taken a monthly survey to measure the optimism of small-business owners, and in November, the index climbed to a skyscraping 107.5. That’s the second-highest reading ever, after the index hit 108.0 way back in July 1983 on the hopes of additional Reagan tax cuts.

If we drill down into the various index components, we find that owners are most optimistic about the next three months, with 27 percent saying it will be a “good time to expand,” up from only 11 percent one year ago. They’re ready to unleash capital, buy new equipment and increase labor.

In their monthly commentary, NFIB economists William Dunkelberg and Holly Wade wrote: “There is still much uncertainty about health care and taxes, but it appears that [small-business] owners believe that whatever Congress finally comes up with will be an improvement and so they remain positive.”

That positivity is shared by small-cap stock investors, who’ve driven up the Russell 2000 Index more than 12 percent since the beginning of the year.

 

4. What will drive gold prices higher?


U.S. dollar forecast to complete a seven year cycle in 2018 click to enlarge

As of Friday, gold was up more than 9 percent for the year. If it stays at its current price level, gold will log its best year since 2011, when it returned 10 percent.

The yellow metal has faced a number of significant headwinds in 2017, including surging equity markets around the world and rate hikes by the Federal Reserve. Under the circumstances, I would describe its performance as highly respectable.

Potential tailwinds in 2018 could help the yellow metal crack the $1,300 level and head higher.

That includes a weaker U.S. dollar. CLSA analysts this week noted that the dollar has traditionally risen in seven-year cycles. Between 1978 and 1985, it gained 68 percent; between 1995 and 2000, 41 percent. The current bull market so far has seen the dollar rise 35 percent, which has been a challenge for gold, commodities and U.S. exports.

That might be set to change in 2018, when we could see a completion of the seven-year cycle. As CLSA writes, “our tactics through 2018 would be to sell U.S. dollar strength in anticipation of break below 91-92 support.”

Other possible tailwinds include geopolitical risks, negative real interest rates across the globe, continually expanding global debt and overvalued equities.

On Monday, the North Atlantic Treaty Organization (NATO) raised concerns that Russia has developed a ground-launched cruise missile system that might violate a 1987 Cold War pact banning such weapons. It’s believed the missile system would be able to strike Europe on very short notice. Meanwhile, the U.S. State Department is working around the clock to dissuade North Korea from continuing its nuclear weapons program. As a store of value, gold has historically performed well in such uncertain times.

Meanwhile, two-year government bond yields in a number of European countries—the Netherlands, Germany, Austria, Belgium, France, Spain and more—are below zero. As I’ve explained many times before, negative real rates have traditionally been constructive for gold in that particular country’s currency.

Finally, there’s some concern that too much money is flowing into equities right now. According to Bloomberg, the total market cap for world equities is now just a “whisker” away from hitting $100 trillion—a monumental sum, to be sure. Should there be a correction, the investment case for gold and precious metals will become stronger than ever.

 

5. Can anything stop bitcoin?


Bitcoin trading thrives wherever regulators crack down most
click to enlarge

Bitcoin made some people a whole lot of money this year. One year ago today, the cryptocurrency was trading in the $770 to $780 range. On Friday, it briefly broke above $18,000. That’s a phenomenal return of 2,200 percent. The total market cap of all cryptocurrencies has already crossed above $500 billion and is well on its way to $1 trillion.

So is there anything that could stop its progress?

The most obvious answer might be regulations, but remember, bitcoin made these unexpected gains even as several countries clamped down on the digital currency. Venezuela, which will introduce its own government-sanctioned cryptocurrency, is scheduled to begin regulating bitcoin, but as the bolivar loses more and more of its value, residents have had to rely on bitcoin to survive.

It’s not surprising at all to see that bitcoin has undergone the greatest surge in peer-to-peer trading in countries that have imposed some of the most stringent regulations on cryptocurrencies. This is a currency, after all, that does not require any third-party involvement to trade. It’s able to bypass governments, central banks and borders with ease.

As I said last week, this is precisely why bitcoin is appealing to many investors. And according to Metcalfe’s law, more investors could mean higher ask prices.

Bitcoin might be very appealing right now, but it’s important to keep in mind that this has been a very volatile market. If I didn’t readily have the money to buy bitcoin, I wouldn’t go into debt and certainly wouldn’t mortgage my house to get my hands on it, as some people are reportedly doing.

 

I wish you all a Happy Hanukkah and Merry Christmas!

 

 

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 Stock Index is a widely recognized capitalization-weighted index of 500 common stock prices in U.S. companies. The Russell 2000 Index is a small-cap stock market index of the bottom 2,000 stocks in the Russell 3000 Index. The index is maintained by FTSE Russell, a subsidiary of the London Stock Exchange Group.

The U.S. Dollar Index (USDX, DXY) is an index (or measure) of the value of the United States dollar relative to a basket of foreign currencies, often referred to as a basket of U.S. trade partners' currencies.

The NFIB Small Business Economic Trends is an index derived from 10 components, with 1986=100. The index is seasonally adjusted for variations within the year. Monthly surveys are derived from a large sample of respondents drawn from the membership files of the NFIB. The NFIB survey provides an early health check on small businesses, which are critical to the economy. Small businesses account for about half of the nation's private workforce.

Share “5 Big Questions for 2018”

This Week in Bitcoin: The IRS Targets Coinbase, Venezuela to Mint Its Own Cryptocurrency
December 11, 2017

bitcoin accepted everywhere

Writing about blockchain and bitcoin right now is a little like buying a new computer in the 1990s. The tech was advancing so fast in those days that as soon as you brought the thing home, it was sorely outdated. Similarly, the cryptocurrency world is changing so rapidly at the moment that even before “the ink dries” on one of my posts, some important new development has already surfaced.

Case in point: When Bloomberg ran a particular story last Monday—Bitcoin Is Now Bigger Than Buffett, Boeing and New Zealand”—bitcoin’s market cap hovered just above $185 billion, making it worth more than the likes of PepsiCo, Boeing and McDonald’s.

Bitcoin is now worth more than some of the worlds biggest companies as of decemeber 4
click to enlarge

Well, here it is a week later, and this chart is already outdated. As of Monday morning, bitcoin’s market cap topped $275 billion, bringing its total value comfortably above Coca-Cola, Toyota and Verizon (and now Bank of America, Walmart, Procter & Gamble, Pfizer, AT&T and Chevron). Next stop is Alphabet, which had a market cap of $288 billion at the end of the third quarter.

Or consider this: In May 2011, an early bitcoin investor named Greg Schoen tweeted his regret that he sold at $0.30, as the currency had then risen to $8.00 apiece.

I wish I kept my bitcoin tweet

Obviously we’ve seen earth-shattering appreciation since then. As of my writing this, bitcoin has breached the $17,000 level, up nearly 5.6 million percent—yes, you read that right, 5,600,000 percent—from our friend Greg’s exit point in 2011.

Bitcoin, of course, is just the largest fish in the entire universe of cryptocurrencies, which now number somewhere in the vicinity of 1,340, according to CoinMarketCap. If we combine the total market cap of all “altcoins” Monday morning, the amount exceeded $440 billion. That’s larger than the economies of Thailand, Nigeria and Austria. As of my writing this, as many as 15 coins had market caps over $2 billion.

total cryptocurrency universe market cap exceeded 400 billion for first time
click to enlarge

Coinbase Now Has More Accounts Than Charles Schwab

opening a coinbase account is as easy as opening a tinder account

This meteoric growth has attracted not just retail investors but also, inevitably, regulators. San Francisco-based Coinbase, which allows users to trade digital currencies, now boasts more active users than fellow San Francisco-based Charles Schwab, the second biggest brokerage firm following Fidelity. As of December 1, Coinbase had 13 million accounts, Schwab 10.6 million.

Contributing to Coinbase’s attractiveness is the ease with which someone can join. Whereas it can take up to two weeks to create a Schwab account, a Coinbase account can be opened in mere minutes, and as effortlessly as a Tinder account. This is one of the many reasons why both the popular online trading platform and dating service appeal to millennials.

According to Coinbase, as much as $50 billion have been traded on its platform since its inception, but as the number of accounts grows, we’ll likely see this dollar figure surge exponentially. This is the effect of Metcalf’s law, which I featured in an earlier post and discussed with SmallCapPower during the Mines and Money conference in London last month.

Frank Holmes speaking at Mines and Money Conference in London

The Rule of Unintended Consequences

If you recall, President Reagan once said: “Government’s view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops, subsidize it.” Surprising no one, then, Coinbase’s success has raised alarm bells for regulators and other government officials.

Ironically, it’s regulators that have unintentionally created the current environment in which cryptocurrencies now thrive. Back in May, I shared with you the fact that the number of listed companies here in the U.S. fell by more than half between 1996 and 2016. The addition of new financial rules and regulations, from Sarbanes-Oxley to Dodd-Frank, has encouraged more and more startups to avoid going public altogether, which is why we’re seeing an explosion right now in both stock prices—fewer listed companies means greater consolidation of fund flows into select stocks—and nontraditional methods of fundraising, from initial coin offerings (ICOs) to angel investing.

mob boss al capones bootlegging business thrived in the era of restrictive government policies

Consider the unintended consequences of Prohibition. Thanks to the 18th Amendment, the U.S. saw a sharp rise in organized crime and the emergence of notorious figures such as Al Capone.

By invoking “Scarface,” I’m not suggesting that all activities involving cryptocurrencies are illegal or malicious. I’m only saying that when rules and regulations become too restrictive, it invites new opportunities in unexpected ways.

And the beat goes on. After a months-long pushback, Coinbase agreed at the end of November to turn over the identities of 14,000 of its users to the Internal Revenue Service (IRS), which asserted that only 800 to 900 taxpayers reported bitcoin earnings between 2013 and 2015.

The tax agency initially requested access to all 13 million of Coinbase’s users, so I would call this an overall win for the exchange.

Bad News Is Good News

You might presume the IRS’ crackdown on Coinbase would discourage some potential bitcoin investors from participating. I would argue that the IRS incident is actually constructive for bitcoin because there’s very recent precedent of similar setbacks being turned into a windfall for digital currencies.

In mid-September, we saw the price of bitcoin dip sharply after China restricted new ICOs and JPMorgan Chase CEO Jamie Dimon knocked the digital currency as a “fraud,” comparing it to the Dutch tulip bubble in the 17th century. The one-two punch purged the market of weak-stomached investors, resulting in an intraday loss of $711 per coin.

Since mid-September, though, bitcoin has rallied close to 380 percent, even after the IRS came for its pound of flesh. On November 29, bitcoin swung wildly from as high as $11,427 to as low as $9,001, a difference of $2,426.

Those who managed to tolerate these swings in the past will likely continue to stay aboard the S.S. Bitcoin—after all, the big banks and IRS’ opposition to digital currencies is precisely why they’re in the game in the first place. Bitcoin enthusiasts value the currency because it’s decentralized, anonymous, finite and cannot be manipulated by “the powers that be,” unlike fiat money.

Put another way, that some world governments, big banks and the IRS seek to quash bitcoin is unequivocal confirmation of its value.

If You Can’t Beat Them, Join Them

That brings us to Venezuela’s recent announcement that it plans to launch its own cryptocurrency, dubbed the “petro,” which will reportedly be backed by oil, gold and diamond reserves.

The revelation comes as the beleaguered South American country’s economy continues to deteriorate since Nicolás Maduro took office in 2013. The country owes around $60 billion to bondholders yet has only $9.6 billion sitting in the bank. An estimated 80 percent of Venezuelans currently live in poverty. Food, medicine and other necessities are dangerously scarce, and inflation right now is among the worst the world has ever seen, comparable to Germany in the 1920s and Zimbabwe in the 80s.


Venezuela expected to face even higher hyperinflation

click to enlarge

This is inexcusable for such a resource-rich country. Venezuela, which depends on oil for around 95 percent of its export revenues, sits atop the world’s largest known oilfield. Amazingly, though, its output has been declining for several straight months. In September, production fell below 2 million barrels a day, a three-decade low, according to the Organization of Petroleum Exporting Countries (OPEC).

Conditions aren’t likely to improve for the country since Maduro consolidated power in July, effectively making himself absolute dictator and inviting harsh economic sanctions from the U.S. government.

This is precisely what drives Maduro’s interest in establishing a cryptocurrency—to circumvent U.S.-led sanctions. The petro will serve as a “buffer” between transactions, encrypting all incoming and outgoing money to free up the country’s monetary system from controls imposed by the U.S.

As explained by Bloomberg’s Leonid Bershidsky, foreign investors “will be able to lend money to Venezuela and get repaid in cryptocurrency, which Maduro wants them to spend on oil and other Venezuelan commodities” that are tied up by the U.S.

Russia has similar ambitions with its “CryptoRuble,” unveiled in October. Like Venezuela, Russia grapples with steep U.S. and international sanctions following its annexation of Crimea in 2014 and meddling in the 2016 U.S. election. Below is a flowchart— courtesy of Zura Kakushadze, professor of quantitative finance at Free University of Tbilisi, and Jim Kyung-Soo Liew, assistant professor of finance at John Hopkins University—illustrating how the CryptoRuble is designed to allow the Russian government to maintain full control of money flow into and out of the country’s coffers.


Schematic depiction of the money flow into and from cryptoruble

click to enlarge

According to Kakushadze and Kyung-Soo Liew:

With government-issued cryptocurrencies, central banks and sovereign governments will gain even more control, not less, than with the current banking system… This is any government’s dream come true!

To be clear, the way in which Venezuela and Russia plan to use cryptocurrencies is antithetical to their appeal in the eyes of many investors. Unlike bitcoin, Ethereum, Litecoin and other popular digital currencies, the petro and CryptoRuble are centralized—they are conceived and will be controlled exclusively by the Venezuelan and Russian governments.

And unlike bitcoin, they will not be mined, as gold is, but issued by governments, as fiat money is.

Again, Kakushadze and Kyung-Soo Liew:

The world order as we know it is changing, right before our eyes. This disruptive technology—cryptocurrencies—will indeed end up disrupting the status quo. However, at least in the mid-term, forward-thinking sovereign states that embrace and adapt it to their advantage will end up being the disruptors as opposed to disrupted. The U.S. is the sovereign state with the most to lose in their process, with a clear policy implication: adapt to the changing reality, issue CryptoDollars now, or risk being marginalized.

This assessment dovetails perfectly into a November report from Deutsche Bank strategists Jim Reid and Craig Nicol, who reflect on what they see as the end of traditional fiat money within the coming decades. Because fiat currencies are “inherently unstable and prone to high inflation,” Reid and Nicol write, “We may need to find an alternative.” Among other solutions, the two suggest cryptocurrencies, which “are as much about blockchain as anything else.”

Speaking of blockchain, Australia’s main stock market, the Australian Securities Exchange (ASX), is soon poised to become the first in the world to use blockchain’s superior ledger technology to process transactions, according to Bloomberg. It wouldn’t surprise me if other global stock markets, including the New York Stock Exchange (NYSE), quickly embraced this exciting new technology. 

How to Gain Exposure to Bitcoin Without Owning Any

And finally, both the Chicago Board Options Exchange (CBOE) and the Chicago Mercantile Exchange (CME) have set the table to offer bitcoin futures contracts for the first time ever this month—the CBOE this past Sunday, the CME a few days later. This will give investors a new way to participate in bitcoin and, in many skeptics’ minds, help “legitimize” the currency as a serious asset.

There are other ways to participate without actually owning bitcoin. In a recent Bloomberg story, Tom Lee of market research firm Fundstrat lists several companies and funds with exposure to the digital currency. Among his favorites is HIVE Blockchain Technologies, a blockchain infrastructure company involved in the mining of fresh new coins, never before traded. The first company of its kind to sell shares to the public, HIVE began trading on the TSX Venture Exchange on September 18.

I’m sure I’ll have more to say on these topics at a later time. In the meantime, I invite you to watch this short, 16-minute film titled “Cryptocurrency Revolution: On the Frontlines of the World’s Hottest Tech Opportunity.” It features myself, Frank Giustra and Marco Streng, co-founder and CEO of Genesis Mining, the world’s largest cloud bitcoin mining company.

 

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

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 (09/30/2017): The Boeing Co., Chevron Corp.

Frank Holmes has been appointed non-executive chairman of the Board of Directors of HIVE Blockchain Technologies. Both Mr. Holmes and U.S. Global Investors own shares of HIVE, directly and indirectly.

Share “This Week in Bitcoin: The IRS Targets Coinbase, Venezuela to Mint Its Own Cryptocurrency”

Move Over, Tesla! China Holds the Keys to Electric Vehicles
November 28, 2017

Woman holding electric car keys

Earlier this month, I shared with you a quote from Arnoud Balhuizen, chief commercial officer of BHP Billiton, the largest mining company in the world. In a September interview with Reuters, Balhuizen called 2017 the “revolution year [for electric vehicles], and copper is the metal of the future.”

Balhuizen’s assessment couldn’t be more accurate, and the implications for investors is too compelling to ignore.

In the third quarter, global sales of electric vehicles (EVs) soared 63 percent compared to the same period last year, 23 percent compared to the second quarter. A total of 287,000 units were reportedly sold in the September quarter, leading Bloomberg New Energy Finance to project total annual sales to exceed 1 million units for the first time.

As the world’s largest auto market, China was responsible for about half of the sales as the crackdown on polluting industries has propelled renewable alternatives from power generation to consumer products.

60 Million Electric Cars by 2040?

This is only the beginning. The chart below, highlighted by Katusa Research and originally provided by Bloomberg New Energy Finance, takes a look at annual global EV sales forecasts through the year 2040. As you can see, China, the U.S. and Germany will push the adoption of EVs forward, with the rest of the world following closely behind. Many analysts believe that by 2040, the global EV market could exceed 60 million vehicles sold per year.

Projected annual global electric vehicle sales
click to enlarge

Chinese automakers are moving fast to meet the demand. Volvo Cars, owned outright by Hangzhou, China-based Geely Auto, has already stated it will cease production of fossil fuel-powered vehicles by 2020. On top of that, the company is currently building electric versions of London’s iconic taxis, and Uber is rumored to buy as many as 24,000 electric Volvos.

In October, Great Wall Motors announced its plans to form a joint venture with Germany’s BMW to begin production on a new fleet of EVs. Toward that end, the manufacturer bought a 3.5 percent stake in an Australian lithium-mining company to support long-term development of battery resources and control pricing power.

And although it’s not as big a powerhouse as its peers, relative newcomer Guangzhou Automobile Group also has high ambitions to introduce EVs in as many as 14 global markets including North America, Africa, South and Eastern Europe and South East Asia. It recently signed an agreement with tech behemoth Tencent to cooperate on artificial intelligence (AI)-driving and “smart” vehicles.

Electrified shares of chinese automakers headed higher
click to enlarge

Looking ahead to 2040, China is forecast to capture more than 40 percent of the world EV market, according to a recent report from the International Energy Agency (IEA), as well as nearly 30 percent of total new wind, solar and nuclear capacity additions. 

China leads the push for new energy technologies
click to enlarge

As for the European market, Germany is expected to outpace its neighbors in adopting EVs as Volkswagen, the world’s number one automaker by sales, seeks to become a global leader in electric and self-driving cars. The Wolfsburg-based company announced plans to invest as much as $40 billion over the next five years to expand its selection of EVs.

China’s Campaign Against Pollution to Could Drive Global Energy Trends

China’s interest in EVs is only part of a much broader effort to improve its deteriorating air quality. Faced with worsening smog in large East Coast cities, the Asian giant has ordered thousands of factories and manufacturers, especially those that burn coal, to shut down in accordance with the government’s four-year climate action plan. The capacity cuts are contributing to higher metals prices, with the S&P GSCI Industrial Metals Index having gained more than 24 percent year-to-date.  

Take a look at the following chart courtesy of the IEA. Whereas President Donald Trump is seeking to revitalize coal mining in the U.S., coal demand in China, the world’s largest energy consumer, is expected to decline nearly 500 million tonnes of coal equivalent (mtce) between 2016 and 2040. This comes after demand stood at more than 2 billion tonnes between 1990 and 2016. Instead, the country is actively pivoting into cleaner-burning natural gas and renewables such as wind, solar and hydro.

China's switch to a cleaner energy mix will drive global trends
click to enlarge

According to the Wall Street Journal, coal power production in China was negative for the second straight month in October, bringing 2017 growth to negative 3 percent. Hydropower output, on the other hand, grew 17 percent.

Lots of Room for Potential Growth

Returning to EVs, adoption isn’t currently widespread across the globe, with only 14 large metropolitan areas accounting for roughly a third of all sales, according to a recent report by the International Council on Clean Transportation (ICCT). The group highlights 20 “electric vehicle capitals” of the world, where EV sales beat the global norm in the past two years. China claimed seven of these cities, Europe a further seven. Only four U.S. cities made the list: New York City, Los Angeles, San Francisco and San Jose.

Local laws and ordinances have inevitably played a huge role in speeding up the transition from gas-powered to electric cars. In Shenzhen, for instance, all public buses must be emission-free by the end of the year, making it the first city in the world to have an all-electric fleet. Beijing will be replacing all 69,000 of its taxis with EVs. And Qingdao, about midway between Shenzhen and Beijing, is offering consumers subsidies of between $5,000 and $9,000 per electric vehicle.

Like blockchain technology and cryptocurrencies, electric vehicles are still in the early innings, with great potential growth still ahead.

Metals Gaining Leadership in Commodities Space

As I’ve pointed out a number of times before, this is all very constructive for copper, cobalt, lithium and other metals that are used predominantly in the production of EVs. On average, an electric vehicle requires three to four times as much copper as a car with a traditional internal combustion engine.

The red metal is one of the best performing materials for the 12-month period, currently up more than 17 percent on increased demand and a weakening U.S. dollar. Over the same period, cobalt has returned an incredible 112 percent.

A weakening US dollar is constructive for commodities
click to enlarge

In a Bloomberg Intelligence report this week, commodity strategist Mike McGlone says that “positive second-half commodity-market momentum is set to accelerate in 2018,” adding that “metals are poised to sustain leadership, particularly as the dollar has peaked.”

Read more on how to invest in China’s new high-tech economy!

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 (USDX, DXY) is an index (or measure) of the value of the United States dollar relative to a basket of foreign currencies, often referred to as a basket of U.S.trade partners' currencies.

The S&P GSCI Industrial Metals Index provides investors with a reliable and publicly available benchmark for investment performance in the industrial metals market.

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 9/30/2017: BHP Billiton Ltd., Geely Automotive Holdings Ltd., Guangzhou Automobile Group Co., Great Wall Motor Co. Ltd., Tencent Holdings Ltd.

Share “Move Over, Tesla! China Holds the Keys to Electric Vehicles”

Gobble, Gobble: Thanksgiving Dinners Stuffed with Savings Despite Rising Fuel Costs
November 27, 2017

Live turkeys

I spend a lot of time writing and talking about inflation, especially as it affects the price of gold, oil and other commodities and raw materials. The year-over-year percent change in the cost of living has been reasonably low for the past five years, averaging about 1.3 percent on a monthly basis. For commodities, the average change has been even lower at negative 0.9 percent, as measured by the producer price index (PPI). This hasn’t been too constructive for gold and oil producers, but it’s been a windfall for American consumers and manufacturers.

A helpful way to look at inflation is the changing cost of a typical Thanksgiving dinner for 10 people. For the second straight year, the cost actually declined from the previous year’s holiday, according to the American Farm Bureau Federation (AFBF). This year’s feast, including staples such as turkey, rolls, sweet potatoes and more, fell $0.75 to a five-year low of $49.12. On an inflation-adjusted basis, that’s down more than $10 from 30 years ago. The turkey alone cost about 1.6 percent less than last year.

Cost of Thanksgiving dinner for 10 people 1986 to 2017
click to enlarge

So why’s this happening? Obviously there’s no shortage in demand for turkey, with an estimated 88 percent of American households enjoying it during last week’s Thanksgiving feast. U.S. turkey consumption, in fact, has nearly doubled over the past 25 years, according to the National Turkey Federation (NTF). As you might expect, this has led to an explosion in production over the same period, which has helped keep costs relatively stable for a generation.

On Friday, shares of Tyson Foods, one of the top processors of the poultry, were trading above $80, up more than 30 percent year-to-date.

Again, this is good news for consumers. Also good? Multiple studies have found that Americans gain only about a pound in weight as a result of engorging themselves on Thanksgiving Day. So don’t feel so guilty about having helped yourself to that extra slice of pumpkin pie.

Record Number of Americans Hit the Road and Take to the Skies

Holiday gasoline prices, however, are on the rise, with the cost per gallon rising to its highest level since 2014. A trip to the pump this past Thanksgiving will cost motorists an extra 18 percent compared to last year and nearly 25 percent more compared to 2015. 

Thanksgiving gas prices
click to enlarge

As I shared with you earlier this month, oil prices climbed to two-year highs following Saudi Arabia’s purge of princes and ministers. Markets also appear to be pricing in expectations that the Organization of Petroleum Exporting Countries (OPEC) will extend production cuts to the end of 2018.

West Texas Intermediate (WTI) was trading on Friday at a 52-week high of $59 a barrel. The next stop is $60, a level we haven’t seen since May 2015. In a strategy report last week, BCA Research recommended an overweight position in energy.

Higher fuel costs aren’t expected to discourage domestic travel, though. This Thanksgiving season, approximately 51 million Americans were projected to travel 50 miles or more from home on U.S. roads, highways, airlines, rails and waterways, according to the American Automobile Association (AAA). That’s up 3.3 percent from last year and the highest volume since 2005. President Donald Trump mentioned the impressive figure in a tweet last week, adding that “traffic and airports are running very smoothly!”

Trump tweets about travel

Looking at air travel alone, a record 28.5 million passengers were estimated to take to the skies this year during the 12-day Thanksgiving period, according to Airlines for America (A4A). That equates to an additional 2.38 million passengers a day.

Record number of passengers expected to fly on US carriers this Thanksgiving
click to enlarge

With the economy improving, incomes on the rise and consumer confidence at multiyear highs, airline executives expressed optimism in continued flight demand growth and profitability. According to October’s Airline Business Confidence Survey, conducted by the International Air Transport Association (IATA), 80 percent of airline chief financial officers (CFOs) said profits improved in the third quarter compared to the same three-month period in 2016. An overwhelming 87 percent were confident such profitability would persist or improve over the next 12 months. Eighty-six percent of CFOs reported increased passenger demand year-over-year in the third quarter, while 71 percent expected traffic volumes to rise a year from now.

 

Holiday Shopping Sales Could Exceed $107 Billion

On a final note, retailers were bracing for a blowout holiday shopping season. Earlier this month, Adobe Analytics released its forecast that U.S. sales during the Thanksgiving weekend and Cyber Monday could climb above $107 billion, a year-over-year increase of 13.8 percent. Cyber Monday alone might generate as much as $6.6 billion, 16.5 percent more than last year, making it the largest online sales day in history. Among the most hotly anticipated gift items this year are Apple Air Pods, home assistants (Amazon Echo and Google Home) and Sony PlayStation virtual reality (VR) headsets.

Looked at another way, more than 164 million consumers, or nearly 70 percent of all Americans, planned to shop during the Thanksgiving weekend and Cyber Monday, according to a survey conducted by the National Retail Federation (NRF). Today, Black Friday might have seen the largest volume of potential shoppers at 115 million, or 70 percent of those polled, followed by 78 million on Cyber Monday.  

More than 164 million consumers plan to shop during Thanksgiving weekend and cyber Monday
click to enlarge

So how could investors take advantage of these findings? According to a recent report from LPL Financial, since 2009 the S&P Retail Select Industry Index has seen the strongest gains during the months of February and March, after companies report sales for the fourth quarter. Retailers are actually down about 6 percent year-to-date, and LPL Financial adds that “it is likely that the performance of individual company stocks be more dispersed than they have been historically, which may favor active management in the sector moving forward.” I agree with this assessment, as we’ve seen quite a lot of volatility in the space.

I want to wish everyone a blessed week! I often say that having gratitude improves your altitude in life. It’s important that we take stock not only in our finances but also the people who matter most, from family and friends to coworkers and business associates.  

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 Producer Price Index (PPI) is a weighted index of prices measured at the wholesale, or producer level. A monthly release from the Bureau of Labor Statistics (BLS), the PPI shows trends within the wholesale markets, manufacturing industries and commodities markets.

The S&P Retail Select Industry Index represents the retail sub-industry portion of the S&P Total Market Index (TMI). The S&P TMI tracks all the U.S. common stocks listed on the NYSE, AMEX, NASDAQ National Market and NASDAQ Small Cap exchanges. The Retail Index is a modified equal weight index.

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 (09/30/2017): Tyson Foods Inc.

Share “Gobble, Gobble: Thanksgiving Dinners Stuffed with Savings Despite Rising Fuel Costs”

Net Asset Value
as of 01/19/2018

Global Resources Fund PSPFX $6.42 0.02 Gold and Precious Metals Fund USERX $7.78 -0.01 World Precious Minerals Fund UNWPX $4.66 -0.01 China Region Fund USCOX $12.38 0.19 Emerging Europe Fund EUROX $7.77 -0.04 All American Equity Fund GBTFX $26.03 0.20 Holmes Macro Trends Fund MEGAX $20.25 0.26 Near-Term Tax Free Fund NEARX $2.21 No Change U.S. Government Securities Ultra-Short Bond Fund UGSDX $2.00 No Change