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The 10 Most Competitive Countries in the World
October 5, 2015

runners on the starting line

Since 1979, the World Economic Forum (WEF) has annually published its Global Competitiveness Index (GCI), which, as you can probably guess, ranks the competitiveness of nations for which the group is able to gather sufficient data. This year, the WEF ranks 140 economies—from Switzerland to Guinea.

This is a report I anticipate every year because it’s an indispensable tool that helps policymakers and business leaders better understand what works and what doesn’t in creating stronger, more transparent, more efficacious societies that foster success and prosperity.

For the very curious, the more-than-400-page report is available for download on the WEF’s website.

Global Growth Starts at Home

The WEF defines competitiveness as “the set of institutions, policies and factors that determine the level of productivity of an economy, which in turn sets the level of prosperity that the country can earn.”

I agree with this definition. I often point out that government policy is a precursor to change, that such policy changes, such as the one India recently instituted regarding gold-investing, have powerful—and sometimes negative—consequences, many of them global. Here in the U.S., consider the recent implementation and impact of Dodd-Frank, or Obamacare, or FATCA (the Foreign Account Tax Compliance Act).

A recent Sovereign Man post makes this point very emphatically:

U.S. regulations have made its entire population guilty of crimes they’ve never heard of, often for the most innocent and innocuous activities.

Operating lemonade stands without a permit, collecting rainwater, failing to file a government survey are just a few activities now treated as criminal conspiracies.

And yet the government continues to publish upwards of a 1,000 pages PER DAY of new rules, regulations, and other proposals.

Presidential candidate Donald Trump, an advocate for fewer regulations, agrees. In a 2012 Washington Times op-ed, he wrote that “government regulations cost us annually $1.75 trillion. They constitute a stealth tax that is larger than the amount the Internal Revenue Service collects every year from corporations and individuals combined.”

The Economy Shrinks when Government Grows Too large

Consider this. In the U.S., we cap debt. We cap pollution. Imagine if we did the same for rules and regulations.

Please don’t get me wrong. Every sport requires a rulebook and referee of some kind, but the game becomes increasingly difficult to play and compete in when the rules keep changing and getting more restrictive. At some point, government spending related to such rules and regulations becomes too cumbersome. The cost exceeds the benefit, in other words, as you can see in the chart known as the “Rahn curve,” named for American economist Richard W. Rahn. 

I also frequently comment that governments and economic partnerships, such as the European Union, must maintain a healthy balance between monetary and fiscal policy to remain competitive on the world stage. When economies rely only on monetary policy but fail to address fiscal issues such as punitive taxation and over-bloated entitlement spending, imbalances occur. These imbalances inevitably slow the engines of business and innovation, like cholesterol in one’s arteries.

a penny-farthing economy o a precarious ride: governments must learn to balance monetary and fiscal policies to remain competitive globally

As for gold, many CNBC reporters like to comment on the metal’s recent underperformance, when in fact gold was down substantially less than the S&P 500 Index this past quarter. Government policy is imbalanced with restrictive, choking global regulations for trade and focused instead on tax collection. We need to reform taxes and streamline regulations to stimulate economic activity.

Speaking of which: Every year, the GCI lists what policymakers and business leaders identify as the most “problematic factors” for doing business in individual countries. It should come as no surprise that the top five factors on average include, in ranking order:

1) government bureaucracy
2) tax rates
3) restrictive labor regulations
4) access to finance
5) complexity of tax regulations

Regarding access to finance, the GCI notes that it has worsened in recent years. This worsening is certainly the result of the global financial crisis seven years ago, but financial regulation has gone too far, paralyzing the flow of credit.

As proof of this, the group writes: “Access to finance is now almost as problematic in advanced as in developing economies.”

The WEF’s insight, research and guidance are as needed now as they’ve ever been. We continue to see deterioration in the global purchasing managers’ index, mostly as a result of the “problematic factors” listed above.

Global Purchasing Managers' Index Continues to Deteriorate
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As large and important as China’s economy is, we can’t place the blame solely at the feet of its slowing economy for the world’s problems. If we truly wish to see an upturn in business and manufacturing activity, individual governments need to address the ever-amassing regulations, tax complexity and bureaucracy that act like sandpaper to the progress of business, innovations and prosperity.

Biggest Gainers and Losers

Before I share with you the top 10 most competitive nations—which haven’t really changed from the previous year—I want to highlight a few countries that made either some significant gains or losses.

runners on the starting line

The country that leaped the most was India, rising 16 spots from number 71 last year to 55. I don’t think many people will find this surprising. Prime Minister Narendra Modi’s election last year ushered in a new era of business development, foreign investment and anti-corruption. The “Make in India” initiative, launched by Modi in September 2014, has helped the country surpass China as the world’s top destination for foreign direct investment.

As I shared with you in March, India was the best-performing emerging market in 2014, rising more than 29 percent. Many analysts, furthermore, estimate that the country will emerge sometime this century as the world’s third-largest economy, following China and the U.S.

The GCI points out, however, that India continues to face significant challenges. Infrastructure deterioration, a huge lack of access to electricity and slow technological readiness are concerns Modi’s administration must take urgent action on.

Other notable climbers were the Czech Republic (gaining six points), Kazakhstan (eight points), Russia (eight points) and Vietnam (12 points). I shared with you last month that the Czech Republic has the highest PMI reading among emerging European countries and the fastest-growing economy in all of Europe, so its ascent was very much expected.

You might be taken aback, however, to see Russia rise so much, especially after the plunge in oil prices—so important to the country’s budget—the weakening of its currency and the imposition of additional sanctions following its invasion of Ukraine. The WEF no doubt anticipated readers’ disbelief as well, because it writes: “[T]his is explained mostly by a major revision of purchasing power parity estimates by the IMF (International Monetary Fund), which led to a 40 percent increase in Russia’s GDP when valued at PPP.”

Brazilian President Dilma Rousseff

The country that plummeted the most was one of India and Russia’s fellow BRIC countries, Brazil. Falling 18 spots, the South American nation now sits at number 75 out of 140, compared to last year’s 57.

As with India, no one should be shocked by this. The Marxist policies of President Dilma Rousseff, in office since 2011, have only managed to suffocate business development. Brazil ranks as one of the very worst countries in terms of burdensome government regulations, unethical business practices, effect of taxation on incentives to invest and hiring and firing procedures.  

Besides a loss of trust in public and private institutions because of rampant corruption, the GCI cites Brazil’s “large fiscal deficit,” “rising inflationary pressure” and “weak macroeconomic performance.”

Another BRIC country, China, holds steady at 28. You might recall that back in August, I reacted to the news of China’s stock market correction and economic slowdown, writing that “the world’s second-largest economy has begun to shift away from manufacturing and more toward consumption and the service industries.”

My views here are quite validated by the GCI’s assessment of the Asian country’s current economic condition, stating that China must “evolve to a model” that emphasizes “demand through domestic consumption.”  

Crème de la Crème

In the map below, you can see the current top 10 most competitive countries, according to The Global Competitiveness Report.

Top 10 Most Competitive Countries, According to the World Economic Forum
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As I mentioned earlier, not much has changed since last year. No new countries have entered or exited this exalted list, and there was very little rank-shuffling. For the seventh consecutive year, Switzerland is the most competitive country. For the fifth straight year, Singapore is number two. The U.S. comes in at number three for the second year. And so on.

For this reason, I won’t spend much time rehashing what I already said in my coverage of last year’s report. It’s likely you can already identify many of the probable reasons why these nations appear so highly on the index: access to good infrastructure and electricity, quality education and research institutions, availability of the latest technology, strong intellectual property rights and protectionism and much more.

Each one of these 10 countries has its own unique strengths and weaknesses, for sure, but the common theme among them can be traced back to the WEF’s definition of competitiveness. The most successful countries foster “institutions, policies and factors that determine the level of productivity of an economy, which in turn sets the level of prosperity that the country can earn.”

Recall my comparison of Singapore and Cuba in a March Frank Talk. Both small island-states were established in their present forms in 1959—but with two starkly different economic visions. Whereas one government chose to stress sound fiscal policies and an open business environment, the other all but abolished private enterprise.

As a result, Singapore is today the second-most competitive nation on earth, according to the World Economic Forum. Meanwhile, Cuba doesn’t even rank among the 140 countries the group studied.

To get global growth back on track, it’s imperative that countries follow the leads of Switzerland, Singapore, the U.S. and others that made it to the top of the WEF’s list.

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 Global Competitiveness Index, developed for the World Economic Forum, is used to assess competitiveness of nations. The Index is made up of over 113 variables, organized into 12 pillars, with each pillar representing an area considered as an important determinant of competitiveness: institutions, infrastructure, macroeconomic stability, health and primary education, higher education and training, goods market efficiency, labor market efficiency, financial market sophistication, technological readiness, market size, business sophistication and innovation.

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

The Rahn curve is an economic theory, proposed in 1996 by American economist Richard W. Rahn, which indicates that there is a level of government spending that maximizes economic growth. The theory is used by classical liberals to argue for a decrease in overall government spending and taxation.

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.

BRIC refers to the emerging market countries Brazil, Russia, India and China.

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India Issues Its First Sovereign Gold Coin to Balance Gold Imports
October 1, 2015

Gold tends not to leave India once it enters. As the world’s largest importer, the country consumes massive quantities of the yellow metal—it’s on track to take in 900 tonnes of the stuff this year—where it remains in private families’ coffers, mostly in the form of jewelry and decorative heirlooms. It’s estimated that less than 10 percent of all Indian gold demand is in bars and coins.

That might change this month—strong emphasis on “might”—as the India Government Mint will issue its first-ever sovereign gold coin, just in time for the fall festival season, which kicks off November 11. The coin will reportedly feature the Ashoka Chakra, the traditional 24-spoked symbol that appears on India’s national flag.

Consider the immense popularity of the American Eagle, the Canadian Maple Leaf, the British Sovereign, the South African Krugerrand and others—and now this month, India’s coin will join their exalted ranks. You might wonder why India, whose notoriously insatiable demand for gold stretches back millennia, has only recently decided to join other nations in issuing a sovereign gold coin.

The answer has much to do with the government’s interest in trimming massive net inflows of the yellow metal and containing its impact on the country’s trade balance. As I said, gold is so highly-valued by Indian citizens that once it enters the country, it stays in the country, largely as family heirlooms.

The World Gold Council estimates that 50 percent of Indian wedding expenses is on gold. And when you consider that about 20 million weddings occur each year on average in India—many of them featuring gold in some capacity—it becomes very clear that this affinity to the precious metal is shared by all.

Furthermore, because many Indians distrust government banks, they prefer to protect their financial security by holding physical gold.

And who can blame them? India’s own central bank holds more than 557 tonnes of the metal for the very same reason: financial security.

But apparently the government takes the position that you can have too much of a good thing, even something as precious and auspicious as gold, and therefore seeks greater control on how it manages net inflows.

“Such an Indian gold coin would help reduce the demand for coins minted outside India and also help to recycle the gold available in the country,” says Arun Jaitley, India’s Minister of Finance.

But will Indians be buying? It’s probably too early to tell.

Indian Government Policy to Change Gold Investing

What can be said is that the plan to issue the coin is part of a broader government strategy to change the way Indians invest in gold. I always say that government policy is a precursor to change, and the new policies announced back in the spring are scheduled to go into effect soon.

One such program involves a gold bond, “which would not be backed by gold,” explains Jeffrey Christian, a managing partner at commodities consultancy group CPM Group, who spoke recently at the Denver Gold Forum. Instead, the bonds would be issued by the Reserve Bank of India, the underlying assumption being that some Indians would prefer gold-indexed bonds to actual bullion.

“And so they think that they can discourage physical gold demand because it put stress on [the government’s] current account balances a few years ago,” Christian says.

Then there’s the so-called “gold monetization scheme,” which is a program designed to encourage individuals and temples laden with gold to voluntarily deposit some of their bullion in exchange for a “2 percent or more” interest rate.

Theoretically, the gold would be held on deposit. In practice, however—again, according to Christian—it would be lent or sold to the jewelry industry, thereby reducing gold imports.

This means, of course, that the bullion—including everything from gold trinkets to cherished wedding ornaments—would be melted down.

“Not many [Indians] would want to see their long-preserved, family-inherited, emotionally-attached piece of yellow metal lose its identity and ‘feel’ by melting it for meager return,” writes columnist Dinesh Unnikrishnan of Indian news agency Firstpost.

The government’s multifaceted strategy might not be as drastic as the one enacted by President Franklin Roosevelt in 1933, which forbade the “hoarding of gold coin, gold bullion and gold certificates within the continental United States.” For now, Indians’ participation in the two progressed programs is completely voluntarily.

“Given the cultural and traditional affinity of Indians to their family-owned gold ornaments,” Unnikrishnan writes, “the only incentive for them to come forward and pledge their gold under the scheme is higher returns.”

Will Indians be enticed?

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All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor. 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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Here Are Two Ways Investors Can Take Advantage of the Fed's Uncertainty
September 21, 2015

Federal Reserve Chair Janet Yellen last week blinked in the face of—as she described it—global uncertainty, low inflation, and a still-low U.S. labor force participation rate. I’ve written on the emerging markets slowdown numerous times in recent months, so her reasoning is not at all surprising.

Although interest rates could still be hiked in one of the two remaining times the Federal Open Market Committee (FOMC) meets this year, I’m inclined to think they’ll stay near zero until at least 2016.


The decision is a welcome one for both gold demand and new home purchases. When rates rise, gold becomes less attractive for some investors, who are encouraged to exchange their no-yielding gold for income-producing assets.

As for loans on new or existing homes, they don’t necessarily rise and fall in perfect correlation with interest rates—they’re more directly related to the 10-year Treasury bond yield—but there’s a strong psychological connection in many potential homebuyers’ minds.

An interest rate reprieve, then, might encourage borrowers to act before it’s “too late,” helping home sales. This could speed up the multiplier effect, or what occurs when there’s an increase in spending that increases income and consumption greater than the initial amount spent. When people buy a home, they also put carpenters to work, purchase new furniture, hire landscaping companies and more.

The same is true when taxes are lower. It creates less friction in the flow of money.

A Record-Setting Year for Chinese and Indian Gold Demand?

Following Yellen’s announcement, I told JT Long of the Gold Report that the Fed’s decision is a wash for precious metals, oil and gas prices. A rate hike would have likely caused the U.S. dollar to strengthen even further, which in turn would have put additional pressure on commodities.

I’ll be watching China’s purchasing managers’ index (PMI) numbers very closely in October and November to see if manufacturing activity will start to turn up. Since China is such an important consumer of metals and other raw materials, it’s crucial that its manufacturing sector break out of the recent slowdown.

A recent article by Oxford Club Resource Strategist Sean Brodrick points out that China’s gold demand, as tracked by deliveries out of the Shanghai Gold Exchange (SGE), is much healthier than many people believe. So far this year, demand has been 36 percent higher than around the same time in 2014, and 13.5 percent higher than in 2013—which was a record year.

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Chinese gold demand also tends to increase near the end of the year as the Chinese New Year approaches, so it’s possible 2015 could hit a new record.

Demand out of India is likewise surging, reaching 120 tonnes in August, compared to 50 tonnes this time last year. With important Indian fall festivals quickly approaching such as Diwali, the gold Love Trade is in full swing.

Homebuilders Feeling Good About the Future


Speaking of love, U.S. homebuilders generally seem to have a rosy feeling about the housing market. According to a new survey by the National Association of Home Builders (NAHB), builder confidence in the market for new single-family homes rose to 62 in September, its highest level since November 2005. A reading over 50 means that builders have a positive attitude about economic conditions.

Driving this sentiment are historically low interest rates, low unemployment and steadily rising rents, which makes purchasing a home more appealing.

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Housing starts in August fell for a second straight month, but they remain above the one million-unit mark—1.13 million, to be exact—so demand is still on solid footing. This week, Evercore ISI wrote:

Housing starts have already more than doubled and are clearly improving here in 2015. But they still have lots of room to increase.

What this means is there’s a lot of upside opportunity.

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A better indicator of the market might be the number of permits filed for new homes, which ticked up 3.5 percent in August.

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We own Masco Corporation, which manufactures products for home improvement and new home construction markets. It’s up more than 23 percent year-to-date, while the S&P Homebuilders Select Industry Index is up nearly 30 percent during the same period.

Big Data: October Is the Best Time to Close on a New Home

The reason for a rise in permits is likely because the fall and winter months have traditionally been perceived as the best time of year to buy a new home, due to less competition from other buyers because of the colder weather.

Real estate information company RealtyTrac wanted to check the validity of this longstanding theory and found it be to mostly accurate. After analyzing 32 million home and condo sales since 2000, the group found that buyers tend to get the best deals during October—just next month—when sales prices were 2.6 percent below market value. And if you want to get really precise, October 8 was the absolute best day to close on a home, “when on average buyers have purchased 10.8 percent below estimated market value at the time of the sale,” according to RealtyTrac.

The worst month to buy a home in was April, when prices were at a 1.2 percent premium.

So the takeaway here is that homebuyers who have been sitting on the fence now have a double-incentive to act: historically low mortgage rates and a possible chance at killer bargains.

Government Policy Is a Precursor to Change

Last week, I discussed how homebuilding is important to money velocity, or the rate at which money is exchanged from one transaction to another. The multiplier effect of the housing market, according to the National Association of Realtors (NAR), is between 1.34 and 1.62 in the first year or two of the initial home purchase. What this means is that for every dollar spent on housing, the overall GDP increases by $1.34 and $1.62.

That’s huge. Not just for GDP growth but also job growth.

Global Construction magazine estimates that an average of 22 subcontractors are involved in the building of a single American home, from carpeting specialists to electricians to plumbers. These are just the subcontractors. The count doesn’t include full-time employees of the homebuilder.

All told, then, many more than 22 people are employed in the construction of each home in the U.S., on average. These professionals create wealth not just for themselves but for others as well.

According to Reuters, construction spending by the U.S. government increased 0.7 percent to a huge $1.08 trillion, the highest level since May 2008. Construction spending has increased for eight straight months, in fact.

This is why we always study government policies, because they’re precursors to change.

It’s why government bond yields spiked in anticipation of the Fed decision. The spike lowered the prices of bonds substantially. Based on our models, the drop in bond prices gave our portfolio managers a buy signal in our Near-Term Tax Free Fund (NEARX), allowing us to pick up some nice bargains in short-term municipal bonds attractive at that level.

While Americans are in the early stages of the presidential election cycle, and the debate stage is still crowded, Canadians will head to the polls in a month to decide the direction of their federal leadership.

I was in Toronto last week where the mood was tense as the effect of falling commodity prices hit the resource-based Canadian economy especially hard and the Canadian dollar was at its lowest level against the almighty American dollar since 2004.

If the Conservative Party remains in power, Prime Minister Stephen Harper will be the first person in more than a century to win four consecutive elections in Canada. It’s also the first three-way toss up in the nation’s history of Parliamentary elections.

Harper has been a reliable champion of commodity investments, small government and lower taxes—policies that I believe contribute to global growth and prosperity over the long term.

Please consider carefully a fund’s investment objectives, risks, charges and expenses. For this and other important information, obtain a fund prospectus by visiting or by calling 1-800-US-FUNDS (1-800-873-8637). Read it carefully before investing. Distributed by U.S. Global Brokerage, Inc.

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 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.

The S&P Homebuilders Select Industry Index is a modified equal weight index that represents the homebuilding sub-industry portion of the S&P Total Markets Index.

Fund portfolios are actively managed, and holdings may change daily. Holdings are reported as of the most recent quarter-end. Holdings in the Near-Term Tax Free Fund as a percentage of net assets as of 6/30/2015: Masco Corporation 0.00%.

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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Here's Your Guide to What the Influencers Are Saying about Commodities
September 8, 2015

A few legendary influencers in investing are making huge bets right now on commodities, an area that’s faced—and continues to face—some pretty strong headwinds. What are we to make of this?

I already shared with you that famed hedge fund manager Stanley Druckenmiller made a $323-million bet on gold, now the largest position in his family office fund. It’s also come to light that George Soros recently moved $2 million into coal producers Peabody Energy and Arch Coal. Meanwhile, activist investor Carl Icahn took an 8.5-percent position in copper miner Freeport-McMoRan, which we own.

These giants of the investing world have just given huge endorsements for gold, coal, copper, and precious metals

My friend Marc Faber, the widely-respected Swiss investor and editor of the influential “Gloom, Boom & Doom Report,” is now plugging for the mining sector and precious metals. Speaking to Bloomberg TV last week, Faber claimed that investors are running low on safe assets and suggested they revisit mining companies:

If I had to turn anywhere where… the opportunity for large capital gains exists, and the downside is, in my opinion, limited, it would be the mining sectors, specifically precious metals and mining companies… like Freeport, Newmont, Barrick. They’ve been hammered because of falling commodity prices. Now commodities may still go down for a while, but I don’t think they’ll stay down forever.

Late last month, Freeport became the first major miner to announce production cuts in response to depressed copper prices, which have slipped around 19 percent since their 2015 high of $2.95 per pound in May. This reduction should remove an estimated 70,000 tonnes of copper from global markets, according to BCA Research, and eventually help support prices.

Platinum and palladium miners in South Africa, a leading producer of both metals, also announced job cuts and mine closures, as platinum has slipped more than 16 percent this year, palladium a quarter.

But Marc sees opportunity, as I do. In my keynote speeches earlier this year I suggested that 2015 would see a bottom in cost-cutting due to divesture and slashing of capital expenditures, and that in 2016 we should see higher returns on capital.

Furthermore, using our oscillators to measure the degree to which asset classes are overbought and oversold, we find that commodities are extremely oversold right now and currently bouncing off low negative sentiment. The smart money is buying.

When asked if he thought commodities had reached a bottom, Marc had this to say:

I would rather focus on precious metals—gold, silver, platinum—because they do not depend on industrial demand as much as base metals and industrial commodities.

Marc was referring, of course, to China, the 800-pound commodity gorilla, as I’ve often described the country. The Asian powerhouse is currently responsible for nearly 13 percent of the world’s commodity demand, followed by the U.S. at a little over 10 percent.

China's demand for commodities is huge
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But as I discussed recently, China is transitioning from a manufacturing-based economy to one that emphasizes services, consumption and real estate. Commodity demand is cooling, therefore, and we can expect it to cool even further. Aside from the strong dollar, this is one of the key reasons why prices have plunged to multi-year lows.

Commodities Seeking an Upturn to Global Manufacturing

The JPMorgan Global Manufacturing PMI continues to decline as well. Since its peak in February 2014, the reading has fallen 4.5 percent. The August score of 50.7, just barely indicating manufacturing expansion, is the sixth consecutive monthly reading to remain below the three-month moving average.

I’ve shown a number of times in the past that when this is the case—that is, when the one-month reading is below the three-month trend—commodity prices have tended to trade lower. Unlike other economic indicators such as gross domestic product (GDP), the PMI is forward-looking and helps investors manage expectations. Based on our own research, there’s a strong probability that copper and crude oil prices might dip three months following a “cross below.”

The opposite has also been true: Prices have a stronger probability of ticking up three months after the one-month crosses above the three-month.

Commodities and commodity stocks historically rose three months after pmi "cross-above"
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This is why we believe prices will have a better chance at recovery after the global PMI crosses above its three-month moving average.

I have great respect and admiration for Druckenmiller, Soros, Icahn and Marc—all of whom are clearly bullish on commodities—but we would prefer to see global manufacturing growth reverse course.

In the meantime, low commodity prices are a windfall for many companies in Europe, Japan and the U.S. Metals and other raw materials are at their lowest in years, which is the equivalent of a massive tax break for the construction and manufacturing sectors.

Low gold prices are also expected to generate high demand in India as we approach fall festivals such as Diwali and Dussehra, not to mention weddings. According to estimates from Swiss precious metals refiner Valcambi, demand could reach 950 tonnes by the end of the year, compared to 891 tonnes in 2014.

Emerging Markets Might Have Found a Bottom

It might be challenging for the global PMI to cross above the three-year moving average since Chinese manufacturing has slowed, but there’s burgeoning strength in other emerging markets, many of them unexpected: the Philippines, Myanmar, Ethiopia. The Czech Republic has the highest PMI reading among emerging Europe countries and the fastest-growing economy in all of Europe.

An interesting chart from Morgan Stanley suggests that emerging markets might have found a trough and are ready to turn up. Assuming that August 24, 2015 was the bottom, the bank compares the recent bear market to five previous ones and finds that it’s tracking a similar price action as 1995, 2002 and 2011. It’s also much less severe than 1998 and 2008.

A contrarian thesis: have emerging markets found a bottom?
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Additionally, Bloomberg reminds us that by 2050, 3 billion people will enter the middle class, nearly all of them in the developing world. Emerging markets might be struggling somewhat right now, but they’re still very much our future.

U.S. Travelers to Spend Big This Labor Day Weekend, but Airline Stocks Are Reasonably Priced

This Labor Day weekend, Americans were projected to spend a whopping $13.5 billion, according to the U.S. Travel Association (USTA). This figure included spending on goods and services as people traveled by automobile, jet or some other means to visit friends and family. Air travelers alone spent $2.9 billion, if expectations were accurate.

Luxury in the air: delta is now offering private jet upgrades to select passengers

The International Air Transport Association (IATA) released air travel demand figures for the month of July, noting that demand continues to be robust both domestically and internationally. All global markets saw growth in July, with domestic flight demand rising 5.9 percent year-over-year. At an eye-popping 28.1 percent, India posted the strongest growth.

As GARP (growth at a reasonable price) investors, we still find airline stocks attractively priced, as do many others. Barron’s recently made note of this, stating: “Major airline stocks are trading 9.4x our 2015 EPS (earnings per share) estimates and 9.0x our 2016 EPS estimates, below their historical trading range of 10x – 12x.”

We own a number of these carriers in our funds: Delta Air Lines (which announced a $5-billion stock buyback program in May), Alaska Air, and JetBlue in the Holmes Macro Trends Fund (MEGAX); Ryanair (which just hit a new 52-week high) and Aegean Greece in the Emerging Europe Fund (EUROX). We also own several names in the aircraft manufacturing and airport services areas, including Pegasus Hava Tasimaciligi, Wizz Air Holdings and TAV Havalimanlari.

The Iran Nuclear Deal Could Be a Boon to Boeing and Airbus

On a final note, if you’ve been paying attention to the news, you’re probably familiar with the pending nuclear deal with Iran. When implemented, trade barriers will be lifted for the first time in decades. Whether you approve or disapprove of the deal, you have to recognize that this could be a huge opportunity for many companies that, up until now, have been cut off from doing business with the Middle Eastern country.

One area that’s in dire need of an overhaul is Iran's aging jet fleet. The average age of the United Arab Emirates’s planes is 6.3 years. In Iran, meanwhile, it’s 27 years. These are ancient relics!  

Iran nuclear deal: a huge opportunity for Boeing and Airbus?
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The total number of jets that will need replacing is estimated to be 400—and cost $20 billion.

Aircraft manufacturers Boeing and Airbus already have a growing backlog of new aircraft orders—10,000 jets altogether, according to the Wall Street Journal—and the Iran deal has the potential to increase it even further.

We also see it as an opportunity for energy companies in particular that the median age of Iran’s educated population is 28 years—this is a market with promising growth potential.

You might have seen headlines that energy officials from Iran and Saudi Arabia secretly met to cooperate on trying to get crude oil prices stable at between $70 and $80 per barrel. Oil prices spiked this past week in response, but as far as we can tell, this is only chatter. Don’t bet on rumors, but rather on good government monetary and fiscal policy, excellent management and undervalued stocks.

Please consider carefully a fund’s investment objectives, risks, charges and expenses. For this and other important information, obtain a fund prospectus by visiting or by calling 1-800-US-FUNDS (1-800-873-8637). Read it carefully before investing. Distributed by U.S. Global Brokerage, Inc.

Stock markets can be volatile and share prices can fluctuate in response to sector-related and other risks as described in the fund prospectus.

Foreign and emerging market investing involves special risks such as currency fluctuation and less public disclosure, as well as economic and political risk. By investing in a specific geographic region, a regional fund’s returns and share price may be more volatile than those of a less concentrated portfolio. The Emerging Europe Fund invests more than 25% of its investments in companies principally engaged in the oil & gas or banking industries. The risk of concentrating investments in this group of industries will make the fund more susceptible to risk in these industries than funds which do not concentrate their investments in an industry and may make the fund’s performance more volatile.

The J.P. Morgan Global Purchasing Manager’s Index is an indicator of the economic health of the global manufacturing sector. The PMI index is based on five major indicators: new orders, inventory levels, production, supplier deliveries and the employment environment.

The MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market performance in the global emerging markets.

Fund portfolios are actively managed, and holdings may change daily. Holdings are reported as of the most recent quarter-end. Holdings in the Holmes Macro Trends Fund (MEGAX) and Emerging Europe Fund (EUROX) as a percentage of net assets as of 6/30/2015: Peabody Energy Corporation 0.00%, Arch Coal Inc. 0.00%, Freeport-McMoRan Inc. 0.00%, Newmont Mining Corp. 0.00%, Barrick Gold Corp. 0.00%, Valcambi SA 0.00%, Delta Air Lines Inc. 0.00%, Alaska Air Group Inc. 0.00%, JetBlue Airways Corporation 0.00%, Ryanair Holdings plc 0.00%, Aegean Airlines SA 0.00%, Pegasus Hava Ta??mac?l??? SA 0.50% Emerging Europe Fund, Wizz Air Holdings plc 0.00%, TAV Havalimanlar? Holdings 1.09%, The Boeing Co. 1.50% Holmes Macro Trends Fund, Airbus Group SE 0.00%.

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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The Many Uses of Gold
September 2, 2015

Many Uses of Gold

Gold’s many qualities make it one of the most coveted metals in the world. Not only can it be beautifully shaped and sculpted, the yellow metal also conducts electricity, doesn’t tarnish and is biocompatible (meaning it’s not harmful to our tissue). These qualities make it the metal of choice in a wide variety of industries, including dentistry and medicine, electrical engineering, construction and aerospace manufacturing.

Another important use of gold is to help stabilize monetary systems. For centuries, most advanced nations were on the gold standard, which restricted governments from creating a limitless amount of money and running up massive levels of debt.

Many incidents throughout history show the negative consequences when a country eliminated the gold standard and adopted a fiat currency system.

The most notable example involves John Law, a Scottish gambler who became head of France’s central bank in the early 18th century. In an attempt to reduce the late King Louis XIV’s debt, Law began printing banknotes, flooding the economy with easy money.

His plan worked—until it didn’t. The banknotes rapidly lost their value, eventually becoming as worthless as the paper they were printed on. Law was summarily exiled from France, whose economy spiraled deeper into depression, laying the groundwork for the French Revolution later that century.

Law’s is an extreme example to be sure, but it serves as a cautionary tale.

the Czech Republic's PMI came in at an impressive 57.50 in July up from 56.90 in June

This relationship between the gold standard and government debt is explored even further in a fascinating article that appears in our most recent Shareholder Report, which many of you should have already received in the mail. The article makes the case clearly:

The gold standard limits the amount of debt that can be issued. Forty-four years ago, when the U.S. made the switch to a fiat currency system, the federal government owed $399 billion. Since then, outstanding debt has ballooned 4,411 percent to $18 trillion—more than twice the amount of all the gold in the world (nearly $7 trillion). Such massive debt levels can be reached only in a fiat currency system, where money is easy, virtually limitless and unsecured by anything tangible.

Today, no country on earth still uses the gold standard. In 1999, Switzerland became the last country to break from it. And yet central banks all over the globe continue to maintain, and add to, their gold reserves, including Switzerland. At 1,040 tonnes of gold, its holdings are the seventh-largest in the world, following Russia’s.

the Czech Republic's PMI came in at an impressive 57.50 in July up from 56.90 in June

Speaking of Russia, it was overtaken recently by China, which announced in July that it increased its gold reserves 57 percent in the last six years to more than 1,658 tonnes. An additional 600,000 ounces were purchased in the same month.

Why is China doing this? As I’ve discussed before, China wants to sufficiently back its currency, the renminbi, so it can qualify as part of the International Monetary Fund’s (IMF’s) basket of special reserve currencies, alongside the U.S. dollar, British pound, euro and Japanese yen.

Similarly, Texas is in the process of establishing the very first state-run gold depository to compete with the Federal Reserve. In theory, this will allow the Lone Star State to be more financially independent and enjoy greater monetary stability.

That’s as good a use of gold as any.




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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Net Asset Value
as of 10/12/2015

Global Resources Fund PSPFX $4.96 -0.04 Gold and Precious Metals Fund USERX $5.34 -0.04 World Precious Minerals Fund UNWPX $4.25 -0.01 China Region Fund USCOX $7.67 0.05 Emerging Europe Fund EUROX $5.77 -0.04 All American Equity Fund GBTFX $26.75 0.11 Holmes Macro Trends Fund MEGAX $20.10 0.15 Near-Term Tax Free Fund NEARX $2.25 No Change U.S. Government Securities Ultra-Short Bond Fund UGSDX $2.01 No Change