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Please note: The Frank Talk articles listed below contain historical material. The data provided was current at the time of publication. For current information regarding any of the funds mentioned in these presentations, please visit the appropriate fund performance page.

6 Reasons Why Texas Trumps All Other U.S. Economies
October 23, 2018

6 Reasons Why Texas Trumps All Other U.S. Economies

As many of you reading this know, I’m what you would call a Tex-Can. I was born and raised in Canada, but I’ve called Texas home for nearly 30 years. I can’t picture U.S. Global Investors headquartered anywhere else, even after traveling to all parts of the country and, indeed, the world. Texas just “gets it,” which is why I think CNBC recently named the $1.6 trillion economy the best state for business in 2018—the first time, in fact, a state has won four separate times since the network began ranking them 12 years ago.

Below are six reasons why I think Texas trumps all other U.S. economies.

1. Texas is a manufacturing powerhouse

Everything’s bigger in Texas, and that includes manufacturing. Last year, total manufacturing output from the Lone Star State was $226.16 billion, or about 10 percent of total U.S. manufacturing goods, according to the Federal Reserve Bank of Dallas. The industry supports more than 865,000 jobs in Texas, or about 7.1 percent of its workforce. And the average annual compensation for manufacturing was $82,544, compared to $46,642 for all nonfarm jobs, which helps boost the state’s gross domestic product (GDP). Finally, at a time when global manufacturing expansion is slowing, the sector in Texas continues to grow at a healthy pace.

Texas manufacturing sector continues to expand
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2. Texas is the largest exporting state

Texas is also known as the top exporting state in the nation, responsible for almost 20 percent of total U.S. exports. And they continue to grow at an impressive rate. According to the Dallas Fed, Texas exports rose sharply in July and were up 16 percent year-to-date, or about three times faster than U.S. exports, which increased 5.2 percent for the same period. Much of the growth in the Lone Star State is due to its monster oil and gas industry, which exported more crude than it imported for the first time ever in April, according to an August report by the U.S. Energy Information Administration (EIA).

Texas is the top exporting state
click to enlarge

3. Texans enjoy the fastest income growth in the U.S.

Thanks to a robust business environment, and the fact that it’s one of only four states without a corporate income tax, Texas residents enjoyed the fastest personal income growth this year between the first and second quarter. According to the Bureau of Economic Analysis (BEA), incomes expanded a whopping 6 percent in the June quarter, compared to 4.2 percent for Americans on average. This was the best rate among all 50 states. Earnings increases were led by professional, scientific and technical services.

Texas ranked first in income growth
click to enlarge

4. Texas is a global oil superpower

In case you haven’t heard, Texas is oil country—the number one producer in the U.S., accounting for more than 40 percent of national output—and that’s been a blessing for the state’s economy. Employment in oil and gas has led growth among its major sectors. Since Congress removed the crude oil export ban, oil and gas exports have gone from making up 5.2 percent of state exports to the largest share at 18 percent, or $45 billion over the past 12 months, according to the Dallas Fed. Investment bank HSBC now predicts that Texas will surpass OPEC members Iran and Iraq next year to become the world’s number three oil producer, accounting for over half of U.S. production.

Texas now accounts for over 40 percent of US oil production
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5. Everyone wants to move to Texas

Two years ago I wrote a piece about how everyone wants to move to Texas, and since then nothing’s changed. People still want to move here. Can you blame them? Of the top 10 fastest growing cities in terms of population, four were in Texas, according to the Census Bureau. In the number one spot was San Antonio, home to U.S. Global Investors. Between July 2016 and July 2017, the Alamo City attracted more than 24,000 new residents, and it now boasts some 1.5 million people. If we look at the fastest-growing U.S. cities by percent change, Texas takes half of the top 10 spots. In numbers one, two and three are the Texas cities of Frisco (8.2 percent growth), New Braunfels (8 percent) and Pflugerville (6.5 percent).

Four of the top fastest growing US cities are in Texas
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6. Everyone wants a Texas home

More residents means more demand for housing. The Lone Star State mostly avoided the house price bubble a decade ago, according to the Dallas Fed. As such, housing markets are currently tight in most of the state, and median prices remain near record highs. Texas A&M University’s Real Estate Center reports that sales grew 3.8 percent in July, reaching a record level of 29,456 homes sold through a multiple listing service (MLS). What’s more, Texas was the national leader in home permits, accounting for 16 percent of the U.S. total.

Housing sales in Texas have outpaced those in the US
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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.

America's Top States For Business CNBC, a division of NBC Universal, has been ranking state business climates annually since 2007. CNBC's state rankings are based on 10 categories: Cost of Doing Business, Workforce, Quality of Life, Infrastructure, Economy, Education, Technology & Innovation, Business, Friendliness, Access to Capital and Cost of Living.

The Dallas Fed conducts the monthly Texas Manufacturing Outlook Survey (TMOS) to obtain a timely assessment of the state's factory activity. Firms are asked whether output, employment, orders, prices and other indicators increased, decreased or remained unchanged over the previous month.

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China's Belt and Road Initiative Opens Up Unprecedented Opportunities
September 4, 2018

 

Mapping the belt and road initiatives progress
click to enlarge

It was the best of times, it was the worst of times. A tale of two world leaders, U.S. president Donald Trump and China president Xi Jinping—both of whose countries have among the world’s best economies right now. But whereas Xi is playing Santa Claus to the rest of the world, doling out loans to finance-starved countries, Trump is playing Scrooge, waging an economic war with Canada, the European Union, China and others.

Respected economist Art Laffer, whom I’ve written about before, has always supported leaders who ignite global trade rather than close off its borders. A full-blown trade war, Laffer said recently, would be a “curse” on the U.S. economy.

Post-World War II, it was the U.S. that led global trade and infrastructure build-out—the Marshall Plan in Europe, the Interstate Highway System domestically. Both projects required massive amounts of commodities and raw materials, and employed hundreds of thousands of people.

Today, of the two leaders mentioned above, it’s Xi who has a clear foreign policy when it comes to trade and infrastructure.

U.S. Fund Flows Into Africa Are Slowing

Case in point: This week, Beijing will host the Forum on China-Africa Cooperation (FOCAC). The summit, which takes place once every three years and is attended by representatives from 52 African countries, touches on areas as diverse as technology, trade, infrastructure, diplomacy, culture and agriculture.

During the last forum, in 2015, China pledged as much as $60 billion toward Africa’s development in interest-free loans. The Asian country, in fact, has increased its investments in the continent around 520 percent over the last 15 years, according to Global Trade Magazine.

As just one example, Kenya agreed to let China finance and build a standard gauge railway (SGR) connecting two major cities at a cost of $3.8 billion. Contracted by China Road and Bridge, the Mombasa-Nairobi SGR is Kenya’s largest infrastructure project since it declared independence from the U.K. in 1963.

Meanwhile, U.S. fund flows to Africa have been receding, and they’re expected to slow even more during Trump’s administration.

Chinese investment in Africa has held steady as the United States declines
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Xi isn’t doing this out of the goodness of his heart, of course. China, having been Africa’s largest trading partner for nine consecutive years now, likely expects its investments to pay diplomatic and economic dividends for many decades to come.

Even Trump’s own commerce secretary, Wilbur Ross, acknowledges that the U.S. must do more in Africa. “By pouring money into Africa,” Ross wrote on CNBC in August, “China has seen an opportunity to both gain political influence and to reap future rewards in a continent whose economies are predicted to boom in the coming decades,” due mainly to a younger demographic.

The Belt and Road Initiative Will Affect 60 Percent of the World’s Population

The most well-known among China’s projects is the Belt and Road Initiative (BRI), one of the most ambitious undertakings in human history. The biblical-size trade and infrastructure endeavor—a sort of 21st century Silk Road—could cost 12 times as much as what the U.S. spent on the Marshall Plan to rebuild Europe following World War II. The BRI has the participation of 76 countries from Asia, Africa and Europe, and is poised not only to reshape globe trade but also raise the living standards for more than half of the world’s population.

According to the International Monetary Fund (IMF), the “BRI has great potential for China and participating countries. It could fill large and long-standing infrastructure gaps in partner countries, boosting their growth prospects, strengthening supply chains and trade and increasing employment.”

The BRI, which turns five years old this fall, announced in 2013, will have a strong presence in Eastern Europe, also a prime destination for China FDI, as the countries there offer a wealth of metals, minerals and agricultural products.

GPD and PMI car anolog

According to Stratfor, Chinese companies have invested as much as $300 billion in Eastern Europe over the past decade. Last May, China and Ukraine agreed to cooperate on joint projects valued at nearly $7 billion, and in November, it was announced that China Railway International and China Pacific Construction would build a $2 billion subway line in the Ukrainian capital, Kiev. More recently, Chinese engineers with China Harbor Engineering completed a $40 million dredging operation in Ukraine’s Yuzhny Sea Port, allowing it to receive larger ships.

Like the Marshall Plan before it, the BRI will require tremendous amounts of commodities, metals and fuel.

In 2011, members of our investment team and I had the opportunity to see one of China’s high speed trains firsthand. The train averaged 185 miles per hour during our 923-mile trip from Shanghai to Beijing. As I wrote then, “I’ve traveled to all corners of the world and have seen many things during my travels, but viewing China’s explosive growth as it flies by you is something I will never forget.”

U.S. Investors Hiked Exposure to China

In light of all this, there’s no lack of negative news on China right now. I see headline after headline on the country’s “slowing economy” and “weakening consumption,” but like most things are in the media, these proclamations are overblown.

Look at China’s purchasing manager’s index (PMI). Fresh data out last Friday showed that manufacturing expansion in August accelerated slightly faster than in the previous month. The PMI hit 51.3, up from 51.2 in July and beating analysts’ expectations of 51.0. This was the 25th straight month of economic expansion, despite what I earlier described as the Trump-Kudlow trade war with China.  

China manufacturing activity accelerated in august despite trade concerns purchasing managers index from august 2016 to august 2018
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Also, as the Peterson Institute for International Economics (PIIE) wrote last week, “there is no empirical evidence that consumption in China is weakening,” contrary to what “official” retail sales data show.

The PIIE’s Nicholas Lardy cited Alibaba’s recent announcement that sales rose 60 percent in the most recent quarter compared to a year ago—“a sign that Chinese retail sales data likely do not fully capture China’s burgeoning digital retail.”

“In any case,” Lardy continued, “retail sales are an increasingly less useful measure of consumption, as China’s large and still growing middle class is spending a growing share of their rising income on education, health care, travel and other services that are not captured in official data on retail sales.”

gross domestic product in absoluve terms and gdp on purchasing parity valuation
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Savvy investors, I believe, get it and can see the opportunity in the world’s number one economy, as ranked by purchasing power parity (PPP). Reuters reports that, in the week ended August 22, U.S. investors poured $572 million into funds that invest in Chinese equities. That was the most for such funds since January.

Although some expect Trump to impose tariffs on $200 billion additional Chinese imports, perhaps as early as this week, “investors are expecting Beijing to continue counteracting the effects of the [trade] dispute with increasingly relaxed monetary and fiscal policies,” Reuters says.

Curious to learn more? Watch this short video on investment opportunities in China!

 

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

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

Gross domestic product (GDP) is the total value of goods produced and services provided in a country during one year. Purchasing power parity (PPP) is a theory which states that exchange rates between currencies are in equilibrium when their purchasing power is the same in each of the two countries.

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

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Russia Is Defying Expectations
June 25, 2018

Russian president Vladimir Putin holding the FIFA world cup trophy at a pre tournament ceremony in Moscover in September 2017

 

Before being defeated today by Uruguay at the 2018 FIFA World Cup, Russia surprised experts and fans alike. Expectations were low at best. Because of recent setbacks, including a disastrous performance at the 2016 UEFA European Championship and injuries sustained by key players, the federation ranked a dismal 66th place among Fédération Internationale de Football Association teams—its lowest position ever. The only reason it didn’t have to qualify to compete was because Russia is the host nation. (This is the first time in its 88-year history, by the way, that the World Cup has been held in Eastern Europe.)

And yet Russia has defied predictions that the federation would be eliminated right out of the gate.

It’s managed to advance to the knockout stage, but that’s likely as far as it will get when it goes up against either Spain or Portugal on July 1. As for which team might win the Cup, sophisticated predictive models using portfolio theory and the historical performance of players are pointing to France beating Spain in the final.

Russian Airports Could Be Biggest Beneficiaries of Hosting World Cup

This is the second time in the past five years that Russia has hosted a major international sports tournament, and questions have surfaced about what economic benefits, if any, doing so affords.

As I shared with you back in February, the Eastern European country spent as much as $50 billion, a record-breaking sum, to host the 2014 Winter Olympics in Sochi. It seems insurmountable, but Fitch Ratings concluded that the debt was “manageable,” citing the reduction of interest rates to 0.5 percent and noting that the cost is less than 2.5 percent of Russia’s gross domestic product (GDP).

There’s also evidence that the investment had been well made. Four years later, Sochi is still full of tourists, and locals even have a nickname for the old Olympic Park, now a resort town: “Sochifornia.”

Hosting the World Cup has set Russia back an estimated $14 billion—again, a record amount for the competition. And like the Olympics, the Cup could produce some modest net economic benefits—in the short-term, at least—according to experts.

Back in April, tournament organizers predicted that, as a result of increased tourism and large-scale spending on infrastructure, the competition would add nearly $31 billion to Russia’s economy in the 10 years between 2013 and 2023. (FIFA selected Russia as the host nation in 2010.)

Russian airports such as Moscow Domodedovo Airport are among the biggest long-term beneficiaries of World Cup-related capital spending.
"Moscou" by OliBac Licensed under a Creative Commons Attribution 2.0 Generic (CC-BY2.0). https://flic.kr/p/ovkQad

Analysts with Moody’s Investors Service were slightly less upbeat, writing that they see “very limited economic impact at the national level.” Among the beneficiaries are food retailers, hotels, telecommunications firms and transportation, as “better public infrastructure will likely generate additional tax revenue and reduce capital spending needs for the hosting regions in the coming years.” But the greatest long-term beneficiary, Moody’s says, are Moscow-based international airports, since “upgraded facilities will support higher passenger flow, even after the event.”

Russia’s Recovery Gathering Pace

Besides its soccer prowess, Russia is defying expectations in other ways—and equity investors should be taking notice.

Having emerged last year from a two-year recession that was triggered by the collapse in oil prices and imposition of sanctions following its annexation of Crimea, the country is now in full-on recovery mode. In a note to investors last week, Capital Economics senior emerging markets economist William Jackson says that GDP growth in May picked up to more than 2 percent year-over-year, up from 1.3 percent in the first quarter. Most of the changes, according to Jackson, came in manufacturing, which he estimates to be growing by more than 5 percent year-over-year, compared with only 1 percent previously.

“This all supports the point we’ve been making for some time,” he writes, “that Russia’s recovery was likely to resume and gather pace this year.”

Once almost entirely reliant on oil exports, the government of the world’s leading oil producer has lowered the structure of exports from 70 percent energy in 2013 to 59 percent last year, according to the World Bank. Today, the budget is back in surplus, and government debt stands at a remarkable 33 percent of GDP, the lowest among G20 nations.

Key inflation is currently running at a record low of 2.4 percent year-over-year, well below the Central Bank of Russia’s (CBR) target of 4 percent. Food inflation, in particular, is near zero percent.

russian inflation is at a record low level below central banks target
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Unemployment continues to decline. In May it fell to 4.7 percent, a record low since the collapse of the Soviet Union in 1991.

unemployment in Russia fell to a record low in May
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Because of low inflation and a near-full employment jobs market, real wages are expanding healthily across all sectors. This is helping to drive stronger private consumption and investment. In May, retail sales grew 2.4 percent compared to the same month last year.

real wages in Russia are growing across all sectors
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Government Policy Supportive of Future Growth

The Russian government is currently enacting or considering policy that should help sustain the economy’s recovery. For one, it recently moved to raise the retirement age to reduce the cost to the state budget on an aging population, the Financial Times reports. (The median age in Russia is nearly 40, compared to around 30 for the entire world.) The pension age for men will increase from 60 years to 65 years in 2028, while for women it will increase from 55 years to 63 years in 2034.

The reform could help the government save an estimated $27.3 billion a year, according to a Russian think tank.

The government is also reportedly working on a plan to invest more in infrastructure and reduce “unnecessary regulation that is holding back private investment.” That’s according to Morgan Stanley’s Clemens Grafe, who adds that plans for “national projects” will be drawn up by October “that should help Russia to become one of the five largest economies in the world.”

Time to Consider Investing in Moscow?

Some might consider that fanciful thinking, but it doesn’t take away from the fact that Russia is an attractive place to invest right now, especially compared to the U.S. market.

Besides an economy in recovery, consider the following: Whereas the S&P 500 Index is up a little more than 13 percent for the 12-month period, the MOEX Russia Index has seen gains closer to 22 percent. That comes with an appealing 6.46 percent dividend yield, compared to 1.94 percent for U.S. stocks.

The price is right too. Russia trades at an inexpensive 6.39 times earnings, the U.S. at 21.08 times earnings, according to Bloomberg data.

Interested in learning more about emerging Europe? Watch this brief video featuring U.S. Global research analyst Joanna Sawicka as she describes her favorite three countries in this fast-growing region.

 

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

The S&P 500 is a stock market index that tracks the stocks of 500 large-cap U.S. companies. The MOEX Russia Index  is the main ruble-denominated benchmark of the Russian stock market.

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

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Are Trump's Steel and Aluminum Tariffs Good for America?
March 5, 2018

Gold and the ticking time bomb of debt

President Donald Trump’s proposed tariff on imported steel and aluminum, at 25 percent and 10 percent, is much more than a shot across the bow. Indeed, this could be the official kickoff of the trade war we all anticipated. The protectionist trade policy, announced last week as the president met with metals executives, raised fresh inflation worries and had an immediate impact on capital markets.

As expected, the winners were domestic steelmakers. AK Steel, the only manufacturer in North America that produces carbon, stainless and electrical steels, rose as much as 9.5 percent Thursday.

US steelmakers surged on Trump tariff news
click to enlarge

AK Steel CEO Roger Newport praised Trump’s decision, saying he fully supports “the actions he plans to take to stem the tide of unfairly traded steel imports that threaten the national security of our country.”

Newport wasn’t alone. Drew Wilcox, vice president of steel giant Nucor, called the tariffs “a clear message to foreign competitors that dumping steel products into our market will no longer be tolerated.”

Among the biggest losers from the news were automakers, which account for a little more than a quarter of steel demand in the U.S., according to the American Iron and Steel Institute (AISI). That makes the industry the second-largest consumer following construction. Ford, General Motors and Fiat Chrysler all fell more than 2 percent Thursday, and losses extended into Friday.

Get Ready for Higher Consumer Prices

Foreign trading partners could target American made goods such as bourbon after Trump imposes tariffs on steel and aluminum

To be clear, this is a huge deal, with serious inflationary implications. The U.S. is the world's largest steel importer, so it's very possible we could see retaliation from multiple trading partners on exports ranging from Florida orange juice to Kentucky bourbon to Wisconsin cheese. It's hard to imagine a scenario where this is not passed on to consumers.

Trump was reportedly advised to exempt select allies, but it appears he's chosen a no-exemptions option. Canada, the top supplier of steel and aluminum to the U.S., was spared in 2002 when former President George W. Bush imposed tariffs as high as 30 percent on steel.

When a country (USA) is losing many billions of dollars on trade with virtually every country it does business with, trade wars are good, and easy to win, President Trump tweeted Friday morning.

The country with which the U.S. has the biggest trade deficit is China. In 2017, the deficit stood at $375 billion, which accounts for about 65 percent of the total U.S. trade deficit. The tariff on steel and aluminum should have a negligible impact, however, as the U.S. imports a relatively small percent of those metals from China.

Gold Has Done Well in Times of High Inflation

As I’ve explained numerous times before, one of the most prudent ways investors have positioned their portfolios in times of rising inflation is by adding to their gold exposure.

The chart below, courtesy of the World Gold Council (WGC), shows that annual gold returns were around 15 percent on average in years when inflation was 3 percent or higher year-over-year, between 1970 and 2017. In real, or inflation-adjusted, terms, returns were closer to 8 percent. This is still higher, though, than average returns in years when inflation was lower.

Gold has historically rallied in periods of high inflation
click to enlarge

According to the WGC, "gold returns have outpaced the U.S. consumer price index (CPI) over the long run, due to its many sources of demand. Gold has not just preserved capital, it has helped it grow."

The most recent report from the Bureau of Labor Statistics (BLS) shows that consumer prices rose 2.1 percent year-over-year in January, but as I said earlier, real inflation could be grossly understated. 

My Journey Through the Blockchain and Cryptocurrencies

Gold and metals were definitely top of mind last week at BMO Capital Markets Global Metals & Mining Conference, held in sunny Hollywood, Florida. I had the pleasure to be on a panel at the four-day event, which was attended by more than 1,500 curious investors and advisors, representing approximately 500 different organizations from 35 countries.

The panel I was on focused on blockchain technology and cryptocurrencies, which are reshaping how transactions are made and how companies raise funds across the globe. Startups raised more than $1.5 billion in February, the third straight month for initial coin offerings (ICOs) to generate over $1 billion.

ICOs have raised more than 1 billion for past three months
click to enlarge

Last year, $6.5 billion was raised through ICOs, according to Token Report, and it looks as if that amount will be exceeded in just the first few months of 2018. As I wrote back in October, more and more companies are opting to raise funds through ICOs instead of going public to bypass many of the restrictive rules and costs associated with getting listed on an exchange. And unlike with private equity, smaller retail investors can participate, though I must stress that this is a very speculative trade.

The head of the Securities and Exchange Commission (SEC), Jay Clayton, strongly agrees with that last point. In December, he issued a statement explaining why he believes certain ICOs should fall under the jurisdiction of federal securities law and, as such, be filed beforehand.

Up until this point, the agency has taken few actions, but it appears it’s ready to start getting more aggressive against fraud. The Wall Street Journal reported last week that the SEC has issued “dozens” of subpoenas and information requests to cryptocurrency firms and advisors.

You might think this would hurt cryptocurrencies, but the prices of a number of them were up following the news. Bitcoin jumped nearly 6 percent on Thursday, as the token has often been seen as a "safe haven" in the cryptocurrency market.

HIVE Involved in Minting Virgin Coins

As many of you reading this know, U.S. Global Investors made a strategic investment in HIVE Blockchain Technologies in September, and as of today, it remains the only publicly-listed company that’s engaged in the mining of virgin tokens. HIVE and its partner Genesis Mining—the world’s largest cloud bitcoin mining company—are the leading miners and owners of Ether, the “crypto-fuel” for the Ethereum network. None of these assets has been used in any transaction, just as a newly-minted U.S. dollar, hot off the press, has never been used.

I continue to be optimistic about cryptocurrencies and see a very bright future for blockchain technology. The sentiment was similarly good among many of the attendees of last week's conference. It's only just the beginning.

For timely, expert commentary on metals and mining, gold, cryptocurrencies and more, subscribe to our award-winning Investor Alert by clicking here!

 

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

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

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

Holdings may change daily. Holdings are reported as of the most recent quarter-end. None of the securities mentioned in the article were held by any accounts managed by U.S. Global Investors as of 12/31/2017.

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Is American Energy on the Verge of a New Golden Age?
February 13, 2018

Oil rig

The U.S. has been a net importer of energy since 1953, but that’s set to change early next decade, according to the Energy Information Administration (EIA). In its highly anticipated Annual Energy Outlook 2018, the agency forecasts that the U.S. will become a net exporter of energy by as early as 2022, thanks in large part to the boom in shale oil and liquefied natural gas (LNG) production as well as the relaxation of export restrictions. A “golden age of American energy dominance,” as President Donald Trump described it back in June, could be upon us sooner than anticipated, putting the U.S. on a path to dethrone Saudi Arabia and Russia as the world’s top oil powerhouse.

US forecast to become a net exporter of energy by 2022
click to enlarge

The 40-year-old ban restricting U.S. oil exports was lifted in December 2015, and between then and October 2017, exports skyrocketed nearly 300 percent.

A US oil export boom 40 years in the making
click to enlarge

This has galvanized shale producers into doubling their efforts to meet growing demand. Earlier in the month, I told you the U.S. produced more than 10 million barrels of oil per day in November for the first time since 1970. And in the week ended February 9, the number of active North American oil rigs rose sharply from 765 to 791, the most in nearly three years.

North America Expected to Drive Global Growth

The EIA’s forecast is in line with those of independent analysts, who see the U.S., along with Canada, dominating global growth in well demand.

“North American shale activity is the primary mechanism driving growth globally,” writes energy consulting firm Rystad Energy in its January global well market outlook. The group adds that the number of wells “completed in North America increased 40 percent in 2017, and we expect 11 percent average annual growth toward 2020.”

North American shale activity expected to drive global well demand
click to enlarge

Sign of the Times: U.S. Import Terminal Preparing for First-Ever Exports

From Texas ports, the U.S. now exports crude to as many as 30 countries, seizing valuable market share from members of the Organization of Petroleum Exporting Countries (OPEC). Since November, China has become the largest consumer of U.S. crude other than Canada, according to Reuters. (Last year, in fact, China surpassed the U.S. to become the world’s largest overall importer of oil.) And in a surprising move that shows how the rise of American shale is reshaping the global market, the United Arab Emirates, a significant oil producer in its own right, purchased 700,000 barrels of oil from the U.S. in December, Bloomberg reports.

For the first time ever the Louisiana offshore oil port LOOP will export US crude

Now, for the first time ever, exports are set to be conducted from America’s only deepwater supertanker offloading terminal, the Louisiana Offshore Oil Port (LOOP). According to its website, LOOP has received more than 12 billion barrels of oil from foreign and domestic sources over the past three decades, but as an imports-only facility, it’s never been used to load an export cargo—until now.

If the trial run is successful, reports Bloomberg, “it will be a step change in America’s capacity to export the burgeoning production that’s roiled global oil markets.”

Oil Majors Reward Investors

All the extra oil supply might have some shareholders worried about lower prices and sinking profits, but for many major explorers and producers, profits have returned to the days when oil hovered above $100 a barrel. That’s the result, according to Bloomberg, “of CEOs’ focus on squeezing more from each dollar by stalling projects, renegotiating contracts and reducing the workforce.”

Big oil is generating as much profit as 60 dollars oil as it was at 100 dollars
click to enlarge

The opportunity for shareholders here lies in these companies maintaining or increasing their dividend payout while pledging share buybacks to offset shareholder dilution that occurred during the slump.

“The bosses of the world’s biggest oil companies are prioritizing investors over investments,” Bloomberg writes, “channeling the extra cash that comes from $60 crude into share buybacks and higher dividends.”

 

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

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

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 12/31/2017: Chevron Corp., Royal Dutch Shell PLC, Exxon Mobil Corp.

 

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Net Asset Value
as of 12/12/2018

Global Resources Fund PSPFX $4.59 0.03 Gold and Precious Metals Fund USERX $6.46 -0.01 World Precious Minerals Fund UNWPX $3.03 -0.02 China Region Fund USCOX $7.97 0.06 Emerging Europe Fund EUROX $6.18 -0.01 All American Equity Fund GBTFX $24.18 0.06 Holmes Macro Trends Fund MEGAX $18.17 0.13 Near-Term Tax Free Fund NEARX $2.19 No Change U.S. Government Securities Ultra-Short Bond Fund UGSDX $2.00 No Change