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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.

What Ballooning Corporate Debt Means for Investors
April 8, 2019

Frank Homles speaking at the Money Map Press Black Diamond Conference in Delray Beach Florida

Last week I was in Delray Beach, Florida, where I presented at Money Map Press’ Black Diamond Conference.

What I love about this event, and others like it, is that it gives investors a chance not only to hear from their favorite newsletter writers but also speak with them face-to-face on a wide range of topics, from metals and mining to bitcoin and cannabis, and so much more. Among the most sought-after presenters this year were early-stage tech investor Michael Robinson, who I interviewed last year; Money Map Chief Investment Strategist Keith Fitz-Gerald; and Sprott CEO Rick Rule.

In case you didn’t get the chance to attend, I’ll be sure to cover the highlights in the coming days.

Right now I want to share with you the latest from Metals Focus. The London-based commodities research group just released the 2019 edition of its widely-read Gold Focus report, and the big news is that global gold demand will climb to its highest level in four years. The uptick is expected to be driven by an increase in jewelry fabrication, with India, China and Italy leading consumption higher.

Global gold demand forecast to edge marginally higher in 2019
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Interest in gold jewelry has indeed improved in recent years, a phenomenon we’ve noticed with the success of such companies as Menē. Late last year, Google inquiries for “gold jewelry” hit an 11-year high.

But there’s more to the story than the Love Trade. Metals Focus analysts see gold also benefiting from a more dovish Federal Reserve and fears of a global economic slowdown.

“We expect U.S. real gross domestic product (GDP) to slow in 2019 and 2020,” comments Metals Focus Director Nikos Kavalis. “This reflects a natural tapering, following two very strong years, the fading of windfall gains from the late-2017 tax reforms and, eventually, also the impact of trade wars on U.S. consumer spending.”

Are We Headed for Another Recession?

Few people know the risks in today’s economy and marketplace as much as David Rosenberg, chief economist and strategist at Canadian wealth management firm Gluskin Sheff & Associates. For years he’s educated investors with his popular “Breakfast with Dave” newsletter, which you can subscribe to here. He’s also a regular contributor to the Globe and Mail and the Financial Post.

Considered by many to be a Wall Street permabear, Rosenberg successfully predicted the 2007-2008 financial crisis.

Now he’s predicting another recession to make landfall as soon as the second half of this year. Why? In short, the Fed has been too aggressive tightening liquidity at a time when corporate debt is at an all-time high. What’s more, the Trump administration has already enacted fiscal stimulus in the form of tax reform, which has historically been reserved for times of economic turmoil, not expansion.

“How are we going to stimulate fiscal policy [in the event of a recession]?” he asked recently on CNBC’s Trading Nation. “We already did that at the peak of the cycle. We don’t have the fiscal ammunition.”

Corporate Debt Nearing Half of U.S. GDP

Rosenberg recently spoke at the CFA Societies Texas Investor Summit in San Antonio, U.S. Global Investors’ hometown, where he laid out his thought process.

Since the last recession, nonfinancial corporate debt has ballooned to more than $9 trillion as of November 2018, which is nearly half of U.S. GDP. As you can see below, each recession going back to the mid-1980s coincided with elevated debt-to-GDP levels—most notably the 2007-2008 financial crisis, the 2000 dotcom bubble and the early 90s slowdown.

Non-financial corporate debt to GDP has exceeded record levels
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Through 2023, as much as $4.88 trillion of this debt is scheduled to mature. And because of higher rates, many companies are increasingly having difficulty making interest payments on their debt, which is growing faster than the U.S. economy, according to the Institute of International Finance (IIF).

On top of that, the very fastest-growing type of debt is riskier BBB-rated bonds—just one step up from “junk.” This is literally the junkiest corporate bond environment we’ve ever seen.

Combine this with tighter monetary policy, and it could be a recipe for trouble in the coming months.

During his presentation, Rosenberg reiterated the saying that business cycles don’t die of old age, but rather they’re killed by the Fed. Take a look at the chart below. It shows commercial and industrial loan delinquency rates, overlaid by fed fund rates shifted 10 quarters ahead. What it suggests is that roughly 10 quarters after the Fed began to tighten, loan delinquencies surged.

Corporate loan delinquencies have surged following rate hike cycles
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The good news is that it’s been more than 10 quarters since the Fed started lifting rates in December 2015, and so far we haven’t seen a noticeable increase in delinquencies.

Could this be because the rate hikes this cycle have been small relative to those in past cycles? Not likely, says Rosenberg. According to him, it’s not the amount that matters so much as the change. Whether rates go up 2.50 percent or only 0.25 percent, it can still be a shock on the financial system.

To be clear, I’m not predicting a recession any time soon, only passing along Rosenberg’s expert opinion.

But if his position makes sense to you, it might be time to consider your options on how to prepare. Rosenberg recommends overweighting fixed-income and REITs (real estate investment trusts).

I would add gold to that mix, as it’s performed well as a store of value during economic pullbacks. As always, I recommend a 10 percent weight in gold, with 5 percent in gold bars, coins and jewelry, and 5 percent in gold stocks, mutual funds and ETFs.

Concerned about Brexit? Read my thoughts on how it could impact gold prices by clicking here!

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

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

Investing in real estate securities involves risks including the potential loss of principal resulting from changes in property value, interest rates, taxes and changes in regulatory requirements.

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 12/31/2018: Menē Inc.

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7 Market-Moving Charts Investors Need to See
March 25, 2019

Stocks erased their weekly gains and bond yields fell on Friday as investors reacted to a number of economic developments. Chief among them were a Treasury yield curve inversion, the first since before the financial crisis, and continued slowdown in the pace of U.S. manufacturing expansion.

I had my eye on several other market-moving news items, some of which I share with you below.

1. Palladium in Overbought Territory

The price of palladium briefly topped $1,600 an ounce for the first time ever last week on a widening supply-demand imbalance. Markets sent the metal higher on news that Russia, the world’s number one producer of palladium, was set to ban the export of scrap metal, which would have the effect of squeezing global supply even further. This comes a week after car manufacturers signaled an increase in demand for palladium, which is used in the production of pollution-scrubbing catalytic converters.

As such, the palladium-to-gold ratio—or the measure of how many ounces of gold can be purchased with one ounce of palladium—is now at an historical high.

Palladium historically overbought relative to gold
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2. Nickel Also Performing Well on Supply Deficit Concerns

Palladium is the best performing metal so far in 2019, up nearly 27 percent. In second place is nickel, which is facing supply issues of its own. Global demand for nickel in 2019 is estimated at around 2.4 million metric tons, two thirds of which will be processed in stainless steel mills, mostly in China, according to Reuters.

Palladium is the best performing metal so far in 2019
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3. Markets Grapple With First Yield Inversion Since Before the Financial Crisis

The yield on the 10-year Treasury fell to a more-than-one-year low last week on a dovish Federal Reserve. Fed Chair Jerome Powell indicated that interest rates were likely to stay unchanged throughout 2019 as officials assess the impact of a potential global economic slowdown. “Just as strong global growth was a tailwind,” Powell said, “weaker global growth can be a headwind to our economy.”

10 year treasury yields dipped to a 15 month low after wednesdays fed meeting
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On Friday, the yield curve between the three-month and 10-year yield inverted, or turned negative, for the first time since before the financial crisis. Although past performance does not guarantee future results, it’s worth noting that such an inversion has preceded every U.S. recession over the last 60 years.

4. Traders Don’t See Rates Changing

Even before Wednesday’s Fed announcement, a surging number of futures traders were betting that rates would stay unchanged, or even be lowered, between now and the end of 2019. Three quarters of traders this month were positive that rates would stay pat in the 2.25 percent to 2.50 percent range, up sharply from 26 percent of traders 12 months earlier, according to the CME Group’s FedWatch Tool. The probability that rates will be hiked by the end of the year are now at 0 percent.

Traders betting interest rates will hold or be lowered by the end of the year
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5. Pace of Manufacturing Growth Continues to Slow

The preliminary U.S. purchasing manager’s index (PMI), released on Friday, shows manufacturing growth slowing to a 21-month low, from 53 in February to 52.5 in March. “Softer business activity growth reflected more subdued demand conditions in March, with new work rising at the weakest pace since April 2017,” the IHS Markit report reads.

US manufacturing expansion estimated to fall to a 21 month low in March
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6. A “Substantial” Amount of Tariffs

Markets also appear to be coming to terms with the realization that tariffs could be the norm for a lot longer than anticipated. Last week President Donald Trump said that the U.S. would keep trade barriers on China-made imports in place for a “substantial period of time”—even after a deal is eventually reached.

The U.S. currently has tariffs on approximately $265 billion worth of Chinese goods. This resulted in an eye-opening $2.7 billion tax increase on American businesses in November 2018 alone, according to Census Bureau data. Companies, as you might expect, have largely passed these extra costs on to consumers.

And then there’s lost export revenue and jobs to consider. According to a report this month by IHS Markit, tariffs are estimated to have a negative impact on the U.S. economy over the next 10 years. Ramifications include suppression of hundreds of thousands of American jobs, a dramatic reduction in consumers’ real spending power and a loss in gross output in a number of industries. 

Estimated loss in gross output bny industry due to tariffs
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7. Fed Decides the Government Shutdown Wasn’t as Bad as All That

The good news is that on Friday the Atlanta Fed revised up its estimate for real U.S. gross domestic product (GDP) growth in the first quarter. It now stands at 1.2 percent quarter-over-quarter, up from an anemic 0.4 percent on March 13.

Palladium historically overbought relative to gold
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The new estimate still trails the Blue Chip consensus of top U.S. business economists. But it appears that Fed policymakers have determined that the government shutdown between December 22 and January 25 didn’t impact the U.S. economy as negatively as previously thought.

For even more timely market commentary, subscribe to our award-winning Investor Alert!

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.

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The Retirement Crisis Is Much Worse Than You Think
March 20, 2019

Are you sitting down for this? According to a recent survey, one in five American adults have nothing saved for retirement or emergencies. A further 20 percent have squirreled away only 5 percent or less of their annual income to meet certain financial goals. Less than a third of all Americans have saved at least 11 percent or more.

One in five working Americans arent saving any money for retirement
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The survey, conducted by Bankrate in late February and early March, is just the latest indication that the U.S. faces a major retirement crisis. Every day, some 10,000 baby boomers turn 65, and they’re reaching retirement in worse financial shape than the previous generation for the first time since Harry Truman was president, according to a report by the Wall Street Journal.

The survey also raises the question of why some working-age adults haven’t been able to take full advantage of a booming U.S. economy and historic bull market to build wealth. Unemployment is near a 50-year low, and wage gains were at their highest level in a decade last month.

According to Bankrate, the number one reason (40 percent) why Americans aren’t saving is that they have too many other expenses. Sixteen percent said they “haven’t gotten around to it,” while the same percentage blamed the low quality of their job.

Indeed, not every employer provides access to a retirement plan such as a 401(k). A recent study by the National Institute on Retirement Security (NIRS) found that a little over half of working American adults have access to an employer-sponsored 401(k)-type plan. Only 40 percent actually participate.

As such, the median retirement account balance among all working-age Americans is—again, are you sitting down?—$0.00. That’s the median balance, remember, so half of all Americans have more than that. The other half, meanwhile, have even less than $0.00 to their name.

A Record $4 Trillion in Consumer Debt

That brings me to my next point. Interestingly, only 13 percent of those surveyed by Bankrate cited debt as the reason why they’re not saving as much as they should. I say “interesting” because total U.S. consumer debt, including revolving and non-revolving debt, now stands at more than $4 trillion, the most ever.

gold mining stocks still greatly undervalued relative to the market
click to enlarge

Debt affects us all, but it can seriously hinder workers’ ability to retire on time. The more you’re on the hook to pay lenders, the less you have to pay yourself.

Revolving debt, such as credit card debt, is now valued at more than $1 trillion, which exceeds the all-time high right before the financial crisis. And according to the Federal Reserve Bank of New York, people age 60 and older owe about a third of this total.

Non-revolving debt—auto loans, student loans, mortgages—is even worse. Student loan debt alone stands at an astronomical $1.5 trillion. It doesn’t help that, since the 1980s, the cost of college tuition has increased almost eight times faster than wages.

But if you think this burden belongs only to young people, you’re sorely mistaken. As many as 2.8 million Americans over the age of 60 are saddled with student debt, according to CNBC. Those over 50 owed more than $260 billion last year, up dramatically from $46 billion in 2006.

Confidence Lacking in Retirement Preparedness

All combined, it’s little wonder that a significant number of Americans feel some anxiety when it comes to their financial stability and retirement preparedness, despite a strong U.S. economy. A CFP Board survey conducted on Election Day 2018 found that less than a quarter of voting-age Americans were “completely confident” about their ability to navigate through economic ups and downs. Even less, 22 percent, felt the same about their ability to retire on time.

Large percentage of voting Americans lack financial confidence
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So what’s the solution?

Fund Your Financial Goals Affordably

I’ve heard from a number of people over the age of 50 who say they worry they haven’t adequately prepared for retirement, and yet are at a loss as to where to start. They want to build wealth fast but might have second thoughts about investing in the market.

I want to reassure those people that they need not put a significant amount in the market all at once, which for most people is impractical and risky. The truth is that they have options. One of the best, I think, is dollar cost averaging, which allows investors to fund their financial goals affordably.

In short, dollar cost averaging is an investing technique that lets investors add to an initial investment incrementally over time, usually once a month. That way, investors don’t break the bank, and as an added bonus, they don’t need to worry about market timing.

It’s a technique that has worked well for investors in the past. Take a look at the chart below. It shows a hypothetical initial investment of $1,000 in an S&P 500 Index in March 2009. Ten years later, after regular monthly contributions of only $100, the value of that initial investment grew at an annualized 12.96 percent to more than $26,385.  

The power of dollar cost averaging
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This is just an illustration. The past 10 years have been an exceptionally profitable time to invest, and there’s no guarantee that the good times will last.

Also, $26,000 won’t sustain anyone through retirement, but remember, we were using only a hypothetical $1,000. All else being equal, an initial investment of $10,000 in March 2009 would today be worth more than $64,766, for an impressive annualized return of 14.81 percent.

Sound enticing? The good news is that U.S. Global Investors provides investors the opportunity to invest with dollar cost averaging! We call it the ABC Investment Plan, and I’m very proud to give investors this option. Investment minimums are just $1,000 initially and then $100 a month. With the ABC Investment Plan, you get to choose the day of the month your investment is transferred from your checking or savings account to your investment account.

That way, some of the worry is eliminated from your retirement preparations or other financial goals.

Interested in the ABC Investment Plan? Get started today! Download the application by clicking here!

 

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.

You cannot invest directly in an index.

A program of regular investing doesn’t assure a profit or protect against loss in a declining market. You should evaluate your ability to continue in such a program in view of the possibility that you may have to redeem fund shares in periods of declining share prices as well as in periods of rising prices.

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

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Don't Be Fooled by the Politics of Envy
March 11, 2019

AI Will Add $15 Trillion to the Global Economy by 2030

Here at U.S. Global Investors, we’re politically agnostic. We believe there’s money to be made no matter which party is calling the shots. That’s why we focus on government policy instead of partisan politics.

Having said that, I think most of you would agree that there’s lately been a change in some American voters’ appetite for socialist-leaning policies.

the rise of millennial socialism

Need proof? A Gallup poll from August of last year found that, for the first time in modern memory, Americans aged 18 to 29 are more positive about socialism than they are about capitalism. Fifty-one percent preferred the former compared to 45 percent for the latter.

I don’t need to remind you that socialist policies are naturally anti-business and anti-private property, and they create all sorts of friction in the formation of new capital. A “threat to U.S. equity valuations is emerging in the form of left-wing populism in America,” writes Christopher Wood in his widely read GREED & fear newsletter.

Again, we believe extremism at either end can raise huge obstacles for business and investors. The difference, though, is that hard-left legislation seeks to punish wealth and prosperity through politics of envy. Amazon, one of the world’s most valuable companies, was driven out of New York as if it were the plague. The online retail company came under additional fire last week when Massachusetts senator Elizabeth Warren said she would break up giant tech firms if she were elected president.

At their worst, socialist policies can destroy entire economies. Just look at Venezuela. It’s hard to believe now that the beleaguered country was once the wealthiest in South America.

“There is the dark side of it,” Canadian psychologist Jordan Peterson once said of socialism, “which means everyone who has more than you got it by stealing it from you… ‘Everyone who has more than me got it in a manner that was corrupt, and that justifies not only my envy but my actions to level the field,’ so to speak... There is a tremendous philosophy of resentment that I think is driven now by a very pathological anti-human ethos.”

Still Strong Pushback Against Socialism in the U.S.

“America will never be a socialist country,” President Donald Trump proclaimed during last month’s State of the Union address. The remark appeared to have been directed squarely at the raft of newly elected lawmakers who seem to be cut from the same cloth as “democratic socialist” Bernie Sanders.
The 77-year-old Vermont senator, by the way, just announced that he would be seeking the White House for a second time—and raised a whopping $6 million within the first 24 hours.

Despite his success in 2016, Sanders’ candidacy might be a hard sell for most Americans this year, as a recent NBC News/Wall Street Journal Survey showed that a majority of voters wouldn’t be too keen on having a socialist president or one who was over the age of 75. Close to three quarters of respondents either had “total reservations” or were “very uncomfortable” about the idea of voting for someone who self-identified as a socialist, as Sanders does. 

a socialist or someone over 75 are least desirable for a presidential candidate
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At the same time, Sanders’ highly publicized bid for the White House during the last cycle appears to have galvanized some lawmakers and encouraged them to creep even further left. The Green New Deal (GND) is one such example.

The $93 Trillion Green New Deal

The GND resolution, if passed and signed into law, would radically transform day-to-day life here in the U.S. Reforms include “zero-emission” transportation, universal health care, guaranteed jobs and guaranteed “green” housing.

the rise of millennial socialism
Photo: Dimitri Rodriguez /flickr | Creative Commons Attribution 2.0 Generic (CC by 2.0)

These goodies might sound appealing to some, but they won’t come cheap. Universal health care alone would cost the U.S. government as much as $36 trillion between 2020 and 2029, according to calculations made by the American Action Forum (AAF). That amounts to $260,000 per household.
And the price tag for the entire package? An unfathomable, eye-watering $93 trillion.

Many of you are no doubt aware that the GND is co-sponsored by Alexandria Ocasio-Cortez, the 29-year-old freshman representative from New York’s 14th district who was among the most vocal critics of Amazon moving into her neighborhood.

Like Sanders, she identifies as a democratic socialist.

As some people have pointed out, “AOC,” as she’s often called, has no financial licenses or MBA. She’s not a fiduciary. And yet if she and other socialist-minded lawmakers get their way, the American taxpayer could be saddled with the single largest spending package the world has ever seen.

Further, did you know that AOC recently won a seat on the powerful House Financial Services Committee? The committee, chaired by Representative from California Maxine Waters, has oversight over all things Wall Street—from banks to insurance, from money to credit, from securities to exchanges.

Private Equity Has Grown Twice as Fast as Public Markets

According to the AAF, the regulatory cost of the GND would be at least $1 trillion. And that’s on top of the trillions that already-in-place rules and regulations sap from American companies every year.

It’s little wonder, then, that more and more companies are choosing not to list on public markets. I’ve written about this a number of times before. Simply put, tougher and costlier regulations have largely contributed to the boom in private equity (PE)—not just in the U.S. but across the globe. According to a recent McKinsey report, private markets have grown 7.5 times so far this century, or twice as fast as public market capitalization.

Global private equity value has dramatically outpaced that of public markets
click to enlarge

Here in the U.S. and Canada, the number of companies that publicly listed rose to an 11-year high in 2018, thanks to more business-friendly policies. The initial public offering (IPO) market looks as if it might do just as well this year, if not better, with huge tech unicorns such as Uber, Lyft, Airbnb and Pinterest expected to list.

number of initial public offerings (IPOs) was highest since 2007 last year
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But the overall trend has been down, and that’s really hurt small investors who don’t generally have access to private equity. 

Is Gold the Solution?

10% golden rule

All of this is ample reason to ensure that you have some gold in your portfolio. I always advocate the 10 percent Golden Rule. That means I think you should have half of that 10 percent in gold coins, bars and 24-karat jewelry. The other half should be in high-quality gold mining stocks and funds. Make sure you rebalance at least once a year.

One of the biggest proponents of gold is the Austrian school of economics, which emphasizes self-reliance and individualism. Because fiat currencies are solely based on the faith and credit of the economy, they have no intrinsic value and are prone to huge swings, according to Austrian economic thought.

Gold, on the other hand, is nobody’s liability. As destructive as socialist policies can be to business and capital, they can’t reduce the value of your gold. In fact, the inverse is true. Historically, the more debt that the government accrues, and the higher inflation gets, the more valuable the yellow metal has become.

Did you miss it? Last week I spoke with Small Cap Power’s Jim Gordan on a range of topics, from newcomer GoldSpot Discoveries to the U.S.-China trade war. Watch it now by clicking here!

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

Holdings may change daily. Holdings are reported as of the most recent quarter-end. None of the securities mentioned in the article were held by any accounts managed by U.S. Global Investors as of 12/31/2018.

Frank Holmes was appointed chairman of the Board of Directors of GoldSpot Discoveries. Both Mr. Holmes and U.S. Global Investors own shares of GoldSpot.

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Can the Bull Market Run for Another 10 Years?
March 6, 2019

Would You Do This to Pay Zero Income Taxes for Life?

The current stock bull market, already the longest in U.S. history, turns 10 years old this month. It’s been a phenomenally profitable time to participate, especially if you’ve stuck to an investment strategy that favors dividend-paying stocks.

As you can see in the chart below, the amount of cash that S&P 500 Index companies have returned to shareholders has grown each year since 2009. In the final three months of 2018 alone, S&P companies paid out $119.8 billion, a quarterly record. Total dividends for the full year stood at $456.3 billion, up 9 percent from the previous year—another new record.

Stock buybacks topped capital expenditures for first time since 2008
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Thanks to corporate tax reform, stock buybacks also shot up to an all-time high of more than $800 billion in 2018. For the first time since 2008, this amount topped what S&P companies spent to replace or upgrade offices and equipment.

While I’m on this topic, a lot of noise has been made lately about how much companies spent last year repurchasing shares of their own stock. Many critics of President Donald Trump’s tax overhaul suggest that buybacks have been made at the expense of investing and giving workers raises. This is misleading to say the least. Capital expenditures grew substantially from 2017 to 2018—at their fastest pace since 2011, in fact—and often, the same companies that were buying back their stock also increased their investments in their own business and workers.

Moving on…

Buffett Says He’d Buy the S&P Today

For a while now, some financial analysts and pundits have been predicting the end of the business cycle, and the bull market’s 10-year anniversary is only likely to intensify those calls.

The truth is that business cycles do not die from old age alone. In the past, they’ve unraveled as a result of economic shocks, debt crises, wars, changes in monetary policy—but never simply because investors believed they overstayed their welcome.

In other words, I don’t think there’s any reason why this bull run can’t last another 10 years.

Legendary investor Warren Buffett told CNBC just last week that he thinks the aging bull still looks attractive, and if given the choice right now between investing in S&P 500 Index companies and a 10-year bond, he’d go with the former.

“If I had a choice today for a 10-year purchase of a 10-year bond… or buying the S&P 500 and holding it for 10 years, I’d buy the S&P in a second,” Buffett said.

A couple of caveats here: One, you can’t invest directly in an index. And two, Buffett is a billionaire many times over, and so his threshold for risk, even at 88 years old, is probably somewhere in the upper stratosphere.

Be that as it may, there’s research available to support Buffett’s rosy 10-year outlook. Below is a brief excerpt from Oxford Club Chief Income Strategist Marc Lichtenfeld’s 2012 bestseller “Get Rich With Dividends”:

Investing in the stock market works. Since 1937, if you invested in the broad market index, you made money in 69 out of 76 rolling 10-year periods, for a 91 percent win rate. That includes reinvesting dividends.

Past performance does not guarantee future results.

A 91 percent win rate. Put another way, it’s historically been very rare for a portfolio of S&P stocks not to have generated positive returns on a rolling 10-year basis.

10-Year Rolling Returns
S&P 500 Total Return Index
2018 259.63% 2008 -13.09%
2017 122.59% 2007 79.48%
2016 95.72% 2006 122.45%
2015 100.16% 2005 140.55%
2014 110.06% 2004 210.94%
2013 104.53% 2003 176.88%
2012 92.78% 2002 149.02%
2011 31.74% 2001 260.37%
2010 12.48% 2000 404.60%
2009 -7.03% 1999 422.84%
Past performance deos not guarantee future results. Source: DQYDJ.com, U.S. Global Investors

According to Marc, only two out of the past 20 years—2008 and 2009—were losers for the 10-year period with dividends reinvested, thanks to the financial crisis. And that’s only if you had cashed out at the worst possible time. Even the tech bubble of the late 1990s and early 2000s wasn’t enough to prevent most investors from losing their principal investments made a decade earlier.

What does all of this mean? It means investors have historically been rewarded when they’ve taken a longer-term outlook and stayed disciplined—and, I might add, focused on companies that were raising their dividends and then reinvested those dividends.

Expecting a Recession? It Might Pay to Stay Invested

If you believe that a recession or bear market will strike later this year or next, it still might not be time to get out of stocks altogether. That’s because returns have tended to be strongest 12 months or so before the start of a recession, as opposed to two or three years before.

Take a look at the chart below. Based on Morningstar data compiled by Wells Fargo, average returns for large-cap stocks have been highest at almost 25 percent for investors who sold 12 months before an economic downturn. Small-cap stock returns have been even higher at 36.4 percent. In both cases, profits have been much smaller for investors who got out two or three years prior to a recession. As I’ve noted already, past performance is no guarantee of future results.

Some of the best returns have come before a bear market
click to enlarge

Also note the returns for intermediate-term government bonds. As you might expect, they were much smaller than those of large-cap or small-cap stocks, no matter when you cashed out. But don’t let that deter you. There’s a place in most people’s portfolios for fixed income, as it can help counter potential equity volatility that has tended to arise late in the business cycle.

Active Management Late in the Cycle

Ten years is a long time, but again, I don’t necessarily think investors should rotate completely out of stocks just yet. I do, however, believe that if you’re going to stay invested, you might want to consider an actively managed fund. Passive ETFs are inexpensive and can give you broad exposure to the U.S. market, but they’re generally not as nimble as a fund managed by an investment professional.

And nimbleness is what you should be seeking if you’re worried about a downturn. Most ETFs rebalance on a quarterly or sometimes monthly basis. That’s perfectly fine for many investors, but if you’re interested in a fund that can respond more quickly to unexpected market hiccups or rallies, an actively managed mutual fund might be a better fit.   

I believe our All American Equity Fund (GBTFX) is an excellent way to stay invested in domestic stocks. The fund uses a number of factors to select companies that we believe have not just the biggest market caps but the potential for superior growth, profitability and quality relative to other companies in the same industry.

GBTFX emphasizes companies that have a history of growing dividends and announced stock repurchase programs. Its management team has over 60 combined years’ worth of experience in the capital markets.

Interested in learning more about the All American Equity Fund (GBTFX)? Watch our brief intro video by clicking here!

 

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

Past performance does not guarantee future results.

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

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

The S&P 500 index is a basket of 500 of the largest U.S. stocks, weighted by market capitalization. The index is widely considered to be the best indicator of how large U.S. stocks are performing on a day-to-day basis. The Total Return Index calculates the results when cash payouts are automatically reinvested. The S&P Municipal Bond Intermediate Index consists of bonds in the S&P Municipal Bond Index with a minimum maturity of 3 years and a maximum maturity of 15 years. The Dow Jones U.S. Large-Cap Total Stock Market Index is a subset of the Dow Jones U.S. Total Stock Market Index, which measures all U.S. equity securities with readily available prices. The index represents the largest 750stocks and is float-adjusted market cap weighted. The Dow Jones U.S. Small-Cap Total Stock Market Index is a subset of the Dow Jones U.S. Total Stock Market Index, which measures all U.S. equity securities with readily available prices. The index represents the stocks ranked 751-2,500 by full market capitalization and is float-adjusted market cap weighted.

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.

Share “Can the Bull Market Run for Another 10 Years?”

Net Asset Value
as of 04/18/2019

Global Resources Fund PSPFX $4.63 -0.01 Gold and Precious Metals Fund USERX $6.79 -0.10 World Precious Minerals Fund UNWPX $2.60 -0.05 China Region Fund USCOX $9.22 0.02 Emerging Europe Fund EUROX $6.78 -0.02 All American Equity Fund GBTFX $24.85 -0.04 Holmes Macro Trends Fund MEGAX $17.59 0.02 Near-Term Tax Free Fund NEARX $2.21 0.01 U.S. Government Securities Ultra-Short Bond Fund UGSDX $2.00 No Change