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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.

Are ICOs Replacing IPOs?
October 23, 2017

Last week I was in Barcelona speaking at the LBMA/LPPM Precious Metals Conference, which was attended by approximately 700 metals and mining firms from all over the globe. I found the event energizing and stimulating, full of contrary views on topics ranging from macroeconomics to physical investment markets to cryptocurrencies.

My keynote address focused on quant investing in gold mining and the booming initial coin offering (ICO) market. I’m thrilled to share with you that the presentation was voted the best, for which I was awarded an ounce of gold. I want to thank the London Bullion Market Association, its members and conference attendees for this honor.

Speaking of gold and cryptocurrencies, the LBMA conducted several interesting polls on which of the two assets would benefit the most in certain scenarios. In one such poll, attendees overwhelmingly said the gold price would skyrocket in the event of a conflict involving nuclear weapons. Bitcoin, meanwhile, would plummet, according to participants—which makes some sense. As I pointed out before, trading bitcoin and other cryptos is dependent on electricity and WiFi, both of which could easily be knocked out by a nuclear strike. Gold, however, would still be available to convert into cash.

It’s a horrific thought, but the poll results show that the investment case for gold as a store of value remains favorable. Goldman Sachs echoed the idea last week, writing in a note to investors that “precious metals remain a relevant asset class in modern portfolios, despite their lack of yield.” The investment bank added that precious metals “are still the best long-term store of value out of the known elements.”

Metcalfe’s Law Suggests Crypto Prices Could Keep Rising

This isn’t meant to knock bitcoin and other virtual currencies. Because they’re decentralized and therefore less prone to manipulation by governments and banks—unlike paper money and even gold—I think they could also have a place in portfolios.

Even those who criticize cryptocurrencies the loudest seem to agree. JPMorgan Chase CEO Jaime Dimon, if you remember, called bitcoin “stupid” and a “fraud,” and yet his firm is a member of the pro-blockchain Enterprise Ethereum Alliance (EEA). Russian president Vladimir Putin publicly said cryptocurrencies had “serious risks,” and yet he just called for the development of a new digital currency, the “cryptoruble,” which will be used as legal tender throughout the federation.

Follow the money.

Metcalfe’s law states that the bigger the network of users, the greater that network’s value becomes. Robert Metcalfe, distinguished electrical engineer, was speaking specifically about Ethernet, but it also applies to cryptos. Bitcoin might look like a bubble on a simple price chart, but when we place it on a logarithmic scale, we see that a peak has not been reached yet.

Bitcoin still has room to run
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Bitcoin adoption could multiply the more people become aware of how much of their wealth is controlled by governments and the big banks. This was among the hallway chatter I overheard at the Precious Metals Conference, with one person commenting that what’s said in private during International Monetary Fund (IMF) meetings is far more important than what’s said officially.

I have a similar view of the G20, whose mission was once to keep global trade strong. Since at least 2008, though, the G20 has been all about synchronized taxation to grow not the economy but the role government plays in our lives. Trading virtual currencies is one significant way to get around that.

The Incredible Shrinking IPO Market

Just as water takes the path of least resistance, money flows where it’s respected most.

You need only look at the mountain of cash U.S. multinationals have stashed overseas, currently standing at an estimated $2.6 trillion. The steep 39 percent U.S. corporate tax rate—the highest among any country in the Organization for Economic Cooperation and Development (OECD)— discourages companies from bringing their profits back home and reinvesting them in new equipment and employees.

Of course, taxes aren’t the only type of friction money can run up against. More and more stringent financial rules and regulations have been one of the top destroyers of capital and business growth over the past 20 to 30 years. The Sarbanes-Oxley Act, signed in 2002, is widely blamed for limiting the number of initial public offerings (IPOs) that occur in the U.S. The legislation has made it prohibitively expensive for many smaller firms to get listed on an exchange. Between 1996 and 2016, the number of investable U.S. companies was cut in half, falling from 7,322 to 3,671.

Number of listed US companies continues to drop
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This has ultimately hurt everyday retail investors who not only have fewer stocks to invest in now but also lack access to many of the same potentially profitable opportunities enjoyed by angel investors, venture capitalists and other institutional investors. Private equity and venture capital can be much higher-yielding investments than common asset classes such as Treasuries and equities, but for the most part, only accredited investors can participate.

Bracing for MiFID

IPOs could be squeezed even further after the implementation of the European Union’s (EU) revised Markets in Financial Instruments Directive (MiFID), set to go into full effect January 3. The directive, initially passed in response to the financial crisis, acts as a sweeping reformation of existing trading rules that affect everything from stocks to bonds to commodities. All 28 EU nations must have laws in place to comply with MiFID by the January deadline—or face litigation and fines.

With less than two months left on the clock, 17 countries, including Spain, Portugal and the Netherlands, are still scrambling to convert MiFID into national law, according to Bloomberg. This is creating all sorts of financial uncertainty for banks, insurers and money managers on both sides of the Atlantic.

Half of the EU still scrambling to meet the January 3rd MiFID compliance deadline
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One rule in particular could threaten U.S. IPOs. It states that, to be more transparent, banks must now “unbundle” the costs of investment research from that of executing trades, a practice that’s been routine for decades. To produce stand-alone research, banks must register as investment advisers, a costly process that might prompt some firms to avoid it altogether. This would limit investors’ exposure to only the largest companies and, in turn, discourage smaller U.S. firms from pursuing an IPO, according to Cowen & Co. analysis and reported by Bloomberg.

MiFID is just the latest in a long string of regulations that, while conceived with good intentions, carry unintended consequences. It’s doubly unfortunate that an EU rule could so impact U.S. companies’ ability to gain the publicity necessary to go public.

But hasn’t this been the trend for years now? In many ways, doing business in the EU has only gotten more challenging, and bureaucrats seem determined to take punitive steps against successful American firms.
Look at how Facebook, Google and other large tech companies have been treated in Europe. Back in June, the search giant was slapped with a record $2.8 billion antitrust fine and has since been strongarmed into changing its online shopping service.

A restrictive regulatory backdrop is largely responsible for this. Because rules are so tight, European companies have a hard time innovating and staying competitive. So instead of building its own Facebook or Google, the EU’s only other recourse is to take a protectionist approach and wrap the 28-member bloc in more and more red tape.     

For Many Startups, ICOs Are a Solution

I believe this is part of the reason why we’re seeing such a massive surge in ICOs, which, at the moment, are nearly unregulated in the U.S. and Europe. In an effort to bypass the rules and costs associated with getting listed on an exchange, many startups now are opting to raise funds by issuing their own digital currency based on blockchain technology. And unlike with private equity, smaller retail investors can participate.

Again, money flows where it’s respected most.

Bitcoin and Ethereum are the best known cryptocurrencies, but there are more than 1,000 being traded around the world, with a combined market cap of around $150 billion, according to Bank of America Merrill Lynch (BoAML).

As of this month, IPOs have raised over $3 billion in 2017, more than seven times the amount generated in all years prior to 2017 and far surpassing expectations of around $1.7 billion for the year.

ICO market has raised more than 3 million so far in 2017
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To give you some perspective, the U.S. IPO market raised $4.1 billion from 29 deals in the September quarter alone, according to Renaissance Capital. Although this dwarfs the ICO market in dollar terms, both the number of IPOs and the amount raised are significantly lower than the same quarter in 2014, which saw an impressive $37.6 billion raised from 60 deals.

As long as the barriers to getting listed remain high, I expect we’ll see this trend of fewer IPOs and more ICOs continue.  

Bitcoin Now Bigger than Goldman Sachs

Not all cryptocurrencies will survive, obviously, and we’ll likely see huge transformations in the space before clear leaders pull away from the pack. Remember, no one knew in 1997 which internet companies would eventually dominant  the others.

But for now, it’s an exciting time for an asset class that didn’t even exist 10 years ago. Trading above $6,000 for the first time last week, bitcoin reached a market cap of $96.7 billion. Amazingly, that’s more than Goldman Sachs’ market caps of $92.9 billion.    

Cryptocurrencies off their 2017 highs
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It’s important for investors to know that cryptos do face potential regulation risk. What kind of risk, though, is currently up in the air as U.S. regulators debate whether digital currency is a security or commodity. One would place it within the jurisdiction of the Securities and Exchange Commission (SEC), the other within the jurisdiction of the Commodity Futures Trading Commission (CFTC). Unsurprisingly, both agencies see cryptos as their own.

Last week also highlighted a new risk in the fledgling market. Tezos, the firm behind what was at the time the largest ICO in history, revealed a significant slowdown in the progress of its virtual coin, the “tezzie.” Back in July, Tezos made headlines for raising a then-unprecedented $232 million. But today, the group, headed by a husband-and-wife duo, is faced with a number of setbacks including a lack of developers and a highly-publicized management dispute.

According to the Wall Street Journal’s Paul Vigna, this has “put trading of Tezos tokens held by investors in limbo while also putting some of the technology on hold as well.”

Diwali Fails to Light Up Gold

U.S. Global Investors wishes our friendss & followers a Happy Diwali filled with light and prosperity

Turning to gold, the yellow metal made healthy gains the week before last, climbing more than 2.3 percent as we headed closer to the first day of Diwali. As I’ve explained numerous times before, it’s considered auspicious to give gifts of gold bullion and jewelry during the Hindu Festival of Lights, and in years past we’ve seen some price appreciation in the days and weeks leading up to the celebration.

Last week, though, the gold price fell below $1,300 an ounce as stocks continued their record-setting bull run.

But as the LBMA poll shows, it’s prudent to have some gold in your portfolio, as it’s negatively correlated with other assets. As always, I recommend a 10 percent weighting, with 5 percent in physical gold and 5 percent in gold stocks, and remember rebalance every year.

 

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 9/30/2017.

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

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

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

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

Lessons from Hurricane Katrina

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

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

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

Texas and Florida Have Investment-Grade Credit Ratings

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

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

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

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

Munis an Important Part of Your Portfolio

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

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

 

 

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

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

 

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

Hurricane Harvey named a 1000 year flood event

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

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

$503 Billion

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

Hurricane Harvey

1-in-1,000 Years

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

Hurricane Harvey named a 1000 year flood event

$190 Billion

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

500,000 Cars and Trucks

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

24%

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

600,000 Barrels a Day

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

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

$2.50 a Gallon

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

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

54 Million Passengers

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

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

The Kindness of Strangers

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

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

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

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

 

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

Holdings may change daily. Holdings are reported as of the most recent quarter-end. The following securities mentioned in the article were held by one or more accounts managed by U.S. Global Investors as of 6/30/2017: American Airlines Group Inc., Delta Air Lines Inc., United Continental Holdings Inc., Southwest Airlines Co., JetBlue Airways Corp.

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Got a Bully Problem? Send in a Tough Guy
August 30, 2017

donald trump you're fired

Here’s a news flash for you: Donald Trump is controversial and caustic. He says exactly what’s on his mind, no matter how incendiary, and he’s not afraid to make enemies, even with members of his party. “Bully” is a phrase many people use to describe the 45th U.S. president.

The thing is, no one who voted for Trump—I think it’s safe to say—didn’t already know this about him. His being a bully is baked right into his DNA, and he expertly honed this persona during his stint as the tough-as-nails host of NBC’s The Apprentice.

Remember when Trump received flak a few weeks back for retweeting a gif of himself body-slamming “CNN”? The clip actually came from WrestleMania 23 in 2007, when the future president defeated World Wrestling Entertainment (WWE) CEO Vince McMahon—and consequently got to shave his head—in a fight billed as the “Battle of the Billionaires.” Trump’s bombastic style and rough edges were so aligned with the smack-talking world of professional wrestling that he was inducted into the WWE Hall of Fame in 2013.

That’s who Trump is. He’s a tough guy. But I’m convinced that’s why he was elected—to stand up to even bigger bullies.

donald trump you're fired

Standing Up to the Beltway Party

Right now those bullies include members of the beltway party, sometimes referred to as “the deep state”—career bureaucrats, lobbyists, regulators and other officials who make it their mission to oppose any Washington outsider who threatens to shake up the status quo.

The beltway party isn’t a new phenomenon, of course. For the past 50 years, the number of government workers relative to the entire U.S. workforce has remained virtually the same. Meanwhile, the percentage of Americans employed in manufacturing has steadily plummeted.

government workers make up greater percentage of U.S. workforce than manufacturing
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Think about it: We have fewer people in this country who innovate and build things than people who enforce the laws that often prevent manufacturers from innovating and building at their fullest potential. What hope do they have?

When you have a bully problem, you don’t send in a Boy Scout. That’s what we learned with Jimmy Carter, whose presidency Trump’s administration so far resembles in an interesting way, according to former Federal Reserve chair Ben Bernanke. Carter and Trump, both outsiders, were sent to Washington to “drain the swamp” of the beltway party. We all know unsuccessful Carter was, but that’s likely because he was simply too nice and “decent” for the White House.

I don’t think anyone would ever accuse President Trump of being too nice and decent, but I also don’t think decency is what we need right now. Decency won’t motivate Congress to pass tax reform. Decency won’t roll back strangulating regulations.

 

Unlike Carter, Trump is a disruptor. He’s disrupting government just as Sam Walton, Jeff Bezos and Elon Musk disrupted the marketplace with Walmart, Amazon and Tesla. These entrepreneurs and businesses were initially criticized for shaking up the status quo and setting new precedents. Similarly, Trump gets harshly maligned, and for the very same reasons.

A Battle Brewing over Financial Regulations to EPA Finding Ways to Stop Infrastructure Spending

Most everyone is aware of the fight that took place this past weekend between now-retired Floyd Mayweather and UFC Lightweight Champion Conor McGregor. Although official pay-per-view data hasn’t been released yet, the number of people who paid the $100 to tune in is expected to exceed the roughly 4.6 million who bought access to watch the Mayweather-Manny Pacquiao fight in 2015. This year, Mayweather’s purse was a guaranteed $100 million but will likely be northwards of $200 million. When all is said and done, McGregor’s payday is estimated to be about half that, according to ESPN.

It wasn’t called “the Money Fight” for nothing.

But over the weekend, a “money fight” of a different kind took place, with the first volley fired in Jackson Hole, Wyoming, where the annual economic symposium of central bankers was held. In what could be her last speech as chair of the Federal Reserve, Janet Yellen defended the efficacy of financial regulations that were enacted following the subprime mortgage crisis nearly 10 years ago.

Because of the reforms, Yellen said, “credit is available on goods terms, and lending has advanced broadly in line with economic activity in recent years, contributing to today’s strong economy.” Banks are “safer” today, she insisted.

Never mind that her conclusions here are questionable at best. Post-crisis reforms such as 2010’s Dodd-Frank Act have actually led to a large number of community banks drying up, giving borrowers, especially in rural areas, fewer options. Because of added compliance costs, many banks have done away with free checking, which disproportionately affects lower-income customers.

Leaving all that aside for now, Yellen’s intent was crystal clear. She made it known to President Trump that, should he re-nominate her to head the Fed when her term ends in February, she will do what she can to protect post-crisis regulations.

Trump, of course, has another point of view. He’s promised to do a “big number” on Dodd-Frank, which he claims has prevented “business friends” from getting loans.

So far he’s been true to his word. In April, he signed an executive order issuing a review of Dodd-Frank. Many of his top-level appointments to the Federal Deposit Insurance Corporation (FDIC), the U.S. Securities and Exchange Commission (SEC) and other such federal agencies have come from a pool of people the big banks feel comfortable with. And his Cabinet is well-stocked with former investment bankers, most notably Steven Mnuchin, who heads the Treasury Department.

In June, the Treasury Department released its recommendations for regulatory reform. Among them are a wholesale reduction in financial regulations, a decrease in their complexity and greater coordination among regulators.

But there’s only so much the executive branch can do alone. A bill designed to repeal key provisions in Dodd-Frank easily passed the House in June and is now in the Senate’s hands. Because it will need to clear a 60-vote threshold, a clean repeal bill looks unlikely, but relief of any kind is better than none.

Abrasive as his style may be, Trump is our greatest hope right now in bringing sensible reform to our complex tax code and regulatory infrastructure.

Looking Ahead to 2020

The Democrats might very well take a page out of the Republicans’ handbook and put up a similarly confrontational, in-your-face candidate in 2020. Right now I can think of no one more fitting of that description than Massachusetts senator Elizabeth Warren. A Democratic Socialist cut from the same cloth as Bernie Sanders, Sen. Warren can be every bit as much a bully as Trump. If you’ve seen her grill someone during a Congressional hearing, you’ll know what I’m talking about.

But whereas Trump supports free markets and business-friendly policies, I believe a President Warren would usher in a new age of punitive taxes and regulations on steroids. Instead, businesses need blue dog Democrats, those with a more conservative voting record, who better understand the need for free markets and a healthy economy.  

As I’ve often said, it not the politics that matter so much as the policies. I support the candidate who makes it easier for Americans to conduct business and create capital. Sen. Warren has many admirable qualities, I’m sure, but her socialist, far-left ideology would be devastating to businesses and investors alike.  

Worried about geopolitical uncertainty? Now might be a good time to consider an allocation into gold stocks!

 

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 6/30/2017.

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Exclusive Interview (Part II): Alex Green on the Biggest Threat We Face
August 22, 2017

Below is the second and final part of my exclusive interview with distinguished financial writer Alex Green of the Oxford Club and Investment U. You can read the first part by clicking here.

Do you look at cycles?

The thing about cycles is they’re so obvious when you’re looking in the rearview mirror. “This cycle peaked here, this one peaked there.” It’s difficult, though, when you’re looking forward. There’s nothing but a blank slate ahead of you to know when these cycles are going to start and when they’re going to end. So I’m not a great analyzer of cycles—I’ve never really met anybody who is—but you can learn a lot by looking back at them.

People think we’re just going to have this Goldilocks economy and rising share prices as far as the eye can see, but history shows that it’s going to end at some point. Every bull market’s followed by a bear market. That’s okay because every bear market’s followed by another bull market. I think predicting when this might happen, though, is a mug’s game.

The quant world has really shaken up the stock market. Quant traders tend to be highly leveraged, and when they pick stocks, they might be looking out only four or five days.

Well, I don’t do any of that myself, and when you’re looking at timeframes, four or five days is really short. It’s more like gambling than trading. Stock prices in the very short term are random. This is what a lot of day traders learned the hard way years ago. Obviously when the market’s in a broad uptrend, you can hop in in the morning and out in the afternoon and clip a few cents a share. And I’m not talking about the high-frequency traders, who are using a technological edge to just vacuum up nickels and dimes all day long. That’s a proven way to make money, provided you have the lightning speed necessary to take advantage of short-term  discrepancies in the market.

But someone buying a stock on Wednesday, only to sell it on Friday? You might as well flip a coin. Of course, you can flip coins in a rising market and bet heads over and over again, and it looks like you know what you’re doing. But when the music stops, that could end very badly.

As a trader, I’m looking out weeks or months. As an investor, I’m looking years ahead. With the Gone Fishin’ portfolio, I’m looking out decades. I think that when you’re only considering the next few hours or days, you’re really a gambler, not a trader or investor.

You met with Sen. Mike Lee of Utah recently. What did you two discuss?

I did meet with Sen. Mike Lee and had lunch with him at the Paris Hotel in Las Vegas. He’s one of the more reform-minded senators. Like everybody else, I’m so frustrated with Washington. I’m neither a Democrat or Republican. I’m just somebody who’d like to see the free markets prosper, as well as individual liberties and international peace, so I support anyone who shares those values.

What Sen. Lee and I were talking about was this entitlement crisis we’re sleepwalking toward, this ticking demographic time bomb in our country. In 1950, there were 16 workers for every beneficiary of Social Security and Medicare. Today there are three workers for every beneficiary of those services, and in less than a decade, there’ll be only two. You simply can’t tax the next generation at some audacious rate in order to provide these cushy benefits that everyone’s counting on.

I think this is the biggest threat we face. It’s not terrorism or North Korea, or some hostile foreign power. It’s the unsustainable spending that’s going on in Washington. Most people are aware that government debt is $20 trillion right now, which is pretty hefty, but they might not know we have more than $107 trillion worth of unfunded liabilities for Social Security, Medicare and Medicaid. It’s just a stupendous sum.

If you confiscated the net worth of every billionaire in the country, it would barely cover 2 percent of $107 trillion. And yet these liabilities are growing by trillions of dollars a year. I think we face an unfortunate day of reckoning because Washington politicians realize that fiddling with entitlements makes people very angry, especially the people who vote the most, the elderly. Nobody wants to see their benefits delayed, don’t want their benefits cut, don’t want their taxes to go up.

Similarly, no politician wants to take the heat or lose a primary challenge or the next election because they stuck their neck out and did something about this. And so they’re all just kicking the can down the road.

And what about regulations?

Listen, you have to have regulators just as a basketball game needs to have a referee. Otherwise, chaos would break out. But if you watch a basketball game and every time one player touched another and the ref blew the whistle, it wouldn’t be much of a game anymore. That’s where we are, unfortunately.

I would very much like to see legislation that is pro-growth and pro-business. Think about how deregulation has done so much good. I never even took a commercial airline flight until after college. Nobody flew but rich people when I was young. But then they deregulated the airlines, and air travel became much more affordable. When I was in college, I never called home except late on a Sunday night when the rates were lower. Now every kid on campus is walking around gazing into their smartphone, and calls are essentially free as part of the service they pay for.

Compliance costs for all these regulations, coupled with high corporate taxes, are not good for economic growth. They’re not good for hiring or wages or corporate profits. That means they’re not good for the stock market either. I do hope that, before the 2018 elections roll out, somebody in Washington realizes we need to do some of the things that need to be done—lower taxes, fewer regulations and more pro-growth policies.

You regularly write many different newsletters. Can you describe some of them for us?

Most people start with Investment U. You can sign up for our free e-letter. I write two columns a week in that forum, and I generally talk about what’s happening in the markets, why it’s happening, and analyze various issues that face investors today. That’s completely free.

And then if people would like to hear my investment recommendations based on my view of what’s happening in the world, they can join the Oxford Club, which is less than $100. This would entitle you to get a monthly newsletter I write called The Oxford Communiqué.

Beyond that, I have trading services if someone wants to specialize in momentum stocks or value stocks. I have a trading service based on insider buying called The Insider Alert. Insiders obviously have access to material, non-public information that is relevant to the future prospects of the business.

Again, you need to become an Oxford Club member first, and then if you enjoy what we’re doing, you could consider those trading services.

I wish to thank Alex for his time and insight! Be sure to check out his weekly letters, alerts and other services, which I find indispensable in understanding the markets.

 

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