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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.

The Battle of the “Bears”

August 10, 2009

Fighting Bears 081009

If I told you that an investment in California was riskier than Russia, would that surprise you?

Well according to the current prices for 10-year credit default swaps, Russia is less likely to default on its debt than the state of California.

Credit default swaps are basically credit insurance. As the likelihood that a debtor will default on its debt narrows, so does the cost to insure that debt.

As the chart below shows, it costs 278 basis points of the principal amount to insure State of California debt and 268 basis points to insure sovereign Russian Federation debt.

California vs. Russia chart 081009

According to Bloomberg, the cost of credit swaps for 45 developing countries are down almost eight percent in the past five months and this week marks the first time ever the cost of debt for emerging nations is less than their industrialized counterparts.

While developed nations are footing the bill for a bailout of the global financial system the International Monetary Fund (IMF) says could reach $10 trillion, the BRICs (Brazil, Russia, India, China) have accumulated $3 trillion in reserves—43 percent of the worldwide total.

The developing world has learned from past crises and adapted, while California is really just now experiencing and struggling through a significant financial crisis of its own, issuing IOUs, raising taxes and slashing spending to plug a $60 billion deficit. California may be a good proxy for much of the developed world and may be a sign that a significant shift is taking place in the current world order.

This is a very interesting development and should force investors to rethink preconceived notions of risk.

09-553

Net Asset Value
as of 09/28/2020

Global Resources Fund PSPFX $4.71 0.03 Gold and Precious Metals Fund USERX $13.14 0.11 World Precious Minerals Fund UNWPX $5.02 0.09 China Region Fund USCOX $9.33 0.14 Emerging Europe Fund EUROX $5.44 0.01 All American Equity Fund GBTFX $23.65 0.29 Global Luxury Goods Fund USLUX $16.64 0.31 Near-Term Tax Free Fund NEARX $2.25 No Change U.S. Government Securities Ultra-Short Bond Fund UGSDX $2.00 No Change